In Nicaragua and elsewhere in Central America, small-scale farmers are weighing the risks of entering into contracts with supermarket chains. We use unique data on negotiated prices from Nicaraguan farm cooperatives supplying supermarkets to study the impact of supply agreements on producers’ mean output prices and price stability. We find that prices paid by the domestic retail chain approximate the traditional market in mean and variance. In contrast, we find that mean prices paid by Wal-mart are significantly lower than the traditional market but that Wal-Mart systematically reduces price volatility compared with the traditional market. We find some evidence, however, that farmers may be paying too much for this contractual insurance against price variation.
Paper: Small Farmers and Big Retail: Trade-offs of Supplying Supermarkets in Nicaragua