Vertical Integration for Long-Term Sustainability in the Dairy Industry

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Gilles, Bethany L
article description
The purpose of this study is to determine and analyze whether it is feasible for a milk processing facility to vertically integrate by establishing a dairy farm, and to determine the relationships of production variables to milk production costs. The results of this study will be used to help aid in working towards reducing the consumer’s retail price for milk by utilizing a vertical integration strategy that involves the direct ownership of a dairy farm by a milk processing plant. Data utilized in this study was taken from the United States Department of Agriculture statistics from the years between 2000-2011, data from a dairy farm, Galliker Dairy Company, and many other sources. The variables for a regression model were national numbers for feed, fuel, animal, labor expenses, and milk production costs. The results suggest that more than just feed, fuel, labor, and animal expenses will affect the milk production costs although there is high correlation between these variables, which could be a result of multicollinearity.Further studies could possibly indicate more data is needed or that there is some way in which to combine the variables. This would indicate and potentially reduce the effects of multicollinearity. A cost benefit analysis will be undertaken in order to determine possible outcomes of vertically integrating a dairy farm and a milk processing plant. Phase two of the planned project will involve the establishment or the addition of artisan cheese facility to be located on the farm. A detailed financial analysis of this project will also be undertaken and then consolidated with the farm financials to evaluate the operating concern.