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There is increased interest in greater localization of food supply chains but little evidence about the effects of localization on supply chain costs. Assessing these effects is complex in multiple-product, multi-process supply chains such as the dairy industry. In this study, we develop a spatially-disaggregated transshipment model for the US dairy sector that minimizes total supply chain costs, including assembly, processing, interplant transportation and final product distribution. We employ the cost-minimizing solution as benchmark to compare alternative scenarios of increased supply chain localization. Our results indicate: 1) short-run limits to increased localization, 2) modest impacts on overall supply-chain costs, and 3) large cost reallocations across supply chain segments, regions and products. We find that increased localization reduces assembly costs while increase processing and distribution costs. Cost increases are larger in regions with smaller raw milk supplies and during the season when less raw milk is produced. Minimizing distances traveled by all dairy products results in tradeoffs across products in terms of cost and distance traveled. The relationship between increased localization and costs appears to be nonlinear.

Keywords: Localization ; dairy sector ; food miles ; transshipment models ; food supply chains.

Subject(s): Agricultural and Food Policy

Production Economics

Issue Date: 2010

Publication Type: Working or Discussion Paper

PURL Identifier:

Total Pages: 36

Series Statement: WP


Record appears in: Cornell University > Department of Applied Economics and Management > Working Papers

Autor: Nicholson, Charles F. ; Gomez, Miguel I. ; Gao, Oliver H.


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