Concentration in Agribusiness and Marketing: A Case Study of Arla Foods
Case Study #6-1 of the Program: ''Food Policy For Developing Countries: The Role Of Government In The Global Food System''
Baker, Derek; Graber-Lützhøft, Kimmie
The modern food industry is characterized by fewer and fewer firms and the emergence of some powerful international and global players. This case study of Arla Foods details that firm's development from its origins in local dairy cooperatives to its current position as a multinational food conglomerate. Its development has attracted scrutiny from competition authorities for a variety of reasons, and it raises questions about the role of farmer cooperatives locally, nationally, and internationally. Some technical terms are examined in support of the case study: consolidation, concentration, and market power are often used interchangeably, but from an economic and policy perspective they are quite different and have a variety of origins. The case study also outlines some current policy concerns about horizontal and vertical relationships in food marketing chains. Arla exhibits a range of vertical and horizontal relationships with various sets of stakeholders, and their actual and potential interests are described and discussed in policy terms. Arla dominates its supply of raw material (milk), but its status as a cooperative would be expected to protect its farmer-suppliers. As Arla's influence has crossed borders through exports and collaboration with other firms in processing and distribution, other farmers may suffer, along with the dairy-processing firms to which they sell. As for other food processors, Arla faces powerful trading partners among Europe's retailers that have themselves attracted attention from policy makers. In identifying and evaluating policy options, economists face a number of challenges, including variable definitions (of, for example, markets and products), difficulties in empirical measurement (particularly of market power), and modeling practices. Economic interests have shifted over time, and a “channel” orientation has developed in some food industries, changing the practices food industry firms use within those channels. Many such developments are difficult for policy to address, and this issue has relevance for Arla Foods. Your assignment is to suggest policy recommendations for the various levels of government (local Danish and British governments, national Danish and Swedish governments, and the European Commission) regarding the future of Arla Foods and other large agribusiness firms. You will need to assess the extent of market power exercised by Arla and decide which stakeholders are likely to be affected by Arla's exercise of market power and in which ways.
15 pp.©Cornell University, Ithaca, New York. All rights reserved. This case study may be reproduced for educational purposes without express permission but must include acknowledgment to Cornell University. No commercial use is permitted without permission.
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Previously Published As
Derek Baker, Kimmie Graber-Lützhøft (2007). Case Study #6-1, ''Concentration in Agribusiness and Marketing: A Case Study of Arla Foods''. In: Per Pinstrup-Andersen and Fuzhi Cheng (editors), ''Food Policy for Developing Countries: Case Studies.''15 pp.