World Food Policy
nuses are awarded for respecting the
code of practice (certified by IDP), use
of tanks and equipment for transport-
ing milk, and compliance with farm
sanitary standards. A stable year-round
purchase price discourages farmers
from switching to another processor.
Although the prices set by IDP are
somewhat lower than cottage indus-
try on spot market, farmers appreciate
selling to IDP because of regular milk
purchase during year. Along with the
quality-based payment, IDP frequently
monitors compliance of its contract-
ed farmers with hygienic and farming
practices. Captive governance led by
IDP, on the one hand, has contributed
to the rapid adoption of the Code of
practice at the farm level and, in turn,
to the company’s success in creating
a stable source of raw material for its
large-scale processing. On the other
hand, under this governance pattern,
by founding a decentralized collec-
tion network, IDP aims at reducing its
transaction costs (particularly search,
screening and transfer costs) since
third-party collectors take over coor-
dinating exchanges with small farmers.
Yet, the costs of monitoring and enforc-
ing the contracts with dairy farmers, in
particular supervision of husbandry
practices and control of milk quality,
are still relatively high since most local
producers are smallholders spreading
out over a large area.
The milk chain is therefore char-
acterized by a two-facet governance
(Table 3): relational governance be-
tween farmers and collectors, and cap-
tive governance between farmers and
IDP, the industrial processing firm.
Figure 5: Distribution of profit and added value among actors in the dairy value chain
Source: RUDEC’s survey (Revalter, 2014-2015)
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