capture profits from another level
Farmers may perceive that firms at another level in their commodity system are earning larger returns to capital invested than are being earned at the farm level. this implies that the capital market is not efficient or that the nonfarm firms are able to prevent entry of competitors and thereby earn extraordinary (monopolistic) returns. One alternative is for farmers to invest in an existing firm at that level of the system that yields the desired higher returns. This may not be possible, however; and if it is, the asset value might already be inflated to reflect the higher earning level.
A farmer might also add the profitable function to the farm firm. Usually, however, the volume used or produced on a single farm is too small to match an efficient input supply or product processing operation. For example, a large egg producer may have sufficient volume to add grading and packing within the firm, but a hog producer would be unlikely to consider hog slaughtering as a feasible extension of his production operation. Another alternative is for like-minded farmers to organize a cooperative to initiate operations at the level where the above-normal profits are being taken. Entry of a cooperative enterprise could result in higher returns to the organizers' capital, probably in the form of prices more favorable to farmers.
The opportunity for such a gain arises because because existing firms possess some market power and monopoly profits or because of differences in the opportunity cost of capital. Either market competition has failed to reduce profits of the higher earning firms or it indicates a failure of capital to leave production agriculture. In either case, entry of a cooperative enterprise may leave the system more efficient.
The capture of monopoly pro fits described in this section is closely related to the gain from economies of size discussed in the preceding section, in which it was implied that maintaining competition at a local level is likely to result in units that are below an efficient size. A gain from the capture of profits implies that margins may be high because of market power in the hands of firms serving farmers. These firms may be located and sized to be cost-efficient.
capture profits from another level
Farmers may perceive that firms at another level in their commodity system are earning larger returns to capital invested than are being earned at the farm level. this implies that the capital market is not efficient or that the nonfarm firms are able to prevent entry of competitors and thereby earn extraordinary (monopolistic) returns. One alternative is for farmers to invest in an existing firm at that level of the system that yields the desired higher returns. This may not be possible, however; and if it is, the asset value might already be inflated to reflect the higher earning level.
A farmer might also add the profitable function to the farm firm. Usually, however, the volume used or produced on a single farm is too small to match an efficient input supply or product processing operation. For example, a large egg producer may have sufficient volume to add grading and packing within the firm, but a hog producer would be unlikely to consider hog slaughtering as a feasible extension of his production operation. Another alternative is for like-minded farmers to organize a cooperative to initiate operations at the level where the above-normal profits are being taken. Entry of a cooperative enterprise could result in higher returns to the organizers' capital, probably in the form of prices more favorable to farmers.
The opportunity for such a gain arises because because existing firms possess some market power and monopoly profits or because of differences in the opportunity cost of capital. Either market competition has failed to reduce profits of the higher earning firms or it indicates a failure of capital to leave production agriculture. In either case, entry of a cooperative enterprise may leave the system more efficient.
The capture of monopoly pro fits described in this section is closely related to the gain from economies of size discussed in the preceding section, in which it was implied that maintaining competition at a local level is likely to result in units that are below an efficient size. A gain from the capture of profits implies that margins may be high because of market power in the hands of firms serving farmers. These firms may be located and sized to be cost-efficient.
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