Challenges to Farm Produce Marketing: A Model of Bargaining between Farmers and Middlemen under Risk

We present a model of bargaining between farmers and middlemen in which long-term risk considerations by farmers constrain their ability to engage in hard bargaining. In order to avoid the risk of middlemen exiting their region in the future due to hard bargaining, farmers settle for lower prices for their produce. The risks of prolonged drought-induced decline in produce quality and future oversupply of the perishable agricultural commodity also result in lower price outcomes under bargaining. If farmers join a collective that enhances their bargaining power, they tend to be better off when the group is homogeneous.