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The B.C. mushroom industry : an analysis of demand and supply

University of British Columbia

The mushroom industry in British Columbia markets and distributes through a central selling agency under the trademark Money's Mushrooms. This member owned agency also exercises control, through production area quotas, on member production. This study analyses the market behavior of the B.C. mushroom industry¹, in order to ascertain whether producers collectively exercise monopoly control over the industry. The main structural components of the industry are described in a mathematical model using a partial equilibrium analysis. The parameters which affect demand are estimated with econometric equations. Supply is formulated by minimizing a cost function subject to a Constant Elasticity of Substitution Production Fuction. A major feature in supply is the joint-product relationship between mushrooms which are sold fresh and mushrooms which are sold processed. Policy implications arising from the structure of the industry and its observed behavior in the market are then analysed. The econometric analysis indicates that the demand for fresh mushrooms in B.C. over the period 1982 to 1986 was influenced by own price, advertising and the price of a complement, beef. The ability of the association to set prices in the fresh market is confirmed by the results. In the processed market, it was found ¹In this study, mushroom refers to the commercially marketed variety "Agaricus Bisporus". that imported processed mushrooms are very close substitutes for domestic processed mushrooms. The factors which influence processed mushroom demand are consumer income, and price of imported processed mushrooms. A mathematical model of the industry is formulated with two opposing models of market behavior -perfect competition, and monopoly power. The model generated results are then compared to actual market data. The results support a model of competitive market behavior in the B.C. mushroom industry. That is, producers do not collectively, through the marketing association, set prices above competitive levels. In addition, the analysis indicates that the production quota is not a binding input on production. Therefore, given the existing production technology, no societal welfare gains can be realized by increasing the total allocation of quota in the B.C. mushroom industry. It is concluded that the centralized marketing of mushrooms in B.C. provides benefits to producers through scale economies in inputs and in marketing/distribution. However, the limited powers that the association has available to enforce cooperation amongst members has recently placed the association in financial difficulties. Specifically, the low prices (relative to cost of production) for processed mushrooms in 1986 has recently resulted in several growers opting out of the association in favour of forming their own marketing agency. There was also a significant increase in volume of illegal sales in 1986. The reduced volume of patronage, illegal sales, and competitive pressure from the newly formed marketing agency has resulted in lower prices for members of the association.

Text

2010-08-30

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http://hdl.handle.net/2429/27962

Agricultural Economics

University of British Columbia

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