Study On Operation Of The "Farmer-supermarket Direct-purchase" Considering Channel Power Structure&the Farmer’s Fairness Preference

In the21st century, the circulation industry confronts with huge challenges. Retailersenhance their position in the supply chain that foreign retail groups (Wal-Mart&Carrefour)and rapidly rising native retailers (Lianhua, Suning and Gome) have absolute predominance inthe supply chain. As a result, retailers make unreasonable demands for suppliers such askeeping down purchasing prices, high slotting fees and rebates. It is almost inevitable thatnormal profits of suppliers cannot be assured and the transaction relationships becomecompetitive leading to win or lose situations. Also, Pareto equilibrium of the whole supplychain cannot be achieved. For example, suppliers served Carrefour with more than10yearsreported that Carrefour contracted with10%rebate sales in2009and the number in2010became21%, which leads them to the edge of loss. Zhejiang Daily once reported that5agricultural products processing enterprises quitted the cooperation with supermarketsbecause of high admission fee. Therefore, we explore the reasons why farmers andsupermarkets conflict with each other.Based on farmer-supermarket direct-purchase, this paper analyzes the problems ofslotting fees and agricultural product specificity assets investment during the collaborations.By incorporating the fairness preference, we explain the plight of cooperation betweenfarmers and supermarkets, and provide cue for favorable relational governance in the future.In this paper, we analyze factors that affect farmer-supermarket direct-purchase. Byconstructing mathematical model, we analyze how slotting fees, specific investment anddecision-making power impact farmer-supermarket direct-purchase. Also, we reveal howmodel parameters have effects on those factors and provide some feasible advices. Beside,based on random demand function sensitive to agricultural products price and quality, webring the concept of fairness preference into the supply chain of farmer-supermarketdirect-purchase and make comparisons among decision parameters under different fairnesspreferences. At the same time, we make a sound analysis how farmer’s fairness affectdecision-making.Research from this paper finds that revenue of both the farmer and the supermarket couldcome to Pareto improvement if they cooperate on the basis of revenue-sharing strategy. Andfairness of the farmer has great effect on balanced strategy of farmer-supermarketdirect-purchase. Therefore, when facing the same price, the farmer will provide agriculturalproducts with lower quality. And in order to maximize his utility, the supermarket will transferpartial revenue to the farmer if he realizes the existing of farmer’s fairness preference. For thereason that fairness being a common and internal social attribute, the supermarket ought toface up to the influence of farmer’s fairness behavior. If cooperation mechanisms across theorganization can be created, then a win-win situation between the farmer and the supermarketis possible. Implications of the paper are following.(1) It is difficult for the farmer to improvethe quality and there is no guarantee for agricultural products in the supermarket when thefarmer is realizing he could not share sales revenue. Hence, though guaranteed purchase priceand sales rebates, the farmer has access to more benefits and the efficiency of the whole supply chain can be improved.(2) Disequilibrium of channel power is an underlying cause forunfair transaction. So, it is necessary to develop “peasant stock cooperative management”model that the farmer can have opportunities to participate in Chinese agriculturemodernization and share its achievement.(3) The farmer is just the raw material supplier andcannot be the leader of the supply chain in the present agricultural economic system. Thus, itis unreasonable for the farmer pursue of absolute fairness. Only in this way,a lose-lose cooperation can be avoided.For the sound development of farmer-supermarket direct-purchase, the governmentshould weaken the bargaining power of supermarkets by forcing them to build the risksecurity mechanism such as setting up risk funds, guaranteed sales and recovery of profits. Atthe same time, the government should give much attention to and support farmers to establishcooperatives in order to strengthen the bargaining power. In this way, fair cooperationrelationship could be realized.