The Impact of Agricultural Marketing Cooperatives on Market Performance in U.S. Food Manufacturing Industries for 1982

This research examines market performance in the U.S. food manufacturing product classes for 1982 and the effect cooperatives have as market participants. It addresses the public policy concern that cooperatives may obtain market power through favorable public policy and may exercise that market power to the detriment of society through under price-enhancement. Because of this concern the partial antitrust exemption granted cooperatives under the Capper-Volstead Act of 1992 is likely to re-emerge on the public policy agenda. A basic industrial organization structure-performance model extended by the theory of cooperatives is used to test the effect of cooperatives on market performance, here measured as the market's price-cost margin. After controlling for differences in the geographic size of markets and the effects of demand growth on prices, key structural elements affecting margins included measures of concentration, the degree of product differentiation and capital utilization and the minimum efficient scale. Cooperative theory predicts improved performance in markets where cooperatives are present through the 'competitive yardstick' effect. The underlying hypothesis that the degree of cooperative participation is inversely related to the level of price-cost margins has rarely been fully tested across a large cross section of food manufacturing markets because of limited market data on cooperation participation. This study used a Special Tabulation of Census of Manufacturers data for 1982 to construct a continuous variable representing the aggregate market share of the 100 largest agricultural marketing cooperatives in each of 134 food product classes. This extended structure-performance model was then estimated using ordinary least squares methods. The cooperative share of market sales had a significant, negative impact on the level of margins supporting the yardstick effect hypothesis that cooperatives improve market performance. Product differentiation, measured by advertising-to-sales ratios, was positively related to margins but at a decreasing rate as advertising intensity increased. Capital intensity and minimum efficient scale were insignificant factors. These results serve to confirm the basic industrial organization model and provide empirical support for the competitive yardstick effect of cooperatives on market performance