Strengthening Farmers’ Bargaining Power in the New CAP

Abstract

The food supply chain plays a substantial role in the European economy. Agricultural markets are highly interdependent and competition at different stages of the supply chain matters for the overall functioning of the entire food sector. Welfare and distributional implications of competition at any stage of the food supply chain concern several ‘weak subjects’ such as small farmers and consumers who negotiate with “strong subjects” operating in more concentrated (industrial and retailing) sectors. In order to balance power across the EU agro-food supply chain and achieve a more sustainable distribution of value-added, the main instruments featuring the new paradigm of market organisation proposed by the CAP reform are Producer Organisation, Association Producer Organisation and Inter-Branch Organisation. We employ a simple bargaining model aimed to identify the determinants of the bargaining power in the food supply chain; the model is used to assess the capability of POs to strengthen farmers’ bargaining power. The results show that, under certain conditions, the joint selling and production planning can be effective tools for rebalancing power in the agro-food system. We also concluded that requiring a minimum size for POs may improve their effectiveness. Such requirement should be calibrated on the structure of the downstream (upstream) relevant market: more consolidated buyer (seller) industries call for larger POs.