France
September 30, 2009

The market power of major retailers in the tomato market is moderate and has not caused a significant reduction in consumption. This was the conclusion of a study carried out by economists at the Toulouse School of Economics arising from the modelling of pricing in the tomato market.

Analysts frequently suggest the presence of price distortions in the fruit and vegetable market because of confrontation between a disparate production sector and a concentrated retail system. The latter is thus accused of benefiting from both its upstream market power by demanding low purchase prices, and also from consumers by applying excessively high sales prices. What is the actual situation?

A modelling project on pricing in the market for tomatoes (the principal vegetable consumed in France) was able to measure the market power exercised by major retailers, both upstream and downstream. This analysis was based on final consumption data, ex-farm prices and retail prices concerning the two main varieties of tomato (round and vine-ripened tomatoes) over the period 2001-2006. The model was made up of a system of equations on demand, supply and prices, which included terms to measure the market power of retailers. This model was able to demonstrate that:

• the elasticity of demand varied during the year, being more elastic in winter than in summer,
• the exercise of market power was stronger in the vine-ripened tomato market than in that of round tomatoes,
• exercise of this market power declined over time,
• if markets were competitive, the wholesale price of vine-ripened tomatoes in 2006 would be 2% lower than the price observed, and the ex-farm price would be 10% higher; in 2001, these differences were much greater (10% and 55%, respectively for vine-ripened tomatoes),
• the increase in consumption that would result from a competitive market was slight, at around 1% in 2006.

Thus, in the tomato market, the market power exercised by major retailers remains moderate. It has above all caused a transfer of value to the benefit of retailers and the detriment of producers. And at least in recent years, this situation has not caused a significant reduction in consumption.

Scientific contact:

Vincent Requillart
Toulouse School of Economics (GREMAQ-INRA & IDEI)
Manufacture des Tabacs. Aile Jean-Jacques Laffont
21 Allée de Brienne
31000 Toulouse
Tel:+33(0)5 61 12 86 07
Vincent.Requillart@toulouse.inra.fr

Website: https://www.inrae.fr

Published: October 15, 2009