Producer-Controlled Marketing Organizations, Self-Regulation, and Economic Welfare: Minimum Quality Standards in Agricultural Markets

Many agricultural producer-controlled marketing organizations (PCMOs) have direct or indirect control over the amount or quality distribution of production marketed by the industry. We analyze the decision of these organizations whether to impose a minimum quality standard (MQS), and the impact of such standards on producer, consumer, and total welfare. An MQS can enhance net welfare because it may correct for deficient production of high-quality product by the industry in the absence of an MQS, even though an MQS causes the destruction or diversion of low-quality products. However, any MQS imposed voluntarily by a profit-maximizing PCMO decreases the welfare of all consumers of the product and is also highly likely to reduce net (producer plus consumer) welfare.