Measuring the degree of milk market concentration in the province of East Azarbaijan

Introduction: The importance of milk and dairy products in the nutrition and health of the community has caused the production and consumption of these products always be considered by policy makers and planners in the country. Milk is a corruptible product that is used both as a final product and as a raw material for the production of other dairy products. Therefore, any problems and inadequacies in supply and demand affect the market of milk and dairy products.
East Azarbaijan Province is one of the largest provinces producing milk and dairy products in the country, with an annual production of 842,000 tons of raw milk, the country's third rank. In the last years many problems such as fluctuations in the price of milk in the market, its poor distribution, rising prices of inputs (especially feed), and the high cost of production are affecting the milk industry and causing some disruptions in production and consumption of milk in this province. So, considering these conditions, the examination and recognition of the structure of the milk market is certainly inevitable in the design and development of market regulation programs for this valuable product as well as their effective implementation. The necessity of recognizing the structure of the various product markets has led to numerous studies in this field (Paarlberg and Haley 2001; Khodadkashi and Shahikitash 2005; Hatirli et al. 2006; Memarnejhad et al. 2009; Asiabani et al. 2012; Praveena and Samsai 2014; Khodaverdizadeh and mohammadi 2016). The review of these studies suggests that researchers often use the indicators of concentration ratios and Herfindahl-Hirschman to examine the structure of the market. Although different products have been considered in the studies, it seems that with all the importance of milk production and consumption in the East Azerbaijan province, there is no study on the identification of the milk market structure in this province. In the present study, the structure of the milk market and its degree of concentration in the East Azarbaijan province have been investigated to provide a detailed picture of the degree of competition and the oligopoly of this important and strategic product in the market. It is hoped that the results of the study could be effective in designing and developing milk market regulation programs and their effective implementation.
Materials and methods: The market structure is in fact one of the characteristics of the market organization, which, by identifying them, can determine the nature of pricing and market competition. One of the important aspects of market structure is market concentration. Using the concept of concentration, the structure of the market as well as the size of competition and monopoly in individual markets or in the economy could be examined. There are different statistical and econometric methods can be used for the measurement of market concentration. The most important of which are the concentration ratios (CRn), the Herfindahl-Hirschman index (HHI), Hanah – Kay (HK), first order Shannon's entropy (E), and logarithmic standard deviations (L). The statistics and information required for calculations and estimates, which mainly include the production of milk in livestock farms of East Azarbaijan province, the number of dairy factories in East Azarbaijan province, and the rate of absorption of raw milk for each of these factories, were provided from the relevant organizations and institutions such as Organization of Agriculture- Jahad- East Azarbaijan Province, Iran dairy industries Company, and Pegah Bazar Gostar Region 1 company (Tabriz Branch), in 2010 and 2014.
Results and discussion: Market concentration of milk producers in East Azarbaijan province was measured based on CRn, HHI, HK, E, and L index. Investigating the milk production of livestock farms and the share of factories of milk absorption in 2010 and 2014 showed that the cities of Tabriz, Azarshahr, Meyaneh, Maragheh, and Sarab have the largest share of milk production in the East Azarbaijan province. Also, among the factories of raw milk recipients, the East Azarbaijan Pegah Company, Azarnoosh shargh, and Shifteh Bonab have the largest share of milk absorption. Furthermore, the results showed that the market structure of milk production of livestock farms in 2010 and 2014 was open oligopoly and the market power of the milk production has increased over the time. This indicates that the number of active livestock has dropped in this interval. Furthermore, the results of mentioned index at the level of dairy factories indicated that the structure of the milk market has ranged from the exclusive competition in 2010 to the open oligopoly in 2014. The ceasing and exiting of some dairy factories from the market and the reduction of the number of factories from 55 to 22, can be a reason of this increased concentration in the province's milk market.
Conclusion: So, based on the results, more attention of managers and policy makers to new investments in dairy industry and creation of necessary and sufficient grounds for the discovery and use of modern methods and advanced technologies of production and maintenance as well as the treatment and elimination of problems of closed dairy factories cause to rise production and absorption capacity of milk. However, the competitiveness of these types of activities prevents excessive price rises and improves the quality and diversity of dairy products, and creates new job opportunities and increases production in the province