Governance Structures in the EU Milk Supply Chain

Governance Structures in the EU Milk Supply Chain

Nico Polman (LEI, Wageningen UR, The Netherlands), Noortje Krol (LEI, Wageningen UR, The Netherlands), Jack Peerlings (Wageningen University, The Netherlands), Pierre Dupraz (INRA, France) and Dimitre Nikolov (Institute of Agricultural Economics (IAE), Bulgaria)
DOI: 10.4018/978-1-60960-621-3.ch010
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Governance of the EU’s dairy sector changes will change as a result of the 2008 CAP reform. This chapter focuses on governance structures between dairy farms and milk processors and the role of the exchange of information. Information costs are an important category of transaction costs. To get insight in regional differences within the EU, literature research and interviews are conducted in three case study areas, namely: the Netherlands, Bulgaria, and France. Results show that in these countries both farmers and processors have incentives to form hybrid governance structures with a higher level of control compared to the current structures. Asymmetric information and the exchange of information play an important role in this contractual relation. Most dairy cooperatives have no additional advantage in managing milk quality and milk supply compared to investor owned firms. Chain integration could go a step further in Bulgaria compared to the Netherlands and France given the institutional environment that is not expected to guarantee milk quality and the focus on the export of milk.
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Conceptual Framework

Several studies have discussed the governance of agrifood chains, paying attention to the specific characteristics of these chains (e.g. Cook et al., 2008, Raynaud et al., 2009). Food and agricultural commodities have unique characteristics. Production of agricultural commodities is dependent on seasonality, weather conditions and potential hazards such as the occurrence of diseases. This brings high levels of uncertainty and physical, site and temporal asset specificity (Cook et al., 2008). The asymmetric information about the condition of agricultural products, combined with the fact that the products are perishable and the fragmented production of agricultural commodities (large numbers relatively small dairy farmers), makes food quality and food safety a large concern for food processing companies (Raynaud et al., 2008).

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