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Optimal Selling Policies for Farmer Cooperatives

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  • Jim (Junmin) Shi
  • Yao Zhao
  • Rose B. Karimi Kiwanuka
  • Jasmine (Aichih) Chang

Abstract

Sustainability and long‐term prosperity are chronic challenges in the agriculture sector of many countries. To address such challenges, farmer cooperatives are formed as an innovative approach to improve the livelihoods of millions of farmers around the world. Inspired by real‐life practice in the Kenya coffee industry, we study a class of stochastic and dynamic inventory models for storable agricultural products with random exogenous supply and price. For a variety of cost functions relevant in practice, we characterize the optimal selling policies to maximize the farmer cooperatives’ expected profit. We show that for concave inventory holding cost, the sell‐all‐or‐retain‐all (r, R) (or sell‐all‐or‐retain‐all R) policies are optimal with (without) the fixed selling cost; for convex holding cost, the sell‐down‐to (S, s) (or sell‐down‐to s) policies are optimal with (without) the fixed selling cost. For the special case of linear holding cost, the optimal policy is a cut‐off price policy and we derive closed‐form expressions for the optimal policy and the optimal total discounted profit. We discuss the model extensions to include general stochastic harvest and price processes, selling/storage capacity limits, price‐dependent random demand with a spot market, and the flexibility of procurement from other producers, and then perform a numerical study to quantify the impact of the optimal solutions. Reconciling the theory with practice, useful insights and guidelines are provided to help farmer cooperatives make strategic selling decisions.

Suggested Citation

  • Jim (Junmin) Shi & Yao Zhao & Rose B. Karimi Kiwanuka & Jasmine (Aichih) Chang, 2019. "Optimal Selling Policies for Farmer Cooperatives," Production and Operations Management, Production and Operations Management Society, vol. 28(12), pages 3060-3080, December.
  • Handle: RePEc:bla:popmgt:v:28:y:2019:i:12:p:3060-3080
    DOI: 10.1111/poms.13091
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    Citations

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    Cited by:

    1. Yiwen Bian & Shuai Yan & Zelong Yi & Xu Guan & Ying‐Ju Chen, 2022. "Quality Certification in Agricultural Supply Chains: Implications from Government Information Provision," Production and Operations Management, Production and Operations Management Society, vol. 31(4), pages 1456-1472, April.
    2. Jian-Jun Wang & Zongli Dai & Wenxuan Zhang & Jim Junmin Shi, 2023. "Operating room scheduling for non-operating room anesthesia with emergency uncertainty," Annals of Operations Research, Springer, vol. 321(1), pages 565-588, February.
    3. Chang, Jasmine (Aichih) & Katehakis, Michael N. & Shi, Jim (Junmin) & Yan, Zhipeng, 2021. "Blockchain-empowered Newsvendor optimization," International Journal of Production Economics, Elsevier, vol. 238(C).
    4. Jian-Jun Wang & Zongli Dai & Ai-Chih Chang & Jim Junmin Shi, 2022. "Surgical scheduling by Fuzzy model considering inpatient beds shortage under uncertain surgery durations," Annals of Operations Research, Springer, vol. 315(1), pages 463-505, August.
    5. Xuhan Tian & Junmin (Jim) Shi & Xiangtong Qi, 2022. "Stochastic Sequential Allocations for Creative Crowdsourcing," Production and Operations Management, Production and Operations Management Society, vol. 31(2), pages 697-714, February.
    6. Wei Zhang & Long Gao & Mohammad Zolghadr & Dawei Jian & Mohsen ElHafsi, 2023. "Dynamic incentives for sustainable contract farming," Production and Operations Management, Production and Operations Management Society, vol. 32(7), pages 2049-2067, July.
    7. Zhong-Ping Li & Jian-Jun Wang & Ai-Chih Chang & Jim Shi, 2021. "Capacity reallocation via sinking high-quality resource in a hierarchical healthcare system," Annals of Operations Research, Springer, vol. 300(1), pages 97-135, May.
    8. Jian Yang & Jim (Junmin) Shi, 2023. "Discrete‐item inventory control involving unknown censored demand and convex inventory costs," Production and Operations Management, Production and Operations Management Society, vol. 32(1), pages 45-64, January.
    9. Sushil Gupta & Hossein Rikhtehgar Berenji & Manish Shukla & Nagesh N. Murthy, 2023. "Opportunities in farming research from an operations management perspective," Production and Operations Management, Production and Operations Management Society, vol. 32(6), pages 1577-1596, June.
    10. Nematollahi, Mohammadreza & Tajbakhsh, Alireza & Mosadegh Sedghy, Bahareh, 2021. "The reflection of competition and coordination on organic agribusiness supply chains," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 154(C).
    11. Yu, Yunlong & Xiao, Tiaojun, 2021. "Analysis of cold-chain service outsourcing modes in a fresh agri-product supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 148(C).

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