Increasing the market power of producers - Instruments and constraints

Workshop - Octobre 2, 2009

Julie Flament, 7 September 2009

All the versions of this article: [English] [français]

Farmers are in a weak position on agricultural markets, as the dairy crisis illustrates.

The first reason for their weakness lies in the structure of agrifood markets. A large number of producers (farmers) place their output on the market without any means of influencing price levels and with very little bargaining power.
Agriculture, unlike other major sectors (cars, chemicals, pharmaceuticals, oil) is not the work of a handful of very large producers but is diffuse and fragmented. Individually, farmers’ market power is out of all proportion with that of trading companies (e.g. Cargill’s turnover is 600,000 times that of an average Minnesota farmer).

The second reason is the absence of market regulation. Volatility is increasing while tariffs fall. In 1973 Guy Quaden , speaking of widespread opposition to opening up to competition, made a statement that remains valid today. “The same is true of farmers who, unable to control markets themselves, have prevailed upon the State to provide them with various types of assurances regarding prices and outlets. Knowing that huge industrial oligopolies have freed themselves from the constraints of supply and demand, it is going to be difficult to persuade farmers that they alone should continue to be bound by them.” The only difference is that now, while the concentration process in the agrifood and distribution sectors continues, state intervention to compensate for such inequalities is being roundly condemned.

The third reason lies in the technical barriers found in packaging and quality standards imposed by companies and supermarkets. There may also be problems relating to the delivery of harvests due to faulty infrastructure or organisational problems.

Farmers have two main ways of increasing their market power and improving their market access.

The first requires the creation of collective instruments such as disciplined output control with a view to managing supply, joining forces to negotiate sales prices collectively, and integrating processing and distribution activities so as to have more control over what happens within the sector.

The other is an individual approach requiring responsiveness to market signals, adapting to meet quality standards, finding niches, developing direct sales, etc.

These two approaches can co-exist, and can even be complementary. However, the instruments and the constraints involved are not the same. Both approaches can increase the profitability of farming, although there is perhaps a danger that the second solution may eclipse the first by suppressing questions about farmers’ market position and refusing to recognise the deficiencies of the market and the need for government regulation.

The structure of agrifood markets and deregulation are two facts farmers have to face. They must continue to demand concerted government action to regulate markets, to ensure foster regional cohesion and to support farmers. However, it is also in their own interest to channel more of their energies into creating instruments that they themselves control. Many different strategies are possible and merit further study and comparison.

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