Three Essays on the Growth of Agroindustry and Changing Commodity Markets

Download or read book Three Essays on the Growth of Agroindustry and Changing Commodity Markets written by Karen E. Thome and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: My dissertation focuses on the structure of three different agricultural markets that have been at the forefront of changes in industry structure in the last two decades. As agroindustry expands in the developing world, there is a focus on high-value agricultural exports and demand from a growing middle class; my first essay is a model of contracting for such a commodity when quality is important. Market liberalization has led to changes in the structure of agricultural markets; essay 2 tests for market power in the newly privatized corn flour industry in Mexico. Finally, the search for agricultural value added has led to investment in corn ethanol plants in the United States; essay 3 models strategic interactions among these plants. Essay 1 is a model of an agricultural contract where quality is measurable, but measurement of quality is not always enforced. First I show that the buyer with market power can benefit from restricting the number of contracts he signs because the contract price is dependent on the expected spot market price. Under some circumstances it may be optimal for a buyer of the agricultural product to reject high-quality product that he has contracted. In this model rational producers are not harmed by the rejection itself, because they are compensated for the potential rejection in the contract price. Policy interventions that focus on inhibiting the ability of the buyer to influence the spot market price could improve producer well being. In essay 2, I estimate market power in the corn flour market in Mexico. After ratifying NAFTA, Mexico had to move from state-trader intervention along the corn-corn flour-tortilla supply chain to a free-market model. Post-liberalization, Mexican tortilla and corn flour prices increased, while corn prices remained flat. Because the corn flour market is highly concentrated, I ask whether this divergence in price is due to flour producers' ability to exercise market power. Using a NEIO oligopoly model, I find no evidence of market power in the corn flour sector. Essay 3 focuses on the growth of ethanol production in the United States. A favorable policy environment and high oil prices, among other factors, led to enormous investment in the United States ethanol industry beginning in the late 1990s. In this essay I ask what factors contributed to the timing and location of these investments, specifically focusing on strategic interactions among plants. I use both reduced-form and structural models of investment, and find a net-negative effect of incumbent plants on investment.