(introduction...)

3.41 This section provides a synthesis of major institutional/organizational patterns in the case study commodity systems. We examine the competitive structure within these systems, the primary institutional linkages between producers and processor/exporters and between the latter and foreign market buyers/agents, and the roles played by foreign private companies and by local producer or trade associations.

Competitive structure

3.42 Table 14 summarizes the competitive structure of production, processing/packing, and domestic distribution and exporting in the case study subsectors. Production or trade is denoted as 'Highly Decentralized' if it features numerous firms or individuals, with the largest ten accounting for less than 50% of supplies, processing capacity, or sales. An operation is labelled an 'Oligopoly' if the ten largest firms or individuals account for more than 50% of the market. A label of 'Concentrated Oligopoly' is given to operations in which five or fewer firms control 75% or more of the market. The label 'Monopoly' refers to an exclusive processor or trader. The indicated structures are those which prevailed during the mid-to-late 1980s. It is recognized that a concentrated structure is not a sufficient condition to suspect the presence of collusive and anti-competitive practices.

3.43 The table shows that while production and domestic marketing are generally highly decentralized, most cases feature relatively high levels of concentration at the packing or processing stage and most especially in export marketing. This pattern is not unexpected given the economies of scale in processing and export logistics and sales and the high transaction costs associated with international trade.

3.44 Virtually all of the subsectors have developed with the participation of large numbers of crop, fish, or animal product producers. In some cases, including Kenyan vegetables, Israeli citrus, Thai poultry, Thai and China shrimp, and Taiwanese vegetable and pork sub-sectors, farm producers number in the thousands and generate operate on a small-to-medium scale. Still, technological changes, economic pressures, and vertical integration by input suppliers or downstream marketing enterprises into production have contributed to increased concentration in production over time in some of these sub-sectors. Export-oriented fruit production in Chile and soybean production in Brazil and Argentina has been undertaken by relatively large numbers of middle- and especially large-scale farmers and agribusinesses. Only one of the focal cases has featured a very narrow production base. Export-oriented fresh tomato production in Mexico has remained the preserve of about a dozen local companies, due to preferential access to water resources, government-delegated powers to regulate (export-oriented) tomato plantings and sales, and favorable ties to U.S. vegetable distributors. The Thai tuna canning industry is unique among our cases in that it relies upon imported fish for 70% of its raw material requirements.

3.45 Domestic marketing of the focal commodities remains highly competitive in most of the focal subsectors, even where export marketing has become concentrated among a few firms. Domestic marketing systems have often featured the wide participation of cooperatives, brokers, and small-to-medium scale private firms, in addition to a handful of larger wholesaler/distributors. In a number of cases (including Argentine beef and soybeans, Mexican tomatoes, and Thai shrimp), large auctions or terminal markets have enhanced the competitive environment of local markets. Direct marketing between producers and either retail chains or restaurants/hotels has also emerged in a number of these cases.

Table 14: COMPETITIVE STRUCTURE OF COMMODITY SYSTEMS

3.46 While there are a few exceptions, fresh produce packing, processing, and exporting have tended toward oligopolistic structures with between three and ten firms accounting for the bulk of operating capacity and sales. In one-third of our cases (e.g. Israeli citrus, Brazilian FCOJ, Thai poultry and tuna, and Chinese shrimp), three firms or less have recently accounted for 75% or more of total exports. In such cases as Kenyan vegetables, Chilean temperate fruit, and Thai tuna and poultry, concentrated trade structures have resulted largely from economic factors, with a limited number of firms taking advantage of superior technical or financial resources and overseas market linkages to acquire leadership positions within their industries. Having invested in modern packing and/or processing facilities and having effectively penetrated overseas markets, such firms have been better able to adapt to changing market requirements.

3.47 In several other cases, the concentration of trade has derived from government interventions as much as from economies of scale or other underlying economic factors. For example:

--In Mexico, the government has given the National Commission of Vegetable Producers and individual state producer unions the power to control planted acreage, export licenses, and export volumes so to exercise market power in the United States and maintain the profitability of the Mexican industry. Powerful members in these producer unions have been able to control entry into export-oriented tomato production and to consolidate their own positions.

--In Israel, several laws and regulations adopted in the 1940s created a marketing cartel in the form of the Citrus Marketing Board which incorporated many of the larger pre-WWII exporters as contractors to the Board and as members, together with government representatives, of the Board's decision-making committees. By operating as the sole buyer and seller of Israeli fresh citrus, the CMBI was designed to achieve economies of scale in the procurement of inputs and in export logistics and to assert Israel's market power in Europe for selected fruits during certain months. This cartel faced serious difficulties as its members had widely differing interests with regards to the quality and types of fruits to market, the timing of sales, and the patterns of grower remuneration from a price pool.

--In China, initially an export monopoly for shrimp was given to the National Cereals, Oils, and Foodstuffs Import and Export Corporation and later (in 1985) shrimp and other food export rights were granted to provincial foreign trade corporations (all state enterprises).

--In Brazil, government credit programs and the periodic imposition of export quotas (based on past exports) contributed to the consolidation of a three-firm dominance of the FCOJ industry with some degree of price coordination in international markets.

Institutional arrangements linking producers with processors/exporters

3.48 In the focal commodity systems, various institutional arrangements have been developed to coordinate raw material production with processing and other downstream requirements. These patterns are summarized in Table 15, which represents a 'snapshot' of important institutional arrangements prevailing in the late 1980s. The Table indicates that while in the majority of cases there are open market linkages between some producers and processors/exporters, only in two cases is arms-length trade the dominant mode of raw material procurement. In the case of Argentine beef, a well-established system of auctions, terminal markets, and brokerage arrangements (dating back more than 50 years) facilitates a steady and massive movement of cattle from producers to slaughterhouses and processors. In the case of Thai tuna, Bangkok's fish markets have become amongst the largest and well-developed in Southeast Asia, providing Thai canners with a steady and large supply of different tuna species caught both in the Indian and Pacific Oceans. In all other cases, market coordination has been supplemented or replaced by a combination of other modes of vertical coordination, including seasonal (or longer term) contracts, ownership integration, cooperative coordination, and/or government coordination.

Table 15: Institutional Arrangements Linking Producers with Processors/Exporters