Vertical Coordination in the Vertical Coordination in the dairy supply chaindairy supply chain

Evidence from Albania, Bulgaria, Evidence from Albania, Bulgaria, Poland & SlovakiaPoland & Slovakia

Liesbeth Dries – K.U.LeuvenLiesbeth Dries – K.U.Leuven

EastAgri 2005 Annual Meeting, Rome, EastAgri 2005 Annual Meeting, Rome,

28 February 200528 February 2005

Goal & methodologyGoal & methodology

Goal: to analyse the extent and Goal: to analyse the extent and impact of vertical coordination in the impact of vertical coordination in the dairy sectordairy sector

Methodology: Methodology: • Countries: PL, SK, BG, ALBCountries: PL, SK, BG, ALB• Interviews dairy processing firmsInterviews dairy processing firms• Interviews input suppliersInterviews input suppliers• Farm level survey / interviewsFarm level survey / interviews

Dairy assistance programsDairy assistance programs Credit Inputs Extension Veterinary Bank Total PL 50 67 50 0 50 43 1994 SK 0 0 83 17 17 23 BG 9 18 9 0 0 7 PL 83 100 83 17 83 73 1998 SK 17 17 83 17 33 33 BG 45 64 18 18 18 33 PL 83 100 83 17 83 73 2002 SK 100 33 83 17 50 57 BG 82 91 73 18 36 60 2003 ALB 0 0 0 18 0 4

Assistance versus reformAssistance versus reform

R2 = 0.9309

0

10

20

30

40

50

60

70

80

90

2 2.5 3 3.5 4

reform progress (EBRD)

assi

stan

ce (

% i

nte

rvie

wed

co

mp

anie

s)

Impact on milk quality (PL)Impact on milk quality (PL)

0

10

20

30

40

50

60

70

80

90

100

1996 1998 2001

Sh

are

of

Ext

ra C

lass

Mil

k in

To

tal

(%)

Mlekpol

Mleczarnia

Kurpie

Mazowsze

ICC Paslek

Warmia Dairy

Impact on milk quality (PL)Impact on milk quality (PL)

20

30

40

50

60

70

80

90

100

1995 2000

Sh

are

of f

arm

s w

ith

Ext

ra c

lass

mil

k

FDI

no-FDI

Impact on investments (PL)Impact on investments (PL)

Size (# of cows)

Invests (% of total)

Uses loan to invest

(% of A)

Uses dairy loan

(% of B)

Uses bank loan

(% of B)

A B C D

1-5 52 54 41 50

6-10 78 51 43 70

>10 92 74 43 75

ALL 76 58 43 69

Impact on farm growth (PL)Impact on farm growth (PL)

0

5

10

15

20

25

30

35

1 3 5 7 9 11 13 15 17 19 21 23 25

Herd size

Fre

qu

en

cy

1995

2000

ConclusionsConclusions

Vertical coordination in dairy supply chain Vertical coordination in dairy supply chain leads to potentially strong positive leads to potentially strong positive spillover effects in terms of:spillover effects in terms of:• Delivered product qualityDelivered product quality• On-farm investmentsOn-farm investments• Farm growthFarm growth

Remark: FDI as an initiator of change & Remark: FDI as an initiator of change & institutional innovationinstitutional innovation

Remark: Initial size distribution is relevantRemark: Initial size distribution is relevant