Vertical coordination, access to capital, and producer loyalty in the Polish dairy sector

Numerous studies have shown that processing and retail industries have actively assisted farmers in joining the modern food marketing systems. Data from the Polish dairy sector show that assistance is provided not only for the traditional-channel farmers wishing to modernize, but also for farmers already included in the modern marketing channel. Two explanations can be provided to account for this phenomenon. One, even modern-channel farmers may lack sufficient funds to maintain required quality/quantity on their own. Two, it may be the case that even after undertaking necessary adjustments, modern-channel farmers are more likely to quit their relationship with a processor and turn elsewhere, in which case assistance is provided to prevent them from defecting. Using farm-level data, we investigate the impact of supply chain modernization on farmers’ access to credit and their loyalty toward processors. Our results do not provide compelling evidence to support either hypothesis, suggesting at most a partial explanation for the existence of vertical linkages between processors and modern-channel farmers in Poland.