Organizational forms and technical efficiency of the dairy processing industry in Southern Brazil

Abstract

The objective of this article is to assess the determinants of the technical efficiency of dairy processing firms in Southern Brazil while accounting for their different organizational forms, namely cooperatives and investor-owned firms. The data from 243 milk processors in southern Brazil, including firm structure, management capacity, and organizational choice of dairies, were analyzed. A production frontier is specified to estimate technical efficiency and identify its potential driving sources. Bayesian techniques are used to estimate the model. An average efficiency of 77% indicates that the actual output is 23% below its potential, which implies that output could, on average, be increased by approximately 31.6%, under ceteris paribus conditions. Economies of scale were also detected. The analysis reveals that the management capacity within companies is the main determinant of efficiency. Idle capacities of processing plants are an important source of inefficiencies and cooperatives are more efficient than investor-owned firms, despite their transaction costs potentially being higher and the five vaguely defined property rights inherent to the traditional cooperatives which they must overcome. Knowledge about the cooperatives’ objectives other than profit maximization would provide a more realistic comparison against investor-owned firms. This study assessed the determinants of the efficiency levels of dairy processing companies in an emerging economy using a unique own dataset with data collected at a plant level. Based on the results, manifold managerial and political implications have been derived that can benefit the dairy industry of developing and emerging economies.

Strategic Actions for a Sustainable Internationalization of Agri-Food Supply Chains: The Case of the Dairy Industries from Brazil and Germany

“…This is often limited in monopolistic situations and particularly in the case of companies' opportunistic actions. In this case the consequences of monopolies would be lower returns to farmers, increase risk in farming activities and cut-off more farmers and small companies, especially cooperatives, as demonstrated by the studies [16,48] on dairy processing companies in southern Brazil. In this regard, mergers and acquisitions of small companies would be an important strategy to realize gains in scale and bargaining power.…”

“…. there is a tendency for any merger between cooperatives to compete in scale" (DSBR01) and to improve their cost structure and reduce idleness in processing plants through more efficient planning [16]. Despite interviewees' awareness, there is not much evidence of these mergers in GFM, which should occur faster and involve more cooperatives [48].…”

“…Particularly in view of existing idle capacities, market entry through takeovers or mergers seems in this case to be a strategical opportunity. Processing companies in Brazil face high idle capacity rates in their plants and this affects processing plants that do not have sufficient milk suppliers, cannot manage the seasonality, or simply because of an excess of infrastructure or poor management and planning, as shown by [16]. Seven interviewees noted this problem.…”

“…Naseer et al [15] examined sustainable supply chain management strategies for the agricultural sector in a developing country, but they focus on identifying critical production and marketing constraints. Most of the studies do not combine the possibilities and opportunities that arise during the internationalization process, although global value chains are seen as having great potential for achieving more sustainable development [16]. Antonowicz and Jarzebowski [17] also point out that integrating value chains and sustainability represent a new direction that has been little researched.…”

Technical Efficiency of Cooperative and Non-Cooperative Dairies in Poland: Toward the First Link of the Supply Chain

“…Another explores these entities' technical efficiency using DEA or stochastic frontier analysis (SFA) [66]. The SFA approach has been applied to the dairy processing industry by, for instance, Doucouliagos and Hune [67], Soboh et al [68], Hirsch et al [23], Čechura and Žáková Kroupová [8], and Beber et al [69]. The DEA method has also been widely used in studies on the technical efficiency of dairies in various countries.…”