Resource economists to assess welfare of farmers, food producers, retailers and consumers
When Wal-Mart introduces superstores or several meat packers merge to form a large corporation, they create changes that affect the entire agricultural goods market. Nathalie Lavoie and Christian Rojas of the Resource Economics Department have won a $168,000 grant from the U.S. Department of Agriculture to document the effects of these changes on the welfare of farmers, consumers, retailers and processors.
“Large food manufacturers and retail giants like Wal-Mart have enormous power to control the cost of what they buy as a result of consolidation,” says Lavoie. “Once we know the effects of this change on farmers and consumers, the information can be used for strategic planning and guidelines for government intervention.”
Additional researchers on the grant include Resource Economics faculty members Daniel Lass and Julie Caswell.
Most studies of the agricultural goods market have focused on the ability of sellers to charge high prices. Lavoie and Rojas will look at the effect of increasing buying power resulting from corporate consolidation. “This trend improves the welfare of some groups and decreases the welfare of others,” says Lavoie.
Differentiation in the food industry will also be considered. For example, a farmer may grow carrots and sell them to a processor who turns them into baby carrots and bags them for sale to a retailer. The retailer then sells them to consumers looking for convenience foods. The carrots could be organic or sold as part of a vegetable platter. “It is important to know who benefits most in this chain and how consumer demands for health, variety, safety and convenience are affecting producers, manufacturers and retailers,” says Lavoie.
These two key issues will be studied in three distribution channels in the food industry including food processors that buy from farmers and change the products before they are resold. The team will also look at retailers who buy from manufacturers or farmers and create various “shopping experiences” for demanding consumers. The final distribution channel is trade between exporters and importers of agricultural products of different qualities.
Theoretical models will be constructed to incorporate unique food market issues such as costly transportation, the perishability of fresh produce and the configuration of international commodities markets. The models will allow the team to enter different values for variables and assess the impact of any changes in welfare that may result.
The results of this research will be used to assess how the United States is faring in world agricultural markets and enhance the economic opportunities of farmers by providing them with an improved understanding of how buyer market power and product differentiation affect their performance.
January 23, 2008.
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