IDEAS home Printed from https://ideas.repec.org/a/bla/agecon/v51y2020i3p373-385.html
   My bibliography  Save this article

Does oligopsony power matter in price support policy design? Empirical evidence from the Thai Jasmine rice market

Author

Listed:
  • Kaittisak Kumse
  • Nobuhiro Suzuki
  • Takeshi Sato

Abstract

In the oligopsony market, farmers may receive low prices and policy analysis assuming perfect competition can yield serious bias results. In this paper, we estimate oligopsony power between processors and farmers and evaluate the welfare impact of the paddy pledging program (PPP), a generous price support program in the Thai Jasmine rice market, with an imperfect competition model. We develop a model that consists of rice supply equation and derived demand equation. We then simultaneously estimate these equations using system estimation methods to recover oligopsony power parameters. Finally, we use these parameters to assess the welfare impact of the price support program. Using annual panel data running from crop marketing year 2001/2002–2015/2016 and exploiting the institutional feature of the PPP, we find strong evidence of some oligopsony power, a moderate level of oligopsony price distortion, and a negative relationship between price support and oligopsony power. We also find that the PPP is inefficient but effective in income redistribution. Moreover, the program benefits both farmers and consumers. With better policymaking decisions, the PPP can be efficient by setting a suitable support price. Therefore, our results show that in the case of the Thai Jasmine rice market, the generally accepted “wisdom” about agricultural price support policy does not necessarily hold, and price support can be designed to improve the efficiency of the market.

Suggested Citation

  • Kaittisak Kumse & Nobuhiro Suzuki & Takeshi Sato, 2020. "Does oligopsony power matter in price support policy design? Empirical evidence from the Thai Jasmine rice market," Agricultural Economics, International Association of Agricultural Economists, vol. 51(3), pages 373-385, May.
    • Handle: RePEc:bla:agecon:v:51:y:2020:i:3:p:373-385
    DOI: 10.1111/agec.12560
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/agec.12560
    Download Restriction: no
    File URL: https://libkey.io/10.1111/agec.12560?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. A. Banerji & J.V. Meenakshi, 2004. "Buyer Collusion and Efficiency of Government Intervention in Wheat Markets in Northern India: An Asymmetric Structural Auctions Analysis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(1), pages 236-253.
    2. Carlo Russo, 2012. "Estimating Market Power with Weak A Priori Information: An Exploratory Approach to the Model-Specification Problem," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 40(4), pages 339-354, June.
    3. Lopez, Rigoberto A. & You, Zhikang, 1993. "Determinants of oligopsony power : The Haitian coffee case," Journal of Development Economics, Elsevier, vol. 41(2), pages 275-284, August.
    4. Risti Permani & David Vanzetti, 2016. "Rice mountain: assessment of the Thai rice pledging program," Agricultural Economics, International Association of Agricultural Economists, vol. 47(3), pages 273-284, May.
    5. Sexton, Richard J. & Lavoie, Nathalie, 2001. "Food processing and distribution: An industrial organization approach," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 15, pages 863-932, Elsevier.
    6. Dawe, David C. & Moya, Piedad F. & Casiwan, Cheryll B. & Cabling, Jesusa M., 2008. "Rice marketing systems in the Philippines and Thailand: Do large numbers of competitive traders ensure good performance?," Food Policy, Elsevier, vol. 33(5), pages 455-463, October.
    7. Christine Moser & Christopher Barrett & Bart Minten, 2009. "Spatial integration at multiple scales: rice markets in Madagascar," Agricultural Economics, International Association of Agricultural Economists, vol. 40(3), pages 281-294, May.
    8. Carlo Russo & Rachael E. Goodhue & Richard J. Sexton, 2011. "Agricultural Support Policies in Imperfectly Competitive Markets: Why Market Power Matters in Policy Design," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(5), pages 1328-1340.
    9. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, April.
    10. Duangbootsee, Uchook & Myers, Robert, 2015. "A Comparison of the Welfare Impacts of Thai Rice Price Support and Deficiency Payment Programs," 2015 Conference, August 9-14, 2015, Milan, Italy 211580, International Association of Agricultural Economists.
    11. Jean-Paul Chavas & Kwansoo Kim, 2004. "A Heteroskedastic Multivariate Tobit Analysis of Price Dynamics in the Presence of Price Floors," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(3), pages 576-593.
    12. Y. Hayami & M. Kikuchi & E.B. Marciano, 1999. "Middlemen and peasants in rice marketing in the Philippines," Agricultural Economics, International Association of Agricultural Economists, vol. 20(2), pages 79-93, March.
    13. Muth, Mary K. & Wohlgenant, Michael K., 1999. "Measuring The Degree Of Oligopsony Power In The Beef Packing Industry In The Absence Of Marketing Input Quantity Data," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 24(2), pages 1-14, December.
    14. Suzuki, Nobuhiro & Kaiser, Harry M., 1997. "Imperfect Competition Models And Commodity Promotion Evaluation: The Case Of U.S. Generic Milk Advertising," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 29(2), pages 1-11, December.
    15. Nobuhiro Suzuki & John E. Lenz & Olan D. Forker, 1993. "A Conjectural Variations Model of Reduced Japanese Milk Price Supports," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(1), pages 210-218.
    16. Richard J. Sexton & Ian Sheldon & Steve McCorriston & Humei Wang, 2007. "Agricultural trade liberalization and economic development: the role of downstream market power," Agricultural Economics, International Association of Agricultural Economists, vol. 36(2), pages 253-270, March.
    17. Chanjin Chung & Seongjin Park & Jungmin Lee, 2018. "Estimating bilateral market power of processors and retailers in the U.S. beef industry," Agribusiness, John Wiley & Sons, Ltd., vol. 34(4), pages 771-792, October.
    18. Catherine J. Morrison Paul, 2001. "Market and Cost Structure in the U.S. Beef Packing Industry: A Plant-Level Analysis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(1), pages 64-76.
    19. Acemoglu, Daron & Robinson, James A., 2001. "Inefficient Redistribution," American Political Science Review, Cambridge University Press, vol. 95(3), pages 649-661, September.
    20. Evans Edward & H. Ballen Fredy, 2016. "Testing for Oligopsony Power in the US Green Skin Avocado Market," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 14(1), pages 43-50, May.
    21. Stephen F. Hamilton & David Sunding, 1998. "Returns to Public Investments in Agriculture with Imperfect Downstream Competition," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(4), pages 830-838.
    22. Shu‐Yu Huang & Richard J. Sexton & Tian Xia, 2006. "Analysis of a supply‐control program under uncertainty and imperfect competition: Chinese cabbage in Taiwan," Agricultural Economics, International Association of Agricultural Economists, vol. 34(1), pages 69-80, January.
    23. Richard J. Sexton, 2013. "Market Power, Misconceptions, and Modern Agricultural Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(2), pages 209-219.
    24. Sven Anders, 2008. "Imperfect Competition in German Food Retailing: Evidence from State Level Data," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 36(4), pages 441-454, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Boyd, Chris M., 2020. "Urgent Yet Ineffective? The Welfare Impacts of Potato Price Stabilization in Peru," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304293, Agricultural and Applied Economics Association.
    2. Agus Dwi Nugroho, 2021. "Agricultural market information in developing countries: A literature review," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 67(11), pages 468-477.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Perekhozhuk, Oleksandr & Chezhia, Giorgi & Glauben, Thomas, 2021. "Measuring Oligopsony Market Power in Kazakh Grain-Processing Industry: Converging Evidence from Two Structural Approaches," 2021 Conference, August 17-31, 2021, Virtual 315345, International Association of Agricultural Economists.
    2. Perekhozhuk, Oleksandr & Matyukha, Andriy & Glauben, Thomas, 2011. "Estimating the Degree of Buyers' Market Power: Evidence from the Ukrainian Meat Processing Industry," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114782, European Association of Agricultural Economists.
    3. Perekhozhuk, Oleksandr, 2007. "Marktstruktur und Preisbildung auf dem ukrainischen Markt für Rohmilch," Studies on the Agricultural and Food Sector in Transition Economies, Leibniz Institute of Agricultural Development in Transition Economies (IAMO), volume 41, number 92322.
    4. Aaron Grau & Heinrich Hockmann, 2018. "Market power in the German dairy value chain," Agribusiness, John Wiley & Sons, Ltd., vol. 34(1), pages 93-111, December.
    5. Jan Falkowski & Pavel Ciaian, 2016. "Factors Supporting the Development of Producer Organizations and their Impacts in the Light of Ongoing Changes in Food Supply Chains: A Literature Review," JRC Research Reports JRC101617, Joint Research Centre.
    6. Rahman, Mohammad Chhiddikur, 2020. "Welfare Impact of Asymmetric Price Transmission on Bangladesh Rice Consumers," EconStor Theses, ZBW - Leibniz Information Centre for Economics, number 242248, September.
    7. Alessandro Bonanno & Carlo Russo & Luisa Menapace, 2018. "Market power and bargaining in agrifood markets: A review of emerging topics and tools," Agribusiness, John Wiley & Sons, Ltd., vol. 34(1), pages 6-23, December.
    8. Thomas Kopp & Richard J. Sexton, 2021. "Farmers, Traders, and Processors: Buyer Market Power and Double Marginalization in Indonesia," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(2), pages 543-568, March.
    9. Perekhozhuk Oleksandr & Hockmann Heinrich & Fertő Imre & Bakucs Lajos Zoltán, 2013. "Identification of Market Power in the Hungarian Dairy Industry: A Plant-Level Analysis," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 11(1), pages 1-13, January.
    10. Rao Fu & Chenguang Li & Liming Wang, 2021. "Market Power in the Irish Beef Processing Industry," Sustainability, MDPI, vol. 13(11), pages 1-18, June.
    11. Ian M. Sheldon, 2021. "Reflections on a Career as an Industrial Organization and International Economist," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 43(2), pages 468-499, June.
    12. Meilin Ma & Richard J. Sexton, 2021. "Modern agricultural value chains and the future of smallholder farming systems," Agricultural Economics, International Association of Agricultural Economists, vol. 52(4), pages 591-606, July.
    13. Perekhozhuk, O. & Grings, M., 2008. "Ökonometrische Analyse von Marktmacht auf dem ukrainischen Markt für Rohmilch," Proceedings “Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues e.V.”, German Association of Agricultural Economists (GEWISOLA), vol. 43, March.
    14. Perekhozhuk, Oleksandr & Grings, Michael, 2007. "Econometric Analysis Of Market Power On The Ukrainian Market For Raw Milk," 47th Annual Conference, Weihenstephan, Germany, September 26-28, 2007 7575, German Association of Agricultural Economists (GEWISOLA).
    15. Soregaroli, Claudio & Sckokai, Paolo, 2011. "Modelling Agricultural Commodity Markets under Imperfect Competition," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 116012, European Association of Agricultural Economists.
    16. Koppenberg, Maximilian & Hirsch, Stefan, 2020. "Comparing methods for markup estimation with an application to EU food retailing," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304272, Agricultural and Applied Economics Association.
    17. Jin Guo & Tetsuji Tanaka, 2019. "Determinants of international price volatility transmissions: the role of self-sufficiency rates in wheat-importing countries," Palgrave Communications, Palgrave Macmillan, vol. 5(1), pages 1-13, December.
    18. Jung Min Lee & Chanjin Chung, 2024. "Estimating Market Power Exertion in the U.S. Beef Packing Industry: An Illustration of Data Aggregation Bias Using Simulated Data," Sustainability, MDPI, vol. 16(9), pages 1-19, April.
    19. Philippe Bontems & Nicolas Gruyer, 2007. "When cost improvements harm consumers," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 30(1), pages 63-79, February.
    20. Grau, Aaron Stephan Alexander & Hockmann, Heinrich, 2017. "Estimating oligopsony power on two vertically integrated markets," 2017 International Congress, August 28-September 1, 2017, Parma, Italy 261277, European Association of Agricultural Economists.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:agecon:v:51:y:2020:i:3:p:373-385. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/iaaeeea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.