The Impacts of a Co-Operative Versus a Private Monopsony
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The Impacts of a Co-operative versus a Private Monopsony Marketing Structure in Western Australia on the Wheat Grower by Timothy S. Giesbrecht A Thesis submitted to the Faculty of Graduate Studies of The University of Manitoba in partial fulfillment of the requirements of the degree of MASTER OF SCIENCE Department of Agribusiness & Agricultural Economics University of Manitoba Winnipeg Copyright © 2011 by Timothy S. 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THE UNIVERSITY OF MANITOBA FACULTY OF GRADUATE STUDIES ***** COPYRIGHT PERMISSION A Thesis/Practicum submitted to the Faculty of Graduate Studies of The University of Manitoba in partial fulfillment of the requirement of the degree of Master of Science (c) 2011 Permission has been granted to the Library of the University of Manitoba to lend or sell copies of this thesis/practicum, to the National Library of Canada to microfilm this thesis and to lend or sell copies of the film, and to University Microfilms Inc. to publish an abstract of this thesis/practicum. This reproduction or copy of this thesis has been made available by authority of the copyright owner solely for the purpose of private study and research, and may only be reproduced and copied as permitted by copyright laws or with express written authorization from the copyright owner. ABSTRACT Giesbrecht, Tim S. The University of Manitoba, April 2011. The Impact of a Co- operative versus a Private Monopsony Marketing Structure in Western Australia on the Wheat Grower. Advisor: Dr. Derek G. Brewin. The Western Australian Co-operative Bulk Handling (CBH) has been described as a regional monopsony due to its control of the supply chain. Currently, CBH is a grower owned co-operative, however recently it has been considering altering its structure. The objective of this study is to analyze price, quantity and welfare impacts on the Western Australian grower under a regime change for the CBH. Specifically, it considers the impacts to the Western Australian grower if their grower owned CBH co-operative was converted to a private firm with monopsony power. The results from the theoretical model and simulations show the negative impacts on the Western Australian grower if CBH altered its structure to a privately held monopsony. This is not surprising as the best interests of the member growers is currently the focus of CBH, whereas in a non-grower owned structure, the interests of the shareholder take precedence. i ACKNOWLEDGEMENTS I would like to express my sincere gratitude to my advisor, Dr. Derek Brewin, Department of Agribusiness and Agricultural Economics for his constant guidance and efforts in this study. I would also like to thank the members of my examining committee, Dr. Brian Oleson and Dustin Gosnell for their time dedicated to the study and contributions towards the finished product. Most importantly, I would like to thank my family and friends for their encouragement and support throughout the course of my program, especially my wife Sunny. ii TABLE OF CONTENTS ABSTRACT ........................................................................................................................ I ACKNOWLEDGEMENTS ............................................................................................ II TABLE OF CONTENTS ............................................................................................... III LIST OF TABLES ............................................................................................................ V LIST OF FIGURES ........................................................................................................ VI CHAPTER 1 INTRODUCTION ................................................................................... 1 1.1 BACKGROUND ....................................................................................................................................... 1 1.2 OBJECTIVE OF THE STUDY ................................................................................................................... 2 1.3 METHODOLOGY ................................................................................................................................... 2 1.4 ORGANIZATION OF THE STUDY ............................................................................................................ 3 CHAPTER 2 DEREGULATION HISTORY............................................................... 4 2.1 AUSTRALIAN WHEAT BOARD AND THE SINGLE DESK ........................................................................ 4 2.2 OPEN MARKET REGULATIONS … . ...................................................................................................... 5 CHAPTER 3 WESTERN AUSTRALIAN WHEAT INDUSTRY ........................... 10 3.1 PRODUCTION AND EXPORTS .............................................................................................................. 10 3.2 WHEAT TYPES AND MARKETS ........................................................................................................... 10 3.3 GRAIN TRANSPORTATION IN WESTERN AUSTRALIA ........................................................................ 11 CHAPTER 4 CO-OPERATIVE BULK HANDLING LTD ..................................... 14 4.1 HISTORY ............................................................................................................................................. 14 4.2 CURRENT CBH SUPPLY CHAIN… . .................................................................................................. 15 4.3 CBH COMPETITIVENESS .................................................................................................................... 17 CHAPTER 5 THE CO-OPERATIVE LIFE CYCLE ............................................... 19 5.1 THE FUTURE OF CBH AND THE CO-OPERATIVE LIFE CYCLE .......................................................... 19 5.2 CO-OPERATIVE LIFE CYCLE .............................................................................................................. 19 5.3 CBH RESTRUCTURING DISCUSSIONS ................................................................................................ 22 CHAPTER 6 MODELING WESTERN AUSTRALIA’S MARKET ...................... 24 6.1 MARKET STRUCTURES AND THE OBJECTIVES OF PRODUCER OWNED MARKETING AGENTS ........ 24 6.2 OBJECTIVES OF A PRIVATE MONOPSONY ......................................................................................... 24 6.3 ASSUMPTIONS ABOUT FIRM OBJECTIVES .......................................................................................... 26 6.4 PREVIOUS MODELS OF CO-OPERATIVES AND PRIVATE MONOPSONIES .......................................... 26 CHAPTER 7 MODELING A WESTERN AUSTRALIAN CO-OPERATIVE AND A PRIVATE MONOPSONY ......................................................................................... 31 7.1 CBH AS A CO-OPERATIVE .................................................................................................................. 31 7.2 CBH AS A PRIVATE MONOPSONY ...................................................................................................... 34 CHAPTER 8 SIMULATION AND RESULTS .......................................................... 36 8.1 NUMERICAL SIMULATIONS ................................................................................................................ 36 8.1.1 CBH as a Grower Controlled Co-operative ............................................................................... 37 8.1.2 CBH as a Private Monopsony .................................................................................................... 39 8.1.3 Simulation Summary ..................................................................................................................