Driven by economic motives, dairy farmers adulterate milk to increase its perceived quality, posing a serious risk to consumer health. We analyze a milk supply chain in which smallholder dairy farmers can adulterate milk and explore the feasibility of selling it to end consumers through an aggregator. Using a non-cooperative sequential game between the aggregator and farmers, we examine the impact of two testing strategies offered by the aggregator to curb adulteration - (i) individual (testing milk procured from each farmer individually) and (ii) composite (testing the milk after aggregating the portions procured from all the farmers). Our analyses reveal that the aggregator can control milk adulteration by judiciously using testing and penalty mechanisms. However, the efficiency heterogeneity among farmers, which leads to the less efficient farmers free-riding on the more efficient ones, has a detrimental effect on the aggregator operation. Our results provide important policy recommendations for aggregators adopting optimal testing strategies.
Co-author (s): Preetam Basu, Balram Avittathur
Journal: European Journal of Operational Research
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