A Theory of Agricultural Marketing Cooperatives with Direct Selling

Abstract

We build a theoretical model to study a market structure of a marketing cooperative with direct selling, in which many farmers are members of an agricultural marketing cooperative. They can sell their production either to the cooperative or on a local market. We show that the decision to sell to the cooperative induces an anti-competitive effect on the direct selling market. Conversely, direct selling may create a "healthy emulation" among farmers, leading to more production benefiting the cooperative.

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“…Under this arrangement, the farmers who are the members of the AMC can sell their products either to the cooperative or in a local market. The model shows that if the farmers decide to sell to the AMC, the decision will induce an anti-competitive effect on the direct selling market, whereas, the option of direct selling has the propensity to create a "healthy emulation" among farmers ( Agbo et al ., 2013 ). This will then stimulate production and ultimately benefit the cooperative.…”