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Farmers, Middlemen and Exporters: A Model of Market Power, Pricing and Welfare in a Vertical Supply Chain

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  • Kjetil Bjorvatn
  • Anna B. Milford
  • Lars Sørgard

Abstract

Markets for cash-crops in developing countries are typically characterized by a concentration of buyer power at different levels of the supply chain. For instance, small-scale coffee farmers sell their produce to a middleman, who in turn sells the coffee onward to an exporter, often a foreign multinational, with monopsony power in the hands of the purchasers at both levels. We analyze pricing behavior and welfare with different assumptions regarding market power. In particular, we show that a more powerful exporter is likely to benefit the producers and may even lead to higher welfare for the producer country as a whole.

Suggested Citation

  • Kjetil Bjorvatn & Anna B. Milford & Lars Sørgard, 2015. "Farmers, Middlemen and Exporters: A Model of Market Power, Pricing and Welfare in a Vertical Supply Chain," Review of Development Economics, Wiley Blackwell, vol. 19(1), pages 31-44, February.
    • Handle: RePEc:bla:rdevec:v:19:y:2015:i:1:p:31-44
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    References listed on IDEAS

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    1. Bernard Hoekman & Will Martin, 2012. "Reducing Distortions in International Commodity Markets," World Bank Publications - Reports 10041, The World Bank Group.
    2. Minten, Bart & Randrianarison, Lalaina & Swinnen, Johan F.M., 2009. "Global Retail Chains and Poor Farmers: Evidence from Madagascar," World Development, Elsevier, vol. 37(11), pages 1728-1741, November.
    3. Richard J. Sexton & Ian Sheldon & Steve McCorriston & Humei Wang, 2007. "Agricultural trade liberalization and economic development: the role of downstream market power," Agricultural Economics, International Association of Agricultural Economists, vol. 36(2), pages 253-270, March.
    4. Roman Inderst & Tommaso M. Valletti, 2011. "Buyer Power And The ‘Waterbed Effect’," Journal of Industrial Economics, Wiley Blackwell, vol. 59(1), pages 1-20, March.
    5. Leslie M. Marx & Greg Shaffer, 2010. "Slotting Allowances and Scarce Shelf Space," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(3), pages 575-603, September.
    6. Swinnen Johan & Vandeplas Anneleen, 2012. "Rich Consumers and Poor Producers: Quality and Rent Distribution in Global Value Chains," Journal of Globalization and Development, De Gruyter, vol. 2(2), pages 1-30, January.
    7. Milford Anna B., 2012. "The Pro-Competitive Effect of Coffee Cooperatives in Chiapas, Mexico," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 10(1), pages 1-29, March.
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    Cited by:

    1. Stefano Corsi & Rosalia Filippini, 2023. "From Power Imbalance to Interdependence: A Case Study of the Chadian Sesame Supply Chain," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 35(3), pages 684-714, June.
    2. Elena Candelo & Cecilia Casalegno & Chiara Civera & Fabrizio Mosca, 2018. "Turning Farmers into Business Partners through Value Co-Creation Projects. Insights from the Coffee Supply Chain," Sustainability, MDPI, vol. 10(4), pages 1-21, March.
    3. Thomas Kopp & Richard J. Sexton, 2021. "Farmers, Traders, and Processors: Buyer Market Power and Double Marginalization in Indonesia," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(2), pages 543-568, March.

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