PhD defence: Trading Relationship Performance and Market Power in Food Supply Chains
The development of the agri-food industry has led to a considerable increase of intermediaries’ market power vis-à-vis farmers. There are studies and evidence that suggests that due to their power, intermediaries transfer risks and unexpected costs to farmers which compromise the innovation, modernization and restructuring of the farming sector into more efficient forms. When considering that 70% of the worlds’ poor who live in rural areas have farming business as main source of income, it becomes crucial to understand the intermediaries’ power over farmers and its impacts upon farmers’ business and livelihood.
The overall objective of this PhD study was to investigate the intermediaries’ power over farmers and its effects on trading relationship performance between them. Two farms survey were conducted, the first one was carried out in the Adana region in Turkey and had an explorative focus aiming to understand how intermediaries’ exercised their power over farmers and its determinants (Paper 1 and paper 2). The second farm survey was conducted in the region of Korça in Albania, the goal here was to: validate the measures of intermediaries’ power over farmers developed from the first study (paper 2), investigate how intermediaries’ power affects farmers-intermediaries trading relationship performance (paper 3) and analyse the determinants of contract farming and its effects on post-harvest losses (paper 4).
The first paper investigates the determinants of intermediaries’ power over farmers’ margin related activities. In doing so, it proposes a holistic model of intermediaries’ power over farmers’ margin. The objective of this model is to contribute to a better understanding of the power relationships between farmers and intermediaries. The paper argues that a balance of power needs to be established between farmers and intermediaries because it leads to the rise of more efficient trading relationships, with reduced transaction costs and improved chain coordination. In this paper multiple linear regression is employed to analyses the hypothesized relationships.
Paper two analyzes intermediaries’ power over farmers’ activities and identifies dimensions of intermediaries power that have positive effects on farmers business. The identified dimensions of intermediaries’ power are 1). Power Over farmers Input Selection Activities (POIS) and 2). Power Over farmers’ activities that contribute to Losses at the Intermediary stage (POLI). It is argued in the paper that when intermediaries exercise these dimensions of their power both farmers’ and intermediaries should benefit because the focus of influence is not on margins (i.e. zero sum game, one wins the other loses) but on farmers activities that relate to product quality and post-harvest losses (i.e. win-win game). Part of the bigger profits that the intermediary achieves from selling higher product quality and reduced cost from post-harvest losses at his stage are transferred back to the farmer as rewards. Furthermore, the paper investigates the factors that contribute to the exercise by intermediaries of these power dimensions.
In the third paper a Structural Equation Modelling is employed to analyse the effects of intermediaries’ power on trading relationship performance between farmer and intermediaries. The analysis show that intermediaries’ exercise of power over farmers’ margin, leads to reduced relationship performance. On the other hand, when they exercise their power over farmers input selection activities or over harvesting and delivery activities the performance is improved. Furthermore, the result show that intermediaries’ power affects relationship performance also indirectly through relationship quality and conflict between farmers and intermediaries. Again, the mediated effects through relationship quality and conflict of power on relationship performance are in the same line as the direct effect of each dimension of intermediaries’ power.
Paper four explores the determinants of Contract Farming (CF) of apple producers in Albania and the effects of CF on post-harvest losses. By Using Structural Equation Modelling (SEM) with Bayesian estimation, it resulted that CF does not affect directly post-harvest losses. Instead, CF reduces post-harvest losses indirectly through its effect on farmers’ access to market and intermediary’s provision of services. On the other hand, the main factor to explain contracting between farmers and intermediaries was intermediary specific investment.
Intermediaries and farmers need to understand that nowadays relationship are a source of competitive advantage and only by building good relationship between them, they can achieve above average profits. Therefore, the study suggests that social innovation in farmers’ intermediaries trading relationships in developing in particular is necessary is a must. Furthermore, policy maker and firm managers (e.g. exporters, processors) could reduce post-harvest losses through contract farming but only if they provide the necessary services and timely market access for farmers.
Søren Marcus Pedersen, Associate Professor, Department of Food and Resource Economics, University of Copenhagen, Denmark
Kim Martin Hjorth Lind, Department of Food and Resource Economics, University of Copenhagen, Denmark
Bahri Musabelliu, Professor, Agricultural University of Tirana, Albania
Niels Kærgård, Professor Emeritus, Department of Food and Resource Economics, University of Copenhagen, Denmark
Jørgen Lindgaard Pedersen, Associate Professor Emeritus, Technical University of Denmark, Denmark
Csaba Jansik, Senior Scientist, Natural Resources Institute Finland, Finland
If you are interested in a full copy of the thesis, you can contact the PhD student or one of the supervisors.