Competition in the food marketing chain

Abstract

Competition in the Australian food marketing chain is of continuing concern, but little evidence is available to guide policy debate. In a search for broad guidelines, the theoretical and empirical evidence is reviewed and the recent report of the Joint Select Committee on the Retailing Sector is examined. Then publicly available data on several food groups are used to test for evidence of persistent market power. The purchasing behaviour of the grains and oilseeds processing sector is found to warrant more detailed attention. A possible research agenda and a call for greater attention to data requirements complete the article.

Testing for market power in the Australian grains and oilseeds industries

“…models+ NEIO models have a firm foundation in economic theory and have dominated the analysis of industrial organization for the last fifteen years~see the recent reviews by Digal & Ahmadi-Esfahani, 2002;Griffith, 2000;Piggott, Griffith, & Nightingale, 2000!+ The Griffith model expressed industry marketing margins for different products as linear functions of nonagricultural input prices and agricultural input quantities+ The coefficients in the model were~functions of ! input and output conjectural elasticities and the slopes of product demand and input supply functions+ The model was estimated using nonlinear least squares+…”

The Impact of Supermarkets on Farm Suppliers

“…One area for future research (as proposed by Griffith 2000 andPiggott et al 2000) is therefore the issue of supplier contracting as an effective barrier to or response to noncompetitive behaviour by purchasers (see, for example, Iskow and Sexton 1992; United States Department of Agriculture 1999). It would be useful to investigate the extent and nature of the use of contracts in Australian farming and the desirable features for contracts given the particular circumstances of Australian agriculture (such as a relatively high level of climatic risk) relative to overseas contract design experience.…”

“…Chang and Griffith (1998) found that the farm, wholesale and retail prices for beef moved together over time, all responding to exogenous shifts in demand and supply curves which is evidence in support of competitive price determination. Griffith (2000) found that the null hypothesis of a competitive market in both output and input markets could not be rejected for any of the meat products, fresh fruits or fresh vegetables.…”

“…In the processed grains and oilseeds sector of the food market, Griffith (2000) and later O'Donnell et al (2004) found some evidence of a non-competitive buying market for the relevant farm commodities. Given the assumptions made, and the fact that the estimated coefficients reflect average behaviour over a 20-year period, these results suggest that noncompetitive activity has been a persistent feature of this market sector; however, it would seem to be confined to the processing sector rather than the retailing sector.…”

“…This concern has heightened in recent years for a number of reasons. First, the data show that nominal food product marketing margins continue to increase over time, and more so in the last decade or so (Griffith 2000). Nominal retail prices have increased more rapidly than farm prices, and the farmers share has declined.…”