Pricing disputes, technical efficiency and oligopsonistic market power: An analysis of seed cotton pricing disputes under contract farming arrangements in Zimbabwe.

Abstract

Stochastic Frontier Analysis framework is used in this study to examine technical efficiency among small holder cotton farmers in Gokwe North district, Midlands Province in Zimbabwe. The study further analysed market power through calculation of concentration ratios (CR4) and HHI as well as correlating market share of each contractor for the 2012/13 and 2013/14 marketing seasons with farm seed cotton prices of each contractor. Farmers on average are found to be 30 percent technically inefficient. The inefficient component of variation was found to be statistically significant at 1 percent and to contribute about more than 90 percent of variation in cotton output across farmers. Market power was found to be at-least moderate as indicated by CR4 ratios of above 60 percent and HHI above 1000. It was also found that seed cotton price was positive but weakly associated with market share. This implied that cotton is not bought by price but in the contract (input supply) which is open to price. The study therefore validates the contentions that farmers are technically inefficient and that contractors wield market power; hence disputes in cotton pricing between farmers and contractors.