E. Issue: Costs of Delivering Fluid Milk Products Processed Outside the
New England Region to Outlets Within the Region

    This issue is significant for two reasons. First, these identified
costs complete the description of delivered cost to the retail outlet.
Second, the issue inquires into whether finished, Packaged milk
products transported from plants located away from the region's
population centers can serve as a substitute supply for the finished
product provided by more local plants.
    The Compact Commission requested but did not receive data regarding
packaged product delivery costs specific to the New England market. The
Cornell University study cited above \79\ sheds light on this issue.
According to the study, costs of delivery for packaged fluid milk
products range from $0.216 to $0.541 per case, with an average cost of
38.8 cents per case, or about $0.097 cents per gallon. (There are 4
gallons/case.) \80\
---------------------------------------------------------------------------

    \79\ Aplin et al, R.B. 97-03, Cornell University, February,
1997.
    \80\ Aplin et al at 21.

---------------------------------------------------------------------------

[[Page 23045]]

    With regard to the possibility of substitution of packaged milk
supply, as discussed in the first finding analysis, the Market Order
statistics makes clear that the major processing facilities servicing
the New England region are currently located nearby the population
centers of the region they serve. These plants currently provide for
almost all of the market's supply of finished product. At present,
then, there is almost no substitution for this local supply of finished
packaged product with finished product imported from distant plants.
    The detailed analysis of the Aplin study provides insight into this
settled market pattern. Cost of operating a delivery vehicle
contributed an average of 43 percent of the delivery cost per case. The
remainder of the cost is attributable to driver labor cost. (Vehicle
operating cost ranged from 21 percent to 53 percent. \81\ The study
further indicated that these costs were for routes serving large
customers, and that route costs for serving smaller customers ``is
expected to be much higher.''
---------------------------------------------------------------------------

    \81\ Aplin et al at 48.
---------------------------------------------------------------------------

    Most significantly, route labor productivity was shown by the study
to decrease substantially with greater distance traveled and on routes
with numerous customer stops. A 1.0 percent increase in miles traveled
per month increased direct delivery cost by 2.9 percent per case. A 1.0
percent increase in customer stops made per month increased the cost by
1.1 percent per case. Not surprisingly, the study concludes that plants
located in more densely populated areas had lower direct delivery
costs.\82\
---------------------------------------------------------------------------

    \82\ Aplin et al at 54
---------------------------------------------------------------------------

    This delivery cost analysis of the Cornell study thus explains the
present market pattern: Plants located near population centers are the
most cost effective. According to this pattern, the market should
continue to consist of plants located nearby the population centers,
plants which are supplied with raw product from the milkshed and which
in turn provide finished product to the region's retail outlets.