Governance Structures in the EU Milk Supply Chain

Abstract

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.