Sheikh Selim
Oniket Research Group
For a Bangladeshi farmer, harvest season carries a peculiar duality. A bumper crop of rice, potatoes, or vegetables ought to be an occasion for celebration, yet a striking number of farmers describe the moment with apprehension rather than relief. The disjuncture does not originate in the fields themselves, where yield is the product of soil, weather, and labor, but in the institutional architecture that lies between the farm gate and the final consumer: a chain of intermediaries, inadequate storage infrastructure, and pricing arrangements that frequently work against the producer’s interests.
Making sense of why abundance so often translates into economic distress requires a more analytical lens than sympathy alone can provide. It calls for examining the moral hazard problems embedded within the supply chain for perishable agricultural commodities, where information asymmetries and misaligned incentives among growers, aggregators, and buyers systematically shift risk onto those least equipped to absorb it. That examination is the task this article sets out to undertake.
The Supply Chain Premium and Its Moral Hazard
Goods like tomatoes, mangoes, and leafy greens spoil within days, which strips farmers of any real bargaining position. Unable to wait for favorable prices, they must offload their harvest almost immediately, typically to whichever buyer happens to be available. Intermediaries, frequently operating through informal cartels, understand this urgency well and capture a wide margin, often termed a supply chain premium, between the price paid at the farm and the price eventually charged to consumers.
Some markup is justifiable, since intermediaries do shoulder genuine costs: transportation, storage, and the risk of spoilage. But in practice, what gets charged routinely outstrips what those costs would warrant. Once a cartel gains control over a district’s transport networks or cold storage capacity, it can set farm gate prices largely on its own terms, independent of whatever demand or pricing conditions actually prevail in Dhaka or other urban markets.
The result is a textbook moral hazard. Intermediaries face virtually no penalty for short-changing farmers, and farmers, in turn, have nowhere else to sell perishable goods before they rot. This imbalance leaves cartels with little motivation to offer fair prices or invest in improvements like better cold chain infrastructure. The very actors positioned to fix inefficiency and reduce waste have no incentive to do so, since their profits are generated by that inefficiency rather than threatened by it.
The Principal Agent Problem and Suboptimal Harvest Output
This dynamic sets up a textbook principal agent problem. Farmers occupy the role of principal, bearing all the production risk by sinking labor, seed, and capital into the harvest, while intermediaries act as agents who control market access and price discovery. The trouble is that the agents’ incentives do not align with the principal’s goal of maximizing the harvest’s value.
Anticipating that a large share of their revenue will be siphoned off by the supply chain premium, many farmers rationally respond by scaling back production, shifting toward lower risk but lower yield crops, or abandoning perishable high value produce altogether in favor of grains that can be stored without loss. The economy as a whole ends up with suboptimal harvest output, even though each farmer is behaving perfectly rationally given the incentives they actually face.
Blessing, Distress, and the Risk of Agribusiness Failure
When harvests run unusually large, prices for perishable produce can collapse within days, since storage capacity is inadequate and transport bottlenecks keep goods from reaching distant markets in time. Farmers sometimes leave vegetables to rot in the field simply because harvesting and transport costs exceed what buyers offer. Abundance, in these moments, turns into distress rather than blessing.
The volatility travels further up the chain, reaching agribusiness firms that aggregate, process, or export produce. Some take on excessive short-term financing to buy harvests cheap, betting on favorable resale conditions. When conditions sour, through oversupply, an export ban, or logistics failure, these firms often default or go bankrupt rather than honor contracts with farmers or lenders. Since failure’s costs spread across banks, cooperatives, and unpaid farmers, owners face their own moral hazard: chasing outsized risk in good years while offloading losses onto weaker parties when things go wrong.
Government Steps (or concerns)
Tackling these compounding moral hazards will require several coordinated government interventions. Expanding public cold storage and rural transport infrastructure would ease farmers’ dependence on syndicate-controlled logistics networks. Establishing transparent, publicly accessible price information systems for major perishable commodities would chip away at the information advantage syndicates currently hold over growers.
Competition authorities also need stronger enforcement powers to investigate and dismantle cartel behavior among intermediaries, since informal syndicates frequently evade regulatory scrutiny simply by operating without formal registration. Contract farming models backed by legal protections could give farmers enforceable guarantees on price and off take, shifting some risk away from the most vulnerable party in the chain. A regulated warehouse receipt financing system, meanwhile, would let farmers borrow against stored produce instead of selling immediately at distress prices, handing them genuine bargaining power for the first time.
Only by addressing the structural roots of the supply chain premium, and the principal agent misalignment it generates, can Bangladesh turn the harvest from a recurring source of farmer distress into the blessing it was always meant to be.
