The Analysis On Vertical Organization Mode Of The Dairy Industry Chain Based On The Relationship Among The Distribution Of Benefits

In recent years, Chinese dairy food quality and safety problems happen frequently. The substandard milk powder incident, leather milk scandal, reconstituted milk scandal and so on emerge in endlessly, which bring serious damage to consumers’ health and life safety and the development of our dairy industry. In2008, SanLu melamine event even triggered a crisis of confidence in the entire dairy industry. The development of dairy industry suffered a crushing defeat. After the melamine incident, the state has tried its best to rectify the dairy industry in order to promote the development of the dairy industry. Food Safety Law, Dairy Quality and Safety Supervision and Management Regulations, The Dairy Industry Industrial Policy and a series of measures have been proposed. In2010, the Ministry of Health, according to the provisions of Article21of the Food Safety Law of the People’s Republic of China, reviewed by The Evaluation Committee For National Food Safety Standards, announced the66"raw milk" national food safety standards, replaced "raw milk" national safety standards in1986, referred to as "The New National Standard", to further standardize the development of the dairy industry. However, after the announcement of these policies、regulations as well as the new national standard, the dairy food safety problems still continue to occur. Visibly, only through the government’s control,it can’t effectively solve these problems and promote the development of the dairy industry. It needs analyse the entire dairy industry chain to look for the root.Throughout the entire dairy industry chain, there are different stakeholders among the upper, middle and downstream. In this analysis, the upstream mainly includes dairy farmers and milk station; the midstream mainly includes dairy processing enterprises; the downstream mainly includes supermarkets and consumers. The analysis process is mainly around the dairy processing enterprises.Dairy processing enterprises and dairy farmers game, and often trapped in the prisoner’s dilemma,the relationship between dairy processing enterprises and milk station is entrust-agent. The dairy processing enterprises mainly take low price competition in product sales. Downstream’s supermarkets become dairysales’main channels, often take advantage of its superiority, force dairy enterprises to pass the cost pressure to the upstream, then upstream’s interests damaged.It offen leads to potential problems for the production of raw milk and the occurrence of dairy quality and safety problems, which not only harm the interests of consumers, but also hinder the development of the dairy industry. Visibly, the links among industrial chain, especially between the upstream and midstream sectors are fragmented and not effectively organized. There are mainly two kinds of vertical organization modes in Chinese dairy industry chain:"Enterprise+dairy farmers" and the vertical integration model. This situation in the "enterprise+dairy farmers" Vertical organization mode will further exacerbate the conflict on the distribution of benefits."Enterprise+dairy farmers" vertical organization mode’s nature is a kind of vertical restraints. Signing of a contract between the dairy processing enterprises and dairy farmers, dairy farmers are responsible for the production of raw milk, then enterprises purchase it,process and sell the products.It mainly relys on contract to maintain the distribution of interests. In the industry chain, dairy processing enterprises are in the core position, are monopoly buyers in the regional market; dairy farmers are on a sticky wicket due to the low level of organization, lack of bargaining power, just as the recipient of the raw milk price in the industry chain.Thus the contractual relationship is often unstable. In consideration of the cost of inputs in dairy industry chain, the input of raw milk production accounted for70%that of processing sectors accounted for20%that of intermediate links takes up only10%. However, in view of the profit distribution, three aspects’s profit sharing ratio isl:3.5:5.5. So in the "enterprise+dairy farmers" vertical organization mode, the distribution of benefits in the industry chain is a serious imbalance. Dairy farmers’interests can not be guaranteed their enthusiasm is not high, the quality and stability of the raw milk will also be affected, dairy quality and safety problems occur frequently. In order to get further development, the dairy industry must change the mode of the vertical organization of the industry chain, to change the interests of the contractual allocation mechanism to the interests of the elements of in allocation mechanism, and vigorously promote the dairy industry’s vertical integrationThe essence of the dairy industry’s vertical integration is production, processing and sales linked. Dairy industry vertical integration takes raw milk production, processing and marketing integration to become a whole unified management in the dairy industry chain,then forms interest-sharing and the risk-sharing’s distribution mechanism.In vertical integration of the dairy industry, dairy industry and dairy farmers are as the main body. Large dairy enterprises can ensure raw milk’s quality, upgrade the product, enter the high-end product market by self-built pasture, get rid of the current situation of low-price competition, and participate in the share of industry profits to a greater extent. Small and medium-sized enterprises can set up farms to attract the majority of dispersed dairy farmers and to achieve backward integration to safeguard mange. This saves the enterprise funds, participate in market competition better; dairy farmers can also form cooperatives, set up processing enterprises, conduct the processing chain by forward integration, take greater participation in the distribution of benefits in the industry chain. But due to conditions of Chinese households type keeping free-roaming, in order to protect the interests of the majority of dairy farmers,we should actively encourage Small and medium-sized enterprise conduct backward integration.This essay seeks to maintain integrity in the industry chain’s analysis.However, with the development of economy, more main bodies participate in the industrial chain of profit distribution, and this will be researched in the future. Large dairy enterprises have upgraded the original product to enter the high-end product market, while in the middle part of the industry chain this essay did not analyze the situation. When carry out the vertical integration, different main bodies were distinguished to analyse, and it is more close to the reality. Their respective costs and benefits of vertical integration does not construct a model to study, this situation will be concerned in the future.