Optimal Selling Policies for Farmer Cooperatives

Jim (Junmin) Shi, Yao Zhao, Rose B. Karimi Kiwanuka and Jasmine (Aichih) Chang

Production and Operations Management, 2019, vol. 28, issue 12, 3060-3080

Abstract: Sustainability and long‐term prosperity are chronic challenges in the agriculture sector of many countries. To address such challenges, farmer cooperatives are formed as an innovative approach to improve the livelihoods of millions of farmers around the world. Inspired by real‐life practice in the Kenya coffee industry, we study a class of stochastic and dynamic inventory models for storable agricultural products with random exogenous supply and price. For a variety of cost functions relevant in practice, we characterize the optimal selling policies to maximize the farmer cooperatives’ expected profit. We show that for concave inventory holding cost, the sell‐all‐or‐retain‐all (r, R) (or sell‐all‐or‐retain‐all R) policies are optimal with (without) the fixed selling cost; for convex holding cost, the sell‐down‐to (S, s) (or sell‐down‐to s) policies are optimal with (without) the fixed selling cost. For the special case of linear holding cost, the optimal policy is a cut‐off price policy and we derive closed‐form expressions for the optimal policy and the optimal total discounted profit. We discuss the model extensions to include general stochastic harvest and price processes, selling/storage capacity limits, price‐dependent random demand with a spot market, and the flexibility of procurement from other producers, and then perform a numerical study to quantify the impact of the optimal solutions. Reconciling the theory with practice, useful insights and guidelines are provided to help farmer cooperatives make strategic selling decisions.

Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
https://doi.org/10.1111/poms.13091

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:popmgt:v:28:y:2019:i:12:p:3060-3080

Ordering information: This journal article can be ordered from
http://onlinelibrary ... 1111/(ISSN)1937-5956

Access Statistics for this article

Production and Operations Management is currently edited by Kalyan Singhal

More articles in Production and Operations Management from Production and Operations Management Society
Bibliographic data for series maintained by Wiley Content Delivery ().