The Potency of Quality Incentives: Evidence from the Indonesian Dairy Value Chain

Abstract

Misalignment of quality incentives along value chains may limit quality and therefore function as a barrier to smallholder participation in modern value chains. This article uses survey and administrative data to study how individual quality incentives provided by private actors can help smallholders to improve milk quality. By matching farmers on baseline characteristics, I find that individual quality incentives increased the compositional quality of milk quickly after its introduction. Together with physical inputs and training, individual quality incentives also increased the hygienic quality of milk. Decreasing hygienic quality over time by treated farmers suggests that the impact of the intervention decreased over time.

Insights on Production End of the Dairy Value Chain in Bangladesh

“…Small-scale farmers rarely use appropriate technology to assure milk quality, mostly due to a lack of technical knowledge and financing capacity. A similar reality also persists across developing countries (Treurniet, 2021).…”

“…After all, lactometer measures only density whereas price is determined by fat percentage as per the traditional performance quality measures in Bangladesh, and the latter approach is prone to subjective judgment. Lack of use of technology for milk quality assessment is one reason underlying the exploitative pricing mechanism which needs farmers to have technical knowledge and affordability to be get resolved (Treurniet, 2021).…”

“…Hand milking is a common practice in Bangladesh while machine milking is only found at large dairy farms. Limited use of technology for milking at small-scale farming level is an impediment to value addition which large-scale farmers do not suffer from (Treurniet, 2021). While the quality of milk is strongly related to the breed of the cow, quality of fodder, and health of the cow; quality degradation due to lack of hygiene and contamination is caused mostly by the milking process.…”

“…Future research can assess whether the existing milk production-focused breeding policy is sustainable and ultimately beneficial for the country in the long run.  Appropriate training and market restructuring could assist small-scale and medium-scale farmers in consistently ensuring the hygienic quality of milk and similar arguments about developing countries are also made by experts (Treurniet, 2021). Further research is required to figure out how these training and knowledge development initiatives could be made in a socially embedded manner for greater sustainability.…”

“…The milk production system in Bangladesh is not automated and therefore production ecosystem of the dairy value chain has considerable scopes to improve efficiency through advancing feeding, breeding, housing, milking, changing the ratio of costs and income of dairy farms (small, medium, or big), enhancing the performance of both indigenous and crossbred cows, and advancing present technological know-how (Jabbar, 2010). Structurally, small-scale farmers in developing countries face challenges as they struggle to meet the demanded standards which are becoming increasingly stringent due to the increased intervention of institutional processors (Hariyono, 2020;Treurniet, 2021). Gender issues along the dairy value chain are identified in different contexts with varied complexities and in most of the cases, women still lag contributing when decision making is concerned (Haque et al, 2020;Merhaut,2019;Savani & Stewart, 2019;Sikira et al, 2018).…”