The pricing paradox: price formation and Producer welfare in the modern broiler market

Abstract This study examines how bargaining power asymmetries shape price formation in China’s broiler industry. Using farm-level survey data from 638 white feather broiler producers collected in 2023, we apply Two-tier Stochastic Frontier Analysis (2TSFA) to quantify bidirectional bargaining effects between farmers and buyers. Three key findings emerge. First, buyers exert stronger bargaining leverage, suppressing farm-gate prices by an average of 1.87% relative to the benchmark, which erodes approximately 34% of producer profit margins. Second, contract farming is associated with a 6.51% point decline in net surplus compared with non-contract farmers, while large-scale farms paradoxically capture lower net surplus than smaller operations. Third, regional disparities are significant: farmers in eastern markets retain relatively better terms, while those in central and western regions face stronger buyer dominance. These findings underscore how contractual rigidity, asset specificity, and market concentration are associated with weakened producer bargaining positions. Policy implications include strengthening contract standardization, supporting farmer cooperatives, and improving market information access to mitigate buyer dominance.