Cooperative Agri-Food Export under Minimum Quantity Commitments

Abstract

International trade can be a profitable business for agri-food communities. However, access to international markets can be costly and thus unattainable for small and medium sized enterprises (SMEs). This problem is exacerbated under trade policies which require minimum quantity commitments (MQCs) on export volumes, e.g., licensing tariff rate quota (TRQ) mechanisms. We show how cooperative exporting among agri-food SMEs can tackle the barriers posed by the MQCs, and give market access to a broader range of SMEs. We formulate a class of cooperative games associated with these situations and find a gain-sharing mechanism that result in allocations in their corresponding cores. Thus, grand coalitions of cooperative exporting SMEs can form in stable manners. This allocation rule shares the export surplus only among the "essential" SME exporters, that is, the players who are sufficiently cost efficient. Thus, less cost efficient "complimentary" SMEs whose capacities are needed to maintain MQCs receive no benefit from collaborative exporting and their participation have to be altruistic. We propose two modifications to our original allocation rule to share a portion of export surplus among the complementary SMEs through taxing the essential SMEs: the first through egalitarian, and the second through revenue-based rates. We compare the performance of these allocations with the numerical examples and discuss their practical implications.