Abstract – The study aims to investigate the effect of collaborative communication, power dependency, and price satisfaction on trust of individual farmers to the dairy KUD (a dairy cooperative). This study also aims to investigate the effect of trust on the loyalty of individual farmers to the dairy cooperative. The investigation will represented by the 165 individual farmers and several dairies cooperative in 6 districts in Boyolali, Central Java, Indonesia. The finding of this study indicates that the collaborative communication and price satisfaction have a significant positive effect on individual dairy farmer’s trust of the competence-goodwill and producer’s contractual of dairy cooperative; whereas, the imbalance power-dependency have a negative significant effect on the competence-goodwill and producer’s contractual of dairy cooperative. The finding of this study also indicates that competence-goodwill and contractual trust of individual farmers have a significant effect on the level of their loyalty to the particular dairy cooperative. Keywords - dairy cooperative; Boyolali; individual farmers; structural equation modelling; trust I. INTRODUCTION Milk is one of the important agro products in Indonesia. In 2013, there were almost 636,064 dairy cows in Indonesia, producing more or less 981,586 tons of milk. Basically, Indonesia’s dairy supply chain consists of three main actors: the producers (individual farmers and corporate dairy farmers), buyers (Local Dairy Cooperative Union or Koperasi Unit Desa/KUD, and milk processor), and consumer. Until now, there is no portion of the chain does the producer interact directly with consumers. Mostly of the producer in Indonesia’s dairy supply chain is an individual farmer, although, sometimes, their role in milk production less important than corporate dairy farmers. For example, in East Java, although individual farmers owned 94 percent of cows, corporate dairy farmers have an important role because they can produce fresh milk more than dairy farmers and their fresh milk production is increasing faster than individual farmers. Then, KUD are the main choice for individual farmers to sell their milk, only a few of the individual farmers sell their fresh milk direct to milk processor. In Indonesia, there were about 220 KUDs involved in the dairy industry with more or less 100,000 dairy farmers as members. Each of the cooperatives is a member of The Indonesian Association of Dairy Cooperatives (Gabungan Koperasi Susu Indonesia or GKSI). There were several services provided by KUD to the dairy farmers, among others, providing cattle and feed on credit, collecting the milk, checking the milk quality, and paying the farmer. Although KUD providing the dairy farmers credit, basically, the farmers are independent milk producers because they have to decide anything related to their businesses by themselves. In this case, the farmers are the parties that have full responsibility of running of the dairy farms day-to-day. The KUD collects the fresh milk, processes it and then markets it to processing industries, and in specific cases, KUD market the fresh milk direct to the general public. The KUD is the biggest buyer of the fresh milk produced by the farmers. Although there were no formal contract between the KUD and the farmer, in practice, the farmers have to sell their fresh milk to the KUDs to which they belong. In this case, impossibility of carrying milk over long distances becomes a condition that makes the farmers difficult to sell the milk to the other KUDs. Based on this condition, the KUDs have a monopoly position in defining the price of fresh milk. In this case, at farm level, the price of fresh milk is decided by the GKSI and KUD. If the farmers were independent, the farmers would be able to get the highest price through sells their fresh milk directly to the milk processing industries. But this condition rarely happens. Then, after collecting the milk from the farmers, GKSI sold the milk to the milk processing industries. The price of fresh milk is determined by the milk processing industries based on the level quality of fresh milk. The higher level quality of fresh milk, the higher price that can be obtained by GKSI from the milk processing industries. The GKSI rarely can get the highest price of fresh milk from milk processing industries. It's because, the level of quality of fresh milk from local cow is still far below the National Quality Standard (SNI). Only 12 percent of milk production meeting the minimum quality standard for milk and to overcome this problem, giving price incentive to the dairy farmers is one of the tools that used by KUD to encourage better farm management practices and higher quality milk [1], [2], [3]. All of the explanations about the relation between individual farmers and cooperative indicates the importance of the producer (individual farmer) and the buyer (cooperatives) having improved understanding, through collaboration and achieving long-term working relationships along the chain. Quality relationship between both parties ensures constant milk supplies with good quality and reasonable price which in turn enhance the milk supply chain [4]. The relationship between the KUD and individual farmer is that of buyer and seller, and there is no contractual The (ffect of &ollaborative &ommunication, 3ower 'ependency, and 3rice 6atisfaction on 7rust and /oyalty of ,ndividual )armers to 'airy &ooperative Case 6tudy 'airy 6upply &hain in Boyolali A. Susanty 1 , A. Bakhtiar 1 , H. Suliantoro 1 , Christoper 0DQDOX 1 1 Department of Industrial Engineering, University of Diponegoro, Semarang, Indonesia ariessusanty@gmail.com 104 978-1-5090-3665-3/16/$31.00 ©2016 IEEE