Green premiums or economic pitfalls? Unraveling the profitability puzzle of credence attributes in agricultural supply chains

Abstract

In recent decades, the promotion of agricultural products with Credence Attributes (CAs) like organic or environmentally friendly produce has aimed to increase value for farmers, since consumers are willing to pay a premium for such attributes. However, the hierarchical power structures in agricultural supply chains often prevent these premiums from significantly enhancing the profitability of all chain participants, particularly farmers. This paper delves into the impacts of CA production on the profitability of different supply chain members. Our analysis highlights that the financial outcomes for supply chain members are strongly influenced by the interplay between the demand for CA and non-CA products and their production costs. Notably, the study reveals that increased CA prices in the market do not uniformly translate into increased profitability across the supply chain, and particularly do not necessarily benefit the farmers. Rather, CA production and its price premiums continue to disproportionately benefit the retailer rather than the farmers, and thus fail to alleviate the imbalance in value distribution along the supply chain.