Estimating Pricing Games in the Wheat-handling Market in Saskatchewan: The Role of a Major Cooperative

Zhang, Jing; Goddard, Ellen; Lerohl, Mel L.

doi:10.1016/s0885-3339(06)10006-x

Cited by 6 publications

(7 citation statements)

References 18 publications

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“…Empirical support for the competitive yardstick is observed in the food manufacturing industry in the US (Rogers and Petraglia, 1994), the wheat market in Canada (Zhang et al, 2007), the coffee market in Chiapas, Mexico (Milford, 2012), and the European dairy industry (Hanisch et al, 2014). There are a number of other observations regarding agricultural markets.…”

Section: Introductionmentioning

confidence: 98%

Pooling and the yardstick effect of cooperatives

Liang¹,

Hendrikse

2016

Agricultural Systems

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Section: Introductionmentioning

confidence: 98%

Pooling and the yardstick effect of cooperatives

Liang¹,

Hendrikse

2016

Agricultural Systems

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“…To this end, Fulton and Gray () and Zhang et al () developed related models of grain company behavior and found evidence of competition, but that analysis was done at a time when the CWB may have limited the market power that could be exerted by both grain companies and the railways.…”

Section: Previous Research On Rail Transportation and The Grain Handlmentioning

confidence: 99%

Grain Transportation Policy Reform in Western Canada

Brewin

Schmitz

Nolan

et al. 2017

Canadian J Agri Economics

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In 2016, the Minister of Transport released a review of the Canada Transportation Act that recommended the eventual removal of the Maximum Revenue Entitlement (MRE) governing the movement of grain by rail. The MRE is sometimes referred to as a revenue cap, but the MRE sets a maximum average allowable freight rate over all tonnes of grain moved. There is no a priori cap to the revenue or amount of grain moved. We argue that the MRE permitted railways to set prices to promote more efficient movement. This paper evaluates the consequences of ending the MRE in the context of Canada's evolving grain supply chain and its interaction with railways. Assuming cartel behavior among railways, we find that the removal of the MRE for grain transportation could increase rates by $42 to $73/t, depending on the market power of grain companies. Farmer prices were lowered by basis shifts larger than $73 in 2013–14, but a long‐term rate increase of this magnitude could generate regulatory or strategic responses that were not part of our model. In our worst case scenario, farmers lose 90% of their current surplus. Even modest amounts of market power can generate significant farm price reductions. En 2016, le ministre du Transport déposait le rapport de l'examen de la Loi sur les transports au Canada. Y était proposée l'éventuelle élimination du Revenu admissible maximal (RAM) gouvernant le transport du grain par chemin de fer. L'on qualifie souvent le RAM de plafond du revenu, mais le RAM établit un maximum taux moyen autorisé de fret sur toutes les tonnes de grain acheminées. Aucun plafond n'est fixé pour le revenu ni la quantité de grain transporté. Nous croyons que le RAM a permis aux lignes ferroviaires d'établir leur prix et de promouvoir un transport plus efficient. Cet article évalue les conséquences de l'élimination du RAM au sein du contexte évolutif de la chaine canadienne d'approvisionnement en grain, et ses interactions avec les lignes ferroviaires. Supposant des comportements anticoncurrentiels parmi les lignes ferroviaires, nous concluons que l'élimination du RAM pour le transport du grain pourrait augmenter les taux de 42 $ à 73 $ par tonne, en fonction du pouvoir des sociétés céréalières sur le marché. Les prix agricoles ont été baissés de marges de base dépassant les 73 $ en 2013–14, mais une augmentation du taux de cette envergure à long terme pourrait générer des réactions réglementaires ou stratégiques ne faisant pas partie de notre modèle. Notre pire scénario verrait les exploitations agricoles perdre 90 % de leurs surplus actuels. Même un modéré pouvoir sur le marché peut générer de considérables réductions des prix agricoles.

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“…The possibility of this threat may have been the reason a number of smaller grain handling firms decided to sell out during this crop year (Morriss 2014). This was the kind of threat suggested by Zhang et al in 2007 for Viterra (when it was called Saskatchewan Wheat Pool). By 2013/14, Viterra could not make the same threat.…”

Section: Cournot Bertrand and Edgeworthmentioning

confidence: 99%

“…A good deal of the empirical evidence suggests that the departures from the Bertrand assumption are modest (Sexton ). In the Canadian grain value chain, Fulton et al () and Zhang et al () supported a competitive model over models allowing any significant market power rent taking.…”

Section: Theoretical Considerationsmentioning

confidence: 99%

“…The changing role of contracts and their implication on firm behavior up and down the supply chain observed in beef (see Xia and Sexton ) are, and will be, important to the grain sector. The methods of measuring market power explored by researchers like Muth and Wohlgenant () for beef packing and used in work on some Canadian industries (see Quagrainie et al ; Zhang et al ; Rude et al ) is also needed for this supply chain.…”

Section: Limitationsmentioning

confidence: 99%

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Competition in Canada's Agricultural Value Chains: The Case of Grain

Brewin

2016

Canadian J Agri Economics

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To open this address, I would like to advocate for membership in the Canadian Agricultural Economics Society (CAES). The fact that applied economics offers theory and methods that help us address topics as diverse as the Canadian grain value chain and the economics of species at risk speaks well for the future of our discipline. There is a vast array of work for us to do. Membership in the CAES offers an excellent link to the most up‐to‐date research in this area through our journal and conferences. Every society I attend inspires me to examine my own research and look at problems in new ways using new tools I learned from presentations made by the members of CAES. The main message of my address is to promote the application of Game Theory strategies as a way to understand behavior in the grain value chain. These tools are already being applied in areas as different as optimizing tradable systems of environmental goods and assessing competitive behavior in beef packing. Tout d'abord, je tiens à mentionner que j'appuie l'adhésion à la Société canadienne d'agroéconomie (SCAE). Le fait que l’économie appliquée offre la théorie et les méthodes qui nous aident à examiner des sujets aussi variés que la chaîne de valeur des grains du Canada et l’économie des espèces en péril augure bien pour l'avenir de notre discipline. La diversité du travail à accomplir est immense. Être membre de la SCAE procure un lien privilégié à la recherche de pointe grâce à notre Revue et à nos conférences. Aujourd'hui, mon message vise principalement à promouvoir l'application des stratégies de la théorie des jeux pour comprendre le comportement au sein de la chaîne de valeur des grains. Certains domaines, tels que l'optimisation des systèmes d’échange des biens environnementaux et l’évaluation du comportement concurrentiel dans le secteur du conditionnement du bœuf, utilisent déjà ces outils. La panoplie d'outils à notre disposition est mise en valeur dans notre Revue et lors de nos congrès. Tous les congrès auxquels j'assiste me motivent à examiner ma propre recherche et à analyser les problèmes sous un angle différent grâce aux nouveaux outils mis au point et présentés par les membres de la SCAE.

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Estimating Pricing Games in the Wheat-handling Market in Saskatchewan: The Role of a Major Cooperative

Cited by 6 publications

References 18 publications

Pooling and the yardstick effect of cooperatives

Pooling and the yardstick effect of cooperatives

Grain Transportation Policy Reform in Western Canada

Competition in Canada's Agricultural Value Chains: The Case of Grain

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