Regional‐Level Analysis of Oligopsony Power in the Ukrainian Dairy Industry

Abstract

Transition was characterized by massive structural changes in most economic sectors in Ukraine. This is especially true for the dairy sector. Several countervailing developments took place under transition that affected the dairy industry. Interregional trade became feasible, the importance of milk delivered by households increased significantly, and most dairies became investor-owned companies. The latter point and the fact that the Antimonopoly Committee of Ukraine detected several price cartels in the industry lead us to offer that after transition, dairies were able to exercise oligopsony power toward dairy producers at the regional level. This paper estimates market structure models for raw milk in Ukraine using a translog production function for the processing sector at the national and regional level. The results suggest the existence of oligopsony power in three of 25 administrative regions in Ukraine, coupled with a potential deviation of procurement prices for raw milk from the value marginal product of raw milk ranging from 24.6% to 49.4%. En Ukraine, la transition a entraîné des changements structurels profonds dans la plupart des secteurś economiques, et plus particulièrement dans le secteur laitier. Au cours de cette transition, plusieurs mesures ontété mises en place, mais leurs répercussions sur l'industrie laitière n'ont pas toutesété bénéfiques. Le commerce interrégional est devenu possible, la quantité de lait livrée par les fermes s'est accrue considérablement et la plupart des laiteries sont devenues des sociétés par actions. Le fait que les laiteries soient devenues des sociétés par actions et que le Comité antimonopole de l'Ukraine(Antimonopoly Committee of Ukraine) ait détecté plusieurs cartels de prix au sein de l'industrie nous porteà dire qu'après la transition, les laiteries ontété en mesure d'exercer un pouvoir d'oligopsone au détriment des producteurs laitiersà l'échelle régionale. Le présent articleévalue les modèles de structure de marché du lait cru en Ukraine,à l'aide d'une fonction de production translog pour le secteur de la transformationà l'échelle nationale et régionale. Les résultats montrent l'existence du pouvoir oligopsone dans trois des vingt-cinq régions administratives de l'Ukraine, ainsi qu'unécart entre les prix versés pour l'approvisionnement en lait cru et la valeur du produit marginal du lait cru, unécart qui pourrait varier de 24,6 %à 49,4 %.

Power, buyer trustworthiness and supplier performance: Evidence from the Armenian dairy sector

“…In the Armenian case the number of other commercial buyers available to a supplier is a significant determinant of buyer trustworthiness. Other research demonstrates that the lack of alternative buyers also depresses the prices received by suppliers for their output and can lead to the latter being charged vastly inflated fees for inputs provided by buyers (Perekhozhuk, Glauben, Teuber, & Grings, 2015;Sadler, 2006;Sauer, Gorton, & White, 2012). An effective competition authority which breaks up monopsonies will improve the situation of small-scale suppliers, whose welfare, in an environment of weak social safety nets, tends to depend heavily on the returns to their output.…”

“…An effective competition authority which breaks up monopsonies will improve the situation of small-scale suppliers, whose welfare, in an environment of weak social safety nets, tends to depend heavily on the returns to their output. At the same time as improving suppliers' position, breaking up monopsonies also improves downstream (consumer) welfare (Perekhozhuk et al, 2015). Small-scale producers are often ignorant of the prices and services received by their counterparts and in such an environment there is a case for a publically funded market information service (Sadler, 2006;Shepherd, 1997).…”

Approaches and Methods for the Econometric Analysis of Market Power: A Survey and Empirical Comparison

“…The majority of investigations involved estimating the degree of oligopoly and/or oligopsony power in markets for meat products (beef and pork) and livestock (cattle and hogs). Some studies were conducted in food, textile and tobacco manufacturing industries (Appelbaum, ; Lopez, ; Bhuyan and Lopez, ), in the dairy industry (Gohin and Guyomard, ; Chidmi et al ., ; Hockmann and Vöneki, ; Mérel, ; Perekhozhuk et al ., ; Perekhozhuk et al ., ), in grain and oil industries (O'Donnell et al ., ), in horticulture markets (Deodhar and Sheldon, ; Deodhar and Sheldon, ; Wann and Sexton, ), in coffee (Lopez and You, ; Bettendorf and Verboven, ) and tea markets (Weerahewa, ), in the pulp and paper industries (Bergman and Brännlund, ) and one study each in the sugar (Genesove and Mullin, ) and fish industries (Steen and Salvanes, ).…”

Identification of Market Power in the Hungarian Dairy Industry: A Plant-Level Analysis

“…At a regional level, as far as we know, the degree of market power has been estimated only by Wann and Sexton (1992), Weliwita and Azzam (1996), Koontz and Garcia (1997), Anders (2008) as well as Perekhozhuk, Grings, and Glauben (2009); and in so doing have found evidence of market power.…”