A supplier development framework for agri-food value chains in developing countries : a test on a dairy value chain in Sri Lanka : a thesis with publication presented in partial fulfilment of the requirement for the degree of Doctor of Philosophy in Logistics and Supply Chain Management, School of Food Technology and Natural Sciences, Massey University, Manawatū, New Zealand

Abstract

Agri-food value chains (AVC) in developing countries, including dairy value chains (VC), face significant challenges. A key issue is farmers' limited capacity to improve their operational performance (e.g., product quality, delivery, and production efficiency) despite the support they may typically receive, which hinders the achievement of their triple-bottom-line (TBL) outcomes. In an AVC, farmers supply commodities that buyers (e.g., processors) purchase to add value. The concept of supplier development (SD) refers to a buyer taking an effort—strong or weak—to improve the capability and/or performance of their supplier. This makes SD (as understood in operations and supply chain management), an attractive proposition for predicting and explaining how farmer development initiatives by buyers can improve farmers' operational performance and their TBL outcomes. The objectives of the study were to: (i) study the dairy VC of Sri Lanka to understand how farmer development takes place through a milk processor; (ii) develop and test a theoretical model that predicts and explains the relationship between processor-led farmer development initiatives, farmer capability, processor-farmer relationship, and a farmer’s sustainable performance; (iii) analyze farmer heterogeneity to enable milk processors and other interested parties to better focus on farmer development initiatives; (iv) develop an index to measure the overall sustainable performance of dairy farmers and facilitate efficient, sustainability-focused development. The model developed through the literature posited that farmer development—farmer training (FT), financial support (FS), evaluation and feedback on farmer quality performance (EFFQP)—results in farmer TBL performance, through the mediation effects of farmer capability (FC) and processor-farmer relationship (PFR). Data collected from 324 Sri Lankan dairy farmers were analyzed using partial least squares structural equation modeling (PLS-SEM). The heterogeneity analysis was conducted using cluster analysis, while the parameters of the sustainability index were estimated by fitting an index-creating model to the data. The findings supported the overarching hypothesis. FS as well as EFFQP were found to be having a more substantial positive impact on sustainable farmer performance than FT. Cluster analysis identified three distinct clusters—labeled as laggers, accelerators, and leaders—based on the cluster variables used. Laggers were found to be significantly underachieving in economic outcomes and FC, compared to accelerators. Notable differences in farmer and farm characteristics were identified across these clusters, and cluster-specific suggestions were provided to milk processors and policymakers to improve the FC and TBL outcomes of the farmers. The overall sustainability index, which considered farmer TBL outcomes and their enablers, suggested that all components and sub-components of the index are important (weight-wise) but farmer capability as a category commanded the highest weight (0.236) and farmer’s economic outcomes as a category commanded the lowest weights (0.170). The implications of these empirically generated weights were discussed and how the study contributes to new knowledge was argued.