This paper deals with the dynamics of market power with processors and retailers in the coffee supply chain in India. We develop an imperfect competition model that allows for the potential oligopoly and/or oligopsony power of retailers and processors vis-á-vis adjacent stakeholders in the supply chain. We consider a vertical coffee supply chain where processors purchase the raw coffee beans from planters, process them into green coffee beans, and sell them to firms or retailers who in turn sell the roasted or powdered coffee to consumers. We use the results from the imperfect competition model developed in the paper to empirically identify the presence or absence of market power among processors and retailers in the coffee supply chain in India. We use the auto regressive distributed lag (ARDL) approach to estimate the empirical model using monthly price data at the farm-gate, processor, and retail end for the period ranging from 2002 to 2019 for the two most commonly grown varieties of coffee, Arabica and Robusta. Our empirical results suggest that processors and retailers exercise oligopsony and oligopoly powers vis-á-vis farmers and consumers, respectively, for both the Arabica and Robusta varieties. We also found support for the existence of bilateral oligopoly power between processors and retailers of the Arabica variety of coffee. However, no such market power exists between processors and retailers in the case of Robusta variety. The relative concentration of processors and retailers along with the demand and supply conditions of both varieties of coffee in the domestic and international market play an important role in determining the power relations between farmers, processors, retailers, and consumers. This paper highlights the existence of market power with processors in the coffee industry that play an important role in the imperfect price transmission and should not be ignored when developing regulatory policies.
