Milk production costs vary significantly across regions and farm sizes, highlighting the role of economies of scale in dairy farm profitability, according to an analysis published by the University of Massachusetts Amherst's Center for Agriculture, Food, and the Environment.
The analysis examines operating expenses and allocated overhead costs, showing how feed, veterinary services, fuel, electricity, labour, machinery and land contribute to the overall cost of milk production.
Regional Differences in Milk Production Costs
The historical analysis found substantial differences in production costs across US dairy regions.
- Western states: The average production cost across California, Idaho, New Mexico, Oregon and Washington was $15.67 per hundredweight of milk.
- Midwestern states: The average was $20.37 per hundredweight across Illinois, Indiana, Iowa, Michigan, Minnesota, Missouri, Ohio and Wisconsin.
- Northeastern states: Maine, New York, Pennsylvania and Vermont recorded an average of $23.85 per hundredweight.
Maine had the highest estimated production cost among the states surveyed, at $29.42 per hundredweight.
These figures reflect historical estimates and should not be interpreted as current production costs.
Why Farm Size Matters
The analysis found that larger dairy farms benefited from lower production costs per unit of milk, particularly through reduced overhead expenses.
Farms with more than 1,000 cows had 17% lower operating costs and 75% lower allocated overhead costs per hundredweight than farms with fewer than 100 cows in the 2005 data examined.
Larger operations can distribute machinery, equipment and certain labour-related expenses across a greater volume of milk production. However, feed costs per cow do not decline substantially simply because a farm has more animals.
Implications for Dairy Farm Economics
The findings highlight three important considerations for dairy businesses:
- Cost management: Feed, labour, energy and veterinary expenses remain important factors in farm economics.
- Economies of scale: Larger herds can spread fixed and allocated costs across more milk output.
- Regional competitiveness: Land values, wages, cow productivity and operating conditions influence the cost of producing milk.
For dairy farmers and processors, understanding production costs is essential for evaluating farm efficiency, planning investments and assessing long-term competitiveness.
Although the data are historical, the analysis illustrates a continuing economic principle: increasing farm size can reduce per-unit costs, but profitability also depends on productivity, management and input prices.
Source: Read full story here 25 Oct, 2026 Edited and Reported by
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