Development and application of a processing model for the Irish dairy industry

A processing-sector model was developed that simulates (i) milk collection, (ii) standardization, and (iii) product manufacture. The model estimates the product yield, net milk value, and component values of milk based on milk quantity, composition, product portfolio, and product values. Product specifications of cheese, butter, skim and whole milk powders, liquid milk, and casein are met through milk separation followed by reconstitution in appropriate proportions. Excess cream or skim milk are used in other product manufacture. Volume-related costs, including milk collection, standardization, and processing costs, and product-related costs, including processing costs per tonne, packaging, storage, distribution, and marketing, are quantified. Operating costs, incurred irrespective of milk received and processing activities, are included in the model on a fixed-rate basis. The net milk value is estimated as sale value less total costs. The component values of fat and protein were estimated from net milk value using the marginal rate of technical substitution. Two product portfolio scenarios were examined: scenario 1 was representative of the Irish product mix in 2000, in which 27, 39, 13, and 21% of the milk pool was processed into cheese (€ 3,291.33/t), butter (€ 2,766.33/t), whole milk powder (€ 2,453.33/t), and skim milk powder (€ 2,017.00/t), respectively, and scenario 2 was representative of the 2008 product mix, in which 43, 30, 14, and 13% was processed into cheese, butter, whole milk powder, and skim milk powder, respectively, and sold at the same market prices. Within both scenarios 3 milk compositions were considered, which were representative of (i) typical Irish Holstein-Friesian, (ii) Jersey, and (iii) the New Zealand strain of Holstein-Friesian, each of which had differing milk constituents. The effect each milk composition had on product yield, processing costs, total revenue, component values of milk, and the net value of milk was examined. The value per liter of milk in scenario 1 was 24.8, 30.8, and 27.4 cents for Irish Holstein-Friesian, Jersey, and New Zealand strain of Holstein-Friesian milk, respectively. In scenario 2 the value per liter of milk was 26.1, 32.6, and 28.9 cents for Irish Holstein-Friesian, Jersey, and New Zealand strain of Holstein-Friesian milk, respectively.