Interesting story from China where lower raw milk prices are actually hurting a Mengniu Dairy (a processing firm that should ordinarily benefit from lower input prices). Instead, it has to support its upstream suppliers with continued purchases in the face of very low demand.
In the West, this kind of long term contract would be signed to encourage the upstream dairy to make relationship-specific investments necessary for trade. But it is difficult to see the value of such investments with a good like raw milk.
I am curious, does any one know why dairies would sign contracts like this? Is it custom, or some kind of mandate in a country where the state has a very big interest in full employment.