In many respects the Parmigiano-Reggiano production system is a unique dairy system. The processing of 1.35 million tons of milk into a high quality product in 600 small cheese dairies using predominantly artisan production techniques is not found anywhere else in Europe. The high labour input required both on the dairy farms and in the cheese dairies creates considerably more employment than any other dairy system. About 20,000 men and women work everyday in this very special system. In an industrial dairy system designed to produce the same quantity of milk, no more than 8,000 people would be employed. The final quality of the cheese is heavily dependant on the ability of the cheese-maker to process the different qualities of raw milk - which varies from season to season and from farm to farm - without using any additive except for the dairy-based whey starter and rennet.</p><p>In an industrial dairy system milk is the raw material for a wide range of dairy products all of which are the result of a combination of technological processes and additives and the latest bio-chemical research. The central question addressed in this study was formulated as follows. Given the fact that most European dairy systems have adopted industrial production techniques, how has the Parmigiano Reggiano systems been able to maintain the use of artisan, labour intensive techniques? Why has this system not industrialised, like other ancient cheese production systems in many other countries?</p><p>The answer to these questions can only be found if we use theories that go beyond the liberal, atomistic conception of the profit maximising ' <em>homo economicus</em> '. His behaviour can only be understood when his institutional and social context is taken into account. The problem is that notions such as loyalty, commitment, trust and a sense of belonging do not fit easily into economic concepts. Although it must be said that more recent economic theories are moving towards an incorporation of concepts that go beyond mere economic variables to take account of the behaviour of the actors involved.</p><p>The theory on economic districts and institutions contains considerable interpretative power and can help us understand the reasons for the economic validity and persistence of the Parmigiano-Reggiano system. The integration of positive externalities generated within the district into the firm balance, alleviates the higher costs generated by limited economies of scale in predominantly small firms. In the peripheral zones of the Parmigiano Reggiano production area, where the network of cheese dairies is less dense the tendency to resist during periods of price crises is weaker than in areas with a high concentration of cheese dairies. Here, a dairy farm will be more likely to close down for there is neither the density of farms or sufficient cheese dairies to create a system of common shared values about how milk should be produced. Neither is there a sense of belonging to the Parmigiano Reggiano system. These common values and a sense of belonging are very strong in the central zones of the Parmigiano Reggiano production area.</p><p>The small-scale co-operative structure of the cheese dairies is a second factor that is also extremely important to the strength of the system. The strong integration of milk production and milk processing significantly reduces the transaction costs in this link of the Parmigiano-Reggiano system. Mutual trust and loyalty to the cheese dairy on the part of its members are the basic forces that hold this social organisation together. Enlarging the scale of the cheese dairies and effecting mergers with other dairies are subjects that always generate fierce debate. They not only involve the clash of two political worlds, but there is also the fear that such changes might have a detrimental effect on the final quality of the cheese. The fact that the cheese-maker must exercise control over key operations within the production process is regarded as a prerequisite for the quality of the cheese and puts a brake on any development towards large-scale processing units.</p><p>Many cheese dairies have market relations with just one or two cheese maturing firms and these commitments do not change much over time. Although many improvements may take place in this market relationship to the benefit of the cheese dairies, the stability of sales to a few purchasers guarantees a high reliability and this in turn reduces transaction costs.</p><p>A third important pillar of the Parmigiano-Reggiano system is the family farm structure that characterises the majority of Parmigiano-Reggiano dairy farms. These types of farm have lower monetary costs than farms that rely primarily on hired labour. Moreover, many dairy farms follow a style of farming that foresees a low integration into input markets, a factor that contributes significantly to reducing monetary costs. The low proportion of monetary costs within total production costs enables many farms to survive periods of price crises. Even though the temptation to produce industrial milk is high during difficult times, farmers will continue to produce milk for Parmigiano-Reggiano cheese. This is because deterioration's in the input/output price ratio does not penetrate their farm management decisions to the same extent it penetrates the decisions of farms that are more dependent on market price fluctuations. Dairy farmers who belong to the Parmigiano-Reggiano system are conscious of these strong price variations. During periods of high prices, which may exceed industrial milk prices by 30-40 percent, investments are made in new cowsheds, machinery and equipment.</p><p>On average the diflated average price for Parmigiano-Reggiano milk over an eight-year period is similar to the deflated average industrial milk price, but the Parmigiano-Reggiano price remunerates a much higher labour input than the industrial milk price. In their management decisions Parmigiano-Reggiano dairy farmers take into account the long-term economic efficiency of their farms and are prepared to balance out periods of high prices with periods of low prices.</p><p>The fourth factor that contributes to the uniqueness of the Parmigiano-Reggiano system is institutional involvement. Local research centres, representative bodies and the public administration direct the specific technological development of the system. Certain developments are deliberately blocked while others are favoured. Although production and processing costs have to be kept down, the main focus of technological innovation is to maintain the quality difference with Parmigiano-Reggiano main market competitors. Its objective is to prevent a rush versus the indiscriminate introduction of those technologies which may be able to reduce processing costs significantly, but may alter the product in such a way that Parmigiano-Reggiano cheese would loose its present market position. In a single industrial firm similar strategies are undertaken by the R&D department. In the Parmigiano-Reggiano system, however, this task is performed collectively by a group of actors and institutions who are involved in production and who try to define the specific technological development path best suited to the product. The success of maintaining artisan production techniques has to be attributed to the capacity of the actors to arrive at a convergence of their individual objectives and strategies.</p><p>These four factors explain the uniqueness of the Parmigiano-Reggiano production system. It is a dairy system that uses artisan milk processing techniques, represents 15 percent of the Italian milk market, and is able to guarantee more than double employment in milk production and processing. Further, it is able to sustain economic development in less favoured areas and has a significantly better environmental impact than industrial dairy farms.</p><p>If these are the most important characteristics of the Parmigiano-Reggiano system as it is now, the question is how is it likely to evolve in the future. Will the system maintain its distinctive characteristics and is it able to resist external pressures? Might there be some reason for the actors to abandon the current production techniques and turn towards industrialisation?</p><p>The fact is that its market position puts the Parmigiano -Reggiano system under constant pressure to standardise its production and processing technology and this may compromise its link with the specific conditions of the production area. Moreover, the product faces competition from lower-priced alternatives, such as the Grana Padano cheese produced in Lombardy at lower cost and using specific but more industrial-type techniques.</p><p>The fierce debate about technological innovations reflects the importance of the choices that have to be made. Among the different farm styles identified, the large-scale, intensive farms with high-yielding cows seem to be more open to innovations that can lead to reductions in milk production costs. These vanguard farms, with a high proportion of hired labour and considerable bank exposure are more sensitive to reductions in production costs. They are more integrated into the markets but, at the same time, they are also more vulnerable to price fluctuations. This type of farm is more inclined to leave the Parmigiano-Reggiano system in times of price crises.</p><p>In this period of rapid increasing globalisation two tendencies may emerge: the abandonment of local culture under pressure of the increasing amount of exposure to elements from a global culture, or the enforcement of local culture in defence of local identity. The long history of Parmigiano-Reggiano cheese has contributed to the enforcement of this culture up to now, but if in future short-term profit considerations come to dominate the management decisions made by Parmigiano-Reggiano dairy farmers, this may weaken their commitment to the production system.</p><p>Finally, we may question whether this example of the Parmigiano-Reggiano cheese system could be repeated elsewhere as a way of creating more employment in the countryside. Insights can be drawn from this emblematic case of a regional specific product that may be useful to rural development. Particularly interesting is the social organisation of the system and the way it has developed over time. A precondition for the success of any regional specific product is a strong link between the actors and the local culture and history of the area where the product originates. Although very strict product regulations can be designed for any regional specific product to help create a new segment for the product on the market, compliance with these rules and regulations can best be secured if the actors have a strong cultural attachment to the product. There is no quality certification body able to control the compliance of actors with product regulations if the actors themselves do not identify with the product. New initiatives for the development of regional specific products on the market should be based on products supported by a minimum number of producers strongly convinced of its specificity and typicality.</p><p>If these factors are essential conditions on the supply side, on the demand side a significant number of consumers should have an interest in and be willing to pay for regional specific products. This manifest or hidden demand should be reached or discovered by the producers of a regional specific product either directly by direct sales, when product volumes are small or through multiple retail outlets when product volumes become larger. Large retailer groups may come more into line with the interest of producer groups involved in the processing of regional specific products, if the selling of these products contributes to their differentiation strategy as far as their competitors on the market are concerned.</p><p>The Parmigiano-Reggiano system is in many respects unique and cannot be reproduced elsewhere. Nevertheless, the interesting elements involved in the Parmigiano-Reggiano process suggests how it may be possible to produce an agricultural product with significantly higher labour input and a lower environmental impact. Rural employment and eco-compatibility will be key elements in future European agriculture and the Parmigiano-Reggiano system can be considered an emblematic case of how these two policy objectives can be combined.
|Qualification||Doctor of Philosophy|
|Award date||3 Nov 2000|
|Publication status||Published - 2000|
- economic production