Analysis of the impacts of the COVID-19 pandemic on the drinking milk supply chain in Austria by means of a business process modelling and System Dynamics approach

The material flow, depicted as a business process model in Figure 2, takes place at the following locations: dairy cattle farm, collection point, transport, dairy, and sales point. After milking, the raw milk is cooled and stored in the milking tank. There are two different channels of milk sales: disposal to a dairy and (legally limited) direct marketing. In the latter case, further processing and sale takes place at the dairy cattle farm. In 2019, 3.2% of the Austrian raw milk delivery was used for private consumption or sold by direct marketing (Statistik Austria, 2020). Due to its minor importance for the national milk supply, direct marketing of raw milk is not further considered. In case of disposal to a dairy, the milk tanker collects the milk either at the dairy cattle farm or at a collection point and transports it to a dairy. After reception, the milk is processed and filled into different packages. The final product is transported to the different sales points: food retailing, central market, export, etc.

Figure 2

The processes of milking and processing at the dairy are complex and consist of many subprocesses. These are not part of Figure 1, but described in brief in the following. To maintain udder health and a high milk yield at the same time, it is important to observe the exact sequence of the individual work steps during milking (Tröger, 2003). There are different milking systems, which can be generally categorized into automatic and non- or semi-automatic milking systems. The non-automatic milking systems are: bucket or pipe milking system, and milking machines of various designs. The individual process steps during non- or semi-automatic milking are carried out by an agricultural worker. The first step is the verification of a cow's eligibility for milking. If an animal is sick, treated with antibiotics, or its milk has a high cell count, it must be milked at the end and the milk must not be sold (Regulation [EC] No. 853, 2004). The next steps are pre-milking and visual quality control of pre-milking. If necessary, a mastitis test is carried out and samples for laboratory examinations are taken. Afterward, udder and teat cleaning, application of milking equipment, and monitoring of the milking process take place. If automation is available, one, several, or all of the following steps can be automated: removal of the milking equipment, disinfection of the teats, and cleaning as well as disinfection of the milking equipment (Savary et al., 2010). If the last cow elected for milking has been milked, the milking equipment is cleaned and disinfected.

If milking is done by an automatic milking system, all process steps are realised automatically by a milking robot. The process steps basically remain the same. During milking, various parameters are measured by the milking robot and used to assess the quality of the milk (Häußermann, 2017). The subprocess of milk processing varies depending on the type of drinking milk produced. To produce pasteurised drinking milk, the process steps are the following: cleaning, preheating, adjustment of fat content, homogenization, pasteurisation and cooling (Becker and Märtlbauer, 2016). Extended shelf life milk (ESL-milk) can be produced either by direct superheating, indirect superheating, or bactofugation. Bactofugation is a process in which spores and vegetative bacteria are largely removed by centrifugal force (Strahm and Eberhard, 2010). The most frequently used method, however, is microfiltration. For filtration, the milk is first cleaned and separated into cream and skimmed milk. The microorganisms are then separated from the skimmed milk by micro-filtration. The cream is heated and homogenised. Finally, the filtered skimmed milk and cream are mixed and pasteurised. UHT-milk (long-life milk) is produced by indirect or direct heating, but heat treatments are performed at higher temperatures than for ESL-milk (Strahm and Eberhard, 2010).

Figure 3 shows the CLD of the impacts of an unspecified pandemic that is transmitted from person to person. The moment of observation is shortly after the outbreak of the pandemic; long-time consequences are not considered. For a better understanding, the most important variables of the CLD are explained in Table 1.

Figure 3

The starting point of this CLD is the pandemic intensity, marked with a box, which influences human health negatively. As the pandemic intensity rises, the extent of shutdown will increase as a measure set by governments. The pandemic intensity is negatively influenced by the extent of shutdown, and so weakens the effect of the pandemic; the resulting feedback loop is balancing. In general, the extent of shutdown influences the physical human health positively (Flaxman et al., 2020). The CLD addresses three different topics that influence the dairy production quantity: packaging, dairy staff, and raw milk.

The available packaging production staff is positively influenced by human health and negatively influenced by the extent of shutdown if, for example, international or national borders are closed and people cannot reach their workplace. The packaging supply is positively influenced by the available packaging production staff and negatively influenced by the extent of shutdown due to the difficulties in maintaining international supply chains (Deconinck et al., 2020). The packaging gap emerges when the demand and the supply of packaging material do not meet, and is positively influenced by the packaging demand and negatively influenced by the packaging supply. The packaging demand is positively influenced by the dairy production quantity. The packaging gap influences the dairy production quantity negatively. As shown in Figure 2, there is a closed loop between packaging demand, packaging gap, and dairy production quantity; a self-influencing loop arises. If more packaging is needed than is available, not all the given milk can be processed; therefore, the dairy production quantity is highly dependent on the availability of sufficient packaging material.

The dairy staff supply is positively influenced by human health and negatively influenced by the extent of shutdown. The dairy staff demand is positively influenced by the dairy production quantity. Similar to the packaging gap, the dairy staff gap emerges and is negatively influenced by the dairy staff supply and positively influenced by the dairy staff demand. The dairy staff gap influences the dairy production quantity negatively. Again, a closed loop is created. If more dairy staff is needed than is available, the given milk cannot be processed completely. A strong dependence on the dairy staff is evident.

On the left side of the CLD, the topic of raw milk demand and supply is addressed. The available staff for milk collection and the available staff on dairy cattle farm are both like the other staff variables positively influenced by human health. In contrast to the other staff variables, the available staff on dairy cattle farm is not influenced by the extent of shutdown, since based on the expert interviews, we assume that closed borders do not influence the work on dairy cattle farms. The available staff for milk collection and the available staff on dairy cattle farm influence the raw milk supply positively. If the raw milk is not collected from the farm and taken to a dairy, the only processing and sales option is direct marketing. However, this is not considered due to its minor importance to the national milk supply (as already explained in Section 3.1). If there is no staff available to milk the cows and the cows do not lactate calves, the animals will suffer from serious health problems. Although the effect is small and very delayed, farmers can exert some influence on the milk yield by the way of feeding (Brade and Flachowsky, 2005). The raw milk supply is negatively influenced by the dairy cattle meat demand, which in turn is negatively influenced by the extent of shutdown. When dairy cattle leave the milk production process, their meat is used primarily for burger production in system catering (Spanring, 2020). The extent of shutdown influences the dairy cattle meat demand negatively through the closure of gastronomy. If dairy cattle cannot be sold to slaughters at the end of the milk production process, they may stay at the farm and in the milk production process (Spanring, 2020).

The extent of shutdown influences the raw milk demand negatively. The decrease of demand for milk and milk products (and associated raw milk demand) that was caused by the closure of gastronomy, hotel business, canteens, and system catering was not offset by an increase of milk product sales in the supermarket at the beginning of the COVID-19 pandemic (Agrarmarkt Austria, 2020b). The raw milk demand has a positive influence and the raw milk supply has a negative influence on the raw milk gap. The raw milk gap influences the dairy production quantity negatively. The bigger the raw milk gap is, which means a lack of milk, the smaller is the dairy production quantity. The dairy production quantity influences the available dairy products and the available dairy products for export positively. The available dairy products for export are also negatively influenced by the extent of shutdown, as closed borders and other measurements pose a challenge to international logistics.

Deciding which dairy products to produce can help to manage a surplus of raw milk supply. As throughout the year, the peak of milk supply does not co-occur with the peak of milk demand, this is a common procedure. As shown in Figure 4, in the decision-making process, the amplified production of milk powder, butter, and cheese products for storage is used to handle a raw milk surplus.

Figure 4

As many parts of the economy and the social life, the Austrian dairy industry was also hit severely by the impacts and consequences of the COVID-19 pandemic in the year 2020. In the following, the use case is described using the key points market changes, supply chain echelons, counteractions, and a special focus on the situation in Western Austria.

The milk price, which Austrian farmers received in the first half of 2020, was slightly below the previous year's level and then rose from July onward, finally reaching 40.33 Cent/kg. In terms of milk deliveries, the total volume in 2020 was 2,608 tonnes, or 0.08%, below the previous year's volume. Organic milk, however, achieved an increase of 2.7% (Agrarmarkt Austria, 2021a). As a first reaction to the pandemic, there were occasional calls from dairies to dairy cattle farms to reduce milk deliveries (Agrarmarkt Austria, 2020b).

The COVID-19 pandemic triggered considerable market changes because there were strong segment shifts due to the closure of restaurants and hotels. The largest production increases in 2020 were in long-life milk (+11.6%), soft cheese (+10.1%), sour cream (+6.2%), and butter (+5.2%). There was a reduction in the production volume for pasteurised milk (−8.3%). Here, the trend has generally been toward milk with a longer best before date for some time, and this was reinforced by the pandemic. There were also production losses for sweet cream (−7.8%) and hard cheese (−4.5%) (Agrarmarkt Austria, 2021b). In particular, there was a slump in demand for cheese products for high-end gastronomy and for products in bucket packs.

The trend in 2020 was increasingly toward regionality and organic products, which is why direct marketing was also able to record large increases (Agrarmarkt Austria, 2021b). However, it is still questionable whether this change will last. In general, the dairy industry in Austria was able to manage the production adjustments well, as capacities for overproduction are available in the dairies. Due to the seasonal nature of the milk supply, the dairies are prepared for fluctuations (Expert interview 1, 2019).

At the beginning of the pandemic, there was a staff problem on farms; but by amending the quarantine order for farmers, this was solved, and farmers were able to take care of maintaining the farm even in spite of quarantine (Expert interview 3, 2020). Milk transport in Austria is handled by forwarding agents. The market of providers is relatively small, but stable. A loss of drivers is difficult to replace, as they need special training to operate the equipment. In addition, a milk tanker driver drives to several farms on a collection tour, so the loss of one driver means the loss of an entire tour. By driving to several farms, milk tanker drivers also pose a great risk in terms of virus spread. However, strict hygiene strategies and measures prevented severe absences and milk collection was maintained (Expert interview 2, 2020).

In the dairies, the already existing hygiene measures were tightened to avoid spread of the virus because spread of infection would mean the loss of an entire shift. Moreover, the possibility of a diversion to other filling lines exists, so that filling is guaranteed. There were COVID-19 infection cases in Austrian dairies, but they did not lead to any production problems. There are hardly any weekly or monthly commuters in the Austrian dairy industry, so there was no impact of entry regulations. However, there are daily commuters who are employed at locations near the border. For them, nevertheless, it was possible to cross the border at any time (Expert interviews 3, 4, and 5, 2020).

In the case of packaging material, there was the risk of a supply chain disruption. However, the supply chains worked well because the borders were also always open for goods transport. As production increases within the usual growth rates, there was always enough packaging material available. In general, however, there are only a few suppliers of packaging materials, and therefore the supply chain is vulnerable even if one supplier quits (Expert interview 2, 2020).

Private storage was a measure taken by the EU to stabilise the market and counter the crash in milk prices (European Commission, 2020). It involved financial subsidies for storage costs in order to be able to hold back goods for a few months. In Austria, it was used from the beginning of May 2020 and skimmed milk powder, butter, and cheese were stored. According to interview partners, this measure worked well and most of the stocks were reduced again by the end of the year (Expert interview 2, 2020).

The sale of cattle cows was confronted with some difficulties, as demand had collapsed, which led to a backlog on some farms, as stated by the interviewed experts 3 and 4 (2020). In some federal provinces, the slaughter of dairy cattle was financially supported through a “culling premium”, which had a relieving effect on the market situation (Expert interview 5, 2020).

The situation in Western Austria (especially Tyrol and Vorarlberg) must be viewed in a somewhat different manner, as there exists a greater dependence on tourism than in the rest of the country. After losses in spring 2020, the summer was very successful for the dairy industry and the losses could be partially compensated. However, as there was hardly any tourism in the winter, large losses were recorded again. Western Austrian dairies suffered sales losses of approximately 25% in 2020; small cheese dairies with their own sales, which are very focused on tourists, lost up to 75% of their sales. Private storage was hardly used, as the warehouses are mostly filled with long-maturing cheeses (Expert interview 5, 2020).

Overall, the Austrian dairy industry was able to cope well with the upheavals caused by the COVID-19 pandemic, the system proved to be stable, and the supply chains worked. Broadly positioned dairies that offer different products and supply different segments managed the crisis more easily than dairies with greater specialisation.

The BPMN approach showed that the dairy supply chain is very complex, and especially, the processes of milking and milk processing consist of many individual process steps. However, the low number of required processing locations shows that milk is a locally produced product, which is also related to its high perishability and the need for quick processing.

As it can be seen in the CLD, self-influencing effects can emerge with regard to packaging material and dairy staff. These two points are, therefore, important determining factors. In expert interviews, the supply of packaging material was also mentioned as a critical point, as the market on the supplier side is very small. The assessment of dairy personnel as a neuralgic point could also be confirmed; dairy specialists are in demand and apprentice positions are available.

In order to mitigate the effects of a pandemic, various considerations can be made on the basis of the CLD. For example, if there is not enough processed milk, policy makers could consider increasing the extent of the shutdown; this means drawing a negative link from dairy production quantity to the extent of shutdown. A balancing loop between dairy production quantity, extent of shutdown, raw milk demand, and raw milk gap would emerge. The consequences would be a positive effect on human health, for example, and thus on staff in various categories. However, one must also bear in mind that an increased shutdown can have a negative impact due to border closures.

Another link that could be drawn is a positive link between available dairy products and human health, where several feedback loops would emerge. However, the foundation causing the link is rather small. Thus, we refrained from drawing the link.

As shown previously, in 2020, the milk volume in Austria remained relatively stable. The sales problems with the slaughter of dairy cattle were also manageable. However, the dependencies of the underlying system, as presented in the CLD, were present and were also shown to a moderate extent in the use case.