In this article, we simulate the concentration process within the German dairy sector employing a sector–wide optimization model. As a result, we get cost minimizing structures of the dairy sector for various time horizons depending on varying levels of transportation costs. We show that the model is capable of describing the current trend characterized by a decrease of the number of dairies while average capacity increases and that – ceteris paribus – this trend is likely to continue. In contrast, the trend may weaken or reverse if transportation costs rise in comparison to other types of costs.
