The Economics of Traceability in the New Zealand Dairy Industry

Dairy is an important dietary component, particularly for young children. Because of this the dairy industry is especially sensitive to contamination scares. Dairy is of particular importance to the New Zealand economy, com- prising a significant portion of the country’s GDP.  This thesis develops a Markov chain model for the flow of value through the early stages of the dairy supply chain. Using the case of a major New Zealand dairy company, simulations are run under various product testing scenarios. Results point to the importance of where and when testing and interventions take place. Being strict about removing potentially contami- nated product early on in the supply chain can reduce total losses, improving overall production output as a result.  Traceability has become an increasingly important research area in recent years. The initial Markov chain model is extended to incorporate parameters for product tracing. By analysing the results of simulations under various scenarios we are able to estimate the value traceability can contribute in the dairy production chain.  Using an event analysis technique with a multi-factor model, the third part of this thesis examines how share prices, in a major New Zealand dairy com- pany, are impacted by shocks. Product recalls, adverse weather events, and demand shocks are considered. Results suggest that individual event char- acteristics are important, particularly for global demand shocks. Adverse weather events in general are associated with an increase in share price re- turns. A product recall is associated with the greatest drop in share price returns, emphasising the importance of managing recalls well.