Farmers’ self-reported bargaining power and price heterogeneity

Abstract

Purpose While it is commonly argued that food supply chains are characterized by severe imbalances of power between contracting parties, there is an insufficient understanding of the factors affecting the negotiating position of farmers. The purpose of this paper is to provide quantitative evidence documenting the position of farmers and to explain variation in farm gate prices in the dairy supply chain by using unique micro-survey data from Poland. Design/methodology/approach The bargaining power of farmers is elicited from their self-reported assessment about how confident they feel in their relationships with both the processing industry and input suppliers. Findings Using econometric modelling, it is shown that farmers who perceive themselves as having a relatively “strong position” in the food chain receive a higher milk price from dairy companies. Research limitations/implications While this result comes with some caveats, it suggests that the self-reported beliefs farmers hold about relations with their contractors may reveal additional insights into the distribution of power throughout the food chain. Originality/value Compared to the existing studies, the paper offers two innovations. First, to construct a proxy for farmers’ bargaining power, their subjective opinion on how easy they could be substituted for by their contractors is used. In effect, the paper goes beyond the standard measures which focus on farm size or its location. Second, it investigates farmers’ relationships vis-à-vis both processing industry and input suppliers. Consequently, this paper is the first to analyze power relationships by explicitly taking into account three stages of the supply chain.