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US consumers have been paying up to 49% more for potatoes
It is paradoxical that the US, the country whose oil industry has been putting an end to OPEC's price control over crude oil for decades, has recently become home to a potato cartel within its territory. Because of this, US consumers have been paying up to 49% higher prices than they should have in recent years.
That is one of the conclusions drawn from the paper 'The OPEC of Potatoes: Should Collusive Agricultural Production Restrictions Be Immune from Antitrust Law Enforcement?', carried out by Melanie Stalling Williams, of California State University; Michael Williams, director of the Economics Competition Research Institute, and Wei Zhao, a consultant to the same institute.
The growers who were part of these cooperatives used drones with cameras to control the production and calculate the exact volume that each of them should produce in order to push prices up. This oligopoly tried to maximise its profits by producing a lower volume than the one that would be obtained in a market with perfect competition.
It controlled 60% of the production
This US potato cartel managed to control 60% of the national production in 2005. During that year and subsequent campaigns, the potato producer cooperatives secretly agreed to reduce the tuber's production in order to obtain a higher price for its sales.
Williams explains on the California State University website that "anyone who has bought a potato over the last decade has paid a much higher price because of widespread collusion in this industry. Every time you have gone to McDonald's and ordered something that contained starch, you have paid more."
This work is the result of an open investigation aimed at analysing the practices of US potato producers, after a consumers association presented a collective suit against these growers. The cooperative, known as United Potato Growers of America, managed to reduce the production by 20% for no apparent reason back in 2007.
This practice has resulted in a "significant increase in the cost of potatoes for consumers," with an extra cost of about 30% for fresh potatoes and of 48.7% for red potatoes, which entails a substantial impact on social welfare," stresses the director of the work, as potatoes are a staple food in the diet of US citizens.
While the conflict between both parties was resolved in 2015 without it reaching the courts, collective lawsuits against the dairy, egg or mushroom industries are proliferating, reports Williams. No verdict has yet been reached, but it will be interesting to see the conclusion of these lawsuits, as there are some doubts about the legality of these practices in the US.
Publication date: 8/11/2017
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