Consequences of maximum markup regulation in the supply and distribution chain for agri-food products

This study examines the consequences of maximum markup regulation on the supply and distribution chain for agri-food products considering three primary stakeholders: final consumers, producers, and retailers. Maximum markup policies are often implemented to protect consumers from excessive price increases. In practice, their aim is to ensure affordability in essential food items by limiting the allowable profit margin within the supply chain. However, this regulatory approach has complex and often negative consequences. For consumers, these regulations may lead to short-term price stability, but they can also reduce product variety because producers will try to cut costs to adapt to limited markups. For producers, the imposed markup cap often lead to reduced profitability, especially for small-scale farmers that cannot achieve economies of scale. As a result, some producers may be forced out of the market or constrained to low-cost, low-quality production practices. Retailers, while better equipped to absorb reduced markups, might respond by shifting costs onto suppliers. They also tend to limit supply chain diversity, which can affect market competition and alter consumers’ choices. These dynamics suggest that while maximum markup regulation can mitigate price spikes for consumers, they may inadvertently compromise supply chain resilience and product quality. Finally, this study makes a case for a careful re-evaluation of such policies in order to better balance between consumer protection and supply chain sustainability.