After the collapse of the centrally planed economic system and along with the transition and ongoing globalization processes, coordination mechanisms in the agri-food supply chain of Central and Eastern European countries (CEEC) have changed significantly. Drivers of this development are e.g. the internationalization of supermarkets, changing consumption patterns and consumer demands which in turn increased the efficiency and quality pressure on all supply chain levels.
Vertical coordination mechanisms are perceived as a promising tool to reduce transaction insecurity; to facilitate access to input factors, technology, capital and knowhow. At the same time, the increased use of vertical coordination strategies is a response to the transition-specific shortcomings faced by the markets concerned. In Ukrainian agriculture access to credits and input factors is often seriously impeded by poor liquidity or high investment risks, such as untapped production efficiencies, variable yields, volatile market prices or a lack of agricultural insurance schemes. In addition, agricultural businesses and enterprises often lack sufficient technological provision.
This contribution aims to analyze the main factors determining the initiation of vertical coordination between processing enterprises and milk producers in Ukraine. In this regard special attention is paid to the role of uncertainty, asset specificity and resource availability. Furthermore, the impact of vertical coordination on quality improvement, trust development and strategic advantages achieved is analyzed. The survey results indicate that :
uncertainty is a major driver for the processing level to initiate vertical coordination schemes
athough vertical coordination appears to have positive impacts on both supplier groups, corporate farms tend to benefit more from vertical coordination schemes than semi-subsistence farms