It is Expensive to Transport Milk. But Much of Fluid Milk Must Travel.

In the June 19 post to this blog, the trends in sales of fluid milk sales were covered.  The decline in fluid milk sales was between three and four percent annually.  It is expensive to move milk around because it is mostly water.  The perishable nature of fluid milk adds to the complications.  This post will review the movement of fluid milk to satisfy demand in the U.S.

In a declining market, which fluid milk is, building new plants can only make sense if they reduce costs.  There is no good reason to build a new processing plant based on increased demand.  In this analysis, a two percent shrinkage between production and sales is used.  What is shrinkage?  The shrinkage can come from damage, out of date product, stealing, and other events.  Not all the milk produced gets sold.

The Map below shows where the Federal Orders are located.  The USDA collects data on sales and production of fluid milk in each Federal Order.  When they provide an estimate of total U.S, fluid milk sales, they make the calculation based on the assumption that 92 percent of fluid milk is produced and sold within the borders of the Federal Orders.  The other eight percent of sales comes from areas where there are no Federal Orders. This assumption has been used for some time.

Map of the Federal Milk Marketing Orders

Some Federal Orders make fluid milk in excess of the needs in their Federal Order.  Other Federal Orders have a shortage of production compared to sales.   The table below shows where and by how much each Federal Order has a surplus or a shortage.  The Orders with large shortages are the Southeast, Florida, and the Upper Midwest.  The Southeast and Florida Orders are contiguous, so that increases the need for milk in that area of the U.S.  The Southwest Federal Order is also short of fluid milk to match sales, so the demand in Florida, the Southeast, and the Southwest Orders must be covered with milk from the Central and Appalachian Federal Orders.  Some of that milk must travel a long way.

The Upper Midwest is so centered on making cheese that 20 percent of their fluid milk must come from the Central or other Federal Orders.  

The Orders with a surplus amount to 3,954 million pounds or nine percent of the total U.S. fluid milk production.  The Orders that have a shortage amount to 2,626 million pounds or six percent of the total U.S. fluid milk.

Sales and Production of Fluid Milk 
Millions of Pounds

The Class I differential is intended to cover the cost of moving milk to the populated areas for processing.  However, after processing (eg, bottling), the processor, or his customer, is responsible for delivery charges.

Therefore, if the milk is processed in South Carolina, getting it to a store in Florida is an added expense.  The Federal Order system was intended to assure that milk was available in the cities, not for fulfilling shortages in some areas that do not process adequate milk.  The current system may present efficiencies that could provide a more cost-effective avenue for fluid milk.

The Federal Milk Marketing Orders were developed to bring raw milk to the cities where it could be processed and sold.  It was intended to assure that milk was available in the cities where there were no cows.  Today, it is hard to imagine a grocery store that does not carry milk.  If a store did not carry milk, it would probably go out of business.  It would be like a store that did not carry bread.  If the basic foods are not offered, people would not shop there.

When one compares the intended purpose of the Federal Orders to the present situation, the needs are different.  Today, bottled milk must be moved long distances to assure that Florida, clear down to Key West, always has milk on the shelves. Small local fluid milk processors are not a part of today's diary landscape.

That of course brings into question, what would fluid milk production, processing, and distribution be like without the Federal Orders?  Would all grocery stores still carry milk?  Would the logistics of moving milk be different and more efficient.  The quality of the milk is the responsibility of the FDA, so that should not change.