Demand Allocation and Profit Sharing to Improve Salt Farmer’s Revenue: A Cooperative Game Approach

Abstract

The main problem of the salt supply chain system is the oligopoly market structure dominated by middlemen which reduces the bargaining power of farmers. It has, however, been discovered that vertical collaboration (farmers to cooperatives) and horizontal collaboration (farmers to farmers) models have the ability to increase farmers' revenue. Therefore, this research was conducted to determine the effect of both horizontal and vertical collaboration models on the salt supply chain system with the expectation to increase farmers' revenue. This involved the application of the cooperative game theory with Shapley's value used as the basis for decision making. The result showed that the collaboration of stakeholders in the salt supply chain system has the ability to increase farmers' revenue, especially when they sell a maximum of 20% of their products through cooperatives and the rest through middlemen. This means the existence of farmers as cooperative members has a positive impact as observed in the revenue increment. Therefore, it is recommended that cooperatives improve their functions and roles as providers of savings and loans and market seekers, determine the appropriate prices for salt, and improve the quality of the products produced by their members. Moreover, a collaboration between farmers is mutually beneficial and this means efforts should be made to ensure cooperation, especially for small farmers.

Middlemen and The Debt bondage System in Salt Production at Madura

“…Rural agriculture tends to have problems with limited capital [9]- [11]. In addition, salt farmers can only determine the price of salt in the market if farmers depend on mediators [12], [13]. This condition shows that the form of cartel practices (some parties control and determine prices) in the salt trading system still exists [14].…”