In the sprawling fields of Poland, a quiet revolution is brewing, one that could reshape how we understand the power dynamics between farmers and their suppliers. Agata Malak-Rawlikowska, a PhD from the Faculty of Economic Sciences at Warsaw University of Life Sciences (SGGW), has delved into the intricate web of relationships between dairy farmers and feed suppliers, challenging conventional wisdom about bargaining power imbalances.
Malak-Rawlikowska’s research, published in the journal ‘Wieś i Rolnictwo’ (which translates to ‘Village and Agriculture’), explores whether farmers are indeed trapped in hold-up relationships with their contractors, a situation where one party can extract unfair benefits due to a lack of alternatives. The study focuses on the transaction costs theory, which examines the costs associated with negotiating, monitoring, and enforcing agreements.
The findings are surprising. Contrary to popular belief, dairy farmers in Poland do not seem to be at a significant disadvantage when it comes to bargaining power with their feed suppliers. “Despite the absence of written contracts, the relationships are stable and based on mutual respect and privately enforced terms,” Malak-Rawlikowska explains. This stability is crucial for the agricultural sector, as it ensures a steady supply of feed, which is essential for dairy production.
The study reveals that the lack of written contracts actually benefits farmers. A binding written supply commitment could increase transaction costs, limit the farmers’ freedom to change suppliers, and reduce their bargaining power. This insight is particularly relevant in the context of vertical integration, where the control of production and distribution by a single entity can lead to monopolistic practices.
The implications of this research are far-reaching. For the agricultural sector, it suggests that policies aimed at protecting farmers from hold-up relationships may not be necessary in all cases. Instead, fostering an environment that encourages stable, mutually beneficial relationships could be more effective. This could involve promoting transparency, reducing transaction costs, and encouraging competition among suppliers.
For the energy sector, the findings offer a new perspective on supply chain management. The stability and mutual respect observed in the farmer-supplier relationships could serve as a model for other industries. By focusing on building trust and reducing transaction costs, companies can create more resilient and efficient supply chains.
As the world grapples with the challenges of climate change and food security, understanding the dynamics of agricultural supply chains becomes increasingly important. Malak-Rawlikowska’s research provides valuable insights that could shape future developments in the field, paving the way for more equitable and sustainable practices. The future of farming may not be about who holds the power, but about how we can work together for mutual benefit.