Pubs & Podcast --> Cost of Processing-->December, 2021

We have conducted cost of processing studies in the dairy industry for more than 30 years. While this is not an all inclusive list of those projects, there are links to the last 3 studies which include data summaries for cheddar cheese, butter, nonfat dry milk and dry whey plants. If you have questions about the current (2021) summary, please feel free to submit those with an email to the author with subject line "COP Question". Responses will be posted on a FAQ page below.

New summary of Cost of Processing in plants, 2021
Old summary of Cost of Processing in plants, 2007
Old summary of Cost of Processing in plants, 2006


Frequently Asked Questions

Q) The total number of plants seems different in Table 2 than the sum of the plants listed in the cost Tables 5 & 6. Can you explain the difference?

A) Let me try to clarify the use of the word "Plant". A single plant may produce multiple products at the one location, however I have counted the same location producing butter and nonfat dry milk not as one plant, but two—one for each product reported. The tables show the number of plants making the reported products. Table 2 counts all of the plants that have submitted data but there were two respondents which had unanswered questions about their data that were not included in the final tabulation. Both were butter-powder plants which is why Table 2 differs from Tables 5 & 6.

Q) Can you explain the columns in tables 5 through 8. Especially, what are the "Product Pounds".

A) For all of the plants processing a given product, like nonfat dry milk, the total cost per pound for each plant was ordered from lowest to highest. Then, the plants were split into the 50% lowest cost group and 50% highest. If there was an odd number of plants in the data, then the extra middle plant was assigned to either the lowest or highest group depending on a natural break in the data--i.e., whichever group it was most closely associated with. The other colums in the tables all followed the sorted plants based on total cost of production.

The Product Pounds was the simple average of the finished product produced annually for the plants in each group. The costs for Labor, Utilities, etc., were the weighted average of the same plants in each group.

Q) I notice that the butter processing costs are less than the current make allowance and less than your 2007 study. Can you explain why that might be the case.

A) First of all, you would be best to compare this study with the 2006 one and not the 2007 version. The 2007 study was an update of the 2006 study and only included a subset of plants from the 2007 study. Those results were compared to a subset of the same plants in the 2006 study for a percent change in costs in the same plant. This was done at a time when energy costs had escalated quite rapidly and the objective was to look at the impact of those costs on the plants.

In the 2006 study, the weighted average cost of processing in butter plants was about 11¢, and in the current 2021 study, the weighted average cost was about 14¢. So, in fact, the costs have increased. This is the best comparison that I can make, but there are 3 things that might explain why costs didn't change by more than you may have expected. First, this is a different group of plants than participated in the 2006 study, so their costs would expect to be somewhat different. Second, I used a degree of product transformation in this study which wasn't used in the 2006 study. This would not change the total costs in a butter-powder plant, but it would change the allocation of costs between butter and nonfat dry milk powder. I believe that this is a better methodology and could mean that these results are more accurate than the 2006 study. I.e., the earlier study may have over-allocated butter costs and under-allocated powder costs. The final possibility is that plants may have invested in additional automation at the churn taking some labor, and possibly utility costs out of the butter making process.