Growing bargain power of supermarkets putting pressure on organic vegetable producers

Summary

Using an analytic framework grounded in New Institutional Economics and property rights theory, concepts of power and control over access to critical assets along a supply chain has laid the foundation for the analysis of the development of the organic vegetable chain in Denmark. Two commodities were chosen as detailed case studies: organic carrots and iceberg lettuce. By combining qualitative and quantitative data bargain power was revealed to be growing at the retailer node, and producer-retailer relations were examined in detail. Retailers use various control mechanisms that are being tightened in relation to fees and period of credit payment. Terms of trade as well as price premiums for organic carrots have been examined showing decline and contraction in comparison with the conventional carrots. The space for future producer opportunities countervailing the bargain power of the retailers, it is argued, lies in promoting an ‘organic product basket’ with relatively high utility and scarcity for the retailers. This is the case in the National Organic Association promotion through the discount chain ‘Netto’ together with various organic producers, and the planning of some producers/packagers to cooperate trans-nationally in order to countervail the growing bargain power of the Pan-European buyer organizations within the European supermarket chains.