Behaviour and performance of traders in the gum arabic supply chain in Senegal: Investigating oligopsonistic myths

Farmers face monopsonist/oligopsonist structures in agricultural or forest products markets because of the limited choice of traders/buyers. As a consequence, these farmers and traders alike, in successive transactions along the supply chain, may get lower prices in selling their products. This leads to a problem of double (or even multiple) marginalisation. We investigate oligopsonist tendencies in the trade of gum arabic, a non-timber forest product which is widely used as an additive in food and non-food industries. We compute traders’ shares and a corresponding Herfindahl index in primary, transport and wholesale markets of gum arabic in Senegal to analyse the market concentration; through a gllamm procedure we analyse determinants of these market shares and finally by a weighted least square regression, we analyse determinants of marketing margins of individual traders. The computed Herfindahl index was found too low to have any influence on margins and hence oligopsonist powers could not be confirmed. Instead traders’ margins depend on costs, risk and uncertainty that they face. Consequently, traders were not found exploitative; their power is derived from access to capital and market characteristics.