Competitive advantage and processor demand for local and imported food ingredients: analysis from an urban dairy market in West Africa

Abstract

PurposeIn Mali, dairy processors mostly use imported powdered milk rather than local fresh milk, constraining the development of a domestic milk sector. We investigate factors motivating a firm's choice of milk input, to identify measures that can encourage demand for fresh milk.Design/methodology/approachWe utilize case study data from nine firms that use fresh and powdered milk to varying degrees, and which are representative of dairy processing in Bamako. To model firm motivations, we assess how each input contributes to or detracts from firm competitive advantage, through its influence on cost and differentiation.FindingsFirms using fresh milk pay a higher input price, incur higher transaction costs and face additional challenges in production and distribution. Firms distinguish themselves from competitors through four potential sources of differentiation: novel product types, quality enhancements, quality-signaling and unique packaging. However, fresh milk firms are less likely to exploit each source of differentiation.Research limitations/implicationsCompetitive advantage is a useful framework for understanding firm behavior in developing markets and can be applied in other contexts to strengthen external validity.Originality/valueThe extant economics literature on African dairy development has been surprisingly silent on the threat of import competition. This research is one of the first to investigate this issue in the under-studied middle segment of food value chains.

Beyond grain: the potential of cowpea in local markets of Mali

“…According to our interviews, some fodder farmers are located in rural areas that are close to cities and sell to urban and peri-urban markets. The dairy sector is developing in periurban and urban areas of Mali (Vroegindewey et al, 2021). In rural areas, a large part of the fodder is used directly by farmers for their own livestock (if any) and the remainder is sold to other local farmers.…”

Key factors for increasing farmer participation in markets: evidence from the Malian dairy sector

“…Another household-level variable indicated whether the household head was Fulani, which is a large pastoral ethnic group in West Africa with a tradition of livestock management and, as such, may be able to maintain more productive dairy cattle. Additionally, in Mali the Fulani are also popularly reputed for selling high-quality milk (Vroegindewey et al, 2021), which may also increase the benefits (e.g. price) and/or reduce the transaction costs of participating in markets.…”

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Consumer demand for dairy products in Mali and in the broader West African region has been climbing steadily with income growth and urbanization (Zhou and Staatz, 2016). Additionally, there is evidence that consumers and retailers have a strong preference for local fresh milk over imports (Vroegindewey et al, 2021; Lefevre, 2014). Since the late 1990s, this growing demand has led to the emergence of milk collection centers that have sought to link the region's production basins with urban areas (Corniaux et al, 2014).

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“…Multiple factors can help to explain the historically weak performance of Malian milk supply, including i) underinvestment in quality, productivity, and infrastructure, ii) limited policy support for the Malian dairy sector and poor coordination between government and market actors, and iii) the preference of urban milk processors for less expensive powdered milk imports (Vroegindewey et al, 2021;Mas Aparisi et al, 2012;Duteurtre, 2007). At a microeconomic level, the outcome of these underlying causes is summarized by a single trend: the weak participation of milk producers in markets.…”

“…As Barrett (2008, p. 300) summarizes, the theoretical benefits of market-oriented production and trade, relative to subsistence production for own consumption, are important, and include not only "the one-off, static welfare effects of trade according to comparative advantage" but also more rapid total factor productivity growth due to opportunities for larger-scale production and the increased interflow of ideas. Additionally, in the Malian context, an increase and stabilization in the market supply of milk should have broad economic benefits, by strengthening the competitiveness of local dairy value chains and contributing to greater accessibility of diverse foods, especially in urban areas (Vroegindewey et al, 2021;Theriault et al, 2018).…”