Agricultural Cooperatives' Strategic Cooperation via Association: The Impacts of Asymmetric Bargaining Power and Yield Uncertainty

Traditional agricultural cooperatives, despite achieving notable scales, encounter challenges in negotiations with powerful buyers, leading to low wholesale prices and production quantities, particularly for those with weaker bargaining power. To address these challenges and amplify agricultural cooperative bargaining power, a novel form of collaboration—farmers' cooperative associations—has emerged. This study therefore investigates strategic decisions of agricultural cooperatives regarding forming cooperative associations and explores the impacts of varying bargaining powers and yield uncertainty. Focusing on a three-member supply chain consisting of two upstream cooperatives and a downstream supermarket, we consider separate and joint negotiation scenarios. We find that the wholesale price negotiated by the cooperative with stronger bargaining power in a separate negotiation may not always be higher than that negotiated by a cooperative with weaker bargaining power. Additionally, we observe that the wholesale price in a separate negotiation is not necessarily decreasing with the expected yield. Finally, we identify the conditions in terms of bargaining powers and yield uncertainty, under which the two cooperatives can achieve a win-win situation from the cooperative association.