Investigating market power in the Belgian pork production chain
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Belgian pork production has faced stagnating prices for decades. It remains unclear whether excessive market power from slaughterhouses or meat retailers has played a role in this trend. While market power studies can reveal some of the market dynamics in this setting, this type of research has not yet been applied to the Belgian pork market. The present paper investigates oligopolies and oligopsonies in the pork production sector. We build a new model that focuses on market power dynamics in the market for live pigs and distinguishes horizontal and vertical market power parameters, both for pig farmers and for slaughterhouses. The results follow from an empirical application using unique slaughterhouse data for 2001–2015. The results indicate that the farmers benefit from a significant power advantage in the live pig market, when very modest price demands are taken as a reference. The final market price of live pigs approaches the price requested by the farmers. On the other hand, the measured vertical market power also suggests that a pig farmer does not receive the (modest) full-wage-based salary. The market power of the slaughterhouses is also limited. Market power as a result of collusion—that is, horizontal market power—is present, but is not strong. However, there are significant differences between the slaughterhouses in terms of mark-up on the input prices. These differences reflect differences in company strategy, and this diversity further reduces the possibility to create sector-wide collusive behaviour.
KeywordsMarket power Slaughterhouse Input elasticity Mark-up
This research has been made possible with the assistance, information and guidance of several administrations and organisations. We are much indebted to Mr. Robijns and Ms. Kestens from the Federal Agency for Safety of the Food Chain (FAVV), Mr. Seynaeve and the team of Carcass classification of the Ghent University, Mr. Pattyn and Mr. Ingelbrecht from the National Price Observatorium and Ms. Vandenberghe from VEVA, the cooperation of Pig farmers. This article reflects the position of the authors alone, and is not indicative of the position of the Flemish Government. All remaining errors are the sole responsibility of the authors. We thank participants of the EAAE conference held in Parma (August 2017), the 149th EAAE Workshop on vertical food chains held at INRA in Rennes (October 2017) and the JRSS day held in Nantes (December 2018) for fruitful discussions.
This project has been financed by the interuniversitary fund tuL - Impuls (transnational university Limburg). This research was also partly performed within the frame of the HORIZON 2020 project SUFISA with the grant agreement number 635577.
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