Production system innovation to ensure raw milk safety in small holder economies: the case of dairy complex in China

Abstract

Food safety becomes an important issue in fast developing economies when a large growing market is supplied by many small producers through a prolonged supply chain. China is facing such a serious problem with its growing dairy market seeing serious food safety scandals. In this article, we examine a new organizational structure recently promoted by Chinese government, dairy complex, and its effects on farmers' behaviors related to safe production and the effectiveness of such behavior on the raw milk safety, using a joint production function under risk theoretical framework. Results show that farmers' production practices such as basic production environment and hygienic condition, disease prevention, and source and use of feed all contribute to the food safety of raw milk. Complex is an important factor contributing to farmers' adoption of such safety production practices, together with the supervision by government, production scale, contracts with processors, and price of raw milk. We, thus, found that dairy complex as an organization structure can influence the safety of raw milk indirectly through its impacts on farmers' production behaviors. Another important finding is that unsafe milk is a result of uncertainty when less strict production practice is used by risk lover producers, and the complexes work well for such farmers by pushing them to take more conservative safety measurements. This innovative production system can be a good measure for developing economies with similar small producer problems.JEL classifications: D24, Q12, Q18

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