Bargaining power of suppliers

Cooperatives March 07, 2011 Print Friendly and PDF

Author: John Park, Texas A&M University,

Your business depends on certain suppliers that provide labor, materials and other components. Competitive pressure from these suppliers is strong when they can exercise sufficient bargaining power to influence the terms and conditions of exchange in their favor. This pressure is further strengthened when suppliers are concentrated. In agriculture, producers typically are seen as having little bargaining power or leverage due to the number of sellers in the open market. Likewise, cooperatives face this dilemma on a daily basis. It is relatively easy for farmers to obtain what they need from several different suppliers as well as market their products through several different channels of distribution.

Your suppliers have a weak bargaining power when close substitutes for their goods or services are available, and it is neither costly nor difficult to change suppliers. Suppliers also have less power over your pricing and terms of sale when your firm is a significant customer and the loss of your business would have serious negative effects. Similarly, customers may be at the mercy of a supplier if the supplier controls the market, enabling the supplier to exert pricing power.

Collaboration with your suppliers can translate into a competitive advantage in the market. In many industries, sellers are signing long-term strategic agreements with select suppliers to: improve inventory efficiency and reduce costs, “lock-in” specific quality standards, improve delivery and reliability of products and tap the potential for higher profits in the marketplace.

Your Turn …

  • List your major suppliers and consider their importance to your business.
  • Are you a significant customer of these suppliers?
  • Are there ways you can lessen their strength through finding alternative suppliers or strengthening collaborative efforts?

Connect with us

  • Facebook


This is where you can find research-based information from America's land-grant universities enabled by



Feature Articles


Teaching Materials


  • Webinar Information
  • Upcoming Cooperatives Webinars
  • Archived Cooperatives Webinars


  • Rural Cooperatives magazine, Rural Development, Business and Cooperative Programs, USDA - This bimonthly magazine contains articles and news items relevant to agricultural and non-agricultural cooperatives. An archive provides access to past issues of the magazine from 1998 to 2011.
  • Directory of Farmer Cooperatives, Service Report 22, USDA Rural Development, October 2013 - This directory contains a list, by state, of almost 1,500 farmer-owned marketing, farm supply, service, fishery and bargaining cooperatives. The information includes the cooperative’s contact information, type of cooperative and products that they sell. An online directory is updated every month.


This work is supported by the USDA National Institute of Food and Agriculture, New Technologies for Ag Extension project.