Market Structure and Organization in Agri-Food Value Chains: An Application to the German Dairy Sector

• Applicant: Professor Dr. Heinrich Hockmann
• Subject Area: Agricultural Economics, Agricultural Policy, Agricultural Sociology
• Term: from 2010 to 2015
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 53162462

The German dairy value chain is subject to profound structural change resulting in increasingly dominant agents at all stages of the chain, i.e. at the farm level, at the processors’ level and at the retailers’ level. In particular, the consolidation of retailers has increased retailers’ bargaining power vis-à-vis their suppliers. Against this background, the overall objective of this subproject is to analyze the structural change in the dairy sector, particularly at the processors’ level, by taking into account firms’ strategic interactions along the entire dairy value chain. So far, there exists no theoretical workhorse model that allows for the analysis of interdependencies in a three-layer structure where imperfect competition is considered at all three stages. We aim to close this gap to understand how an increasingly dominant retail industry influences strategic decisions at the dairy processors’ level which, in turn, may affect dairy farmers. Building upon a three-layer approach, we first examine whether processors have merger incentives to counter the retailers’ bargaining power. We then analyze the differences between cooperatives and for-profit firms concerning their decision on product quality and the number of dairy suppliers. Finally, we assess the implications for upstream farmers which rounds off the picture of structural change in the German dairy sector.

• DFG Programme: Research Units
• Subproject of: FOR 986: Structural Change in Agriculture
• Participating Person: Dr. Vanessa von Schlippenbach