Analyses of private market coordination mechanisms in the Hungarian dairy sector

By Gábor G. Szabó and Péter Popovics

Paper for the 19th Annual Food and Agribusiness World Forum and Symposium, Budapest, Hungary, June 20-23, 2009

Abstract
Just before Hungary's EU accession (2004), the dairy sector was one of the most critical industries of the Hungarian agriculture, which is why we chose this for our empirical analysis. Results of our price transmission analysis as well as our previous study on contractual relations in the Hungarian dairy sector obviously show that only the increase of input prices will increase the prices in the production-processing stage. Independent privately owned farm organisations can not countervail the market power of their business partners; hence farmers cannot enforce their interest separately and act against the concentrated processing industry. Thus, the main aim of our paper is to show possible theoretical and practical ways of establishing private (market) coordinating organisations in the (Hungarian) dairy sector.

We use New Institutional Economics as a theoretical background in carrying out a literature review on coordinating matters as well as on bargaining power issues. As a main body of our study we summarize the strengths, weaknesses, opportunities and threats of the different coordination structures in the frame of a SWOT analysis, assuming two theoretical situations: one is when the coordination is initiated by the processor or when it is initiated by the farmers.

At the end of our paper we present a successful organisation the Hungarian Alföldi Milk Selling and Supplying Ltd. which is a good example for the vertical integration in the dairy chain based on the horizontal coordination of farmers as initiators.

http://www.eoq.hu/iama/conf/1107_paper.pdf