Abstract: An agricultural cooperative is an association of farmers who voluntarily cooperate to pool their production for sale. In China, the agricultural cooperatives are increasingly encouraged to sell their fresh agricultural products to the supermarkets, and supermarkets hold a significant market share in agricultural product distribution from farms to final consumers. However, some of agricultural cooperatives still prefer to sell a part (or all) of their production directly to end consumers. In practice, many farmers combine direct selling and marketing through cooperatives. They sell part of their production to the cooperative and the rest is sold directly to the consumers. The combination of direct selling with supermarkets gives rise to a particular market structure for the agricultural cooperatives.The purpose of this paper is to study whether it is necessary for the cooperative to establish a community outlet store to sell fresh agricultural products to consumers directly. A model in which a agricultural cooperative is owned by many farmers who produce a homogeneous good is built. It's assumed that the supermarkets and the direct selling market are separated. The supermarkets are oligopolistic, but the price of fresh agricultural products in the direct selling market is controlled by government. The agricultural cooperative decides on the production quantity and how to share this production the supermarkets and the direct selling market. A Nash bargaining model is developed to analyze the game process between the cooperative and the supermarket. The equilibrium results are derived and the resulting profit sensitivity with respect to some factors is analyzed. Our analysis stresses three important results. First, it is find that the cooperative will benefit from the opening of the community outlet store, however the profit of supermarket will decrease. Second, as the bargaining power of the cooperative decreases, the degree of improvement for the cooperative's profit will become more significant. Finally, the operational efficiency of the whole supply chain can be improved significantly in the dual channel when the production capability of the cooperative is greater than a threshold. Simultaneously, a numerical simulation is proposed to prove the results. The contribution of this paper is twofold. First, it is an attempt to build a theoretical framework for a agricultural cooperative decides on how to share production between the supermarkets and the direct selling market. Second, the results of this paper can provide guidelines for the government in China to develop more efficient agricultural supply chains.

Key words: agro-food supply chain, "farmer-supermarket direct purchase", community outlet stores, dual channel, asymmetric nash bargaining