Comparative cases: Lesser and higher-performing interaction system

The strategy of using comparative cases to explain why some dairy production centres thrived while others stagnated provide greater opportunity to cross-check and verify the conclusions made for each case. To differentiate these systems the term ‘lesser-performing interaction system’ and ‘higher-performing interaction system’ is introduced here. The term ‘interaction system’ refers to a system of interdependencies between two different categories of VC opera-tor, namely between DPIs and their supplying dairy cooperatives as well as between dairy cooperatives and their dairy farmer members. For the lesser-performing interaction system empirical data were collected from 3 cases in district Boyolali, Central Java; whereas for the higher-performing interaction system 1 case in district Bandung, West Java and 2 cases in district Pasuruan, East Java.

Both higher and lesser-performing interaction system had in the late 1990s, more or less, the same condition of low and stagnating performance – the initial condition. Many authors have examined the low performance of Indonesian dairy industry and investigated the factors in-hibiting its further development from various analytical perspectives. For example, Moran (2007) and Moran (2008) provide an extensive analysis particularly on the technical aspect of dairying practices and milk handling, while Stanton, Emms and Sia (2005) a comprehensive strengths, weaknesses, opportunities, and threats (SWOT) analysis covering diverse aspects of economic, policy, technology and research and many others. Riethmuller et al. (1999b) con-ducted a survey in 1996 among officials – i.e. government officials from the Ministry of Ag-riculture and Directorate General of Livestock Services, scientists from Centre for Agro Socio-Economic Research, and VC-operators representing DPIs, dairy cooperatives, and UIDC – to identify the problems and weaknesses of Indonesian dairy industry. The most fre-quently mentioned off-farm problem was ‘cooperative management’, followed by ‘lack of incentive’, presumably, of cooperatives in improving their conditions and practices. Interest-ingly, the weaknesses identified were also mostly at the cooperative level: ‘relationship be-tween farmers and cooperatives’, ‘corruption within cooperatives’, and ‘management of co-operatives’. These findings are supported by testimony of a cooperative leader:

Our cooperative was established in 1971 and developed well until 1979. But afterwards its per-formance had been declining and reached its nadir in 1998 because of increasing default loans and weak management. (Coop 1, higher performance)

Only after early 2000s consecutively progressive changes took place in the higher-performing interaction system resulting in higher and improving performance – the end condition. On the contrary, hardly any fundamental improvement came about in the lesser-performing interac-tion system – the end condiinterac-tion resembled the initial condiinterac-tion. This does not mean, however, that there were no efforts and actions undertaken to improve the low and stagnating perform-ance, but the results of the undertakings were just discouraging. It can thus be said that the distinguishing line between both systems is that in the higher-performing interaction system VC upgrading successfully took place, whereas in the lesser-performing interaction system it did not.

The most prominent indicators for measuring the performance of the interaction systems are the milk quality, which is determined by the bacterial contamination (milk grade) and content of total solid (TS), and milk price. In lesser-performing interaction system the bacterial con-tamination persisted from early 2000s to 2008 in the range of 5 – 15 millions cfu/ml⁵ indicat-ing low milk hygiene. The TS content has also not improved and remained in the range of 10% – 11%. Even during the “turbulence time”⁶ it dropped below 10%, obviously indicating milk adulteration with water. In 2006, the milk price paid by DPIs to UIDC Central Java was around IDR 2,100 per litre milk; whereas milk price at cooperative level amounted to around IDR 1,700 and at farmer level around IDR 1,400 per litre milk.

In comparison, one of the higher-performing cooperatives stated its upgrading achievements in 2006 as follows:

Currently, 75% of our milk achieves the milk grade 1⁷ [less than 250,000 cfu per ml milk]. In average, we receive IDR 2,500 from the DPI and the dairy farmers receive IDR 2,100 from us.

This achievement was attainable in a relatively short time period of, more or less, 5 years.

(Coop 1, higher performance)

5 Cf. Moran (2007, p. 38)

6 See Sub-chapter 10.2.1.1for further description of the “turbulence time“.

7 Cf. Wouters (2009, p. 15)

The price already included the bonus for TS content which was averagely 12.8%; even in cer-tain areas it was above 13%. The daily milk output of the cooperative has also improved from 56 kt in 1996, to 86 in 2001, and to 110 tonne in 2006. Another higher-performing coopera-tive has also achieved considerable improvement in increasing milk hygiene. In 2006 85% of the milk output contained less than 0.5 million cfu/ml (milk grade 1). As for the milk price, the cooperative received on average IDR 2,400 from the DPI and paid its members IDR 2,000 per litre milk.

8.2.1 End condition: Interaction system between DPIs and cooperatives

Within the interaction system between DPIs and cooperatives the differentiating factor be-tween both systems is that in higher-performing interaction system an intensive cooperation was established between DPIs and their supplying cooperatives to achieve higher quality standards. Table 8-3 summarises the main characteristics of the end condition with and with-out upgrading⁸. Why upgrading has occurred in some cases and not in other cases is the main question dealt with in Chapter 9.

Table 8-3 Overview of upgrading in the interaction system between DPIs and cooperatives Aspect End condition with upgrading End condition without upgrading Product

upgrading Lower bacterial contamination, higher TS

con-tent, higher milk price Higher bacterial and adulterants contamination, lower TS content, lower milk price

Process upgrading within a chain link

DPIs: Increased cost efficiency due to higher-quality milk as raw material

Coops: Introduction of improved technology for cooling plants and other milk equipment

DPIs: Lower-quality milk with higher technical costs

Coops: Traditional milk handling with low technology level inadequate for producing

Improved flow of technical information from DPIs to supplying cooperatives

DPIs provide technical (TA) and financial assis-tance (TA) to cooperatives

DPIs provide no TA and FA Source: own compilation

8.2.2 End condition: Interaction system between cooperatives and dairy farmers

8 See Sub-chapter 2.1 for the typology of upgrading used in the table.

The VC upgrading took place within the interaction system between dairy cooperatives and dairy farmers covers a wide range of aspects. Table 8-4 provides the summary of the upgrad-ing aspects in key words.

Table 8-4 Overview of upgrading in the interaction system between coops and dairy farmers Aspect End condition with upgrading End condition without upgrading Product

upgrading Lower bacterial contamination, higher TS content,

higher milk price Higher bacterial and adulterants contamination, lower TS content, lower milk price

Process upgrading within a chain link

Coops: Improved MCCs, cooling plant, food-grade piping system, laboratory, SOP-oriented milk handling

Increased organisational efficiency, focus on de-veloping dairy business, fewer inactive member, lower propensity for corruption, highly motivated leaders and staff

Dairy farmers: adoption of GDFP, more resources allotted for dairy farm (equipment, feedstuff, shed, etc.), higher animal and farm productivity, increas-ing number of dairy farmers

Coops: No cooling plant and laboratory, inade-quate MCCs and piping system, inadeinade-quate SOP for milk handling

High number of inactive members, focus on maxi-mising surplus, higher propensity for malfeasance, low performance of coop leaders and staff

Dairy farmers: prevalence of milk adulteration, traditional dairy practices, performance stagnation on subsistence level, opting for suckler cow, low animal and farm productivity, declining number of dairy farmers

Weak quality regulation with absent quality/price mechanism

Functional

upgrading Provision of services: training / extension and monitoring, veterinary service, production of fresh forage and concentrate feed, water reservoir

Limited provision of collective service: occasional extension system and monitoring

Source: own compilation

Figure 8-2 and Figure 8-3 provide concrete illustrations of the conditions of and the striking differences between the higher and lesser-performing interaction system. Further explanations on these conditions are dealt with in Chapter 10.

Figure 8-2 Illustration of higher-performing interaction system

Source: Moran (2007, p. 4) and own compilation

The left picture above shows an example of heat water installation at a milk collection centre (MCC) which is used by dairy farmers for cleaning their milk cans following a milk delivery.

The right picture above shows a clean, well-managed cow stall equipped with rubber mat for protection against knee injuries, adequate water for cleaning, and a ditch for effluent man-agement.

Figure 8-3 Illustration of lesser-performing interaction system Source: Moran (2008, p. 22), Moran (2007, p. 4), and own compilation

The left picture above shows the traditional feeding management of giving dairy cows slurry concentrates mixed with water and chopped papaya trunk which is used to supplement limited forage supply in dry seasons. The middle picture above shows a dairy farmer – while smoking – milking a cow using plastic bucket in a dirty cow stall. The right picture above shows rusty milk can tighten with black-coloured plastic bag used for delivering milk to a MCC.