Food cartels - haven't we seen these before?

May 5, 2008 6:55 AM

Oil's got one. So does cocaine. There used to be one for light bulbs and another for uranium. While we know one currently exists for diamonds, some folks think the music industry has one.

An effective cartel needs both product homogenity and a relatively limited number of suppliers.

Standardised products offer consumers price reductions driven by economies of scale and supplier substitution effects. However a relatively small number of suppliers of any commodity gives rise to the possibility of price fixing and collusive behaviour.

Supplier actions threatening financial disadvantage to consumers can occur in any industry, however who would not view food cartels negatively?

We last saw food cartels in the 1990's [e.g., but not limited to lysine [.pdf], citric acid, vitamins A & E ]. Aggressive antitrust actions, coordinated across the EU and America, effectively levied fines in excess of $10 billion dollars on some 167 international cartels [.pdf] operating at the time.

With global food prices already at record levels, will any good come from Thailand's moves to organise a rice cartel? While some are skeptical this (latest) effort will succeed, comments from government spokesmen "With the oil price rising so much, we import expensive oil but sell rice very cheaply and that’s unfair to us ..." aren't very helpful to already nervous consumers.

The idea of a rice cartel isn't new; India suggested forming a rice, tea and sugar cartel in 2000, only to have the initiative die due to the difficulties of controlling rice production.

posted by Mutant (21 comments total)

Factors adding strength to cartels: relatively small amounts of uncontrolled, noncartel production, consistent production across the industry, and high barriers to entry. Also, in an effort to reduce transaction costs, companies prefer to purchase raw materials from a relatively small number of suppliers.

Collusive behaviour exhibited by Cartels :

• Price fixing
• Market division
• Agreement on production limits
• Centralised monitoring of production limits & output agreements
• Enforcement of agreements
• Cover up (in the case of illegal cartels)

Examples of cartels in the movies would include Anti trust and The Informant.

Finally, an interesting book covering the Archer Daniels Midland price fixing case.
posted by Mutant at 7:00 AM on May 5

This is why we need a windfall tax on the oil industry. Consumers should not pay a high tax on gasoline until the profit from corporate collusion is taxed first.
posted by Brian B. at 7:07 AM on May 5

Major League Baseball has one too. Only that's as American as hot dogs, apple pie and, well, you know.
posted by The Bellman at 7:13 AM on May 5

Somewhere out there, Byron the Bulb shines on.
posted by Afroblanco at 7:21 AM on May 5

There was an article in the economist about investigating price-fixing in supermarkets that may be of interest.
posted by ejaned8 at 7:30 AM on May 5

Well we took competitiveness out of the equation and replaced it with who-you-know, so I shouldn't be really surprised.
posted by nervousfritz at 7:35 AM on May 5

Only that's as American as hot dogs, apple pie and, well, you know.

There's a Mom cartel? Holy shit, Futurama is coming true!
posted by kittyprecious at 7:51 AM on May 5 [2 favorites]

Wow, interesting. Thanks for the post, Mutant.
posted by salvia at 8:00 AM on May 5

Windfall tax? Really?

I'm just trying to remember the last time adding a tax to a product or a business made prices go down...
posted by tadellin at 8:00 AM on May 5

Good post, but shouldn't we have a moratorium on these "guess what it is I'm talking about" kind of posts?
posted by fungible at 8:08 AM on May 5

Then there's your cartel run by your cabal, which is called your government.
posted by weapons-grade pandemonium at 8:37 AM on May 5

I'm just trying to remember the last time adding a tax to a product or a business made prices go down...

On the other hand, we can now safely say that the federal gasoline tax being the cause of high prices is a complete and utter myth promulgated by the oil cartel and energy industries.
posted by Blazecock Pileon at 9:03 AM on May 5

Good post, but shouldn't we have a moratorium on these "guess what it is I'm talking about" kind of posts?

The moratorium cartel ain't sellin' today.
posted by Blazecock Pileon at 9:05 AM on May 5

Theres no such thing as a free market.
posted by Artw at 9:09 AM on May 5

Good post, but shouldn't we have a moratorium on these "guess what it is I'm talking about" kind of posts?

This one gets a bit of a pass from me for actually explaining in the "more inside".
posted by Artw at 9:10 AM on May 5

Mefi might not have a cabal, but I think it's time we started a cartel.

That way we can put out albums and cassettes of our very best "Super Hits" and our "Number One Hit Series"



...wait, that was K-Tel.

Never mind.
posted by quin at 9:50 AM on May 5

If a cartel becomes vulnerable to legal action, including military or police action, it only does so because it has already weakened to the point where it is no longer viable as a socio-political entity. In ecological terms, this is known as the "pathogenic triangle". Pathogens are always present, but an organism only becomes vulnerable to them after stress is put on it from other influences - old age, starvation, thirst, exposure, physical damage. Only then does the organism develop a disease, perhaps a fatal one.

Look at cartels of the past. Textiles. Salt. Chocolate. Metals. Printing. Look at the much ballyhooed imminent death of the newspaper industry. Rupert Murdoch and Clear Channel can buy all the papers they want.

There is nothing you can do. Only after the production of a resource is on the decline (or production becomes so cheap that the resource loses a certain value) will the controllers of that resource lose their influence and become vulnerable - and ironically, at that point the long overdue industry regulation and anti-trust actions that can and will be brought, will be moot.

Forget the past. Don't cry about the present. Look to the future. Invest in food and water. And arms.
posted by Xoebe at 11:44 AM on May 5 [2 favorites]

Independent schools (UK) had one.
posted by paduasoy at 12:02 PM on May 5

Windfall tax? Really?

I'm just trying to remember the last time adding a tax to a product or a business made prices go down...

I can't remember the last time when it ever made sense to borrow money to wage a war in an OPEC country. A windfall tax would reduce the amount that some oil executives make, say from about $25,000 down to about $10,000 PER HOUR. At least its lowering the salary of the dickhead making the price of gas go up in record profit years.
posted by Brian B. at 4:46 PM on May 5

I wonder if there's a Wall Street cartel.
posted by five fresh fish at 7:50 PM on May 5

I hate monopolies. I'd love to see deBeers have it's throat slit by artificial diamond producers. But maybe a food cartel isn't that bad an idea from a Malthusian perspective. Well, I'd love to OPEC members forced to drop prices for food producing nations (or face elevated food prices).
posted by jeffburdges at 3:43 AM on May 6