Vertical coordination in the Brazilian milk supply chain: the case of 3B Agro LTDA

Abstract

The dairy business is characterized by generally low profit margins due to a very competitive market environment. Dairy farmers and milk processing companies, therefore, constantly seek to optimize their technical production processes in pursuit of further cost reductions, e.g. by means of improving herd management, milking and feeding practices. In addition, innovative business strategies may create competitive advantage in response to market conditions. While vertical coordination or even integration have been established successfully in most sectors of animal husbandry including poultry, pork and beef production, this strategy is mostly limited to supplying contracts and input support within the dairy sector. Various organizational models of increasing vertical coordination in dairy production exist, with great variation in terms of operational performance and profitability. Using the example of 3B Agro LTDA’s dairy production located in the municipality of Toledo, Brazil, the case study illustrates the significant efficiency potential that currently exists in the Brazilian dairy supply chain. The prevalence of short-term contractual commitments and an influential role of independent intermediaries give room to considerable opportunism of market participants, various principal-agent problems and severe issues regarding milk quality. The case study illustrates that, vertical coordination can increase control and efficiency along the supply chain. It also points out the importance of strong managerial competencies and capabilities of dairy farm managers in order to exploit fully the efficiency potential provided by vertical coordination.

Quantitative Assessment of the Relationship between Land Management Practices, Financial Literacy, Supply Chain Integration, and Profitability in Agribusiness Enterprises

“…Supply chain integration refers to the coordination and collaboration of various entities involved in the production and distribution of goods and services (Hayer et al, 2019). In the agribusiness sector, supply chain integration can lead to increased efficiency, control, and profitability.…”

“…For instance, vertical coordination or integration has been established successfully in most sectors of animal husbandry, including poultry, pork, and beef production, and has been found to increase farms' competitiveness and profitability (Caracciolo, 2016). However, the dairy business is characterized by generally low profit margins due to a very competitive market environment, and various organizational models of increasing vertical coordination in dairy production exist, with great variation in terms of operational performance and profitability (Hayer et al, 2019). Therefore, innovative business strategies may create competitive advantage in response to market conditions, and supply chain management optimization is deemed necessary to maximize efficiency in every process carried out in agribusiness (Iskandar et al, 2023).…”

“…Supply chain integration emerges as a key driver of profitability within agribusiness enterprises, highlighting the importance of seamless coordination and collaboration across the value chain (Hayer et al, 2019). The significant positive relationship observed between supply chain integration and profitability underscores the benefits of efficient supply chain management practices in enhancing operational efficiency, reducing costs, and improving customer satisfaction (Caracciolo, 2016).…”

Change in Seasonality Pattern of EU Farmgate Milk Price

“…More balanced diet of dairy cows leads to more stable milk composition. Ruminants should receive homogenous feeding as any changes in the feeding regimes, like shifting from pasture feeding to concentrate feeding and vice versa, affect the quantity of dry matter in the milk, especially fat (Egersma et al, 2004;Burke et al, 2007;Sienkiewicz and Góralska, 2009;Nategi et al, 2014;Oldemiro et al, 2016;Hayer et al, 2019). The feeding pattern is usually determined by the geographical conditions like temperature and availability of pastures.…”

Techlex: a corporate practice to initiate inclusive agri-food value chain development in China

“…Empirical research has explored the repercussions of concrete mechanisms in developing economies, with objectives of poverty reduction in particular (Dries et al, 2009). Although the performance may be deviated by factors such as market malfunction and weak managerial capabilities, vertical coordination between agribusiness and farmers has been deemed key for corporate social responsibility and inclusive VCD (Hajdu et al, 2021;Hayer et al, 2019;Kopp and Sexton, 2021;Lund-Thomsen and Nadvi, 2010). Rather than leaving local stakeholders to compete in their silo, such vertical coordination develops agri-food value chains as a local response to the inclusive pursuits and the ongoing GVCD trends like domestic agglomeration (ADB et al, 2021;Bresnahan and Levin, 2012;Humphrey and Navas-Alemán, 2010;Rich et al, 2011).…”