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

Hi Jerry,

thank for confirming my intuition that US wheat market is us just as
little an example of "perfect competition" as the Norwegian wheat
market - or potato market.

I also asked one of the experts in the Norwegian Farmer's Assoc. C.
H. Smedshaug but he had no references to this particular topic
either. BTW, he is the author of the book "Feeding the world in the
21st century. A historical analysis of agriculture and society" so he
has really been working on these issues.

So this is obviously not an easy one - maybe the topic of an PhD
thesis? "The myth of the wheat market as an example of perfect
competition". The myth is in many (most?) text-books, it even creeps
into Stiglitz otherwise excellent "Nobel" prize lecture etc. etc.

If anyone stumbles over anything - I am still interested.

Regards
Anders

At 16:40 14.12.2010, GERALD LEVY wrote:

>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 Thu Dec 16 01:21:13 2010