DO ALTERNATIVE MARKETING ARRANGEMENTS INCREASE PORK PACKERS ’ MARKET POWER?

In this article we use structural econometrics to formally test whether the use of the alternative marketing arrangements (AMAs) by pork packers is the source of their market power on the spot (cash) market for live hogs. We specify the pork packers ’ conjectures of the change in the industry total market procurement of live hogs through the spot market with respect to their AMAs stocks. The test is carried out using the mandatory price reporting data. Our results show that pork packers have statistically significant market power on the spot market for live hogs, but the source of that market power cannot be narrowed down to the existence of AMAs stocks. Key words: alternative marketing arrangements, hogs, market power. During the last quarter century, the swine in-dustry in the United States has experienced two well-recognizable and important tenden-cies. First, the industry has become increas-ingly concentrated. In 1980, the top four firms controlled 33.6 % of the slaughter of live hogs, and the top eight firms controlled 50.9%, whereas in 2000, the leading four firms had 57.1 % share of the packing, and the leading eight firms controlled 80.3 % (USDA-GIPSA 2001). Since then, the share of leading com-panies has surely increased, the most recent event being the acquisition of Premium Stan-dard Farms by Smithfield Foods. Second, for the procurement of market hogs, the indus-try increasingly relies on the alternative mar-keting arrangements (AMAs) and less on the spot market.1 A recently completed survey of hog producers and packers (Vukina et al. 2007) shows that in the 2004/2005 period, only 24 % of the market hogs was transacted on the spot/cash markets. As a comparison in 1999, this share was 36 % (Grimes, Plain, and Meye