IMPACT OF REVERSE OSMOSIS ON SOUTHEAST MILK MARKETS

produced milk and milk from other sources The Southeast is a net importer of milk and combine to produce some of the highest retail milk products. Milk must be imported from prices in the nation. other regions at certain times of the year. Potentially impacting this situation is a new Reverse osmosis (RO) is a new processing technology which may reduce the cost of inter- technology which could significantly reduce regional milk movements. Reverse osmosis milk transportation costs between regions by (RO) is a membrane processing technology removing half the water from raw milk prior which reduces the cost of transporting milk to shipment. A network flow algorithm, which and may reduce price differences between the incorporates federal milk orders and solves northern surplus regions and the southern for the least cost procurement pattern, was deficit regions. The RO process can remove used to assess the impact of RO on southeast 50 percent or more of the water from milk milk marketing orders under alternative raw (Stabile). The concentrated product can then product pricing scenarios. milk orders, network flow algo- RO process. The recomposed milk can be pack- rithm. aged or blended with locally produced milk and then packaged. RO is currently being used Regional differences in the production and to concentrate skim milk for use in manufac- consumption of milk and milk products have tured dairy products, particularly cheese. De- led to situations where some regions are net spite recent improvements in membrane con- milk importers, while other regions are net struction which have made RO concentration exporters. The cost of transporting milk and of whole milk possible, RO has not been used milk products can be quite high and contrib- for that purpose. Fat particles in whole milk utes to substantially higher milk prices in the tend to foul the membrane unless tempera- deficit regions. Consider Florida as an ex- tures are high enough to process the fat in liq- ample. Milk production in Florida is less than uid form. Unfortunately, these temperatures fluid milk consumption, especially during are also ideal for bacterial growth. Separation August through December. As much as 25 per- of fat and skim before RO processing can alle- cent of the milk obtained by Florida dairy viate the problem, but continued improve- plants on an annual basis has been produced ments in membrane construction and cleaning in other states (Schiek). Some milk is obtained techniques are expected to be the ultimate so- from states as distant as Wisconsin and lution for RO processing of whole milk. Minnesota. Transportation costs for such milk The purpose of this paper is to examine the may be more than $4.00 per hundredweight, impacts of the RO technology on raw milk pro- about 25 percent of the cost of milk obtained curement patterns and costs, interregional from Florida dairy farmers. The cost of produ- price relationships, levels of milk production cing milk in Florida is relatively high (Office and consumption, and prices received by pro- of Technology Assessment), but the cost of ducers and paid by consumers. The economic milk obtained from distant sources is substan- feasibility of the new technology is examined tially greater. The high costs of both Florida- by focusing on RO plants in the northern states William A. Schiek is a graduate student and Emerson M. Babb is a Professor, Food and Resource Economics Department, University