Organisation of German livestock production from the bottom up: a new institutional economic analysis of dairy cattle breeding

Abstract

Abstract Cooperatives operate in many different parts of the agri-food chain. Animal breeding, as one of these areas, has not yet been subject to intensive research. In the literature, cooperatives are often claimed to produce a lower quality product than comparable investor-owned firms. Is this the case in dairy cattle breeding as well? In order to address this question, we examine the inter- and intra-organisational coordination and structure of the supply chain for cattle breeding in Germany by means of a property rights model. In a short-term perspective, the profit maximisation of the cooperative member follows the model of perfect competition. In addition, we show the existence of a quality coordination problem in breeding associations in the long run. This problem is presumed to be counteracted by the dual system of price-setting which allows the cooperative to provide incentives to its members.