Competitive advantage and processor demand for local and imported food ingredients: analysis from an urban dairy market in West Africa

Purpose - In Mali, dairy processors mostly use imported powdered milk rather than local fresh milk, constraining the development of a domestic milk sector. We investigate factors motivating a firm's choice of milk input, to identify measures that can encourage demand for fresh milk. Design/methodology/approach - We utilize case study data from nine firms that use fresh and powdered milk to varying degrees, and which are representative of dairy processing in Bamako. To model firm motivations, we assess how each input contributes to or detracts from firm competitive advantage, through its influence on cost and differentiation. Findings - Firms using fresh milk pay a higher input price, incur higher transaction costs and face additional challenges in production and distribution. Firms distinguish themselves from competitors through four potential sources of differentiation: novel product types, quality enhancements, quality-signaling and unique packaging. However, fresh milk firms are less likely to exploit each source of differentiation. Research limitations/implications - Competitive advantage is a useful framework for understanding firm behavior in developing markets and can be applied in other contexts to strengthen external validity. Originality/value - The extant economics literature on African dairy development has been surprisingly silent on the threat of import competition. This research is one of the first to investigate this issue in the under-studied middle segment of food value chains.