The Role of Producer-Owned Cooperatives in Dairy Supply Chain: Evidence from Armenia

Abstract The dairy industry is the largest among the other agricultural industries in Armenia. According to the 2004 statistical yearbook of Armenia, there are around 566 thousand heads of cattle including 291,000 cows in the country. Since 2000, the number of cows increased by 30,000 heads. The same statistics indicate that milk production has sharply increased as well. In 2004, milk production comprised approximately 555,000 tons, which is 103,000 tons more than that of 2000. Since 2002, the cheese export from Armenia increased by 10 times. This fact is related to the development of dairy industry and increasing competition among the dairy chain actors. This paper aims at studying and revealing the role of the producer-owned milk marketing cooperatives in the recovery and growth of the overall dairy chain in Armenia. The study reviews and analyzes the outcomes of the Cooperative Development Program implemented by the Center for Agribusiness and Rural Development. The paper also identifies and discusses the forms of vertical integration occurring in the dairy sector of Armenia and concentrates on several important issues like: contractual mechanism between cooperatives and processors, trust and social capital among the cooperative members, problems and challenges milk producers face, financial situation of dairy farmers, farm technology and innovation issues. The research was based on surveys and interviews. Official publications, internal documents, interim and final reports, coops’ financial statements and other materials were also used in the study. Based on findings, certain recommendations have been proposed. Key words: cooperative, vertical integration, dairy industry, trust.