The Wikipedia article on Milk Bags point out the other countries they are common in. It also calls out the benefits (though not referenced):
Milk bags use less plastic than traditional milk jugs and are placed in reusable plastic pitchers. The bags themselves can also be washed out and re-used to carry sandwiches, or to freeze food (using a twist tie or rubber band for closure).
They contain less plastic than a milk jug, causing less environmental harm than milk jugs. Milk bags are more ideal from an environmental standpoint than paper milk cartons or glass milk bottles.
"Bucky," over at The West Virginia Blogger, asked his Canadian friend in 2008 and received several points, including:
- The bags were actually adopted to reduce waste and other resources required to transport the milk.
- The bags themselves are easy to sterilize and transport and some people even freeze their milk.
- As well, the fact that you buy such a large amount usually means savings.
A comment in the above article by "sj" claims there is a 25-cent deposit on plastic jugs in Ontario, to help keep them out of landfills by discouraging people from buying them.
From Worthwhile Canadian Initiative, further evidence of overall cost is given:
there are a fair number of people in South Africa who don't have much money. Milk bags use less materials than jugs, so are cheaper to make. Some people are willing to pay for convenience, some people aren't.
Note the last paragraph, implying that bags are not more usable then jugs. Indeed, an update to the same blog post points out:
Update 1: Chris Auld wrote to Dan Wong of the BC Dairy Council and received this reply. Mr Wong explained that milk is not sold in bags in BC because of widespread cross-border shopping - consumers prefer milk sold in jugs, and be even more inclined to buy milk in the US if milk was not available in jugs in BC.
It appears that, according from the Dairy Council, consumers in Canada were willing to cross the border to America to buy jugs (likely at higher cost) for the convenience.
It would appear the the "design" decisions behind bagged milk is primarily for environmental and transportation reasons. The cost saving design of this is also of note, but unlikely to be the primary reason due many consumers willingness to spend more for convenience (i.e., jugs).