Monopolistic markups in the Polish food sector

Justyna Kufel-Gajda

doi:10.24136/eq.v12i1.8

Abstract

Research background: Research background: Agro-food sectors are commonly considered as highly regulated, traditional and of strategic importance, mainly due to the food security issues. Changes in the related market structures are subject of constant interest because of their importance for competition and economic welfare of food producers and consumers. In Poland, a rising concentration among various branches of the food industry can be observed. Unfortunately, there is a lack of studies regarding the level of actually exerted market power.Purpose of the article: The main objective of the article was to depict the changes of the market power execution in the Polish food sector and its branches in the period 2002?2013.Methods: As a measure of market power, markups of price above the marginal cost were applied and for their estimation two methods were used, namely the Roeger method involving primal and dual Solow residuals and the method based on the marginal cost of labor. Yearly data from F-01 financial statements regarding 32 food sector branches and various accounting categories were used in the calculations.Findings and Value added: It was found that in the analyzed period the markup over marginal cost on average amounted to 9.75%, and it was increasing over time. The labor input category seemed to be not sufficient for the markup calculation. The evolution of the monopolistic power in the Polish food sector appears to be associated not only with the business cycle, but also with the sector developments accelerated by the accession to the EU. Moreover, the differences in results for the branches indicate a considerable heterogeneity in the Polish food industry companies pricing practices. The research constitutes the first trial of the measurement of both the Roeger markups in the Polish food sector branches and the labor markups changes in the Polish food sector.

Highlights

The market structures in the food sector are subjected to constant changes
The theoretical background was presented in order to prove that the markup can be considered as a symptom of market power
The differences in results for the branches indicate a substantial heterogeneity in the Polish food industry companies pricing practices

Summary

Introduction

The market structures in the food sector are subjected to constant changes. As early as in 1966, in the report prepared by the US National Commission on Food Marketing, it was admitted that the concentration in many branches of the U.S food sector reached a too high, undesirable level, and the marketing and promotion expenses were excessive. Figiel & Kufel (2013) proved high and statistically significant correlation between the value of the world agro-food production and the value of mergers and acquisitions in the world in the period 2000– 2010. In the Polish food industry concentration processes occur. In 2010 companies hiring more than 250 workers, constituting only 1.7% of all nearly 16 thousands companies operating in the sector, made 36.9% of all employment and 54.1% of all production value. The concentration ratio in sales in 2013 amounted to 0.79 in the food production, in the production of beverages — 0.66, and in the tobacco industry — 0.37. It is envisaged that the process of concentration in the food sector will be continued and the role of large firms will grow It is envisaged that the process of concentration in the food sector will be continued and the role of large firms will grow (see Szczepaniak, 2012, pp. 78–87)

Objectives

Methods

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Conclusion