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Market Structure of Dairy Industry in Bangladesh - an Empirical Analysis at Milk Processing Level

A. R. Khan
Commercial Bank, Bangladesh

S. K. Raha
Professor
Dept. of Cooperation and Marketing, Bangladesh Agricultural University, Mymensingh

H. Weindlmaier
Professor
Business Management of the Dairy and Food lndustry, Technical University of Munich, Germany

Abstract/ Executive Summary:

The dairy industry in Bangladesh is characterized by highly concentrated oligopolistic selling and highly concentrated oligopsonistic buying in nature as market concentrations both in selling (milk and milk products) and in buying (raw milk) were also found to increase throughout the period 1990-2000 though a bit of fluctuation occurred during the same period. Changes in market structure of dairy industry in the direction of smaller number and increase in the size of enterprises appeared to result in an improvement in the overall performance of the industry. With increasing concentration, efficiency increased and industry became more progressive because it was able to adopt new technology.

Keywords: Milk processing firms, Market concentration, Bangladesh

Location: Dept. of Cooperation and Marketing, Bangladesh Agricultural University, Mymensingh

Start Date: 00-00-1990

End Date: 00-00-2000

Program Area: Socio-economic and Policy

Non-commodity: Market analysis

Objectives:

To analyze the market structure of dairy industry at processing level in Bangladesh.

Methodology:

The milk processing enterprises in Bangladesh have a regional coverage in their activities and supply milk and milk products throughout the country. They are engaged in producing standardized and modern type of milk products, such as, full-cream fluid milk, chocolate milk, 'Ghee ', butter and ice-cream etc. All milk processing enterprises throughout the country were taken as sample and the total sample was 8. Background information on the dairy industry and its immediate environs was obtained from secondary data sources while primary data were collected through personal interview of dairy managers using structured questionnaires. As milk processing enterprises produce multiple products so information on market structure was analyzed for all firms manufacturing only four milk products such as, pasteurized milk (full-cream and chocolate), butter, 'Ghee ' and ice cream. The study period from 1990-91 to 1999-00 that is, 10 years was selected for milk processing firms for which, complete information was available to investigate the changes in market concentration of dairy industry in Bangladesh. To analyze seller concentration in the dairy industry, concentration in pasteurized milk processing, butter manufacturing, 'Ghee ' (anhydrous milk far) manufacturing and ice cream manufacturing were detected separately. In order to determine the market concentration in the dairy industry, the degree of seller concentration and buyer concentration were analyzed. The coefficients of seller concentration and buyer concentration were estimated using two indexes viz. concentration ratio and Hirschman-Herfindahl index. The top 3-firm (CR₃) and 4-firm (CR₄) were considered to estimate concentration ratios. Sales figures have been the most popular basis for the calculation of concentration ratio. Therefore, sales figures of enterprises from 1990-91 to 1999-2000 were used to investigate the concentration in the dairy industry of Bangladesh. The most popular and perhaps simplest index for measuring market concentration is the use of concentration ratio. A concentration ratio is the percentage of the total industry output that the top enterprise of the industry produce. Market concentration is widely used and performs a central role in identifying differences in market structure within the SCP approach. The higher the ratio, the closer the concentration to an oligopolistic or monopolistic type of market structures. This index refers to the sum of the squares of the relative sizes (i.e. market shares) of the enterprises in the market, where the relative sizes are expressed as proportions of the total size of the market. This index takes account of all firms in the market (i.e. industry). The maximum value for the index is one where only one firm occupies the whole market. This is the case of a monopoly.

Source of Information: Bangladesh J. Train. and Dev. Vol. 19-20 (1&2), 2006-07: 61-70; ISSN 1013-0306

Article Link (Online Journal):

Funding Source:

Budget:

Total Budget (Tk.) :

Achievement/Findings:

Concentration of dairy industry in Bangladesh was growing throughout the study period though there was little bit of fluctuations. Concentration process was influenced by the changes in share among the top enterprises and strong competition in the domestic market in the reference period. Buyer concentration was classified as oligopsonistic in nature while seller concentration was found to be oligopolistic in nature. Product differentiation was found high in milk processing sector. Enterprises were obviously found to be engaged in vertical integration to sustain concentration in the milk-processing sector of the industry. Therefore, concentration in the dairy industry is increasing. Selling prices and outputs of the enterprises were fixed neither by tacit nor collusive agreement or independent pricing by the sellers. A degree of interdependency in determining price was found among the firms. The enterprises adopted the independent action at competitive pricing without agreement in setting prices of their milk and milk products. No evidence of predatory and exclusionary tactics of sellers was observed in the dairy industry of Bangladesh. Most of the enterprises followed marketing strategy termed as 'prospectors'. The overall performance of the dairy industry could be labelled as mediocre one. In the study, the structural features as well as conduct pattern and overall performance of the industry are found satisfactory and improving gradually.

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