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Milk and Dairy Product Maketing

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on 29 April 2014

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Transcript of Milk and Dairy Product Maketing

Milk and Dairy Product Marketing
Kristopher Vine-Carrasquillo
Chapter 24
Although cow's milk is the most popular in many countries, milk can be obtained from many different sources. For example, milk from goats and sheep makes a substantial contribution to the total milk production in countries of Eastern and Southern Europe, Malawi, and Barbados, whereas the water buffalo is a common source of milk in much of Asia. The table below illustrates some of the differences in composition between these milks.
Milk is a perishable commodity and spoils very easily. Its low acidity and high nutrient content make it the perfect breeding ground for bacteria, including those which cause food poisoning (pathogens).
Bacteria from the animal, utensils, hands, and insects may contaminate the milk, and their destruction is the main reason for processing. This preservation of the milk can be achieved by fermentation, heating, cooling, removal of water, and by concentration or separation of components, to produce foods such as butter or cheese.
The degree to which milk consumption and processing occurs will differ from region to region. It is dependent upon a whole host of factors, including geographic and climatic conditions, availability and cost of milk, food taboos, and religious restrictions.
Milk is often regarded as being nature's most complete food. It earns this reputation by providing many of the nutrients which are essential for the growth of the human body. Being an excellent source of protein and having an abundance of vitamins and minerals, particularly calcium, milk can make a positive contribution to the health of a nation. The realization of its nutritional attributes is clearly illustrated by the implementation of numerous 'school milk programes' worldwide.
Facts about milk and milk products.
Farmers have several options in the use of milk:
Feed it to calves
Consume it in the farm household.
Separate it into skim milk and cream and sell the cream only.
Retail the milk directly to consumers
sell the milk to dairy processors.
But today less than 1% of milk is retailed to direct from farm to consumers.
98% of milk produced on farms today enters the commercial marketing channels as whole milk.
Even though the seasonality of milk production is less than it used to be, milk output still varies over the year. Production peaks in the late spring, when cows are on pasture, and reaches a low in the fall.
Milk consumption, on the other hand, is highest in the fall and winter when children are in school.
Coordinating milk supplies with demand is therefore a difficult marketing task because even though cows produce milk everyday, consumers purchase most of their milk at the end of the week.
Some factors that attribute to increasing milk production over the decades are:
Improved equipment and facilities,
artificial insemination,
and improvements in breeding and nutrition have increased dairy productivity.
New technologies such as bovine somatotropin (bST), computerized dairy feeding systems, total mix rations, bypass proteins, and on-farm ultrafiltration
reverse osmosis have also increased milk output and productivity.
Newest technology of milk production

The principal milk product are fluid milk and processed dairy products.
Fluid product includes whole milk, skim and low-fat milk, cream, eggnog, yogurt, and dips.
Processed dairy products are cheese, butter, ice cream, cottage cheese, nonfat dairy milk, whey and evaporated and condensed milk.
37% of all farm milk is sold to consumers in fluid form and 63% in processed forms.
Technology is so advanced that reconstituted milk can be marketed.
Reconstituted milk is a combination of nonfat dry milk, milk fat, and water at a local bottling plant. This product provides substantial economies of transportation and storage. UHT processing of milk results in a fluid product that does not need refrigeration and has a six month shelf life.
"Filled" dairy products and synthetic cheese substitute nondairy ingredients for dairy products.
At one point in time, the country assembly of milk was performed by trucks picking up cans of milk from individual farms for delivery to local milk plants.
This was a costly means of milk marketing because each truck picked up only a pittance of milk for each mile traveled.
The farm milk assembly operation was revolutionized by the development of bulk milk handling systems.
Milk producers installed large cooling tanks on the farms for receiving the milk from the milking machines. The milk is then pumped directly into tank trucks.
The bulk milk delivery system eliminated the laborious loading and unloading of milk cans at the farm and at the dairy plant.
Improvements in transportation facilities and milk handling methods also have enlarged the procurement area of dairy processing plants.
Back then milk markets 30 to 40 miles apart were separate markets. Today bulk milk moves as far as 2,000 miles, and packaged milk may move over 200 miles to market.
Because of this, milk prices and policies in one market are now influenced by potential competition from other markets
Milk Pricing
The farm price of milk is influenced by several factors:

The cost of production and domestic supply of milk.
The consumers demand for milk in its various product forms
The federal government dairy price support programs.
Federal government dairy price support system.
Federal and state milk marketing orders.
Dairy farmer cooperatives
Dairy product import and export policies.
No one of these dominates in the pricing of farm milk. Each contributes in some measure to the complex milk pricing process.
Milk commercials
There are 2 grades of farm milk:
Fluid grade A, which meets strict sanitary standards and is eligible for sale to the consumer as beverage milk.
Manufacturing grade B which somewhat meets lower standards, and is acceptable because it undergoes processing at higher temperatures than pasteurized fluid milk.
Although Grade B milk can only be used in making processed dairy products, such as cheese and butter, Grade A can be, and is, used to produce either fluid products or processed dairy products.
This routing of Grade A milk into processed dairy products provide a "market bridge" between the price of milk used for fluid and processed dairy products.
Milks Values
Milk has different values in its various uses.
Milk that is used for fluid products (Class I) has a higher value than the milk used for processed dairy products (Class II for soft product like ice cream and cottage cheese and Class III for butter, cheese, and nonfat dry milk.)
2 Reasons for this..
First, the retail price of fluid products is higher because it costs more to market highly perishable and bulky fluid milk than it does to market the processed forms of milk, such as cheese and butter.
Second, the elasticity of demand is lower for fluid products than for processed dairy products.
Federal and Milk Marketing Order Program
The farmer price of Grade A milk has been influenced by both the dairy price support program and federal milk marketing orders.
The most important provision are those that regulate the minimum prices that dealers must pay farmers for Class I and Class II for Grade A milk.
The federal milk marketing order program is authorized by the Agriculture Marketing Agreement Act of 1937.
Federal milk marketing provision affect two important pricing decisions. What are the appropriate Class I and Class II prices and how will the average price paid to producers be determined?
Class II market order price is always at or near Minnesota-Wisconsin base price for manufacturing grade milk upgraded by a
basic formula price
Manufacturers located elsewhere cannot pay more than the price of Class II milk and remain competitive with processed products shipped from Wisconsin and Minnesota.
The area with the greatest surplus and lowest price tends to set the national farm price of Class II milk.
Class I market order price east of the Rocky Mountains is determined by adding a Class I differential to the Class II milk price in each market order area.
This differential represents the cost of transporting bulk milk from surplus area to each market order area.
Federal milk marketing order areas
Continued ...
There is still the problem of determining the farmer's price of milk in each market, where some milk is priced at the Class I level and the other milk at the Class II level.
Under the term of federal milk marketing order, the farmer is paid a
blend price
for milk regardless of how dealers use that milk.
The blend price is called the milk is a weighted average of the Class I and Class II price of milk in each market area. In this way, no individual producers will gain or lose because of the way their milk is used.
The actual price of which the dairy farmer receives for milk is called
mailbox price
This differs from milk marketing order blend price as a result of premiums and discounts which individual producers receive for producing milk with higher qualities. Ex. the dairy farmer receives premiums or discounts for the components of their milk, such as butterfat, proteins,or other solid nonfats. This is called component pricing and is an increasing trend in the dairy industry.
Cooperatives' Role in Milk pricing
Farmer dairy cooperatives dominate in the production and assembly of farm milk.
Dairy products count for about 30 percent of total agriculture cooperatives' sales.
More than 80 percent of all dairy farmers belong to dairy marketing cooperatives and dairy cooperative market almost 90 percent of all milk produced.
Cooperatives negotiates prices with dairy processors, sell dairy supplies, and manage surplus milk supplies.
Cooperatives are decreasing and results from the consolation of small, local dairy co-ops into large, regional cooperatives.
Dairy Product trade
There is no foreign trade in fluid milk because of perishability and bulk.
But there is an international market for dairy products such as butter, cheese, dried milk, and casein (protein). Casein is used to make cheese products, coffee whiteners, bakery products, and food.
U.S. dairy products imports are limited through the use of quotas and tariffs.
The U.S., the European Economic Community, Australia, New Zealand, and Argentina are the world's major dairy product exporters. New Zealand, Australia, and Europe are the principle U.S. supplies of casein.
fluid milk channels
During the 1930s over 75 percent of was home delivered seven days a week in quarter sized glass containers.
Because of World War II delivery reduced to every other day.
1950 only 50 percent of milk was delivered to homes, three times a week. Disposable containers were introduced.
1970 90 percent of all fluid milk was sold in grocery stores, and a wide variety of milk container sizes was available.
These trends has saved a lot of money because sales through stores is cheaper than home delivery.
Fluid milk processing is characterized as an oligopolistic industry, which means there are few sellers and as a result they can greatly influence prices and other market factors.
The number of fluid milk companies is continuing to decline.
Most dairy companies perform their own distribution functions. They include milk delivery to grocery stores, restaurants, and institutions.
Got milk --->>> Milk life
Processed dairy products, such as cheese and butter, are less bulky and perishable than fluid milk. Thus means they can be produced near areas of concentrated milk production and shipped to distant markets.
Minnesota, Wisconsin, and California account for a large share of U.S. butter and cheese production and nonfat dry milk production.
Processed dairy products can influence their marketing and pricing patterns.
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