Increasing Concentration in the Agricultural Supply Chain: Implications for Market Power and Sector Performance

Abstract

Increasing consolidation and vertical coordination in the food chain have made the prospect of market power abuses by powerful food manufacturers and retailers an issue and a policy concern worldwide, in terms of potential impacts on farmer and consumer welfare and sector efficiency. We address the extent to which traditional wisdom and standard conceptual and empirical models that have girded thought about market power in the food chain for decades apply in modern food-market contexts and examine recent work on competition in the food chain to gauge the most promising paths forward. A key conclusion is that considerations that go beyond the bounds of standard models likely cause market power to be less than would be predicted based on the highly concentrated structures of many modern agricultural and food markets. These considerations include downstream buyers who rationally internalize long-run implications of their pricing decisions to farmers, powerful food manufacturers and retailers who countervail each other's market power, and the complex pricing decisions of multistore and multiproduct food retailers.