Concentrated market power and agricultural trade

by Sophia Murphy.  Ecofair Trade Dialogue, August 2006

Much of the discussion of competition policy reflects a preoccupation with protecting consumers against the power of organised production. However, this paper argues that in agriculture, the dominance of major corporations enables them to undermine proper market functioning, with deleterious effects on farmers. This issue should also be of central concern for governments.

The paper describes the impacts of large supermarkets and agricultural corporations and considers policy options available to protect and promote Eco-Fair Trade for agriculture. The author:

• defines market power and offers some examples of the firms that hold this power in some sectors of the food and agriculture system
• considers in more detail some of the elements of market power, including vertical and horizontal concentration, size, branding, access to information and political influence
• explains why the dominance of agri-business in agricultural markets is of concern to public policy, looking at farmers, farm workers and consumers
• reviews how trade, competition, and investment rules interact with and reinforce market concentration.

The author concludes that there is no simple answer to the challenges raised by concentrated market power, but offers a number of possible policy responses:

• governments need urgently to review their national competition strategies to ensure both producer and consumer interests are addressed and that more than just efficiency outcomes are considered. This should include consideration of the impact of market structures on employment
• WTO questionnaires about state trading enterprises (STEs) should be expanded to include any company-private or public-with more than a given percentage of the import or export market
• publicly provided support to agriculture should include access to information for producers and consumers
• it is necessary to increase transparency in the rule-setting process to democratise trade-policy formulation at the national level and within the WTO
• collective action to lessen farmers' dependence on inputs
• public authorities need to subject mergers, acquisitions and inter-firm contracts in agriculture to tighter review to ensure that corporations do not abuse their market power
• state-trading enterprises can address public interest concerns as well as market efficiency
• there is a need for international competition policy to address the impact of vertical and horizontal concentration in global commodity markets
• there is an urgent need to better equip developing countries to secure investments that contribute to sound development

Full paper available at http://www.ecofair-trade.org/en/nav/113.html and  http://www.tradeobservatory.org/library.cfm?RefID=89014