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USDA report tackles ‘thinning markets’

GRAND FORKS, N.D. -- Growing concentration in markets for U.S. agricultural production -- a trend viewed with concern and suspicion by some in ag -- has had a "negligible price impact" on ag producers, a new U.S. Department of Agriculture study says.

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Agweek

GRAND FORKS, N.D. - Growing concentration in markets for U.S. agricultural production - a trend viewed with concern and suspicion by some in ag - has had a “negligible price impact” on ag producers, a new U.S. Department of Agriculture study says.
“There’s really little evidence that farmers are being paid lower prices,” says Michael Adjemian, a research agricultural economist with USDA’s Economic Research Service and one of the report’s authors.
But concentrated or “thinning markets” do have drawbacks, including making it more difficult for small producers to compete, the report says.
The report, “Thinning Marketing in U.S. Agriculture: What are the Implications for Producers and Processors?,” drew on data from the ERS and the National Agricultural Statistics Service, another arm of USDA. It also utilized academic literature for evidence of market power among commodities with few buyers.
Thinning markets mean fewer market participants - in production, at the processing level and in retail, Adjemian says.
As the report notes, that raises concern markets may be less competitive and lead to lower prices for ag producers. The report concludes otherwise, however.
It finds that that most ag processors are “forward looking: they consider their profits over the medium and long run.” So they want to keep “their favored suppliers in business” and “pay at least the price that would be generated by a competitive market.”
The changes associated with thinning markets include more contract sales and fewer cash sales. That’s the case with malting barley, one of the commodities studied by the report, Adjemian says.
But, “Smaller producers can be left behind in thin markets due to the transaction costs associated with contracting and scale economies in production,” the report says.
Thinning markets also can complicate USDA’s efforts to administer price support and crop insurance programs, the report says.
It gives these “targeted policies” that could address those effects:
Find ways to make contracting less expensive, which would make it easier for small producers to compete.
Improve data collection and dissemination of information on prices and price mechanisms, quantities transacted, and the size and number of market participants.
Providing advice on contracting from the extension service to smaller producers who may have limited experience with contract sales.

Related Topics: MARKETSCROPS
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