Environmental Regulation, Market Power and Price Discrimination in the Agricultural Chemical Industry



1. Introduction

Pesticides and herbicides control weeds and prevent or mitigate pest infestations that may
otherwise severely affect crop yields and their use in American agriculture is widespread.
Even in semi-arid regions such as the Northern Great Plains farmers spend between $5
and $10 an acre on them (Goodwin and Smith). This is a substantial amount of funds for
dry land farms, representing roughly between 8 and 16 percent of per acre variable costs
for crops such as wheat and barley and in absolute terms chemical expenditures range
from $10,000 to $20,000 for many family operations that mainly rely on farming for their
incomes.1 In wetter areas of the country and on irrigated land, per acre agricultural
chemical expenditures are much higher. For example, farms in the Midwest may spend
between $20 and $40 dollars per acre on agricultural chemicals. Agricultural chemical
prices therefore matter to most farmers as do government programs that affect those
prices. Given that agricultural chemical prices also affect supply functions and prices for
agricultural commodities, food processors and consumers also have a stake in the
agricultural chemical pricing game.

Agricultural chemicals are in fact subject to multiple regulations implemented by
different government agencies, each with their own policy remits and agency objectives,
many of which affect market structures and prices. In the case of agricultural chemicals,
the interface of different regulations and proposed regulatory initiatives has implications

1 In Montana, Western North Dakota, and Western Kansas, many dry land operations that generate between
$40,000 and $80,000 a year in net revenues consist of between 3,000 and 5,000 acres, of which about 60
percent are cropped in any given year and 40 percent are left fallow. Per acre agricultural chemical costs of
$5 to $10, total agricultural chemical expenditures are relatively substantial proportions of total per acre
variable costs for Montana dryland farms that range of $50 to $70 per acre (Johnson et al.).



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