Fat pricing refers to the practice of setting prices based on the fat content of a product, especially in the dairy industry. This is commonly used in milk and dairy product pricing, where producers are paid based on the amount of fat (such as butterfat) in their milk.

How Fat Pricing Works:

1. Higher Fat = Higher Value → Milk with higher butterfat content is often priced higher because fat is a key component in producing butter, cheese, and cream.
2. Component Pricing → Many dairy processors pay farmers based on separate components like fat, protein, and other solids rather than just the total volume of milk.
3. Market-Driven → The price of milk fat fluctuates based on market demand, similar to how protein pricing works in dairy.

Example:

If a dairy company offers $5.00 per kg of milk solids (kgMS), but fat is valued higher than protein, they might break it down as:

• Fat: $6.00/kgMS
• Protein: $4.00/kgMS

This incentivizes farmers to breed cows or adjust feeding strategies to produce milk with higher fat content.