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The Impact of Agricultural Marketing Cooperatives on Market Performance in U.S. Food Manufacturing Industries for 1982

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  • Petraglia, Lisa M.
  • Rogers, Richard T.

Abstract

This research examines market performance in the U.S. food manufacturing product classes for 1982 and the effect cooperatives have as market participants. It addresses the public policy concern that cooperatives may obtain market power through favorable public policy and may exercise that market power to the detriment of society through under price-enhancement. Because of this concern the partial antitrust exemption granted cooperatives under the Capper-Volstead Act of 1992 is likely to re-emerge on the public policy agenda. A basic industrial organization structure-performance model extended by the theory of cooperatives is used to test the effect of cooperatives on market performance, here measured as the market's price-cost margin. After controlling for differences in the geographic size of markets and the effects of demand growth on prices, key structural elements affecting margins included measures of concentration, the degree of product differentiation and capital utilization and the minimum efficient scale. Cooperative theory predicts improved performance in markets where cooperatives are present through the 'competitive yardstick' effect. The underlying hypothesis that the degree of cooperative participation is inversely related to the level of price-cost margins has rarely been fully tested across a large cross section of food manufacturing markets because of limited market data on cooperation participation. This study used a Special Tabulation of Census of Manufacturers data for 1982 to construct a continuous variable representing the aggregate market share of the 100 largest agricultural marketing cooperatives in each of 134 food product classes. This extended structure-performance model was then estimated using ordinary least squares methods. The cooperative share of market sales had a significant, negative impact on the level of margins supporting the yardstick effect hypothesis that cooperatives improve market performance. Product differentiation, measured by advertising-to-sales ratios, was positively related to margins but at a decreasing rate as advertising intensity increased. Capital intensity and minimum efficient scale were insignificant factors. These results serve to confirm the basic industrial organization model and provide empirical support for the competitive yardstick effect of cooperatives on market performance.

Suggested Citation

  • Petraglia, Lisa M. & Rogers, Richard T., 1991. "The Impact of Agricultural Marketing Cooperatives on Market Performance in U.S. Food Manufacturing Industries for 1982," Research Reports 25175, University of Connecticut, Food Marketing Policy Center.
  • Handle: RePEc:ags:uconnr:25175
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    References listed on IDEAS

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    1. Staatz, John M., 1987. "Recent Developments in the Theory of Agricultural Cooperation," Journal of Agricultural Cooperation, National Council of Farmer Cooperatives, vol. 2.
    2. Leon Garoian, 1961. "Implications of Changes in Market Structure on Extension Marketing Programs and Administration," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 43(3), pages 674-683.
    3. Jesse, Edward V. & Johnson, Aaron C. Jr, 1980. "Marketing Cooperatives and Undue Price Enhancement: A Theoretical Perspective," Working Papers 202953, University of Wisconsin-Madison, Department of Agricultural and Applied Economics, Food System Research Group.
    4. Lee F. Schrader & Norman R. Collins, 1960. "Relation of Profit Rates to Industry Structure in the Food Industries," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 42(5), pages 1526-1527.
    5. Demsetz, Harold, 1973. "Industry Structure, Market Rivalry, and Public Policy," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 1-9, April.
    6. Peter Helmberger & Sidney Hoos, 1962. "Cooperative Enterprise and Organization Theory," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 44(2), pages 275-290.
    7. Oddvar Aresvik, 1955. "Comments on "Economic Nature of the Cooperative Association"," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 37(1), pages 140-144.
    8. Sawyer, Malcolm C, 1971. "Concentration in British Manufacturing Industry," Oxford Economic Papers, Oxford University Press, vol. 23(3), pages 352-383, November.
    9. Robert L. Clodius, 1957. "The Role of Cooperatives in Bargaining," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 39(5), pages 1271-1281.
    10. Peter G. Helmberger, 1964. "Cooperative Enterprise as a Structural Dimension of Farm Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 46(3), pages 603-617.
    11. Frank Robotka, 1947. "A Theory of Cooperation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 29(1), pages 94-114.
    12. Martin, Stephen, 1988. "Market Power and/or Efficiency?," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 331-335, May.
    13. V. James Rhodes, 1983. "The Large Agricultural Cooperative as a Competitor," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 65(5), pages 1090-1095.
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    Cited by:

    1. Rehber, Erkan, 2000. "Vertical Coordination In The Agro-Food Industry And Contract Farming: A Comparative Study Of Turkey And The Usa," Research Reports 25225, University of Connecticut, Food Marketing Policy Center.
    2. Rogers, Richard T., 1993. "Advertising Strategies by Agricultural Cooperatives in Branded Food Products, 1967 to 1987," Research Reports 25202, University of Connecticut, Food Marketing Policy Center.

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    Keywords

    Agribusiness; Industrial Organization;

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