Abstract
Dairying is important in Macedonia though the industry is not seen as competitive internationally. New governance structures are required. The aim of this study is to identify the conditions for behavioural changes by Macedonian dairy farmers regarding their choice of dairy processors. Data were collected through interviews with 30 farmers. The findings indicate a pattern: smallholders sell to small processors and large farmers sell to large processors. Transaction cost economics provide explanations. There is human asset specificity in the form of personal relations between the smallholders and the small processors. Physical asset specificity exists as the smallholders produce low quality milk, which large processors do not buy.
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