The Future of Milk Delivery Relations from the Perspective of German Farmers

Abstract

In typical contractual relations between milk producers and processors in Germany, prices may currently function only to a limited extend as signals for quantity adjustments of milk production. This is one of the reasons why a reform of the contractual relationships has been frequently discussed. However, little is
known about the preferences of German milk producers regarding their preferred attributes of an ideal milk delivery relationship. Therefore, randomly selected farmers in different German regions where presented with Discrete-Choice-Experiments about different contractual attributes such as duration, pricing, cancellation period and quantity regulation. A random parameter logit model was estimated to identify drivers of preference heterogeneity. Results indicate that larger milk producers tend to favor fixed contractual solutions, while small and medium-sized producers tend to adhere to the currently prevailing cooperative delivery system of unregulated quantities of delivery and ex post pricing. However, the majority of milk producers want shorter cancellation periods with their dairy companies, and milk producers in East German federal states reject the typical cooperative delivery system more frequently than the respondents in West Germany.