PRODUCT-YIELD PRICING SYSTEM .1. TECHNOLOGICAL CONSIDERATIONS IN MULTIPLE-COMPONENT PRICING OF MILK

A main objective of pricing milk is that the price paid (received) for milk reflects as accurately as possible the amount and value of products made from it. The costs of milk per unit of product produced should be the same for milks of varied composition. Several pricing formulas were examined for their ability to give the same milk costs for different types of products from milks of varied composition. The use of the correct pricing formula is important, because small differences in milk costs equate to large differences in profitability in milk processing. The fat plus constant formula (fat differential), the current system in most of North America, gave least differences in milk costs for fluid milk. The fat plus protein plus lactose plus minerals formula (fat plus SNF) gave least differences in milk costs for milk for butter and powder. The fat plus protein formula gave least differences in milk costs for cheese. None of the pricing formulas was satisfactory for all three product classes. An appropriate formula for one product class yielded differences in milk costs in other product classes, which would be economically very important to plants receiving milk differing by as little as .1% fat or .1% protein. Where more than one type of product is produced, least inequities resulted when the appropriate pricing formulas were blended or pooled in proportion to the amounts of milk going to each product. This is termed a product-yield pricing system. Blending or pooling can be applied not only to payments from one multiproduct plant but also to payments from several or many plants to large groups of producers. © 1990, American Dairy Science Association. All rights reserved.