Orderly Marketing in Agriculture Revisited

Abstract

This paper presents a model of economic behavior that explicates the phenomenon known as “orderly marketing,” which was a main objective of the Marketing Orders agricultural program introduced early in the New Deal. Recent analyses of marketing orders start with an implicit assumption that there is no market failure—thus, that price regulation can cause only deviations from the first-best market solution. However, historical evidence suggests that disorderly marketing might refer to a kind of market imperfection. In the model presented here, a monopsonist processor sets a price to be paid, and an aggregate quantity to be purchased. In some states of the world, some farmers are excluded from the market. In other words, nonprice rationing can occur, and changes in consumer expenditure for the final product are absorbed by the processor rather than passed along to the farmer. The classified price and pooling provisions of federal orders can lead to a Pareto improvement in welfare.