A sugar mill receives sugar cane from farmers, extracts the juice, boils it into syrup, and then crystallizes the syrup into raw sugar. There has been an ongoing consolidation of sugar mills, and an increase in the capacity of those that remain. The number of mills in Louisiana was 48 in the 1960s, was 18 in 1999 and is currently 13. In 1999 the break-even point for a typical mill was 600,000 tonnes. But as the surviving mills have added capacity, the break-even point is now 1,000,000 tonnes. In 1999, the state's farmers produced 16,000,000 tonnes of cane, but by 2004, the crop was down to 13,000,000 tonnes. Analyse this situation with what you have learned about the capacity decision. Is the industry better off with fewer but larger mills, or not?

There are several possible paths students can take. The most obvious is the economic argument that economies of scale call for ever larger plants. Students may want to address the lead, lag, or straddle strategies of growing to meet demand. But demand is not growing very much-it's up from 890,000 tonnes per mill to 1,000,000 tonnes per mill over 5 years. Students may alternately try to analyse the considerations of matching capacity to demand, and describe pricing strategies or internal changes to meet demand. But the broadest view suggests that the industry (not individual mills!) operated somewhat above break-even in 1999, but is squarely at break-even now. The increased capacities do not seem much of an improvement. This question is drawn from an article in the New Orleans Times-Picayune, 30 January 2005.