The economic impacts of the concentration in input and output markets in Western Canada
Term: 3 years, beginning in 2020
Status: Ongoing
Funding Amount: $69,000
Lead Researcher(s): Dr. Richard Gray, Dr. Peter Slade, Kaan Okay (University of Saskatchewan)
Funding Partners: N/A
Project Description
This project will empirically study the effects of market consolidation on farm input and output prices in Western Canada.
Recent years have seen dramatic increases in market concentration in many agricultural sectors. The consolidation of agricultural input markets and grain-handling companies in conjunction with the consolidation of the country elevator system has left farmers with less choice when purchasing inputs and selling their output. Standard economic theory predicts that such market power would squeeze farm profits, increasing input prices while reducing output prices. However, the increasing size of agricultural companies could also bring benefits to farmers: larger companies are able to reduce costs by exploiting economies of scale and may pass some of these cost efficiencies on to farmers. Furthermore, larger scale may allow companies to increase their investments in research and development.
Given the current level of concentration in these industries, the Competition Bureau will often be involved and holds hearings prior to approving major mergers. If producer organizations are armed with knowledge and evidence about economic effects of mergers, they will be better able represent interest the grain producers at these critical hearings.
The expected producer benefits from this study could be very large. Given the current size of the grain industry, an increase of just 1% in the farm price of grains would increase western Canadian farm revenue by $185 million per year, while 1% reduction in farm inputs prices would reduce expenses $70 million dollar.