A marketing cooperative's role in the vertical coordination of farmers and processors: A Florida dairy case

This study is an attempt to improve the vertical coordination among Florida dairy farmers, the Florida Milk Marking Cooperative (MMC), and the Florida fluid milk processors (FFMP), focusing on the MMC's roles. The MMC has been created by Florida dairy farmers to link the primary supply of fluid milk with the derived demand of processors in the vertical market. The objective of the MMC is to maximize the net revenue of the Florida dairy farmers owning the MMC. For a given milk supply, the revenue or return to farmers per unit of milk is the average milk price received by the MMC minus the MMC's transfer cost. Two important tasks for the MMC are to (1) negotiate with processors for the price of fluid milk to be paid by processors (while keeping a good relationship with the processors) and (2) operate the fluid milk hauling system that optimizes the MMC's milk transfer cost (routing and scheduling cost) subject to farm and plant schedules. Improvements in both the MMC's activities lead to the better vertical coordination among the vertical marketing members.; As a result, the first main objective of this study is to develop a bargaining framework for the negotiation process between the MMC and the processing plant. The generalized axiomatic Nash bargaining model is used to investigate the price negotiation process. Issues such as risk aversion and milk shortage-and-surplus situation are considered. These issues are crucial when the bargaining model is specified.; The second main objective of this study is to determine if it is economically feasible to implement a more efficient routing and scheduling of farm-to-plant milk collection by the MMC. The results of the efficient routing and scheduling model are shown. These include the comparison results between the MMC's current hauling system and the improved hauling system as well as results from the sensitivity analysis. The sensitivity analysis is shown, so as to show how sensitive the results are if some constraints are relaxed.