Governance mechanism in the dairy supply chain in Mongolia

Abstract

The Agri-food supply chains of former central planned countries during the transition collapsed, so that caused the breakdown of relationship of local farmers with input suppliers and output markets. However, as a good experience in restructuring the agri-food chains in Central and Eastern European Countries (CEECs), typically from foreign-owned agribusiness companies have initiated a private institutional innovation. According to this institutional innovation the processors offer the supplier assistance programs including credit provision, extension services and inputs to the farmers delivering to them in return for guaranteed and quality supplies. Mongolian dairy processing industry also felt but from the late of 2000s has increased rapidly apart from in following increased domestic investments, the preferential credit of the government. As like the experience of CEECs, all dairies interviewed not only take supply from farms by the contractual arrangement, but this also has been a change in governance mechanism that responding to an increased capacity of production the form of governance is shifting from spot market to the contractual arrangements with the supplier assistance programs. But the provisions of inputs and credit programs are infrequently offered to the farmers. Instead, few farmers could have received the preferential loans of the government, but the most of local farmers still have prevailed credit rationing as well as faced to the challenge be laid off from the chain.