The Impact of Competition on Direct Sales in Relation to the Results of the Reduction in Price Support

With the reform of the common agricultural policy in 1992 a gradual reduction in price support was introduced for important agricultural commodities. This paper deals with the relationship between the reduction of price support and the growth of direct sales to consumer households. Because of the higher price direct sales are an interesting alternative to the usual trade with the food industry and the retail sector. The literature explains the price difference with additional marketing costs. But this argument is unable to explain the extra profit in direct sales. One way out of the problem is to assume imperfect competition in direct sales. Further, within an extension of the Cournot-model it is possible to predict the development of small versus large farms.