The article by Sexton and Saitone (2012) analyses the competition and market structure in the US food industry. It scrutinizes the imminent impacts of some initiatives to enlarge regulation of the food activities with the general objective of increasing commodity prices for the farmers and competition. First, Sexton and Saitone (2012) highlight that impact of the congress inventiveness to “manage supply” can be harmful to the US interests.
The overall outcome of such a supply management program is rising in production costs, consumer prices and a reduction in the capacity of US milk products to compete in the global market. Restricting contract provisions through various economic and non-economic policies could in the long-run turn to counterproductive. For instance, Stockyards Administration regulations, Packers and Grain Inspection would possibly constrain the markets’ capacity to offer product variety and quality that the consumers strive for.
Numerous retailing and processing companies have an over-stretching to uphold constant, stable, long-term supplies of agricultural production to function at full capacity. The incentives serve as a drive for paying competitive prices and inhibit exhaustion or use of short-term market control. This might be a decrease in market power, subsequently, causing inadequacies and fails to lower, but increase agricultural production costs.
Despite the increase in demand for quality in the modern food markets, limiting the possibility of contracting is likely to be detrimental to both farmers and consumers. Finally, Sexton and Saitone (2012) observes that competition and anti-monopoly strategies should be set with the main goal of exploiting entire private enticements for genetically modified or transgenic innovation, but not deliberately or accidentally restricting practical invention.
Market structures are evaluated in terms of the absence or presence of competition. A concentrated market lacks competition. The possible market structures in any market are monopolistic competition, monopsony, oligopoly, monopoly, oligopsony, and perfect competition (Reisman, 2013).
The US agricultural food industry market is very dynamic. Economic studies have exposed the existence of imperfectly competitive structure in this market (Sheldon & Sperling, 2003). This is very similar to the “realistic market condition” where some various forms of monopolistic players or firms control the market. In such a market, managing supply is very tricky.
Reisman (2013) argues that “competition is useful because it reveals actual customer demand and induces the seller (operator) to provide service quality levels and price levels that buyers (customers) want, typically subject to the seller’s financial need to cover its costs” (p. 244). Managing supply through programs like the dairy supply-management program definitely would distort the competition in the market and creates imbalances in the market structures to a certain extent.
The argument that Sexton and Saitone (2012) are trying to get across is quite reasonable and easy to understand. Indeed, the effects that the current approaches in agriculture have on the food industry are truly drastic. Without any control over the agriculture sector, the global food market will suffer a major damage, which means that the methods used for supervising the agriculture sector must be revisited.
Sexton and Saitone, therefore, make a valid point, which cannot be disregarded, since, in the environment of global market, it is bound to grow and, therefore, have drastic effects on the economy of not only the United States, but also the entire world. Thus, the necessity to address the alterations, which the U.S. food market is experiencing at present, is essential for not only the United States economy, but also the economy of all the countries involved in economic relationships with the USA.
References
Reisman, D. (2013). The economics of Alfred Marshall. Hoboken: Taylor and Francis.
Sexton, R. J., & Saitone, T. L. (2012). Market structure and competition in the US food industries (No. 34013).
Sheldon, I., & Sperling, R. (2003). Estimating the Extent of Imperfect Competition in the Food Industry: What have we learned?. Journal of Agricultural Economics, 54(1), 89-109.