Analysis of value distribution in the dairy sector

The price of milk delivered to industry by dairy farmers has been steadily decreasing over the last 10 years. In response to this situation, a study on «value distribution in the Swiss agro-food supply chains» has analyzed the situation and suggests concrete measures to improve the financial return to farmers. Across all agricultural sectors, prices paid to farmers differ greatly depending on various factors including the sales channels employed, product differentiation as perceived by both consumers and retailers, and the governance structure between the farmer and buyer. Furthermore, the rules for determining profit margins employed by supermarkets and milk processors are not transparent. This asymmetry of information reduces the farmers’ negotiating power. The more successful farmers and processors are able to differentiate their products and convince consumers to pay more, the higher their share of the price levied by retailers. In addition, other issues such as production surpluses and low value-added products weigh on the overall value of the sector. The study also highlights the impact of the choice of the governance structure on the return of value to farmers. Consumer demand for «fair prices for farmers» is increasing and may soon have a significant impact on the reputation of processors and retailers leading them to incorporate fair pricing policies into their performance criteria.