Sustainable Emerging Country Agro-Food Supply Chains: Fresh Vegetable Price Formation Mechanisms in Rural China

Abstract

Price formation mechanisms along the supply chain determine the economic viability of effective agro-food supply chains in emerging countries with small-scale subsistence-based agricultural activities. This study offers an analysis of the price formation mechanism along the Chinese fresh vegetable supply chain. It analyzes the features of market transactions in the upstream and downstream greenhouse cucumber supply chain, and presents an elastic model of pricing in the fresh and raw vegetable market in China. Based on the daily procurement price data of 78 cases in Lingyuan (Liaoning Province, China), and the wholesale price of 78 cases in Xinfadi (Beijing, China), the Augmented Dickey Fuller (ADF) unit root test, co-integration test, and Granger test were applied to reveal the relationship between the prices. Findings indicate that the price of fresh and raw vegetables is formed at the wholesale market, where after it cascades from wholesalers to direct buyers (primary merchants) and farmers, and is passed on to retailers and consumers, where the final market price is formed. Farmers exhibit bounded rationality decision-making, that is, they can only passively accept price fluctuations. Buyers (primary merchants, wholesalers’ agents, and retailers) at each level extract fixed rewards, while making no additional contribution to the price fluctuations along the chain. The wholesalers enjoy an oligopolistic competition market and can better take advantage of the asymmetric information to accommodate market demand.