I recently ran across this paper in Food Policy published back in 2011 by Charles Nicholson, Miguel Gomez, and Oliver Gao. The paper asks an interesting question: what would happen if we required food (or in this case, milk in particular) to be more local? This is a policy proposal that has been seriously put forth by prominent food writers.
The authors took data on current location of milk production, processing plants, and consumers and created a mathematical model to minimize the cost of supplying various dairy products to consumers. Here's their description of the spatial dimensions of the data:
“The model uses 231 multiple-county milk supply regions, each represented with a single centrally-located point. Dairy processing plant locations are specified based on observed plant locations observed in 2005, and vary in number from 319 possible locations for fluid plants (Fig. 3) to 11 for milk protein concentrate products. Demand locations are represented as a single point for 424 major population centers and aggregations of multiple-county regions”
Given this set-up, what is the effect of cost of reducing the number of miles traveled - or the weighted average source distance (WASD) - by 10% or 20%?
The authors find that (in the month of May), requiring a 10% or 20% reduction in WASD would increase total costs by about $1 million and $18 million per month (0.1% and 1.7% cost increases), respectively. All this is a way of saying that milk production and dairy processing is located in particular regions for a reason, and forcing a different spatial configuration will increase costs. The authors write:
“These relatively small reductions in overall costs contrast with more marked shifts in the allocation of costs within the supply chain. In each case, the costs for assembling milk from farms to plants decreases, as it is optimal to ship milk shorter distances to processing facilities. Costs for interplant shipments increase by about the same magnitude of the increase in total costs. The largest increase in costs occurs in product distribution; increases in distribution costs range from 2% to 25%–6 to 24 times as large as the overall increase in costs.”
In other words: the effects are complicated and impose much larger costs on some portions of the supply chain than others. In terms of the impacts on consumers:
“The increases in the value of a gallon of milk due to reduced WASD vary from less than $0.50 (which is often more than 10% of the retail price) in the western US to more than $4.00 per gallon in the southeastern US, but the average for all demand locations is $1.66.”
Another interesting result is that even though WASD is reduced over all by 10% or 20%, some dairy products, such as cheese, end up having to be transported even further.
The authors consider another interesting scenario in which people just want to reduce the distance traveled by fluid milk by 10%. In this case, total costs increase a whopping 12%, and the WASD for all products actually increases by 98 miles (a 31% increase in distance traveled). This remarkable result shows the unintended result of, for example, local schools requiring their milk be purchased locally without considering what happens to the yogurt, butter, cheese, and nonfat dry milk that will also be consumed by someone.
The authors conclude as follows:
“The primary conclusion is that developing a cost effective strategy to localize a multi-product supply chain is complex. Such complexity accrues to the multiple links that exists in a multi-product supply chain including the relationships across supply chain segments, the dependency of the various products, the diversity in supply and demand across geographic regions, and the seasonality of the production process. Therefore, decision makers should adopt a systems approach to anticipate the consequences of industry wide or public policy initiatives to increase localization in the food industry.”