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Summary

"Development and application of the Milk Processor Optimisation Model for analysing economic implications of supply seasonality and quota removal on Ireland’s milk processing sector". PhD thesis. Dublin, Ireland: University College Dublin (UCD)


Heinschink, K.

2014-09-30

In this thesis titled "Development and application of the Milk Processor Optimisation Model for analysing economic implications of supply seasonality and quota removal on Ireland’s milk processing sector", likely economic effects of milk intake seasonality and milk quota removal on an average Irish milk processing enterprise are analysed. The Milk Processor Optimisation Model (MPOM) was developed to maximise the gross surplus of a multi-product (liquid milk, butter, cheddar, casein, whole milk powder, skim milk powder, whey powder, lactose) firm and assuming a multi-period (twelve months) planning horizon. Three alternative milk intake patterns (Baseline, Smooth, Seasonal) were imposed with the intention of carving out seasonality-incurred effects in a quota-constrained (Q-) and a quota-free (NoQ-) setting with an annual raw milk pool of 273,746 tonnes and 410,621 tonnes (+50%), respectively, and subject to differing product price data sets. The MPOM was deemed particularly suitable for this task due to ist built-in dynamic storage module. Key results included (a) utilisation of intake, output, labour capacities; (b) the optimal product mix, sales, stock; © the financial statement; (d) a report on seasonality costs and € marginal values of the milk solids FAT, PRO and LAC as well as the marginal producer milk price. Sensitivity analysis was carried out to test model behaviour and results.

Smooth was without exception more resilient against product price reductions and fluctuations and more profitable to the processor than Baseline and Seasonal in all scenario clusters. When switching from a seasonal to a smooth raw milk intake profile (NoQ-Smooth-CBP) the processor surplus increased by €c2.21 (relative to NoQ-Baseline-CBP) or €c3.26 (relative to NoQ-Seasonal-CBP) per kg of raw milk in a quota-free environment. The associated farm-level costs were not modelled, however it may be the case that the processor’s benefit from a smoother milk intake curve is offset by extra costs arising to the milk producer. From an economic viewpoint, the reduction of milk supply seasonality is favourable only if the benefits of a smoother milk intake curve arising to the processor surmount the costs incurred for the dairy sector, representing producers and processors, as a whole.