Grocery Retailers' Dominant Role in Evolving World Food Markets

market consolidation, food retailers, food quality, vertical coordination, supermarket, market power, farmer welfare, Agribusiness, International Relations/Trade, Q13, L13,

What Do We Know About the Economic Efficiency of Cooperatives: An Evaluative Survey

A debate has arisen concerning the economic efficiency of cooperatives relative to other organizational forms. This paper discusses the efficiency concepts and economic theory relevant to the debate and then proceeds to study the empirical evidence. No credible evidence exists to support the proposition that cooperatives are inefficient relative to investor-owned businesses.Agribusiness,

Retailer Pricing Strategies for Differentiated Products: The Case of Bagged Salads and Lettuce

Demand and Price Analysis,

Effects of Market Power on the Size and Distribution of Subsidy Benefits: The Case of Ethanol Promotion

The subject of market power is discussed frequently in debates about subsidies for ethanol production, and structural conditions in the industry create a prima-facie case for concerns about market power. This paper develops a prototype model for determining the production and price impacts and distribution of benefits from the U.S. ethanol subsidy when upstream sellers in the seed sector and downstream buyers in the processing sector may exercise market power. The impact of the subsidy is analyzed within a simulation framework for alternative levels of market power. Results demonstrate that the impacts on prices and output are limited for modest departures from competition. Distributional impacts are much greater. Seed producers and corn processors with market power are able to capture relatively large shares of the benefits from the subsidy. A perhaps surprising result is that upstream oligopoly power exercised by seed producers is prospectively as important in influencing the positive and distributional impacts of the subsidy as the much more frequently discussed and debated prospect that downstream corn processors may exercise buyer power.Resource /Energy Economics and Policy,

CAN FOOD PROCESSORS USE CONTRACTS TO INFLUENCE FARM CASH PRICES? THE COMPETITIVE IMPLICATIONS OF TOP-OF-THE-MARKET AND RELATED PRICING CLAUSES

When contract production is marketed contemporaneously with production sold through a spot market, it is conveninet to specify the contract price in terms of the subsequent cash price. This paper examines the competitive implications of such pricing arrangements, focusing in particular upon so-called "top-of-the-market (TOMP) pricing in cattle procurement, wherein the contract guarantees the producer the highest cash price prevailing at the time of delivery. We show that these contracts have anticompetitive consequences when the same buyers who purchase cattle with the TOMP clause also compete to procure cattle in the subsequent spot market. By committing to purchase cattle at a price to be determined later, beef packers' incentives to compete aggressively in the spot market are attenuated. Although TOMP pricing is not in producers' collective interest, rational sellers may nonetheless sign these contracts, in some cases with little or no financial inducement.Demand and Price Analysis,

Retail Pricing Behavior for Perishable Produce Products in the US with Implications for Farmer Welfare

The typical model of retail pricing for produce products assumes retailers set price equal to the farm price plus a certain markup. However, observations from scanner data indicate a large degree of price dispersion in the grocery retailing market. In addition to markup pricing behavior, we document three alternative leading pricing patterns: fixed (constant) pricing, periodic sale, and high-low pricing. Retail price variations under these alternative pricing regimes in general have little correlation with the farm price. How do retailers’ alternative pricing behaviors affect farmers’ welfare? Using markup pricing as the baseline case, we parameterize the model to reflect a prototypical fresh produce market and carry out a series of simulations under different pricing regimes. Our study shows that if harvest cost is sufficiently low, retail prices adjusting only partially, or not at all, to supply shocks tends to diminish farm income and exacerbate farm price volatility relative to the baseline case. However, we also find that if harvest cost is sufficiently large and the harvest-cost constraint places a lower bound on the farm price, increased farm price volatility induced by retailers’ alternative pricing strategies may result in higher farm income, compared to markup pricing. Our study is the first to evaluate the welfare implications for producers of the diversified pricing strategies that retailers utilize in practice and the resulting attenuation of the relationship between prices at retail and at the farm gate.Agribusiness, Demand and Price Analysis,

CAPTIVE SUPPLIES AND THE CASH MARKET PRICE: A SPATIAL MARKETS APPROACH

Exclusive contracts (often called “"captive supplies”") between processors and farmers are in increasingly important feature of modern agriculture. We study an interesting empirical regulatory occurring in markets that feature both contract and spot exchange: the spot price is inversely related to the incidence of contract use in the market. We use a spatial model and a noncooperative game approach to show that processors can use exclusive contracts to manipulate the spot price in certain situations. Captive supplies in these settings represent geographic buffers that reduce competition among processors. However, in markets where the spatial dimension is less important, captive supplies are ineffective as barriers to competition because firms have incentive to “"jump"” across a captive supply region to procure the farm product.Agribusiness,

The Rise and Fall of Tri Valley Growers Cooperative

This paper examines the market and organizational factors that led to the bankruptcy in July 2000 of Tri Valley Growers (TVG), a California tomato- and fruit-processing cooperative owned by more than 500 growers. TVG’s bankruptcy was caused by a confluence of organizational and market-related factors including a low productivity of assets due to high inventory levels and obsolete facilities, high operating costs relative to competition, high raw product transport costs due to the geographic mismatch of production and processing capacity, particularly in tomato operations, and a poor information system. TVG was also highly leveraged. Re-organization as a new-generation cooperative in 1996 failed to stabilize the equity base.Agribusiness,

OPTIMAL COMMODITY PROMOTION IN IMPERFECTLY COMPETITIVE MARKETS

We investigate the optimal collection and expenditure of funds for agricultural commodity promotion in markets where the processing and distribution sectors may exhibit oligopoly and/or oligopsony power. The conditions that characterize optimal advertising intensity under perfect competition for funds generated from either per-unit or lump-sum taxes do not, in general, hold when marketing is imperfectly competitive. Simulation analyses show that imperfect competition always reduces farmers' optimal advertising expenditure and that an imperfectly competitive marketing sector may capture half or more of the benefits from the funds that are expended.Marketing,

Will Geographical Indications Supply Excessive Quality?

Consumer/Household Economics, Marketing,