First KCG Seminar 2021 on Market Power in Agricultural Value Chains on Jan. 15, 2021

Global value chains are widely recognised as a major driver of economic growth and poverty reduction, enabling producers around the world to participate in and source from global markets (IBRD & World Bank, 2020). Although more and more firms and countries have been integrated into GVCs over time, the link of some developing countries and particularly the least developed countries to the international trade is still weak. On top of that, even if some of them did become more intensively integrated into the GVCs in the past, there are strong concerns that producers from these countries have benefited much less from GVCs than their counterparts/partners from more advanced countries. Such concerns are especially strong for the case of smallholders in agricultural value chains.

Against this background Lucas Zavala from the Yale University analysed microdata from Ecuador to examine how and how intensively exporter market power may restrict farmers from benefiting from international trade. Based on his paper, Zavala will give a presentation “Unfair Trade? Market Power in Agricultural Value Chains” on Jan. 15, 2020 (15:00-16:00) to share his key research insights.

Abstract: I show that exporter market power prevents farmers from benefiting from international trade. Using microdata from Ecuador, I link exporters to the farmers who supply them across the universe of cash crops. I document that farmers earn significantly less when they sell crops in which export markets are highly concentrated. I propose a model in which farmers choose a crop to produce and an exporter to supply. Exporter market power is driven by two key elasticities, which govern heterogeneity in farmer costs of switching crops and switching exporters. I develop a method to estimate them using exporter responses to international price shocks. The estimates imply that farmers earn half of their marginal revenue product as a result of market power. I evaluate the effectiveness of agricultural support policies in this setting. Fair Trade emerges as a practical tool for fighting market power and helping farmers share in the gains from globalization.

The seminar will take place via Gotomeeting at 15:00-16:00 on January 15, 2021 (Friday). More information about the seminar and the web access can be found here.