Department of Food Business and Development
Discussion Paper Series
The Cost and Efficiency of Milk Transport from Farms in Ireland
By
Carrie Quinlan, Michael Keane, Pat Enright and Declan O Connor
Agribusiness Discussion Paper No. 46
September 2005
Department of Food Business and Development
University College, Cork
Ireland
Ollscoil na hÉireann, Corcaigh - National University of Ireland, Cork
1
The Cost and Efficiency of Milk Transport from Farms in Ireland1
Abstract
Increasing competition and globalisation of markets is leading to ongoing
rationalisation in the global dairy industry. The structure of the dairy industry in
Ireland is also changing. The number of milk producers is declining and dairy
companies are consolidating their operations in terms of numbers and sizes of dairy
processing plants. Milk transport represents a significant cost in the dairy industry and
fewer and larger processing plants will lead to increased transport costs.
The
objective of this study was to contribute to the debate on dairy industry rationalization
by establishing the cost of milk transport in Ireland by means of a survey of Irish
dairy processors. From the survey the weighted average milk transport cost in the
Republic of Ireland was estimated to be 5.15 cent per gallon (1.15 cent per litre).
These costs ranged from 3 to 9 cent per gallon with 4 of the 16 respondents reporting
a cost of less than 4 cent per gallon. Thus milk transport costs, estimated to be in
excess of
57 million per annum, represent a significant element of dairy industry
costs in Ireland. Milk transport costs in Ireland vary due to many factors including the
size and location of suppliers and dairies, pumping rates on the farm and at the
processing plant, efficiencies of the milk transport fleet, seasonality and frequency of
collection. Frequency of collection was mostly alternate day at peak, two or three
times a week off-peak, and twice a week at trough. There was no correlation between
the size of dairy in terms of volume of overall milk intake and milk transport cost.
The detailed results indicate areas where there may be scope for savings in costs to
the benefit of milk suppliers and processors.
1
The support of the Irish Dept. of Agriculture and Food Stimulus Fund in preparation of this paper is
gratefully acknowledged.
2
Section I: Introduction
1.1 Background
Milk transport is an important cost component of the dairy sector. It involves the
transportation of a bulky, perishable liquid collected from many spatially separated
farms to centralized processing plants. Thus the achievement of high levels of
efficiency in milk transport can be of major benefit to milk suppliers and processors.
As milk transport economics in Ireland has received very little analysis in recent
years, it was considered desirable to study its current status, efficiency and cost be
studied. This was considered to be of particular relevance given the active debate on
Irish and international dairy industry rationalisation over the last few years,
Prospectus (2003), Henchy (2003), Jansen 2004, DIN (2005).
Data used to estimate milk transport costs were collected by the use of a questionnaire
sent to transport managers in the Irish dairy processing Industry. A similar survey was
conducted in 1996 (Shanahan, 1996), so this survey also provides an update on milk
transport costs.
1.2 Milk Transport and Economic Principles
Ex-farm milk transport may be defined as the complete set of activities involved in
transporting milk from farms to factories. While the term milk assembly is sometimes
used, this is more commonly defined to include also the milk storage activity at farm
level, as well as milk transport. Milk transport is subject to the principles of transport
economics, where the primarily concern is the relationship between cost and distance.
The general relationship between length of haul and cost of transport may be called
the transfer cost function. If one takes a central processing point (or market),
surrounded by raw material (or product supplies), scattered over a uniform, flat
geographic area where travel in every direction is equally feasible, the transfer cost
function normally has a characteristic shape. This involves cost increasing with
distance but at a decreasing rate. Where cost increases with distance at a decreasing
rate, the resulting isocost contours are concentric circles with radii that increase at an
increasing rate, (Fig 1.1). The isocost contours are drawn to represent equal
increments to transfer cost from one contour to the next. Thus in the cross sectional
view the distance between D1 and D2, D2 and D3, etc becomes greater and greater,
reflecting the increase in cost at a decreasing rate.
3
Figure 1.1: Length of haul to market centre
Plan View
Isocost contours
R
T1 T2
T3
T4 S
Cross-sectional view
T4
T3
Transfer cost function
T2
T1
R
D4
D3
D2 D1 0 D1 D2
Length of haul to market centre
Source: Bressler (1970)
4
D3
D4
S
With regard to milk transport specifically, there are six separate activities normally
involved, Keane (1986):
a)
Transport Driving; this involves the time spent in driving from plant to first
farm and from last farm to plant (figure 1.2).
b)
Assembly Driving; this involves time spent driving between farms on the
route (figure 1.2).
c)
On-Farm Routine Activities; this includes time spent on activities such as
attaching hose, agitating milk, sampling, rinsing tank, paperwork, on farms.
d)
On-Farm Pumping; this depends on pumping rates
e)
Plant Non-Pumping; this includes tanker washing, waiting time, office
activities and meal times for drivers.
f)
Plant Pumping; this depends on the plant pumping rate
Figure 1.2: Illustration of milk transport
Assembly driving
2nd
1st
4th
3rd
5th
9th
7th
6th
8th
10th
Transport
Driving
Plant
Many changes have occurred in the Irish dairy industry over time that affect transport
costs. In particular, the major change in the number and average size of dairy farms
(Fig 1.3). Other relevant changes include fewer and larger milk processing plants,
larger milk tankers and faster pumping rates. These have resulted in changes in both
overall costs and the proportion of costs accounted for by the different components of
transport which are discussed in detail later.
5
Fig 1.3: Number of Suppliers and Average Quota Held 1996/7 to
2003/4.
50000
250,000
45000
40000
200,000
30000
Litres
150,000
25000
20000
100,000
15000
50,000
10000
5000
Quota Year
Average milk delivery per producer
4
03
/2
00
3
20
02
/2
00
2
20
20
01
/2
00
1
00
20
00
/2
19
99
/1
98
19
/2
00
9
99
8
99
19
97
/1
99
/1
96
19
0
0
7
0
Producers
Source: Dept of Agriculture and Food, Dublin.
Section 2: Research Objectives and Methodology
2.1 Research Objectives
The research objectives were as follows:
•
To determine the current status of milk transport from farms to dairies
in Ireland in terms of overall cost and variation in cost by size of
company and region.
•
To investigate the effect of the changing structure of the production
and processing sectors on milk transport costs.
•
To consider a range of factors that affect efficiency in milk transport.
These factors include frequency of collection, milk tanker type and
milk pumping rates.
•
To compare the survey findings with the results of a previous survey
which was conducted in 1996.
6
Farms
35000
2.2 Research Methodology: Questionnaire
A postal survey was conducted with questionnaires sent to twenty milk transport
managers in the Republic of Ireland. The twenty transport managers represented
virtually all the dairy industry in milk intake terms, with just a few small dairies not
represented. The five sections of the questionnaire, each having its own series of
questions, were:
a) Overall milk transport cost estimates
b) Milk supply information
c) Information on the milk transport fleet
d) Milk transport components
e) Specific cost information
Responses were received from 16 transport managers, including respondents from all
the larger dairies. Thus the survey results are estimated to reflect the milk transport
situation of about 92% of the current dairy industry in milk intake terms. All
questionnaires returned were completed in great detail with very few missing answers.
Section 3: Results
3.1 Milk Transport Cost Estimates (Farm to Factory)
The overall average milk transport cost in the country was estimated in two ways;
a) Accumulation of information on specific company costs.
b) Opinions of respondents on the national average cost.
a) Specific Company Costs
Based on specific company costs, the weighted national average milk transport cost
was 5.15 cent per gallon2 (1.13 cent per litre) or about 57 million per annum (Table
3.1). Hence any savings achieved in reducing milk transport costs are very significant.
2
Costs are expressed in the first instance in cent per gallon terms as this is the expression normally
used in the industry as reflected in the survey. However costs in cent per litre terms are also widely
used in this paper.
7
Table 3.1: National milk transport levels based on specific company costs
Cent per litre
Cent per gallon
Simple average
1.15
5.23
Weighted average
1.13
5.15
Difference between North and South
0.09
0.41
North versus South
Company information provided in the survey was confidential, hence only broad
indicators of cost variation in terms of size of dairy or region is provided in the
report.. When respondents were divided into ‘North’ and ‘South’ based on milk
catchment areas, the transport cost for the “North” group of dairies was on average
0.41 cent per gallon (0.09 cent per litre), or about 8% higher than the “South” group
(Table 3.1). This difference reflects the lower milk density and smaller supplier size
in the northern part of the country as discussed later.
Cost Variation
The distribution of milk transport costs among dairies shows that at one extreme four
dairies had costs below 4 cent per gallon, while three dairies had costs above 6 cent
per gallon (Table 3.2). About 87% of the total milk volume of survey participants had
transport costs between 4 and 6 cent per gallon.
Table 3.2: Distribution of milk transport costs
Cent per
No. of
Simple
Weighted
% of total
gallon
Processors
Average
Average
milk volume
<4
4
3.67
3.67
4
4-4.99
4
4.64
4.63
59
5-5.99
5
5.37
5.7
28
>6
3
7.88
7.57
9
16
100%
b) Opinions on National Average
As well as milk transport costs in their dairy, respondents were also asked for their
opinion of the national average. All respondents replied to this question, thus
8
providing another means of determining a national average figure. The national
weighted average transport cost on this basis is 6.32 cent per gallon (1.39 cent per
litre, Table 3.3). This higher estimate compared with the weighted national average
of 5.15 cent per gallon (Table 3.1) probably reflects the belief among individual
transport managers that they are doing a good job generally relative to the national
situation. Views on the national average vary widely, ranging at the extremes from 4.2
cent per gallon (0.92 cent per litre) to 10 cent per gallon (2.2 cent per litre), Table 3.3.
Table 3.3: National milk transport levels based on the opinions of respondents
Cent per gallon
National average
6.32
Distribution of responses, cent per gallon
4.0 – 6.0
6.0 – 8.0
8.0 –10.0
5
5
2
--------12
4
16
Total respondents providing estimate
not known
Total
3.2 Milk Transport Costs- Changes over Time
As mentioned previously a similar survey on milk transport was completed in 1996
(Shanahan, 1996). This survey represented about 80% of the industry in milk intake
terms at that time. Comparing the two survey results it is estimated that weighted
average milk transport costs have increased by 0.35 cent per gallon (0.08cent per litre)
or just 7% over 8 years (Table 3.4). This modest increase is much less than inflation
rates generally, with inflationary pressures being counteracted by improved efficiency
in many aspects of the milk transport activity over the years. This is discussed later.
Table 3.4: Milk transport costs based on surveys of dairies
1996
Cent per gallon
2004
Cent per gallon
Simple average
4.57
5.23
Weighted average
4.80
5.15
9
The component costs of milk transport
Twelve responses were received to a question which sought information on a specific
breakdown of costs into its main components, labour, overheads and running costs.
Labour includes overtime and allowances, overheads include tanker depreciation, tax
and insurance while running costs include fuel, maintenance and repair. In general,
using simple averages, about 52% of costs are accounted for by labour, 29% by
running costs and 19% by overheads (Figure 3.1). There was no specific relationship
between the detailed cost breakdown and the size of dairy in terms of milk intake.
Fig 3.1: Breakdown of Transport Costs %.
29%
Labour
52%
Overheads
Running Cost
19%
Some changes in the cost breakdown were identified when compared with the earlier
survey in 1996. In that survey labour accounted for about 45% of the costs, overheads
17.5%, running costs 32% and other costs 5.5%. The major change in the present
survey is an increase of 7% in the proportion of costs accounted for by labour,
presumably reflecting the proportionately greater increase in wages during the period
of the two surveys.
3.3 Factors influencing milk transport costs
The following are some of the main factors affecting milk transport costs in Ireland:
a) Milk suppliers: Number, size and location
b) Milk Processing sector: Number, size and location of plants
c) Milk transport efficiency factors
i.
Seasonality
ii.
Milk tanker fleet
iii.
Frequency of collection
iv.
Pumping rates
10
Questions were asked about all of the above.
a) Milk Suppliers: Numbers, Size and Location
There has been a continual decline in the number of farmers involved in milk
production in Ireland. The numbers fell by about 42% between 1996/7 and 2003/4
(Table 3.5). Given that the Irish milk quota as agreed at EU level has remained more
or less unchanged for many years, average milk deliveries per supplier have
correspondingly increased by about 75% in this period (Table 3.5). From a milk
transport cost viewpoint, the reduction in numbers and increase in size of milk
suppliers leads to lower costs and a more efficient transport operation.
Table 3.5: Changes in structure of milk production
Milk Quota
Year
1996/1997
1997/1998
1998/1999
1999/2000
2000/2001
2001/2002
2002/2003
2003/2004
Number of
active
milk producers
43450
40187
38295
32475
29076
27814
26623
25212
Milk deliveries
per annum
(million litres)
5,144
5,105
4,944
4,973
5,012
5,184
5,036
5,200
Average milk Average milk
delivery per
delivery per
producer
producer
(million litres) (index)
118,389 100
127,031 107
129,103
153,133
172,376
186,381
189,160
206,251
109
129
146
157
160
174
Note: The milk quota year runs from 1st April to 31st March.
Source: Department of Agriculture and Food, 2003/4
The location of dairying in Ireland was discussed in detail by Lafferty (1999) who
presented some very detailed maps at county and rural district levels. In summary
there are two main dairying regions in the State, the south-west and the north-east
(which extends into parts of Northern Ireland). The south-west dairying region
includes north and east Kerry, almost all of Cork and Limerick and substantial parts
of Tipperary, Waterford and Kilkenny, as well as south-east Clare. Almost 70% of the
dairy herd is located in the South-West, Mid-West and South-East regions. The northeast region includes the Cavan-Monaghan area. While both the main dairying regions
are important, there are substantial differences between them in terms of scale and
11
intensity of production with dairy farms in the south-west being the larger and more
intensive producers (Lafferty et al, 1999).
Impact of structural changes in milk production on milk transport costs
The breakdown of the total transport activity into its six components as outlined in
Fig. 1.2 earlier provides some valuable insights into how the structural changes at
producer level as discussed above can affect milk transport costs.
As supplier size increases and supplier numbers are reduced, milk transport costs are
correspondingly reduced. The saving arises primarily in relation to assembly driving
and on-farm routine activities. As discussed in a previous study (Keane, 1986), a
doubling in supplier sizes would result in an approximate halving in on-farm routine
activities, and could also result at an extreme in an approximate halving in assembly
driving, depending on surviving supplier locations (see fig 3.2, 3.3).
12
Figure 3.2: Transport driving and assembly driving
Assembly driving
2nd
4th
3rd
1st
5th
9th
7th
8th
6th
10th
Transport
Driving
Plant
Figure 3.3: Transport driving and assembly driving: Farm supply doubled
Assembly driving
2nd
4th
3rd
7th
6th
Transport
Driving
Plant
In order to estimate the likely effect of increasing supplier size on transport costs it is
necessary to estimate the proportion of total costs accounted for by the six cost
13
components of transport. Following a procedure adopted by Keane (1986) it has been
estimated that assembly driving and on-farm routine activities account for about 50%
of total costs under current conditions, i.e cost components b) and c) in Table 3.5 and
Fig 3.4 . On this basis, the approximately 75% approx. increase in supplier sizes
between 1996 and 2004, with corresponding reduction in supplier numbers of 42%
(Table3.5) , could have the effect of reducing milk transport costs at the extreme by
about 20% or 1.0 cent per gallon (0.22 cent per litre). This should be taken as a
maximum estimate as it is dependant on ideal locations of surviving suppliers leading
to substantial reductions in assembly driving as depicted in Fig. 3.3.
Table 3.6: Breakdown of Transport Costs %
Capital
Labour
Running
Weighted
Average
a) Transport Driving
5.13
14.04
16.24
35.41
b) Assembly Driving
7.60
20.80
12.76
41.16
c) On-Farm Routine
2.66
7.28
-
9.94
d) Farm Pumping
1.90
5.20
-
7.10
e) Plant Non-Pumping
1.33
3.64
-
4.97
f) Plant Pumping
0.38
1.04
-
1.42
19.00
52.00
29.00
100
Total
Figure 3. 4: Breakdown of the six components of milk transport
10%
42%
7%
5%
1%
Transport Driving
Assembly Driving
On-Farm Routine
Farm Pumping
Plant Non-Pumping
Plant Pumping
35%
14
b) Structure of Milk Processing Sector
There was a major wave of dairy cooperative amalgamations in Ireland in the 1970’s
associated with EU membership. The fragmented nature of these amalgamations
between dairies lead to irrational catchment area patterns in many cases (Shanahan,
1998). In both milk intake and geographic terms, the Irish dairy industry is dominated
by three large processors (Glanbia, Dairygold and Kerry Group) located adjacent to
each other in a band running through mid-Munster and south Leinster which is the
heartland of dairy farming in Ireland. Many of the larger processors have more than
one processing site in this region, with liquid milk plants also located close to, or in,
the main urban centres. Of the other dairying regions, the North-East is also an area of
intensive dairy farming with milk supply mainly going to Lakelands Cooperative, a
dairy of roughly similar size to Dairygold and Kerry Group in milk intake terms if its
Northern Ireland intake is included. Connacht Gold Cooperative collects milk from a
very wide geographic area (mostly the province of Connacht) but milk density in
Connacht is low leading to higher transport costs. There are about twenty further
medium size and smaller dairies collecting milk from farmers.
Impact on milk transport costs
Given the present location of processing plants, a number of issues arise in relation to
milk transport efficiency. One area of inefficiency arises where distances between
farms and processing plants are unnecessarily long, due to competing dairies
assembling milk from areas closer to their neighbours’ processing plants. Taking the
six components of transport, the effect of increasing the distances between farms and
processing plant is to increase the transport driving component, with all other
components remaining unchanged. This is precisely the case when tankers are
collecting all the milk from an area or pocket of supply which is closer to the
processing plant of a neighbouring dairy where spare capacity is available (Figure
3.5). A simple solution to this type of problem with a corresponding reduction in
transport driving is shown in Fig 3.6.
Figure 3.5 Inefficient transport (distance from processing centre)
Supply
X
15
Plant B
Supply
Y
Figure 3.6: Efficient transport (distance from processing centre)
Plant B
P
Plant B
Supply
X
15mls
Plant A
Supply
Y
Another area of locational inefficiency arises where two or more dairies collect from
neighbouring farms in an interlocking pattern. In this case the extra cost arises
through increased assembly driving (farm-to-farm) (Fig 3.7). Assuming that a fully
interlocking collection pattern exists, then assembly driving costs at the limit could be
doubled relative to a fully rationalised pattern as illustrated in Fig 3.8.
The incidence of these two sources of inefficiency was considerable in an Irish
dairying context in the past, at least in some areas of the country as discussed by
Keane (1986). However these inefficiencies have been substantially reduced due to
the series of major dairy industry mergers and takeovers that have occurred, including
in particular the merger of Mitchelstown and Ballyclough Cooperatives to form
Dairygold, the merger of Avonmore and Waterford Foods to form Glanbia and the
takeover of Golden Vale by Kerry Group PLC. Furthermore cooperation agreements
16
between dairies, such as the recently announced agreement between Dairygold and
Glanbia on factory sharing (DIN, 2005), should serve to further reduce these forms of
milk transport inefficiencies.
Figure 3.7: Inefficient transport in an interlocking pattern
Plant A
Route A
1.
3
5
7
9
11
13
15
17
2
4
6
8
10
12
14
16
Route B
Plant B
Figure 3.8: Efficient transport with no interlocking pattern
Plant A
1
3
2
5
4
7
6
9
11
8
10
13
12
15
14
16
Plant B
The survey of milk transport costs facilitated a comparison of size of dairy in terms of
milk intake and milk transport costs. As a scatter diagram would reveal confidential
information, the dairies are grouped into large, medium and small for results
presentation purposes. Three dairies were considered large; combined they process
67% of the milk accounted for in this survey. They also each have an average of 4,972
suppliers. Three dairies were considered medium size, processing 19% of the milk.
Each of these has an average of 1,853 suppliers. Finally the remaining 10 dairies were
considered small; processing just 14% of the milk. They have an average of 329
suppliers (Table 3.7).
Table 3.7: Classification of Dairies
Size of Processor
No. of processors
% of milk
18
Average no. of
Average
cost
in this category
processed
suppliers
(weighted
average)
Large
3
67
4,972
4.95
Medium
3
19
1,853
5.55
Small
10
14
329
5.54
Total
16
100
The size of dairy seems to make little difference in terms of milk transport costs
(Table 3.7). A correlation coefficient of - 0.042 was estimated between milk intake
per dairy and milk transport cost per gallon, indicating no relationship between
volume of intake per dairy and cost. While one might expect that larger dairies might
have higher transport costs due to tankers travelling longer distances to source milk
(as illustrated in Fig 1.1), other factors may counteract this. In some cases large
dairies in terms of milk intake have multiple processing plants. Also the current trend
among the larger dairies of outsourcing the milk transport activity to private hauliers
may also lead to lower transport costs as discussed later.
c) Milk Transport Efficiency factors
i) Seasonality
Milk production in Ireland varies widely on a seasonal basis throughout the year.
Supplies of milk are highest during the months of mid-April to August and lowest
during the months of December and January (Fig 3.9). The seasonal pattern has
consequences for milk transport operations because a sufficient number of milk
tankers must be provided to accommodate summer supplies, with consequent spare
capacity during the periods of low milk volumes.
19
Figure 3.9: Domestic milk intake in Ireland
800
700
Million Litres
600
500
400
300
200
100
0
Jan
Feb
Mar
Apr
May
1996
Jun
1998
Jul
Aug
2002
Sep
Oct
Nov
Dec
The responses received on peak to trough month ratio in terms of milk intake were
very diverse. The simple average for all transport companies is 13:1, with responses
ranging from a high of 27:1 to a low of 4:1. For large companies (67% of milk) the
simple average is 18:1 and for the remaining companies the simple average is
11:1(Table 3.8).
Table 3.8: Seasonality Ratios (peak: trough month)
Seasonality Ratio
Simple average
13:1
Range of responses
27:1 to 4:1
Big companies (67% intake)
18:1
Remaining companies
11:1
Simple Average in 1996
11:1
The correlation coefficient was also estimated between the seasonality ratio and
transport cost per gallon, the hypothesis being that a higher seasonality ratio would
lead to higher transport costs. However, no relationship was found.
20
When compared with the previous survey in 1996 it was found that the seasonality
ratio (simple average) has disimproved. In 1996 it was found to be 11:1.
Peak to trough costs
Some companies did not supply this information as it was not readily available. There
were a total of ten respondents, with peak cost averaging 4.83 cent per gallon and
trough costs 8.58 cent per gallon (Table 3.9). Overall the results clearly indicate that
there is wide variation in milk transport costs between peak and trough months.
Table 3.9: Peak to Trough costs
10 respondents (simple average)
cent per gallon
cent per litre
Peak
4.83
1.06
Trough
8.58
1.89
Average
5.43
1.19
Best and Worst Route
Respondents were asked about the costs of their best and worst route. Eleven
responses were received. The results show great variation in costs between routes,
with cost for ‘worst’ routes being up to four times that for ‘best’ routes. On average
worst routes have higher stops per trip, longer distances for the trip, lower volumes
per stop and longer travel times than standard routes.
Table 3.10: Milk transport cost for best and worst route, cent per gallon
Large Companies, simple average
Best Route
1.9
Remaining Companies, simple average
Worst Route
Best Route
7.4
3.7
Worst Route
9.0
Route planning
To cope with seasonality, companies vary the route patterns of the collection tankers
during the year. Respondents were asked to supply the number of route patterns
adopted throughout the year. All respondents with one exception practised three route
21
patterns throughout the year, i.e. peak, off-peak and trough. The remaining dairy
operated two route variations, peak and off-peak.
Milk tanker fleet
Factors to consider in improving efficiency in milk transport include changing the
tanker capacity and increasing the throughput of the vehicles. A great deal of
information was provided by the transport managers in relation to the milk tanker
fleet and this is summarised in terms of tanker ownership, tanker type and tanker
capacity. For large dairies, (67% of milk intake), about 19% of the tanker fleet is
owned by the dairy itself with about 81% owned by a haulage company or private
owner (Fig. 3.10). One dairy operated with completely privately-owned tankers at the
time of the survey. Large dairies have an average of about 70 vehicles involved in
milk transport. For the smaller dairies, about 67% of the vehicles are owned by the
dairy itself, with about 33% owned by a haulage company or private owner. However,
within these averages there are wide variations. One smaller dairy operates with
completely privately-owned tankers, two are 100% operated by an independent
haulier and six have 100% tanker ownership by the dairy itself (Fig.3.11). The smaller
dairies have on average about 10 vehicles.
Figure 3.10: Tanker ownership for large dairies
19%
Your dairy
51%
30%
22
an independent
haulier
private
individual
Figure 3.11: Tanker ownership for remaining dairies
Your dairy
24%
an independent
haulier
9%
private
individual
67%
One of the main differences between the current survey and that of 1996 is the change
in status of the ownership of vehicles The recent trend of outsourcing the transport
function, particularly among the larger dairies is evident (Table 3.11).
Table 3.11: Changes in ownership of vehicles
Survey
Large dairies
Small dairies
Year
Owned by dairy
Other
Owned by dairy
Other
1996
69%
31%
62%
38%
2004
19%
81%
67%
33%
Type of vechicle
In all dairies in the peak month about 88% of vehicles were articulated while about
12% were rigid. In trough months 86% were articulated and 14% were rigid, Fig 3.12.
The average tanker capacity was 5,500 gallons for an articulated vehicle and 4,000
gallons for a rigid. There was considerable variation in tanker capacity which ranged
from 4,500 to 6,000 gallons for articulated vehicles and from 3,800 to 5,000 gallons
for rigid ones.
23
Figure 3.12: Type of Vehicle, %
100
90
80
70
60
50
40
30
20
10
0
Peak
Trough
Articulated
Rigid
iii) Frequency of collection
Frequency of collection can have a significant impact on milk collection costs. Less
frequent collection from farms would lower milk transport costs but would raise farm
costs through the need for increased farm bulk storage capacity and higher operating
costs at farm level due to the extra costs of milk cooling. To establish the current
practice in Ireland, respondents were asked to supply information on frequency of
collection at present. The survey results showed that all companies practiced alternate
day collection at peak. During the off-peak period (roughly spring and autumn), most
companies collected milk 2 to 3 times a week, but three smaller dairies collected on
an alternate day basis also during the off-peak period. Finally all dairies collected
milk twice a week in trough months, Table 3.12
Table 3.12: Frequency of collection
Peak
Off-Peak
Trough
Alternate day
2 to 3 times a week. Three exceptions
Twice a week
collecting alternate day only.
iv) Pumping rates
Faster pumping rates both on the farm and at the processing plant lead to savings in
transport costs. Respondents were asked for the milk-pumping rate on their suppliers’
24
farms and at their plants. The average pumping rate on the farms was 85 gallons per
minute, with responses ranging from 70 to 90 gallons per minute. The average
pumping rate at the processing plant was 364 gallons per minute (Table 3.13).
Responses varied widely and there was no apparent relationship between pumping
rate and size of dairy.
Table 3.13: Average Pumping Rates
On the farm
85 gallons per minute
Range
70-90 gallons per minute
At the Plant
364 gallons per minute
25
Section IV: Conclusion
Based on the results of the survey of milk transport managers, the weighted average
milk transport cost in the Republic of Ireland was estimated in 2004 to be 5.15 cent
per gallon (1.15 cent per litre). There was no apparent correlation between size of
dairy in terms of milk intake and milk transport cost. When compared with an earlier
survey it was found that milk transport costs have increased by 7% since 1996. Milk
transport costs in Ireland vary due to many factors, including milk supplier size and
location, processing plant size and location, tanker capacity and seasonality. The
effect of these various factors on milk transport costs was determined in the survey.
The survey provided an overview of the cost and status of milk transport in Ireland in
2004 and should inform discussion on structural change in the Irish dairy industry.
The small estimated increase in costs since 1996 suggests that a high level of
efficiency is being achieved but there is scope for further savings in transport costs
which will benefit milk suppliers and processors.
26
References
Dept. of Agriculture and Food (2004) Annual Review and Outlook, Dublin
DIN (2005) Glanbia + Dairygold: The New Way Forward. Vol. 16 No. 21, Norfolk,
UK
Henchy, J. (2003). A vision for the dairy processing industry. National Dairy
Conference, Teagasc, Dublin
Jansen J., Krijger A. (2004). International investment in dairy processing: A
summary. Rabobank International, Netherlands
Keane M. (1986). The Economics of Milk Transport, Agribusiness Discussion Paper
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Lafferty, S., Commins, P., Walsh, J. (1999). Irish Agriculture in Transition. Teagasc,
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Prospectus (2003). Strategic Development Plan for the Irish Dairy Processing Sector,
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Shanahan, E. (1998). An Economic Analysis of Milk Transport Costs and Efficiency
Factors in the Irish Dairy Industry, Masters Thesis. UCC.
27
Department of Food Business and Development
Agribusiness Discussion Papers
The Agribusiness Discussion Papers series is an externally refereed series of papers which
report on research conducted by staff of The Department of Food Business and Development,
University College Cork or associates. The following is a listing of the papers published to date:
No.
1.
Keane, M and Lucey, D.I.F. (1984): “Positive M.C.A.’s and EEC Dairy Budget”.
2.
Keane, M. and Lucey, D.I.F. (1984) and Denis I.F. Lucey: “The U.K. Liquid Milk Sector and the
Common Agricultural Policy”.
3.
Keane, M. and Gleeson, P. (1985): “Optimising Herd Calving Patterns Under Milk Quota Constraints".
4.
Cahillane, C. (1986): “Land Reform in Ireland – The Objectives, The Process and Some Issues”.
5.
Keane, M. (1986): “Economies of Milk Transport – Co-op Charges, Key Efficiency Factors”.
6.
Keane, M. (1986): “Milk Seasonality, Pricing and Cheese Development”.
7.
Keane, M. (1987): “A Comparison of Winter Milk Incentive Schemes”.
8.
Keane, M. (1989): “Component Pricing of Milk – Principles and Practice”.
9.
Keane, M. (1990): “Producer Prices for Milk – Trends and Future Prospects”.
10. Keane, M. and Lucey D.I.F. (1991): “Irish Dairying – Modelling the Spatial Dimension”.
11. Keane, M. and Byrne, P. (1992): “Dairying in Hungary”.
12. Keane, M. and Byrne, P. (1992): “Dairying in Czechoslovakia”.
13. Keane, M. and Byrne, P. (1992): “Dairying in Poland”.
14. Keane, M. and Collins, A. (1995): “A Study of Dairy Policy Alternatives”.
15. Collins, A. and Oustapassidis, K. (1997): “Below Cost Legislation and Retail Performance”.
16. Enright, P.G. (1997): “National Regulation and the Changing Geography of the Irish Dairy Processing
Industry”.
17. Keane, M. (1997): “Economies of Scale and Irish Cheese Manufacture”.
18. Enright, P.G. (1998): “Agri-processing Industries as a Vehicle for Rural Development: Case Studies of
Two Rural Communities in the Canadian Prairies”.
19. Collins, A. (1998): “The Irish Food Manufacturing Sector: Current Customer Portfolios in the Irish and
UK Grocery Markets”.
20. O’Reilly, S. and Shine, A. (1998): “Consumer attitudes to and use of Nutrition Labelling”.
21. McCarthy, M. and Barton, J. (1998): “Beef Consumption, Risk Perception and Consumer Demand for
Traceability along the Beef Chain”.
28
22. McCarthy, M., O’Reilly, S. and O’Sullivan, C. (1998): “An Investigation of the Effectiveness of the
Domain Specific Innovativeness Scale in the pre-identification of First Buyers”.
23. Bogue, J. and Delahunty, C. (1999): “Market-Oriented New Product Development: Cheddar-type
Cheese”.
24. Bogue, J., Delahunty, C. and Kelleher, C. (1999): “Market-Oriented New Product Development:
Consumers’ Perceptions of Diet and Health and their Consumption of Reduced-fat and Reducedcalorie Foods”.
25. McCarthy, M., and O’Reilly, S. (1999): “Beef Purchase Behaviour: Consumer Use of Quality Cues &
Risk Reduction Strategies – findings from Focus Group Discussions”.
26. McCarthy, M. (1999): “An Investigation of Consumer Perceptions towards Meat Hazards”.
27. Bogue, J. and Ryan, M. (1999): “Market-oriented New Product Development: Functional Foods and
the Irish Consumer”.
28. McCarthy M., O’Reilly S. & Cronin M. (2000): “A Profile of Irish Farmhouse and Continental Cheese
Customers”.
29. Cronin M, McCarthy M. & O’Reilly S. (2000): “An Examination of Consumer Involvement in the
Purchase of Cheese Products”
30. Bogue, J. (2000): “New Product Development and the Irish Food Sector: A Qualitative Study of
Activities and Processes.”
31. Bogue, J. & Ritson, C. (2000): “Health Issues, Diet and “Lighter Foods”: An Exploratory Consumer
Study”
32. O’Keeffe L.A. & McCarthy M. (2001): “An Investigation of Consumers’ Attitudes towards Food
Safety Information”
33. Vilei S. & McCarthy M. (2001): “Consumer Acceptance and Understanding of Genetically Modified
Food Products”
34. Collins, A. (2001): “An Investigation into Retailers’ Margin Related Bargaining Power”.
35. Mangan, E. & Collins, A. (2001): “An Investigation into service Quality Variation within a Tourist
Brand: The Case of the Shamrock.
36. Bogue, J. & Sorenson, D. (2001): “An Exploratory Study of Consumers’ Attitudes Towards HealthEnhancing Foods.”
37. Bogue, J., Sorenson, D. & Delahunty, C. (2002): “Determination of Consumers’ Sensory
Preferences for Full-fat and Reduced-fat Dairy Products”.
38. Howlett, B., McCarthy, M and O’Reilly, S. (2002): “An Examination of Consumers’ Perceptions of
Organic Yoghurt”.
39. Bogue, J., Coleman, T. and Sorenson, D. (2003): “Health-enhancing Foods: Relationships between
Attitudes, Beliefs and Dietary Behaviour”.
29
40. Sorenson, D. and Bogue, J. (2003): “Consumer-driven Product Development of Functional Orange
Juice Beverages”.
41. Synnott, K. and Bogue, J. (2004): “An Exploratory Study of the Attitudes of German, Italian,
Scottish, Spanish and Swedish Parents of Young Infants to Infant Diet, Health and Allergies”.
42. McCarthy M., Morris D. and O'Reilly S. (2004): "Customer Perceptions of Calcium Enriched Orange
Juice".
43. Keane M. and O'Connor D. (2004): "Evaluation of the Effect on Irish Dairy Industry Revenue of
Asymmetric Reductions in Intervention prices for Butter and Skim Milk Powder".
44. Gu, H. and Bogue, J. (2005): “An Exploratory Study of Food Culture Issues in China and Ireland in
an International Marketing Context”.
45. Bogue, J., Hofler, A. and Sorenson, D. (2005): “Conjoint analysis as a market-oriented new product
design tool: the case of functional meal replacement beverages”.
46. Quinlan, C., Keane, M., Enright, P. and O’ Connor, D. (2005): “ The Cost and Efficiency of Milk
Transport in Ireland”.
AVAILABLE from:
Department of Food Business and Development
University College Cork
Tel: 021-4902570 /4902076
Fax: 021-4903358
E-mail: [email protected]
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