Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Wednesday, September 28, 2011

Structure, Conduct and Performance in the South African Potato Processing Industry

Posted by D. Daniel Sokol

J.W. Hanekom, B.J. Willemse and D.B. Strydom (all University of Free State South Africa) address Structure, Conduct and Performance in the South African Potato Processing Industry.

ABSTRACT: The South African Potato industry was deregulated in the early 1990’s, leading to changes in market structure. The adjustment in market structure leads to changes in production and marketing practices, including contracting and pricing strategies for processing firms within the industry. The purpose of this paper is to investigate the current status in the potato processing industry, based on market structure, conduct and performance. The objective is to qualitatively measure the driving forces within the industry, and how these factors influence performance of the industry as a whole. The research method was based on the structure-conduct-performance paradigm, giving a better understanding of the potato processing industry and the driving forces, relating to future growth. A short case study of the Australian potato processing industry, which finds itself in a similar position as South Africa, reveals that increasing global competition in the form of low cost importers, are hampering competitiveness and profitability, along with rising production costs. It was found that the South African potato processing industry has a relatively high concentration, which means efficiency is lacking as market shares is not distributed effectively. It was further evident that a lack of trust between processors and producers is a source of concern for processors.

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Market structure analysis as an orientation for research in agricultural economics
Burgert Terblanche

In research projects involving market structure analysis big business are many times reluctant to cooperate because of the critical attitude of the researchers. Perhaps this critical attitude is inherent in the researcher's thinking in light of his training as to what constitutes an “ideal” market structure. On the other hand I am aware of the fact that the findings of reasonably objective researchers are lifted out of context to support political and legislative action.

In research with a market structure orientation is to receive the support of big business more of the researchers, in my opinion, must emphasize the positive results, to the extent they exist, of the changing structure. By this I do not mean that researchers gloss over the undesirable results, the malfunctions and the inefficiencies. I do think they should make a conscious effort to present the total picture.

I am sure that most agricultural economists interested in market structure research in agriculture have studied rather carefully the paper by Clodius and Mueller on this subject which was printed in the Journal of Farm Economics. This is an excellent article which among other things outlines the limitations and problems in using market structure framework as an orientation to research. His approach was used in a number of AID sponsored studies of marketing organization in developing countries. They are listed in the paper by Barbara Harriss (Queen Elizabeth House, Oxford). She questions their conclusions.

“A question mark must be placed not simply beside the methodology of conventional agricultural marketing economics in the structure, conduct performance tradition, but also beside the history of the interpretation of the results”.

Posted by: Burgert Terblanche | May 31, 2012 4:50:27 AM

One cannot help but wonder at times whether the disciples of this approach to research, including the authors of this article, take very seriously the advice given on the limitations of this approach.

Be that as it may, these authors, who no doubt consider Professor Joe S. Bain to be the high priest of the order, stay very close to Bain's conceptual framework and point out that the key concepts of market structure analysis are those of market structure, market conduct and market performance. In general, however, the authors conclude that market structure will determine firm conduct and that firm conduct will in turn determine industry performance in the marketplace.

Posted by: Burgert Terblanche | Dec 22, 2012 11:51:58 PM

Essentially, a perfect competition model is assumed and the analysis of many development planners merely revolves around the structure of retailing, wholesaling, or some other element in the channel. If structure is correct, then performance must be. As a result of traditional industrial organization analysis the general policy stance on marketing in South Africa is negative

Posted by: Burgert Terblanche | Dec 31, 2012 11:13:18 AM

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