STATE TRADING ENTERPRISES IN A DIFFENTIATED ENVIRONMENT: THE CASE OF GLOBAL MALTING BARLEY MARKETS Presentation to the First Biennial Food System Research Group Conference July 26, 27; Madison Wisconsin By

The lack of transparency in the pricing and operational activities of State Trading Enterprises (STEs) has generated concerns that certain countries’ STEs are circumventing Uruguay Round commitments on export subsidies, domestic support, or market access. Critics argue that STEs pursue activities that mask export subsidies or import tariffs and that STE’s exclusive purchase/sell rights in domestic country or world market may be used to create monopsonist/monopolist opportunities. 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. The empirical approach proceeded in two stages: an output stage analysis and a precommitment stage in which STEs endogenously set their respective purchase price. Empirical results from the output stage indicate that the CWB, the ABB, and other export sectors do not react to each other’s output choices and thus are in Cournot equilibrium. Empirical results from the precommitment stage show that both STEs do not set their initial payments low enough to achieve leadership status. The study suggests that some distortionary impacts from the STE prepayment systems are possible, but even if significant benefits are available, it does not appear to be a tool either STE seems to effectively use. Perhaps political realities about lowering the initial payments constrain the system. Perhaps enough product differentiation exists that there are simply other strategies better suited for this market. Regardless of the plausible reasons, the STE prepayment systems cannot be seen as a distorting factor in the global malting barley market.