Processing Costs, Labor Efficiency, and Economies of Size in Cooperatively Owned Fluid Milk Plants

This article examines the operating cost structure of 15 cooperatively owned fluid milk processing plants. The selected plants range from small, low-volume facilities to large, high-volume plants with varying levels of capital and labor inputs. Operating costs are presented for the plants by converting monthly fiscal data to averages and grouping the plants by relative processing volume. The functional relationship between total and unit costs and average plant volume is estimated. Processing cost per gallon declines by 1.6 percent for a 10 percent increase in plant volume. Approximately 85 percent of the reduction in unit cost is attributable to lower labor, packaging, energy, repair, maintenance, and depreciation costs.