Added investment in Pennsylvania’s dairy processing sector could generate $36m per year, new study shows

By Mary Ellen Shoup contact

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"Having a cheese plant located near the source supply makes obvious economic sense," a professor of agricultural economics at Cornell University, says. ©GettyImages/joakimbkk
"Having a cheese plant located near the source supply makes obvious economic sense," a professor of agricultural economics at Cornell University, says. ©GettyImages/joakimbkk

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Additional investment in dairy processing in the state of Pennsylvania could generate up to $35.7m annually in combined revenue and cost savings, a new study by the Pennsylvania Department of Agriculture and Center for Dairy Excellence shows.

“Pennsylvania has been a leading dairy state, but going back a couple decades or so its leadership role has really floundered,”​ Andrew M. Novaković, PhD, professor of agricultural economics at Cornell University’s Dyson School of Applied Economics and Management, and study author, told DairyReporter.

Part of the state’s struggle has been the lack of in-state milk processing and dairy products manufacturing. Historically, nearly all of its milk has been shipped to states such as New York and New Jersey to be processed and made into finished products.

“Pennsylvania is one of the few major dairy states that are net exporters of raw milk,”​ Dr. Mark Stephenson, PhD, director of dairy policy analysis at the University of Wisconsin Madison and study author, said.

Pennsylvania exported nearly 2.5m lbs of milk in 2016 that went into manufacturing finished dairy products in other states.

Using a spatial economic model of the US dairy sector, the results showed that investment in two dairy plants in Pennsylvania would bring the state millions of dollars in additional revenue and slash transportation costs.

“Having additional dairy processing in the state would markedly increase the marginal value of milk produced in Pennsylvania now being shipped out-of-state. That would generate economic benefits for the state, while enhancing the marginal value of milk for Pennsylvania dairy producers by about $28.8m annually, according to our findings.”

An investment in dairy processing would also reduce hauling costs for Pennsylvania dairy producers, with the Reading and State College plant scenarios proposed in the study reducing hauling costs by an estimated $5.9m per year.

The combined estimated returns generated by the increased marginal milk value and reduced hauling costs would support a plant investment of about $433m per year, according to the study.

Specialty cheese investment

The model found that investing in two dairy plants with processing volumes of 4m lbs of milk per day, and producing non-American varieties of cheese (Italian and specialty cheeses), would result in the largest reduction of supply chain costs.

“Based on our findings, an investment in two cheese plants – one in the State College area and one in the Reading area – may result in the largest reduction in supply chain costs, offering the strongest incentives for the new processing capacity,”​ said the study’s three authors.

Italian and specialty cheeses accounted for more than 75% of the overall increase of $921m per year in the value of dairy products processed in Pennsylvania.

In addition, the model suggests that the cheese processing industry has not kept up with the market demand for specialty cheese varieties.

“Part of what the model is saying is that the milk supplies farther north are really being pulled more in the direction of serving the fluid milk industry,”​ Novaković said.

“Pennsylvania is sitting at a pivot point of where it maybe has an opportunity to sell some product and serve some markets.”

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