Information asymmetry among dairy producers in Paraná, Brazil

Abstract

Milk production has great social and economic importance in Paraná, Brazil. However, dairy farmers have abandoned the activity over the past few years because of difficulties in meeting institutional and market demands for increased milk production and quality. Information asymmetry between dairy farmers and market agents may be contributing to this scenario. It occurs when one agent in a transaction has more or better information than another. Information asymmetry can encourage opportunistic behavior and negatively affect the relationship between parties. These problems can be minimized or resolved by horizontal collaboration, such as participation in farmers’ organizations, cooperatives, or associations. The aim of this study was to assess the extent of information asymmetry among dairy farmers and investigate whether participation in farmers’ organizations strengthens buyer–seller relationships and stimulates compliance with milk quality standards. A total of 204 semi-structured questionnaires were applied to head farmers of dairy production systems in Paraná. Two sets of variables were analyzed: variables related to socio-economic and production characteristics and variables related to transactions between farmers and the dairy industry and the head farmer’s knowledge about milk quality regulations. The second set of variables was subjected to common factor analysis, which generated four factors: F1, knowledge about institutional requirements; F2, technical support from the buyer; F3, technical knowledge; and F4, level of trust in the buyer. Dairy farmers who did not participate in farmers’ organizations operated under greater information asymmetry and were disadvantaged with regard to F2, F3, and F4 (P < 0.05). Participation in horizontal collaborations can help farmers survive and thrive in the dairy activity.