Food Distribution System in Vietnam: Nash Equilibrium and Channel Choice of Small Scale Farmers

Purpose: The transition from a traditional to a modern food distribution system induces several adjustments on the supply side since supermarkets must collect food on a larger scale and with higher quality standards. This situation becomes a real challenge for small scale farmers to access supply in a modern distribution channel. This gives rise to an original solution: supplying supermark ets through farmer associations or cooperatives. Based on this context of Vietnam linking to the case of distribution science, the paper proposes an industrial organization model of the food processing system in developing countries. The model presents the competitive relat ionship between two competing distribution systems: a traditional and a modern one. The former is composed of several retailers that sell their products on the traditional market while the latter is based on cooperatives that collect food and negotiate with supermarket s. The current study is to discuss the conditions under which the evolution of the food distribution system occurs by using the proposed model. Research design, data, and methodology: Based on the proposed model, the study explored the quantity flow from small producers to consumers through a Nash equilibrium and address the question of farmer repartition by a free-entry equilibrium. Results: The result shows that there is a unique positive equilibrium in the food market with participation of cooperative associations; Since farmers serve cooperative associations, they not only receive quantity incentive prices but also share profits within their organization. Conclusions: This study shows a unique distribution equilibrium where the profits of farmers working for middlemen and cooperatives are maximized. Further insights were discussed.