New Evidence on Competition in the Grain Trade

Abstract

Competition in the grain trade has posed a conundrum for onlookers.Events in the volatile grain markets occasionally convince grain growers and policy makers that the grain trade functions noncompetitively or otherwise against their interests.But a suspicion is not an operational question, and therefore receives no answer.Economists have paid only modest attention to the industry.Our research tools and concepts, forged to deal with commodityproducing industries, can cope with a trading or arbitrage activity only after careful adaptation.Hypotheses generated by applying concepts of industrial organization to explain the organization and competitive patterns of the grain trade (Caves, 1978) could be tested only on casual data.This paper uses new data that shed light on key structural features of the sector and permit tests of additional hypotheses. CONCENTRATION IN GRAIN EXPORTSThe presence of large companies is explained by a conjunction of economies of utilization in the information systems required to support large-scale international transactions, the risk-pooling advantages of large size, and of lesser importance, scale economies, particularly in storage and transportation facilities (Caves, 1978).The model predicts that the scale of transactions and the concentration of traders will decline as one examines increasingly localized transactions.Concentration should therefore be substantially higher in export