Milk procurement of a private dairy firm: an economic analysis

In this paper, we study the milk procurement system of a private dairy firm that buys milk from two channels, namely from farmers and through intermediaries. The collected milk is processed into value-added products, such as butter, ghee, yoghurt etc. In India, milk is predominantly collected through cooperatives and most often the farmers are stakeholders of such cooperatives. Further, the intermediaries also sell their milk to the local market and hence, behave opportunistically. Therefore, availability of milk for the private dairy firm becomes critical and depends on market principles. The game played between the intermediary and the dairy has been modelled as a Stackellberg game and expressions for their optimal decisions are obtained. Based on data collected from a private dairy firm, we carried out numerical analysis to understand the behaviour of the intermediary and the dairy firm.