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China's Dairy United: A New Model for Milk Production

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  • Jingjing Wang
  • Mei Chen
  • Peter G. Klein

Abstract

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.

Suggested Citation

  • Jingjing Wang & Mei Chen & Peter G. Klein, 2015. "China's Dairy United: A New Model for Milk Production," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 97(2), pages 618-627.
    • Handle: RePEc:oup:ajagec:v:97:y:2015:i:2:p:618-627.
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    File URL: http://hdl.handle.net/10.1093/ajae/aau118
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    Cited by:

    1. Li, Saiwei & Lopez, Rigoberto A. & Liu, Yumei, 2020. "Consumer preferences for sustainably produced milk in China," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304193, Agricultural and Applied Economics Association.
    2. Charlebois, Sylvain, 2016. "Policy-change Triggered Environmental Uncertainty in a Dairy Cooperative: The Case of Mila in South Tyrol," International Journal on Food System Dynamics, International Center for Management, Communication, and Research, vol. 7(3), pages 1-13, July.
    3. Xiang Wu & Bin Hu & Jie Xiong, 2020. "Understanding Heterogeneous Consumer Preferences in Chinese Milk Markets: A Latent Class Approach," Post-Print hal-02489646, HAL.
    4. Wei, Xinjie & Lin, Wanlong & Hennessy, David A., 2015. "Biosecurity and disease management in China’s animal agriculture sector," Food Policy, Elsevier, vol. 54(C), pages 52-64.
    5. Jianyu Yu & Olivier Bonroy & Zohra Bouamra‐Mechemache, 2023. "Quality and quantity incentives under downstream contracts: A role for agricultural cooperatives?," American Journal of Agricultural Economics, John Wiley & Sons, vol. 105(4), pages 1176-1196, August.

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