Home The Competitive Impact of Cooperatives on the Spot Market: A Spatial Analysis of Iowa Corn Prices
Article
Licensed
Unlicensed Requires Authentication

The Competitive Impact of Cooperatives on the Spot Market: A Spatial Analysis of Iowa Corn Prices

  • Jasper Grashuis EMAIL logo
Published/Copyright: February 28, 2020

Abstract

Imperfect competition in the agricultural input procurement market is prevalent, especially at the local and regional scale. While there is much theoretical work on the positive effect of cooperatives on spatial competition, applied research is relatively scarce. We address the gap in the literature with an empirical study of cash prices in the Iowa corn market. With 589 observations from the 2018 harvest season, we construct a spatial model of price competition among grain handlers within a 20-mile radius. Among other findings, we conclude the ownership structure of Iowa grain handlers is important to explain the spatial dependence in corn cash prices. On average, cooperative grain handlers offer a lower corn cash price as compared to corporate grain handlers (¢1.20–1.72 per bushel), which is likely offset by refunds and dividends at the end of the fiscal year. At the same time, cooperative grain handlers force an adjustment in the behaviour and pricing strategy of nearby competitors. Cooperative grain handlers on average facilitate a significant increase of ¢0.65–2.08 per bushel in the corn cash price of competitors within a 5–17 mile radius. Our novel findings inform recommendations in terms of spatial entry and location decisions by cooperative grain handlers.

JEL Classification: D22; L13; Q13

References

Alvarez, A. M., E. G. Fidalgo, R. J. Sexton, and M. Zhang. 2000. “Oligopsony Power with Uniform Spatial Pricing: Theory and Application to Milk Processing in Spain.” European Review of Agricultural Economics 27 (3): 347–64.10.1093/erae/27.3.347Search in Google Scholar

Anselin, L. 1988. “Lagrange Multiplier Test Diagnostics for Spatial Dependence and Spatial Heterogeneity.” Geographical Analysis 20 (1): 1–17.10.1111/j.1538-4632.1988.tb00159.xSearch in Google Scholar

Anselin, L. 2002. “Under the Hood Issues in the Specification and Interpretation of Spatial Regression Models.” Agricultural Economics 27 (3): 247–67.10.1111/j.1574-0862.2002.tb00120.xSearch in Google Scholar

Ariyaratne, C. B., A. M. Featherstone, M. R. Langemeier, and D. G. Barton. 2000. “Measuring X-efficiency and Scale Efficiency for a Sample of Agricultural Cooperatives.” Agricultural and Resource Economics Review 29 (2): 198–207.10.1017/S1068280500005335Search in Google Scholar

Baumel, C., H. Hommes, J. Gervais, and M. McVey. 2001. The Iowa Grain Flow Survey: Where and How Iowa Grain Producers and Country Elevators Shipped Corn and Soybeans during September 1, 1999 - August 31, 2000. Ames, IA: Iowa State University.Search in Google Scholar

Benos, T., N. Kalogeras, M. Wetzels, K. D. Ruyter, and J. M. Pennings. 2018. “Harnessing A ‘Currency Matrix’for Performance Measurement in Cooperatives: A Multi-phased Study.” Sustainability 10 (12): 4536.10.3390/su10124536Search in Google Scholar

Breustedt, G., and H. Habermann. 2011. “The Incidence of EU Per-Hectare Payments on Farmland Rental Rates: A Spatial Econometric Analysis of German Farm-Level Data.” Journal of Agricultural Economics 62 (1): 225–43.10.1515/jafio-2016-0036Search in Google Scholar

Carletti, M. P. C., M. Hanisch, J. Rommel, and M. Fulton. 2018. “Farm Gate Prices for Non-varietal Wine in Argentina: A Multilevel Comparison of the Prices Paid by Cooperatives and Investor-oriented Firms.” Journal of Agricultural & Food Industrial Organization 16 (1): 1–14.10.1515/jafio-2016-0036Search in Google Scholar

Commission European. 2016. Report from the Commission to the European Parliament and the Council on Unfair Business-to-business Trading Practices in the Food Supply Chain. Brussels, Belgium: European Commission.10.1016/j.foodpol.2014.12.007Search in Google Scholar

Condon, N., H. Klemick, and A. Wolverton. 2015. “Impacts of Ethanol Policy on Corn Prices: A Review and Meta-analysis of Recent Evidence.” Food Policy 51: 63–73.10.2307/1239355Search in Google Scholar

Davis, L., and L. Hill. 1974. “Spatial Price Differentials for Corn among Illinois Country Elevators.” American Journal of Agricultural Economics 56 (1): 135–44.10.1016/S1574-0072(01)10025-3Search in Google Scholar

Fackler, P. L., and B. K. Goodwin. 2001. “Spatial Price Analysis.” In Handbook of Agricultural Economics, vol. 1, 971–1024. Amsterdam, Netherlands: Elsevier.10.1016/S1574-0072(01)10025-3Search in Google Scholar

Fort, C., and J. Parcell. 2006. “A Case Study on the Impact of an Ethanol Plant on Corn Price.” Journal of the American Society of Farm Managers and Rural Appraisers 69 (1): 26–30.Search in Google Scholar

Fousekis, P. 2011. “Spatial Price Competition between Cooperatives under Hotelling–Smithies Conjectures.” Agricultural Economics Review 12 (389-2016–23463): 5–15.10.1111/1467-8489.12101Search in Google Scholar

Fousekis, P. 2015. “Location Equilibria in a Mixed Duopsony with a Cooperative.” Australian Journal of Agricultural and Resource Economics 59 (4): 518–32.10.1111/j.1744-7976.2005.00414.xSearch in Google Scholar

Gallagher, P., R. Wisner, and H. Brubacker. 2005. “Price Relationships in Processors’ Input Market Areas: Testing Theories for Corn Prices near Ethanol Plants.” Canadian Journal of Agricultural Economics 53 (2-3): 117–39.10.1016/j.jcom.2018.06.004Search in Google Scholar

Grashuis, J., and M. Elliott. 2018. “The Role of Capital Capacity, Spatial Competition, and Strategic Orientation to Mergers and Acquisitions by US Farmer Cooperatives.” Journal of Co-operative Organization and Management 6 (2): 78–85.10.1111/apce.12205Search in Google Scholar

Grashuis, J., and Y. Su. 2019. “A Review of the Empirical Literature on Farmer Cooperatives: Performance, Ownership and Governance, Finance, and Member Attitude.” Annals of Public and Cooperative Economics 90 (1): 77–102.10.1093/ajae/aar035Search in Google Scholar

Graubner, M., A. Balmann, and R. J. Sexton. 2011. “Spatial Price Discrimination in Agricultural Product Procurement Markets: A Computational Economics Approach.” American Journal of Agricultural Economics 93 (4): 949–67.10.1093/ajae/aar035Search in Google Scholar

Gullstrand, J., and C. Jörgensen. 2012. “Local Price Competition: The Case of Swedish Food Retailers.” Journal of Agricultural & Food Industrial Organization 10 (1).10.1093/ajae/aau050Search in Google Scholar

Jacobs, K., Z. Li, and D. Hayes. 2016. “Forward Contracting by Iowa Corn Producers: Connecting Hedging with Price Movements.” Agricultural Policy ReviewFall 2016. Ames, Iowa: Iowa State University.10.1201/9781420064254Search in Google Scholar

Jardine, S. L., C. Y. C. Lin, and J. N. Sanchirico. 2014. “Measuring Benefits from a Marketing Cooperative in the Copper River Fishery.” American Journal of Agricultural Economics 96 (4): 1084–101.10.1016/j.agsy.2015.12.004Search in Google Scholar

LeSage, J., and R. K. Pace. 2009. Introduction to Spatial Econometrics. Boca Raton, FL: Chapman and Hall/CRC Press.10.1093/eurrag/29.3.349Search in Google Scholar

Liang, Q., and G. Hendrikse. 2016. “Pooling and the Yardstick Effect of Cooperatives.” Agricultural Systems 143: 97–105.10.1111/j.1467-9353.2005.00219.xSearch in Google Scholar

McCorriston, S. 2002. “Why Should Imperfect Competition Matter to Agricultural Economists?” European Review of Agricultural Economics 29 (3): 349–71.10.1093/eurrag/29.3.349Search in Google Scholar

McNew, K., and D. Griffith. 2005. “Measuring the Impact of Ethanol Plants on Local Grain Prices.” Review of Agricultural Economics 27 (2): 164–80.10.1515/1542-0485.1362Search in Google Scholar

Merlo, C.2017. Crossing the Merger Finish Line. Rural Cooperatives. September/October 2017. Washington, D.C: U.S. Department of Agriculture.10.52324/001c.8175Search in Google Scholar

Milford, A. B. 2012. “The Pro-competitive Effect of Coffee Cooperatives in Chiapas, Mexico.” Journal of Agricultural & Food Industrial Organization 10 (1): 1–27.10.1016/j.jeca.2018.e00109Search in Google Scholar

Mueller, J. M., and J. B. Loomis. 2010. “Bayesians in Space: Using Bayesian Methods to Inform Choice of Spatial Weights Matrix in Hedonic Property Analyses.” Review of Regional Studies 40 (3): 245–55.10.1007/s00168-007-0206-7Search in Google Scholar

Panagiotou, D., and A. Stavrakoudis. 2018. “Free-on-board and Uniform Delivered Pricing Strategies in Pure and Mixed Spatial Duopolies: the Strategic Role of Cooperatives.” The Journal of Economic Asymmetries 18: e00109.10.2307/1243041Search in Google Scholar

Pennerstorfer, D. 2009. “Spatial Price Competition in Retail Gasoline Markets: Evidence from Austria.” The Annals of Regional Science 43 (1): 133–58.10.1146/annurev-resource-100517-023312Search in Google Scholar

Sexton, R. J. 1990. “Imperfect Competition in Agricultural Markets and the Role of Cooperatives: A Spatial Analysis.” American Journal of Agricultural Economics 72 (3): 709–20.10.1111/j.1467-9353.2009.01448.xSearch in Google Scholar

Sexton, R. J., and T. Xia. 2018. “Increasing Concentration in the Agricultural Supply Chain: Implications for Market Power and Sector Performance.” Annual Review of Resource Economics 10: 229–51.10.1146/annurev-resource-100517-023312Search in Google Scholar

Soboh, R. A., A. O. Lansink, G. Giesen, and G. Van Dijk. 2009. “Performance Measurement of the Agricultural Marketing Cooperatives: the Gap between Theory and Practice.” Review of Agricultural Economics 31 (3): 446–69.10.1111/j.1467-9353.2009.01448.xSearch in Google Scholar

Thomsen, M. R., and V. R. Eidman. 2004. “The Scale Efficiency of Local Supply and Grain Marketing Cooperatives in the Upper Midwest.” Journal of Cooperatives 18: 18–31.Search in Google Scholar

Vachal, K., and D. Tolliver. 2001. Regional Elevator Survey: Grain Transportation and Industry Trends for Great Plains Elevators. Fargo, ND: North Dakota State University.Search in Google Scholar

Yu, T., and C. Hart. 2009. The 2007/08 Iowa Grain and Biofuel Flow Study: A Survey Report. Ames, IA: Iowa State University.Search in Google Scholar

Published Online: 2020-02-28

© 2020 Walter de Gruyter GmbH, Berlin/Boston

Downloaded on 30.10.2025 from https://www.degruyterbrill.com/document/doi/10.1515/jafio-2019-0063/html
Scroll to top button