European Dairy Cooperative Strategies: Horizontal Integration Versus Diversity

Horizontal integration has been widely used by cooperative dairy processors in an effort to reduce costs. This is seen as a necessary condition for the payment of higher farm-gate milk prices. However, the observation that farm-gate milk prices are not consistently correlated with degree of horizontal integration raises questions about other factors. The aim here is to investigate the relationship between the farm-gate milk price and three variables, namely, degree of horizontal integration, degree of diversification and size irrespective of volume of milk processed or degree of diversification. A positive relationship with farm-gate milk price was found for all three variables but was relatively weak especially after a certain scale of operation in the case of horizontal integration.