Market Power Dynamics in Agricultural Supply Chains

Market power in agricultural supply chains arises when one or more actors—processors, traders, retailers or cooperatives—can influence prices, contractual terms or the allocation of risks to their advantage. Such imbalances may lead to unfair trading practices, inefficiencies in price transmission and reduced returns for primary producers. Research has revealed that spatial factors, degrees of concentration and governance mechanisms combine to determine the bargaining position of farmers and downstream buyers. Countervailing power through producer organisations can moderate extreme imbalances, yet its effectiveness varies with the nature of contracts and the structure of regional markets. Empirical innovations have improved estimation of market power, revealing that data aggregation biases often mask the true extent of buyer leverage. Finally, supply chain governance tools such as interbranch organisations show promise in fostering more stable, inclusive relationships, even in the face of rising concentration among large processors and retailers.

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Market Power Dynamics in Agricultural Supply Chains publication trend

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Technical terms

Market power: The capacity of a firm or group to influence market prices or terms of trade to its advantage, often by restricting competition.

Oligopsony: A market situation in which a small number of buyers exercise disproportionate influence over prices and the availability of inputs from many suppliers.

Countervailing power: The ability of weaker parties—often through collective action or producer organisations—to resist or offset the influence of dominant buyers or sellers.

Data aggregation bias: The distortion in empirical estimates of market power that arises when analyses rely solely on industry‐level data rather than detailed firm‐level information.

Interbranch organisation: A formal governance body comprising representatives of different levels of the supply chain, established to coordinate standards, contracts and dispute resolution.

Supply chain governance: The institutional and contractual arrangements governing interactions among producers, processors, traders and retailers that shape bargaining relationships and value distribution.

References

1. Unfair trading practices and countervailing power. Food Policy (2023).
2. Estimating Market Power Exertion in the U.S. Beef Packing Industry: An Illustration of Data Aggregation Bias Using Simulated Data. Sustainability (2024).
3. Concentration, market imperfections, and interbranch organization in the Italian processed tomato supply chain. Agricultural Economics (2024).