Buyer Power in U.S. Hog Markets: A Critical Review of the Literature

The U.S. Departments of Justice and Agriculture have focused attention recently on rising levels of corporate concentration in agricultural markets and the challenges that may pose to U.S. anti-trust enforcement and agricultural policies. Both agencies have raised particular concerns about dominant firms’ exercise of buyer power over farmers, especially in livestock markets controlled by a shrinking number of large multinational meat packers. U.S. hog markets have undergone rapid concentration in the last 25 years, with the top four packers now controlling two-thirds of the market and Smithfield Foods, the industry leader, commanding 31 percent. Despite the rapid structural changes in the U.S. hog industry, the literature on buyer power in hog markets is quite limited. In this paper, we review the available literature, which has been generally presented as demonstrating that buyer power is not a significant problem. We find that interpretation to be poorly justified. Researchers have found well-documented evidence of market power on both the seller and the buyer sides of the market, though the studies have been less clear on the specific causes. Mirroring prevailing practices in Justice Department merger reviews, researchers have often discounted buyer power using methodologies more appropriate to seller power, then dismissed findings of seller power by pointing to offsetting “efficiency gains” from concentration. Yet such apparent efficiency gains in seller markets can include reductions in the prices concentrated firms pay for animals through their exercise of buyer power. We also raise the question of how buyer power in concentrated retail markets may compound the exercise of buyer power by packers. The paper concludes with a set of recommendations for further research, including the refinement of methodologies for the study of buyer power, and an assessment of proposed new USDA regulations on packer buying practices.


Issue Date:
2010-08
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/179085
Series Statement:
GDAE Working Papers Series
10-04




 Record created 2017-04-01, last modified 2017-08-27

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