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China's Dairy United: A New Model for Milk Production
Author(s) -
Wang Jingjing,
Chen Mei,
Klein Peter G.
Publication year - 2015
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1093/ajae/aau118
Subject(s) - business , china , agribusiness , agricultural science , production (economics) , agricultural economics , investment (military) , dairy industry , lease , agriculture , finance , economics , ecology , chemistry , environmental science , food science , macroeconomics , politics , political science , law , biology
A milk scandal erupted in China in 2008 when the industrial chemical melamine was found in dairy products nationwide. While many Chinese dairy companies faced huge losses or bankruptcy as a result, one small firm, Dairy United, accelerated its development. Dairy United is one of the fastest‐growing and most innovative Chinese dairy producers, one that features an unusual organizational structure and business model. Unlike most corporate and cooperative dairies that purchase cows on the market, Dairy United leases dairy cows from local farmers, giving it access to its primary asset without a large up‐front investment, and letting the firm grow its dairy herds with newborn heifers. In return, farmers receive fixed payments biannually, but relinquish control rights and residual claims to the firm. Thus, Dairy United's leasing is helping transform Chinese milk production from a backyard, labor‐intensive activity to a more industrialized mode of farming. The case is particularly interesting for understanding applications of agency theory in agribusiness.