State Trading Enterprises in a Differentiated Product Environment: The Case of Global Malting Barley Markets

The lack of transparency in the pricing and operational activities of state trading enterprises (STEs) has caused WTO members to express concern that certain countries’ STEs might circumvent Uruguay Round commitments on export subsidies, domestic support, or market access. The purpose of this study is to examine the market structure of the differentiated world malting barley market in which two STEs (the Canadian Wheat Board and Australian Barley Board) maintain jointly a very large share of the export market. In particular, this study focuses on the exclusive procuring and pricing policies used by both STEs to test if these intra-country mechanisms can generate leadership and shift rent from other exporting countries. A conceptual and empirical framework is also provided to test if STEs set their initial payments at optimal levels. Four key results are forthcoming from this research. First, we found strong support that the global malting barley market operates in a quantity setting oligopolistic structure. Second, both STEs and other exporting countries were in Cournot competition, and thus held the potential to exercise rentshifting behavior using their initial payment structures. Third, while some distortionary impacts from the STE prepayment systems were possible, we did not find evidence that it was a tool either STE employed. Empirical results from the precommitment stage show that both STEs did not set their initial payments low enough to maximize their profits. Fourth, It appears that the strong anecdotal and statistical evidence of product differentiation dampened significantly the desire/ability of malting barley STEs to pursue a rentshifting objective.


Issue Date:
2005-01
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/201543
Total Pages:
40
Series Statement:
FSWP
2005-01




 Record created 2017-04-01, last modified 2017-08-28

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