Effects of supermarket monopsony pricing on agriculture

Abstract

Potential effects of alleged monopsony pricing of farm food products by supermarkets on farm product prices, quantities, incomes and land values are assessed relative to competitive behaviour. A long-run comparative static equilibrium model is used. For export-competing and import-competing products, the farm food input supply curve facing the supermarkets is close to perfectly elastic and this limits monopsony behaviour. At the margin, the opportunity to reallocate agricultural land between traded and nontraded farm products means a highly elastic supply function for nontraded food inputs facing supermarkets and very limited monopsony effects.