Small but powerful—local value chains and sustainability‐oriented approaches in the agri‐food sector

• Published date: 01 June 2023
• Author: Susanne Royer,Maike Simon
• Date: 01 June 2023
• DOI: http://doi.org/10.1111/basr.12315

ORIGINAL ARTICLE

Small but powerful—local value chains and

sustainability-oriented approaches in the

agri-food sector

Susanne Royer | Maike Simon

International Institute of Management,

Europa-Universität Flensburg, Flensburg,

24937, Germany

Correspondence

Susanne Royer, International Institute of

Management, Europa-Universität

Flensburg, Munketoft 3 b, 24937,

Flensburg, Germany.

Email: royer@uni-flensburg.de

Abstract

Regional and local value creation is seen as one solu-

tion for reducing the environmental impact of the agri-

food system. The point of reference for this research is

the powerless position of small actors in agri-food

chains. This paper gives insights into the motivation of

small-scale producers in developed countries to exit

national and export markets and to opt for a sustain-

ability orientation. Specifically, we explore how the

powerlessness of small actors in global value chains

may fuel the formation of regional and local value

chains. Through a regional case study, we map the

dairy value system and identify three different value

chain structures in the Northern German dairy indus-

try. Then, we illustrate how some small (organic) raw

milk producers have changed their position in the

value chain and bargaining strength by following dif-

ferent upgrading strategies. Their increase in

bargaining power comes with efficiency losses and

An earlier version of this paper with preliminary findings and a broader approach has been accepted for presentation at

the ANZAM 2021 conference held in December 2021 in Perth/Australia under the title “Small, sustainable but

powerful—On the transformation of value chains in the dairy industry in Northern Germany”. Thanks go to the co-

authors of that version, Luisa Klomburg and Hanna Siebke, for their contributions. A further developed version has

been accepted for presentation at the Nordic Workshop on Interorganizational Research held in April 2022 in Kolding/

Denmark. Thanks go to the workshop participants for their constructive feedback.

Received: 14 July 2022 Accepted: 4 April 2023

DOI: 10.1111/basr.12315

This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License, which permits

use and distribution in any medium, provided the original work is properly cited, the use is non-commercial and no modifications or

adaptations are made.

© 2023 The Authors. Business and Society Review published by Wiley Periodicals LLC on behalf of W. Michael Hoffman Center for Busi-

ness Ethics at Bentley University.

Bus Soc Rev. 2023;128:331–366. wileyonlinelibrary.com/journal/basr 331

increased risk. Implications for small-scale producers

and society are discussed and brought together in a

framework that demonstrates the drivers and chal-

lenges for sustainability-oriented small-scale agricul-

tural producers to achieve a stable and competitive

position within the market.

KEYWORDS

dairy industry, sustainability, upgrading strategies, value chain

1|INTRODUCTION

“Industrial agriculture”has a highly negative impact on the environment (George et al., 2021,

p. 1001). Possibilities for small farmers to be profitable in alternative sustainability-oriented

forms are, however, under-researched (Ahearn et al., 2018, p. 471). Even though it has been

shown that local does not necessarily mean more sustainable (Forssell & Lankoski, 2015; Kiss

et al., 2019; Schmitt et al., 2016,2018; Stein & Santini, 2021), one avenue for enhancing sustain-

able development strategies in the agri-food system may lie in local value creation. This

research aims to investigate the phenomenon of regional and local agri-food value chain forma-

tion. Specifically, we focus on the role of small-scale sustainability-oriented players. In our

understanding, these are characterized by a sustainable development strategy in terms of “not

merely seek[ing] to do less environmental damage but, rather, to actually produce in a way that

can be maintained indefinitely into the future”(Hart & Dowell, 2011, p. 1466).

In the last decade, overproduction and a saturated domestic market have led to a strong

export orientation of the German dairy industry (Bundesanstalt für Landwirtschaft und

Ernährung [BLE], 2021). Raw milk prices are highly volatile as demand for dairy products is

influenced by EU and world market developments. Examples are Russia's import ban on agri-

cultural products in 2014 (European Commission [EC], n.d.), the significant drop in milk prices

due to the weak international demand in 2016, the European drought in 2018 that led to lower

forage yields and quality (Landesportal Schleswig-Holstein [Landesportal SH], n.d.-b), and the

surging demand and exploding costs for farmers and dairies, which have pushed prices in 2022

(Zinke, 2022). The number of dairy farms has been decreasing for years (BLE, 2021) and the

industry is going through consolidation (Lehmann et al., 2016). Retailers serving consumers

with dairy products have been concentrating, and dairies have responded to the market pres-

sures by mergers over the past decades (Bundeskartellamt, 2022; Grau & Hockmann, 2018).

In sum, the dairy value chain as a part of the German agri-food ecosystem includes globally

successful dairies and retailers (Grau & Hockmann, 2018; Schoof et al., 2020). It “is character-

ized by power and information asymmetries, which influence the price-making decision to the

disadvantage of the farmers”(Lehmann et al., 2016, p. 54). In this challenging business environ-

ment, small-scale dairy farmers perceive their chain role as “unjust”(Lehmann et al., 2016,

p. 67). These observations make the dairy industry a relevant context to investigate, and there-

fore, we explore the case of the Northern German dairy industry in this paper.

Next, we review the literature on different types of value chains and the role of small players

and sustainability concerns in these chains, combined with elaborating our conceptual

332 ROYER and SIMON

framework for the investigation of the Northern German dairy value (chain) system. Then, the

case-based research strategy is explained and justified. Building on this fundament, the case is

introduced and the findings are presented and discussed before conclusions are outlined.

2|LITERATURE REVIEW AND CONCEPTUAL

FUNDAMENT

Value chains can be defined as a systematic approach to describe and categorize value-adding

activities (Porter, 1986, p. 13). Different configurations of the value chain can be conceptualized

(Stabell & Fjeldstad, 1998), and in different industry contexts, different forms of value chains

can be identified (Buciuni & Pisano, 2021; Gereffi et al., 2005). Analyzing value chains is not

limited to one firm, but firm-internal chains are embedded into supplier and buyer value chains

(Porter, 1985).

Following this understanding, in a typical dairy value chain, necessary inputs go into the

cow milk production, followed by the first processing stage, including the production of fresh

milk products, butter, cheese, industrial milk, condensed milk products, or milk products in

powder form. Milk processing stage II includes the production of baby food, chocolate, ice

cream etc. (BLE, 2021). In addition, dairies provide intermediate and end products for the

processing industry (BLE, 2021, p. 7). Value-adding activities around branding, marketing, and

distribution follow before products are sold to final customers (see Figure 1).

The (bargaining) power of smaller players in value chains is usually limited. However,

smaller players—for example, by better exploiting new digital possibilities—may improve their

power position (Berti & Mulligan, 2016; Strange & Zucchella, 2017). In a conventional dairy

value chain, the bargaining power of (upstream) farmers can be characterized as low while the

bargaining power of (downstream) retailers is high. The market power of conventional dairy

farms, due to their small size and homogenous product is low, and differentiation advantages

are difficult to achieve. The perishable nature of milk and dairy products makes logistics and

storage central in all value chain activities (BLE, 2021, p. 7).

So far, regional and local value chains are often investigated with a focus on developing

countries and sectors, such as agriculture and apparel (Krishnan, 2018; Lie et al., 2012; Ncube

et al., 2017; Pasquali et al., 2021). The COVID-19 pandemic recently gave a push toward region-

alization of value chains in developed countries (Pla-Barber et al., 2021), when these were

affected by shortages of medical equipment and supplies. This may lead to “regional supply

chains (or near-sourcing), along with other preferred suppliers, […] [as] an important mecha-

nism for diversifying risk in the future”(Gereffi, 2020, p. 297). New technologies, such as 3D-

printing, may push the regionalization of value creation (Rehberg & Ponte, 2018). Pla-Barber

et al. (2021, p. 207) see research opportunities in this increasing relevance of value chains

regionalization.

Sustainability is a topic of high relevance in the strategy field (Cantele & Zardini, 2018;

Danso et al., 2019; George et al., 2021; Hart et al., 2016; Husgafvel et al., 2018; Roxas

FIGURE 1 The dairy value chain. Source: Own compilation.

ROYER and SIMON 333