Agricultural Contracts and Alternative Marketing Options: A Matching Analysis

The increasing use of agricultural contracts and processor concentration raises concerns that processors may offer lower contract prices in absence of local competition. This study examines the price competitiveness of marketing and production contracts depending on the availability of alternative marketing options. A propensity score matching method is used to compare prices using contract data from a farm-level national survey. The results show that the absence of other contractors or spot markets in producers’ areas does not lead to statisticallysignificant price differences in agricultural contracts for most commodities, providingevidence that most agricultural processors do not exercise market power by reducing priceswhen other local buyers are not available.