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Abstract

Trades between orange growers and orange juice processing companies in Brazil have been characterized by conflicts, culminating in accusations of breach of contracts and cases of anti-trust violations in the Council for Economic Defense (Cade). Recently, attempts to create a council, called Consecitrus, have failed, evidencing that conflicts remain. Due to the evident fragility of the transactions between these agents, the aim of this study is to investigate whether there is indication of market power use by the processing companies in their dealings with growers. For this, the evolution of gross margins and price transmission are analyzed. The analysis of the margins revealed that the gains achieved by processors are significantly higher when the revenue obtained with the sale of byproducts is added to the juice revenue. It was found that the margins are underestimated when considering only the leading products in its calculation. The analysis of price transmission showed that processing companies transfer price decreases for growers in the short-term and an asymmetry in the long-run. Therefore, there is an evidence of the market power use by orange juice processing companies, and this practice can generate cumulative losses for growers, since there is an asymmetry in the long-term with less than proportional price recovery.

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