Market Power in the Pork Industry: Accounting for Heterogeneity in Alternative Marketing Arrangements
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Ezra Butcher
Abstract
Public interest in the pork sector renewed in the wake of COVID-19 disruptions. Policy proposals addressed a range of issues – real and perceived – in meatpacking and the pork sector. Evaluating these policies credibly requires accurately representing the industry structure. One feature of the pork supply chain is the use of alternative marketing arrangements to procure hogs. This study seeks to augment existing literature by fully accounting for heterogeneity across alternative marketing arrangements. A structural econometric model links hog supply and pork demand through a representative packer’s optimal procurement decision of hogs on the spot (negotiated) market. Prices are then discovered for alternative marketing arrangements according to price rules. A market power conjecture allows for testing the source and extent of the representative packer’s market power. Results for the period from 2013 to 2024 indicate a lower degree of market power than found in the existing literature and differential contributions from each type of alternative marketing arrangement. The share of hogs procured via methods from which packers derive market power has consistently grown in for the past two decades, however, so the degree of market power may increase if procurement trends continue.
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