AGROCHEMICALS IN THE US CORN AND SOYBEAN INDUSTRY: MARKET POWER, COMPETITION, AND PRICING

The goals of this project are: To provide new knowledge and insights into the economics of agrochemicals in US agriculture, with emphasis on the role of competitiveness and the exercise of market power; To develop novel empirical models suitable for the econometric analysis of farm-level demand for highly-differentiated agrochemical products; To understand the key features of imperfect competition as it applies to the agrochemical market, reflecting the integration of seed and agrochemical businesses, and the role of intellectual property; To study the welfare implications of market power in an equilibrium setting, including the impact on farmers, and to understand the scope of possible policies addressing competitiveness in the agrochemical and seed markets, as well as regulations on agrochemical use by farmers. The objectives we have identified for the pursuit of these goals are:To develop conceptual models of agrochemicals as a differentiated product industry, and specifically to develop discrete choice models of agrochemical product demand at the farm level.To devise suitable identification strategies and simulation algorithms for the estimation of these agrochemical demand models, while accounting for farmers' heterogeneity and firms' exercise of market power.To build the empirical analysis on a unique dataset, spanning the period 1998 to 2016, which contains plot-specific farm-level agrochemical use from representative samples of about 10,000 corn and soybean operations per year.To use the estimated empirical models, along with an explicit representation of Nash equilibrium for differentiated products, to conduct counterfactual simulations aimed at characterizing the impact of competition in agrochemical markets, and assess the impacts of market structure on competition, efficiency, and welfare outcomes for market participants.To use the estimated agrochemical demand models to investigate how the changing competition landscape due to patent expiration affected overall pesticide use, and to evaluate the impact of possible pesticide use restrictions on farmers' pesticide use patterns, pricing, and welfare.