Discuss the possible impact of supermarket monopsony power on both food suppliers and consumers?

One possible impact of supermarket monopsony power on suppliers is it will decrease their profits, possibly driving them out of the industry. A monopsony can be defined as when there is only one buyer in the market , there are no alternatives to the monopsonist , and there are barriers to entry. In theory, a monopsonist such as Tesco, who had 28.6% market share in the UK supermarket industry in 2015, can leverage their buying power to negotiate lower prices out of suppliers. Thus by negotiating lower prices, this can result in the price not covering unit costs, for instance diary farmers in the Uk have previously alleged it costs 30-32p to produce a litre of milk, but Arla only pays them 23.01p. Thus, as shown on the diagram, for a profit maximising firm who produces where MC=MR, this can result in costs at C1, being above price P1 received for their goods. Thus generating subnormal profit, denoted by the shaded region on the diagram, and hence has the potential to drive suppliers out of the market. However, this is dependent on if regulation in the industry deters monopsonist's from leveraging their buying powers. The GCA in the UK has the power to fine supermarkets 1% of their annual sales revenue, which may therefore deter supermarkets from negotiating lower prices, thus limiting the negative impact upon the supplier.
Secondly, one impact of supermarket monopsony power on consumers is an increase in consumer surplus. As a monopsonist can leverage their buying power to negotiate lower prices, in theory this can decrease firm's variable costs of production. Hence, this can result in a decrease in marginal costs and average costs, thus as denoted by a diagram, shifting downwards MC1 to MC2 and AC1 to AC2. For a profit maximising firm who produces where MC=MR at an output of Q1, this will hence cause a fall in price from P1 to P2. Thus there will be a subsequent increase in consumer surplus, from area XYp1 to area XZP2. Thus consumers are positively impacted as this increase in consumer surplus, will hence increase their economic welfare. However, the impact on consumer welfare may not be that significant. If monopsony power puts downward pressure on the price received by suppliers, this may cause suppliers to reduce quality in order to cut costs, to avoid making subnormal profit, or indeed suppliers may exit the industry entirely if they are making subnormal profit in the long run, and therefore this will limit choice in the industry. Thus, as both of which would harm the consumer, the positive impact to the consumer of monopsony power may hence be limited.