Bargaining Problem of Small Farmer and Large Trader and the Model of Vertical Restraints in Indian Agriculture

Abstract

The present study is in the context of the newModel Agricultural Produce Market Committee (APMC)Act 2003, which aims at freedom of farmers to sell their products to the large private firms and bringing reforms in the wholesale Cash and Carry and retail markets in India. The most important suggestions have remarked in the Economic survey 2014-15 and outlined that state governments should be especially persuaded by the central government to provide policy support for alternative or special markets in the large private sector. Many states, including West Bengal, accepted the proposal and have opened the market of agricultural commodities for the large private sector. In this paper, we study a model of vertical restraints in the case of India considering multilayer of fixed costs and monopoly power of the small as well as large traders in the vertical structure. We are also interested to find the conditions of small farmer's gain and possible strategy impacts in the cost of cultivation and consumer expenditure. Here, we first study the bargaining problem between small farmers and large traders. It has been shown that the small farmers or the producers tended to reject large traders (LT) including retailers and wholesalers as new bulk buyers. Thereafter, we consider a model of vertical restraints where, downstream firms (viz. Retail traders, Cash and Carry traders) purchase agricultural food products from the consolidators, where the consolidator buys their saleable commodities from the small farmers. We explain how the presence of the LT is affecting the wholesale market prices and retail prices. Thus we can easily understand the competition between the small and large retailers in agricultural food commodities retail market in India. Moreover, we study a model of vertical restraints in the case of India considering multilayer of fixed costs and monopoly power of the small as well as large traders in the vertical structure. We are also interested to find the conditions of small farmer's gain and possible strategy impacts in the cost of cultivation and consumer expenditure.