processing usually takes place within or adjacent to the producing area. 

 For efficient operation, a plant requires sizable volume, adequate finan- 

 cing, technical skill and good management. 



The individual farmer is generally not in a position to undertake such 

 processing operations. Consequently, if he grows such crops, his choices 

 for their sale are limited to the one or the few processors that may be 

 operating in the area, l/ In varying degrees, the sane situation exists 

 for the sugar beet producer and the dairyman. Because of location factors, 

 the nature of the product, and the marketing pattern set up, the economic 

 thing for the farmer to do is to sell to one or the other of those outlets 

 at the local market level. 



In most areas throughout the United States where canning crops and sugar 

 beets are produced, they are sold to processors under conditions where 

 there are few buyers and many sellers. Unlike many other agricultural 

 industries, canners and sugcr beet processors have considerable control 

 over the volume of their purchases (and hence their output) from year to 

 year. This results from the common practice of such processors contracting, 

 at a fixed price, in advance, for a rather specific acreage of production 

 of the product* The processor (b.jyer) usually sets the price for the 

 product in advance of the date for planting and offers the individual 

 growers the opportunity to grow the product at that stipulated price and 

 under the conditions as further stipulated in the contract. 



How Pri ce is Determine d 



Processors, being in the better bargaining position, will try to sot 

 their contract prices at levels which will allow the greatest p^oiii'Dc 

 For example, one buyer who can control demand in the local market, will 

 attempt to offer only that price which he thinks will give him the volume 

 necessary to make the largest profit. The lower the price the buyer sets, 

 the smaller the quantity obtainable. At some price level, considering 

 the quantity that can be purchased, the processing firm will make the 

 largest profits. Over s long run period, however, the price which the 

 processor sets must at least equal average cost of the producers, or the 

 supply will disappear. 2/ 



The situation, hox^ever, is often one of a few large processing firms and 

 numerous small ones. The large firms usually assume price leadership 

 and to each new position taken by these dominant firms the smell ones 

 will tend to adjust on the basis of competitive behavior. 



In analyzing such a situation Kicholls says, 



"Cur over-all analysis would lead us to expect that prices 

 throughout the industry would tend to be established at such 

 a level as to maximize the profits of the most efficient of 



1/ This situation which is characterized by few buyers and many sellers 

 is technically described as being one of "oligopsony" ? a situation having 

 only one bu3^er and many sellers is. called "monopsony". 



2/ Adapted from Due, John F. Inte rmediate Economic Analy sis « Richard 

 D. Irwin Inc. Chicago, 194-7 • 



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