Current Agriculture, Food & Resource Issues
C. E. Ward
Four-firm concentration in lamb slaughtering exceeded that for steer and heifer
slaughtering and hog slaughtering until the early 1990s (Grain Inspection, Packers and
Stockyards Administration, 2000). (Thereafter, concentration in steer and heifer slaughtering
has exceeded concentration in lamb slaughtering.) Thus, concentration in lambpacking has
been of concern to many people. Menkhaus, Whipple, and Ward (1990) used annual data
for four states over the 1972-85 period to examine the effect the number of lambpacking
plants had on prices paid for slaughter lambs. Results were inconclusive. Evidence was found
that prices received by lamb producers in states with only one plant were significantly lower
than in states with more than one plant. However, there was no significant difference in
prices received in states with 2 to 5 plants compared with states that had more than five
plants. They concluded that concerns are justified regarding non-competitive behavior when
the number of plants declines to a single plant.
A series of mergers in 1987 changed the buyer landscape for fed cattle in the southern
plains region and created what have since been called the “big three” packers. Ward (1992)
collected transaction data in 1989 similar to that collected ten years earlier to determine
whether buyer consolidation affected prices paid for fed cattle. Price differences were found
among buyers and prices were positively and significantly associated with the number of
buyers bidding on fed cattle. Both findings paralleled earlier work discussed above. Ward also
grouped the three largest buyers into a single variable to determine price effects from the “big
three” packers. Price differences were found among the three largest firms and between the
three largest firms and other buyers. The three largest firms together paid significantly lower
prices for fed cattle than did their rival firms in all local markets studied. However, when
examined independently, not all of the three largest packers paid lower prices than their
competitors.
Marion and Geithman (1995) used pooled cross-section time-series data to study the
price-concentration relationship in 13 regional fed cattle markets over the 1971-86 period.
They concluded that buyer concentration had a negative, significant effect on fed cattle prices
during the study period. They estimated several model specifications, used alternative
estimation methods, and divided the data into various time periods. Their results regarding
the effects of concentration on fed cattle prices were mixed. When they estimated the effects
for 1971-78 vs. those for 1979-86, they found that the concentration effect was negative in
both periods but more severe in the latter period, which coincided with higher regional
concentration. However, when the model for the entire period was estimated, the significance
of the concentration variable disappeared. They included a variable in some models for the
change in concentration and found a positive, significant effect on fed cattle prices. They
explained the positive relationship as being due to larger buyers paying higher prices for fed
cattle as they increased their market share.
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