Appl Ex 4i

Application Exercise 4i: Farmer’s markets

1) A farmers market describes fresh food markets that operate outside of the normal chain of retail fresh food retailers where farmers sell their produce directly to consumers without having to first sell to major supermarkets such as Coles and Woolworths. For example, farmers markets typically occur on weekends in car parks or public reserves and they are dismantled before Monday.

2) The big supermarkets have what is known as an effective duopoly and they are able to exercise a significant degree of market power. This market power can occur by the supermarkets charging exorbitant prices to consumers or by the supermarkets squeezing suppliers (e.g. farmers) by forcing down the price they are willing to pay suppliers for their produce. This has the twin effect of encouraging consumers to source out cheaper products and suppliers (farmers) finding ways to sell directly to the consumer rather than being squeezed to sell at very low prices by the major supermarkets.

3) Farmers will benefit because they will be selling their farm produce at higher prices compared to if they sold them to the supermarkets. In effect, they are squeezing out the middleman’ which is the supermarkets in this case.

4) Consumers will benefit because by the farmers squeezing out the supermarkets, they are able to sell the products at farmers markets at prices that are ultimately lower for consumers (despite the fact that the farmers will be charging higher prices than if they sold to the supermarkets).

5) Coles and Woolworths will ultimately suffer because consumers will be purchasing less fruit and vegetables from the supermarkets which, over time, erode some of the profitability of these major retailers. The supermarkets are likely to react by reducing the prices of fruit and vegetable items in order to make it less attractive for consumers to source out farmers markets directly. Accordingly, the presence of farmers markets helps to reduce the prices of fruit and vegetables across the board.