Institutional Change, Contracts and Quality in Transition Agriculture: Evidence from the Bulgarian Dairy Sector

This paper investigates major developments in the Bulgarian dairy sector over the last decade. The evidence presented is based on a unique data set of agricultural households as well as interviews with dairy processors. We show that important structural changes have occurred in the dairy supply chain. These changes have been stimulated by both private initiatives at the dairy-processing level and increased government enforcement of stringent quality and hygiene regulations. As a result, vertical coordination has increased significantly. Foreign investors have played a major role. Also, the nature of vertical relations is changing, affecting contractual arrangements, payment delays, quality of the milk supply, and dairy processors' assistance to farmers