Competition and Regulation in Agriculture

The Competition Committee (WP2 on Competition and Regulation) hold a roundtable discussion in June 2004 on Competition and Regulation in Agriculture: Monopsony Buying and Joint Selling. Monopsonistic purchasing practices and joint price-setting activities in the agro-food sector were examined, with a particular focus on regulation and on the potential improvements that could arise from more pro-competitive regulations. Joint activity by producers can have a number of beneficial effects, such as from promoting a brand or food that would not otherwise be promoted, promoting a style of production (like organic production) or purchasing in large quantity in order to obtain quantity discounts. Harms may arise when the joint activity involves price or qualitysetting and there is little competition from close substitutes. Cartellike activity by producers has often been supported by governments but is unlikely to achieve stated public policy goals because it often leads to higher consumer prices but enhance land values more than farmer income. Potentially monopsonistic purchasing practices in the agricultural sector were also considered. At times, price manipulation by large purchasers may occur. Competition authorities play an important role in assuring that activities of purchasers do not involve market power, particularly when purchases are concentrated in few, large firms and sellers have limited options besides selling into a highly concentrated market. However, to the extent that purchasers wish to contract for very specific forms of production, such as specific varieties of grain, there can be good commercial reasons that a purchaser would wish to focus on a specific forms of production and agriculture products should not be considered different from supplies in other sectors, which are customized for different purchasers.