15. AU changes made to the marketing structure to provide more competition in the wool and mohair markets were predicated on two premises. The first was based on an assessment of the constraints to competition and concluded that traders were reaping monopsony (single purchaser) profits from wool and mohair purchases. The second equated high trading margins with high profits and was used to reinforce the first. Neither assumption was correct, however. The first was founded on an incomplete assessment of the market structure within which the trader operated. As a result, the true source of trader profit was not identified. The second incorrectly equated marketing margins with profit markups and failed to identify the legitimate marketing costs that any marketing channel must bear.
16. As a result of these misperceptions, the changes made to the marketing structure have had little impact on traders' profits, except, perhaps, to increase them. Nor, since there were few opportunities for cutting costs (but many opportunities for increasing them through marketing inefficiencies), did they have much impact on raising the prices paid to producers.
17. Although the factors listed above (paragraph 9) did in fact give the trader a (more or less effective) monopsony, there was one other factor of paramount importance which contributed to the prevailing situation: the traders also had a (more or less effective) monopoly in the sale of consumer goods. Farmers sold wool and mohair (and other agricultural produce) to the traders, and with the income thus gained, they purchased consumer goods. Under the circumstances, if the trader did not buy, the farmer could not buy; the more the trader could pay, the more the farmer could spend. 1
18. If the farmer could be prevented or discouraged from "shopping around" for his consumer goods, the trader could earn monopoly profits from this end of the transaction. Most of the competitive market constraints listed in paragraph 9 above operated just as effectively to reinforce the trader's monopoly as his monopsony position. Especially effective were restrictive licensing, script payment, and debt obligations.
19. Thus, although the trader had a monopsony in agricultural commodity purchases, it was ordinarily not in his interest to take advantage of this. Instead, he would pay a price close to or perhaps exceeding the price that would prevail in a competitive market. It made better business sense for him to take advantage of his monopoly position in the sale of consumer goods. Profits were better made at the sale end rather than the purchase end of the transaction.
20. Most contemporary studies concluded that trade in farm products was, indeed, competitive in outcome (Stutley, 1960; Biggs, 1964; Asthon, 1967). In addition, traders' accounts note the highly speculative nature of the trade, the high marketing costs, and the narrow - even occasionally negative - marketing margins. Traders often complained that they made losses on wool and mohair purchases. Such was not the case in consumer goods sales, however. Contemporary studies of the marketing structure were in agreement that trader's profits from consumer sales were certainly "adequate", if not "excessive" (Biggs, 1964; Ashton, 1967; Tarbox, 1979). Traders themselves testify that this was where the profits were made.
21. Although increased competitiveness in wool and mohair purchasing may have been a necessary reform, it was not sufficient. Nor was it likely to have such positive impact on producers unless changes were introduced to alter the monopoly position of traders in consumer goods sales.
