Estimating market power in the Chinese pork-packing industry: a structural approach

Abstract

Purpose The purpose of this paper is to investigate market power in the Chinese pork supply chain. The authors aim to explain why a steady rise in prices is observed in the sector, apart from existing evidence on incomplete/asymmetric cost pass-through and concerns of growing concentration and consolidation in the sector. Design/methodology/approach This study uses a new empirical industrial organization model for both oligopoly and oligopsony power to measure the degree of market power exerted on consumers and hog farmers simultaneously. Findings By examining annual panel data across provinces in China, the authors find that both oligopoly and oligopsony powers exist in the pork supply chain. In particular, the authors determine that a higher degree of market power is found to influence prices paid to hog farmers than prices paid by pork consumers. Estimates of key elasticities in the Chinese pork supply chain are also updated based on the structural model estimation and the latest data. Research limitations/implications Due to the lack of data at a more granular level of geography, the authors are only able to estimate market power by three major economic regions. Practical implications The findings provide useful information for future policy analyses of Chinese food markets. First, the pork-packing industry should be of great concern in terms of market power and its influence on consumers’ and farmers’ welfare. It is essential to take into consideration market power in the pork supply chain before making any public policy regarding the pork market. Furthermore, following economic theory and experience from developed countries, large meat packers will eventually vertically control hog farmers given their stronger oligopsony power over the upstream. Vertical integration may be the next important issue in terms of food market competition. Finally, the results may also draw the government’s attention to investigating market competition in all major food markets. Originality/value The empirical evidence draws attention to the issue of food market competition in one of the largest and most important meat-packing markets in China. The authors hope to encourage further discussions on pork and hog market regulations and related public policies.

Market Concentration, Producer Organizations, and Policy Measures to Strengthen the Opportunities of Farmers for Value Addition—Empirical Findings from the Austrian Meat Supply Chain Using a Multi-Method Approach

“…In the first one, market structures and outcomes are viewed from an industrial organization perspective and analyzed accordingly by identifying the market and its structure, before using econometric techniques to measure the market power based on market observations benchmarked against an hypothetical efficient market outcome [20,21]. Most studies that have applied such methods to measure market power in meat markets are from the U.S. [22][23][24][25], while several studies are from other countries, such as Canada [26], Austria [19], Japan [27], Germany [28], and China [29]. The OECD (2006) provides empirical evidence for Canada, the Czech Republic, Japan, and the Netherlands [30].…”

Rural credit input, labor transfer and urban–rural income gap: evidence from China

“…On the contrary, the rural development in the middle and western regions is backward, a lot of financial support is needed in the process of rural revitalization, there is more room for farmers to increase their income rapidly and the improvement effect of increasing the level of rural credit input on the urban-rural income gap is more obvious. At the same time, considering the heterogeneity of regional development and the similarity of the average development level, this paper divides the samples of 31 provinces in China by "dichotomy" [7] so as to identify whether there is heterogeneity between regions (Lan and Wang, 2019). The empirical analysis of this article is mainly completed by Stata 15.0.…”

Concentration and market power in the food chain

“…As neither existing competition laws or voluntary codes of conduct sufficiently address these issues, the ACCC recommended that a mandatory code of conduct should be introduced. 27 Across the different market studies reviewed in Annex B, several indicated concerns around competitive conditions. Eastern European countries in particular highlighted the issue of unfair trading practices along the food chain.…”

“…The discussion here is limited to those studies conducted by competition authorities, as these often have more powerful investigative tools at their disposal 26. See https://www.accc.gov.au/focus-areas/inquiries/dairy-inquiry-0 (accessed 25 September 2019) 27. It is worth pointing out that the ACCC study did not find clear evidence of processor buyer power or collusion between processors.…”