Thursday, February 11, 2010
Posted by Andy Novakovic (Cornell - Agriculture and Applied Economics)
The nature of competition the market for farm milk has been the subject of discussion and dispute from the earliest formation of modern dairy markets in the 1800s. Between about 1880 and 1910, the balance of market power had clearly shifted to buyers. Prior to the Clayton Act, there were few regulatory tools available to restrain collusive and other anti-competitive behaviors. Cooperative marketing was promoted as the best available tool in an oligopsonistic market. Dairy farmers felt particularly vulnerable because they harvested their highly perishable and bulky product twice a day. These fundamental product characteristics made it expensive to search for alternative buyers and created a real sense of urgency to sell a product whose value deteriorated to zero in about one day.
Successes of dairy cooperatives around WWI were eroded by rent-seeking behavior among farmers as well as subtle counter moves by buyers. The Great Depression presented too big a problem for private solutions and gave rise to cooperatives as a political entity. An era of public regulation was conceived in the 1930s, blossomed into the 1950s, dominated market behavior through the 1990s, and is only now showing signs of fatigue.
Most of the fundamental, underlying economic characteristics of farm level markets seem to endure, largely unchanged since the early 20th Century. Farmers continue to feel disadvantaged in bargaining with buyers, whether this bargaining is conducted individually, in small cooperative organizations, or in nation-spanning cooperatives having thousands of members.
A particularly interesting current issue is the extent to which very large regional and national cooperatives operate in the interests of their owner-members vs responding to some other agenda that leads them to behave more like an investor or privately owned buyer. Even this concern has antecedents in the 1920s and 1960s. While much of the discussion about competition in agricultural markets parallels concerns in other sectors of the economy, there are special policy issues that arise from the nature of cooperative exemptions under Capper-Volstead and USDA’s responsibility to both promote cooperatives and regulate their behavior.