Re: [OPE] US wheat market - perfectly competitive?

Hi Anders:
 
While wheat could be thought of as a standardized product, the
other characteristics of the wheat market bear little resemblance
to what one would expect in a perfectly competitive market.
 
To begin with, are there very large numbers of sellers? I would say
no - and, moreover, concentration in US wheat farming has been
increasing (although the share of wheat exports by the 4 largest
US firms has been relatively constant in recent years, according
to a government source "Concentration in Agriculture").
 
The perfectly competitive image of US wheat farming conjures up
images of small family farms but ignores the role of agribusiness
in the market. It also ignores the role of technical change,
economies of scale, and barriers to entry that these give rise to.
Anyone who is familiar with US agriculture will tell you that the
costs of (constant) capital equipment - and the amount of acreage
necessary to produce at scale and be competitive - have gone up
over the course of several decades.
 
What this image of perfect competition in this market also can't
explain is the massive amount of bankruptcies of small family
owned farms in the 1980s (which was related to the bankruptcies
then of Savings and Loan [S&L] banks) and how that undermined
one of the conditions of a perfectly competitive market.
 
Also, is there any government regulation of wheat producers?
Of course there is - in general there is (for obvious reasons)
more regulation by the federal government concerning
food producers than for business firms in general. Yet,
there can be no government regulation in a perfectly competitive
market.
 
>From a Marxian perspective, it's interesting that the standard
(marginalist) treatment of this market in textbooks makes no
reference to rent! They, evidently, are assuming the same
fertility of land by all US wheat-producing firms, but
this of course is nonsense. The textbooks also don't focus on
the huge advances in productivity associated with scale
by US firms in this market - or the role of the government
in subsidizing some of the costs associated with wheat
production, most notably, irrigation infrastructure (which can
be a huge public expense, involving damns, etc.). Then, of
course, there are the price supports given to firms - originally
intended to help small family-farms stay in business - the biggest
beneficiaries of this welfare program by the government have
been for many decades the largest firms in agro-business
which are themselves often huge multinational corporations.
None of this is what you would expect in a perfectly competitive
market. But, Marxian insights into the meaning of competition
(and state policy) allow for a much better understanding of this
market than the stylized model of perfect competition.
 
Sorry for the lack of references. I did do a brief search -
and while there are lots of online publications that deal with
some of the issues you were asking about - no one source really
leaped out yet as exceptional.
 
In solidarity, Jerry
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Received on Tue Dec 14 10:41:52 2010