Alternative Fluid Milk Procurement Systems for the Florida Dairy Farmers

The objective of this study is to analyz.e the effects of alternative fluid milk procurement strategies on the aggregate net revenue of Florida cooperative members. The five alternative strategies in the study are (1) supplemental milk obtained from import sources, (2) Florida production modified by a self-sufficiency plan, (3) supplemental milk obtained from a supply plant, (4) increased supply as a result of an expanded production area, and (5) supplemental milk obtained through pooling arrange~ts with Dairymen, Inc. and Southern Milk Sales. The software that is used to operationalize the models is the General Algebraic Modeling System (GAMS). In the current study, GAMS is used to solve a linear programming model using monthly data for 1992. Given the current conditions in which the procurement scenarios are modeled, the final ranking of a scenario appears to be dependent on the total cost of exports within the model. Scenarios that concentrate on reducing surplus milk generate a higher aggregate net revenue (ANR) for cooperative members than those strategies that are more concerned with reducing the cost of supplemental milk. For example, the import scenario, which is the second best procurement strategy, generates the highest cost of imports and the second lowest cost of exports. On the other band, in the expansion scenario the cost of supplemental milk is substantially reduced from the import scenario, but these cost savings are not enough to offset the additional expenses related to surplus milk disposal. For this reason, the expansion scenario results in the lowest aggregate net revenue for cooperative members. Based on these results, the optimum procurement strategy for Flor;i_da cooperatives should concentrate on reducing the -. . quantity of surplus milk. These conclusions are supported by the levels of aggregate net revenue and cost of imports and exports for each procurement scenario. Of all the procurement alternatives that the Florida cooperatives have available, the optimum procurement scenario is the self-sufficiency strategy. A self-sufficiency plan concentrates on reducing both the cost of imports and exports. By reducing the cost of supplemental and surplus milk, the blend price paid to producers under the self-sufficiency strategy is the highest of any of the alternative procurement strategies. A self-sufficiency plan operating at maximum efficiency results in no imports or exports. With no imports or exports, the self-sufficiency plan could incorporate premiums of $1.57 per hundredweight (cwt.) during flush months and $1.64 per cwt. in months that are deficit. These figures represent maximum premiums based on the results of the study.