Study highlights PA’s potential for new dairy processing plants
HARRISBURG – A new study released last Wednesday paints a promising picture of the commonwealth’s potential for dairy processors looking to relocate or expand their operations. The study was performed by three nationally renowned experts in supply chain management, dairy policy and agriculture economics and was funded jointly by the Wolf administration and the Center for Dairy Excellence.
The study says two new plants in Pennsylvania for processing “other” cheeses — or non-American types, including Italian and specialty cheeses –could significantly reduce overall supply chain costs, enhance the marginal value of milk for producers and create more than 1,000 jobs, while also adding $1.5 billion in economic activity to the state.
“Dairy is a large part of our agriculture industry, and we know there are too many dairy farmers struggling now because of a glut in the market for fluid milk and persistently low prices,” said state Agriculture Secretary Russell Redding.
“While there is some reason for optimism down the road, the reality is that the market is unlikely to change measurably in the short-term under the status quo. That is why Gov. Wolf and his administration have been working aggressively to expand the processing capacity in Pennsylvania, adding value here, which will boost demand, offer better prices to farmers, and reduce costs for processors.
“This study paints a very promising picture of the potential that exists in Pennsylvania,” Redding added.
The study assessed the economic impact and potential change in milk prices to farmers and in supply chain costs by adding processing capacity at 21 possible locations in Pennsylvania, as well as under a second scenario of two additional plants at locations that provided the greatest potential benefits. In both cases, new plants could keep more than 20 percent of the state’s milk supply in Pennsylvania, rather than being shipped out-of-state for processing.
Keeping more milk in Pennsylvania would reduce hauling costs and increase milk premiums for farmers.
The net benefit could amount to $35 million per year under the “two-plant scenario” and $48 million per year under the “All Pennsylvania locations” scenario that covered each of the 21 potential sites.
Under the two-plant scenario, hauling costs would be reduced by $0.05 per hundredweight and the value of milk premiums to farmers on a statewide average would increase between $0.26 and $0.29 per hundredweight.
According to the authors, these benefits would justify investments of between $430 million and $600 million in expanding Pennsylvania’s processing capacity. Such investment would increase the value of dairy products produced in Pennsylvania by between $599 million and $921 million; add between $1.5 billion and $2.3 billion in additional economic activity; and create between 1,100 and 1,700 jobs.
Processing plants that produce non-American-type cheeses offered the greatest benefits, but the report notes that the state and its dairy farmers would also benefit from plants specializing in other products, such as ice cream, whey protein concentrates, lactose and Greek yogurt.
“This report makes clear that there is tremendous potential in Pennsylvania and that dairy processors should seriously consider the state when making their site selection decisions,” said Redding. “Since taking office, Wolf has invested tens of millions of dollars in Pennsylvania’s agricultural industry, and he is committed to using every available resource to improve our dairy economy.”
“Reinvestment in Pennsylvania’s dairy industry is critical to future opportunities to grow this important economic engine,” said Secretary Dennis Davin, of the state Department of Community and Economic Development. “Additional investments in dairy processing would create all-new opportunities that could turn the tide for state dairy farmers. With the combined capacity to process a total of 4 million pounds of milk per day, new plants could be constructed in areas with high milk production to minimize shipping costs.”
Since taking office in 2015, Wolf has assembled more than $500 million in leveraged investment by agriculture businesses through job-creating grants, loans, tax credits and workforce training.
During the past year, the Wolf administration has worked actively to encourage dairy processors to expand in Pennsylvania.
Redding and Davin have worked closely with the Governor’s Action Team and the Center for Dairy Excellence to market the state as an ideal, business-friendly place for the dairy industry, highlighting the stability of generational farm businesses, and access to more than 50 percent of the nation’s population within a half-day’s drive. They, along with the governor, have written directly to 40 national dairy processors, urging them to consider Pennsylvania for future investment.
In recent weeks, Redding attended a trade summit in Ontario, Canada to learn how other states and neighbors to the north have responded to changes in the international dairy market.
Other initiatives by the administration included a meeting with national dairy cooperatives to encourage investment in Pennsylvania’s dairy infrastructure, separate meetings with dairy producers and processors to explore regional opportunities, and individual outreach to a dozen major cheese companies to share results of the study.
The report was performed by Drs. Chuck Nicholson and Andrew Novakovic, of Cornell University, and Dr. Mark Stephenson, of the University of Wisconsin, Madison.
For a copy of the full report or for more information on the state Department of Agriculture, visit agriculture.pa.gov.