Significant economies are possible under optimum organizations of the U. S. dairy industry, but models that minimize industry costs with a single firm in each market overestimate the potential savings. The effects of market-share restrictions for processing firms are estimated. Costs are higher than under single-firm organizations but remain below levels for the current plant-size environment. The major interregional effect of the restrictions is on the regional identity of the firms processing milk for local markets, not on the total quantity of milk transported between regions. With market-share restrictions, more milk is processed locally. subject to the constraints:(2) LXi} = D;(3) LXk i s s. i (4) LSk 2:: L: o, k (5)x.. and Xi}~0where TC = total costs for the assembly, processing, and distribution of milk for fluid consumption;Xi; = quantity of processed milk shipped from processing area i to demand area j; Cij = per unit distribution cost of shipping processed milk from processing area i to demand esee j; model [11] and determines the optimum number, size, and location of processing plants that will minimize assembly, processing, and distribution costs. A similar model was used with restricted spatial monopoly by Bobst and Waananen [1]. Separable programming is one technique for extending Martin's model to permit consideration of the size economies. Crowder [5] used the separable programming technique in a production-distribution model designed for a study of a closed Oklahoma dairy economy. Crowder's basic model is employed in this study. The model in equation form has the objective:p m + L: L: TkiXki k=1 i=1 n m m Minimize TC = L L cux;(1) L AST -COST LOCATION of agricultural processing industries can be approached through relatively simple models. Many of the more interesting questions, however, require results from more complex models which utilize assumptions, market definitions, and market restraints that approximate more closely the actual market environment. The purpose of this article is to report the development of a fairly realistic model and its application to the dairy industry of the United States.It assesses the effects on total costs and interregional flows of milk under alternative degrees of market concentration when economies of size of processing plants (not requiring constant marginal processing costs) are permitted.Three levels of market concentration are specified. "Model A" permits only a single firm in each market, and references to this model will be in terms of unrestricted plant sizes. "Model B" involves specific maximum relative sizes of plants for each market. Generally two or more plants serve each market, and references will be in terms of a restricted plant-size environment. "Model C" is an approximation of the existing plant-size environment but is estimated by a less sophisticated model using estimated average processing costs for each area. The ModelThe production-distribution model formulated by Martin [10] is used as the beginning point for Models A and B. Martin's mode...

Changes occurring in the dairy industry necessitate modification of the pricing system for fluid milk. Alterations in the present federal order pricing system, however, will not only affect the level of producer and consumer prices but also have different regional impacts.

No abstract

Incentives to transfer mflk from one surplus market to another exist under current price alignment. Lower location differentials reduce these incentives. Milk shipments not needed for fluid consumption increase total costs with net benefits accruing primarily to the transportation industry and to some producer groups at the expense of others.

No abstract