Market characterization and governance structure of milk productive chain in Rio Grande do Sul northwestern

Abstract

Concerning the milk production chain, the structure of monopsony in the market of factors has its domain for many years in the state of Rio Grande do Sul. It has been verified in the last years, especially from 2004, a significant increase in the amount of milk processing companies in the North of Rio Grande do Sul concentrated in regions which have strong milk basins. This fact provokes the increase of the concurrence between these companies related to the acquisition of their main raw material, the in-natura milk. It was identified a region in Ajuricaba town, RS, where historically just one company was responsible for the purchase of the raw material and, since 2004, several companies use to dispute markets for the milk produced in that location. The objective of the present research was to investigate in such a region how the concurrence in the acquisition of the raw material interfered in the transactions between processing company and farmer, and in its domain in the milk productive chain. The concurrence in that location brought changes for the people involved. To achieve these goals, especially with regard to the selection and analysis of the case study, I employed a theoretical framework built upon the theory of Industrial Organization (IO) to analyze the market and its structure as well as the New Institutional Economics (NIE) and Transaction Cost Economics (TCE) for the analysis of transactions and governance of the production chain. These changes raised the costs of transaction, characterized by a higher frequency in the transactions, caused by the increase of uncertainty, opportunism and consequently making a more limited rationale. As for the structure of domain adopted in the concurrence environment compared to the one adopted in the monopsony environment it remains hybrid but closer to governance via market.