World Food Policy Volume 3, No. 2/Volume 4, No. 1, Fall16/Spring17 | Page 72

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) 72