Abstract
AbstractThe farm-gate price of raw milk in Iran is determined annually in negotiations among representatives of dairy processors, milk producers, and government officials. This study estimates the average bargaining power of dairy farmers and processors, through applying the generalized axiomatic Nash approach in a bilateral bargaining model. We employ annual data from 1990 to 2013 to estimate econometric representation of a bilateral bargaining model using a Monte Carlo expectation maximization algorithm. Results imply a higher bargaining power of 0.69 for processors, compared with 0.31 for farmers. This asymmetry of bargaining power causes unequal allocation of gains in the milk market.
Highlights
The food processing industry has changed dramatically in Iran during past decades
We use the augmented Dickey-Fuller (ADF) approach to test for unit roots in each variable
The results from the ADF test on the residuals show that nonstationary variables in our study are cointegrated, and, except for the quantity of milk production (Qt), we found all variables to be I(1)—that is, integrated of order one
Summary
The food processing industry has changed dramatically in Iran during past decades. Economies of scale and increased concentration have led to fewer and larger agribusinesses. In this situation, the main concern is that greater bargaining power enables the processors to absorb more of the profit and leave the farmers disadvantaged. The dairy industry in Iran is a good example of a concentrated industry with possible asymmetric bargaining power for farmers and processors. According to Iran’s Ministry of Industry, Mine, and Trade (MIMT), approximately 70% of the raw milk is bought by less than 9% of the dairy processing factories (MIMT, 2013). Pegah Company controls 30% of the market in dairy products by processing 6,000 tons of raw milk per day
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