Costs of Localizing a Multi-Product Food Supply Chain: Dairy in the United States
/Abstract
There is increasing interest in localizing food supply chains but little investigation into the system-wide implications of food system localization for costs. Assessing such implications is complex, particularly for multiple-product and multiple-process food supply chains like dairy. In this study we develop a spatially-disaggregated transshipment model for the US dairy sector, first aiming to minimize the cost of the total supply chain including assembly, processing, interplant transportation and final product distribution. Results from cost-minimizing are then used as a benchmark for comparisons with results from alternative supply-chain localization scenarios, which are constructed by applying food-mile reduction constraints. Our results indicate a ~20% maximum feasible food-mile reduction at a modest incremental (~4%) total supply chain cost for the studied dairy supply chain, although further localization may require large investment in market restructuring and facility relocation across supply chain functions, regions and products. The incremental cost, nonlinear to the localization measured as food mile reduction, varies significantly across supply chain segments, geographic locations, and seasons (e.g., surplus vs. shortfall seasons of milk production): localization tends to reduce assembly costs, increase processing and distribution costs (primarily in low supply regions during the low supply season), and produces substantial tradeoffs across products in terms of cost and distance traveled.
Read the article →