The challenges of a consolidated supply chain to British dairy farmers

Concentration of power in agribusiness has made some scholars concerned about farmers' long-term future. Monopsony power in agriculture is a growing threat to the operation of agricultural product markets. The United Kingdom (UK) dairy industry depicts a good example of the possible ripple effects of consolidation. This is an industry that gives employment to nearly 85,000 people and accounts for 10% of the total food production in the country. However, dairy producer numbers in the UK are falling by approximately 4% each year (Dairy Co, 2010a). The unbalanced weighting of market power -- within the dairy supply chain -- has impacted the scope of innovation of some dairy farmers. This lack of innovation in terms of product innovation and operational innovation seems to be one of the reasons for the declining number of dairy farmers. The structure of the dairy sector is expected to undergo restructuring and further rationalization in response to a reduction of international tariffs and deepening economic integration. Within this context, this paper aims to shed some light on the potential role of vertical integration as a suitable strategy to improve the competitiveness of British dairy farmers. Vertical integration strategy may be a potential solution to the problems of innovation because it allows increased responsiveness to consumer needs as communication can move through the supply chain more effectively. The contribution of this paper is to explore the relevance of vertical integration strategy in overcoming some of the challenges of UK dairy producers. Qualitative data from this study suggests that vertical integration is too costly for many dairy producers and represents a major shift from current practices. Those wishing to implement a vertical integration strategy will have to change the management structure, the divisional structure of the firm, and the information flow within the business.