Residual demand measures of market power of Russian wheat exporters

Traditionally, the international wheat market has been considered a good example of a market with perfect competition. Yet, several articles provide evidence of imperfect competition and price discrimination in the wheat trade. However, these studies focused on traditional high‐quality wheat exporters such as Canada and the United States. In contrast, this article investigates whether Russian wheat exporters exercise market power in eight selected importing countries using the residual demand elasticity (RDE) model. The article makes two major contributions. First, it focuses on a nontraditional exporter, who exports mainly wheat of mediocre quality to low‐ and middle‐income countries. Second, the RDE model is estimated for the first time using a nonlinear estimator, the instrumental variable Poisson pseudo‐maximum likelihood estimator. This is important because the double logarithmic functional form can provide biased results in the presence of heteroskedasticity. The results indicate that Russian wheat exporters can exercise market power in only a few markets, while they are price takers in the majority of importing countries.     

Quantitative Assessment of U.S. Wheat Performance for Quality Characteristics

Quality of U. S. grain exports has been a contentious issue over the past decade. Nowhere is the issue more hotly debated than for wheat. At the core of the debate has been the ability of Canada to command a premium for its wheat in foreign markets. Buyers' perceptions of quality have been suggested as an explanation, but empirical evidence on the quality attributes responsible for this country-of-origin premium has been limited to hedonic pricing studies. This paper quantifies purchasers' perceptions of the relative importance of quality characteristics for the world's major importing countries. This is done by calculating three indices. The attainment index measures how well buyers' perceptions of the importance of the characteristic matches buyers' perceptions of how well it is being supplied. The supply index measures buyers' perceptions on how well a characteristic is being supplied. The demand index measures how important the buyers perceive a particular characteristic to be. Then buyers' perceptions of the performance of U.S. and Canadian wheats are evaluated, given the perceived importance of each characteristic, and related to previous empirical results. Finally, these results are compared for alternative groupings of importing countries.     

In Vino ‘No’ Veritas: impacts of fraud on wine imports in China

China is one of the largest wine importing countries in the world and is poised for continued import growth in the future. Increased wine purchases throughout China have given rise to persistent fraud where fake wines are packaged and sold with counterfeit contents and labels. For exporting countries like France, counterfeit wines displace market share, damage foreign brand reputation, and cause distrust in consumers who are aware of counterfeiting problems throughout the country. We examine the impact of fraudulent wine events (as measured by negative media reports) on Chinese wine demand differentiated by supplying country. We employ the Rotterdam demand system and a switching regression procedure to estimate import demand and compare results across different media variable specifications. Results consistently show that negative reports disproportionately affect French wine regardless of how the media variable is specified. This is not surprising because most fraudulent events involve French wine counterfeits.     

GOVERNMENT VERSUS PRIVATE QUALITY ASSURANCE FOR AUSTRALIAN FOOD EXPORTS

Most foodstuffs have quality attributes that are difficult to determine prior to purchase. Thus quality assurance is an inherent problem in food exporting. Private quality assurance can succeed if exporters can credibly signal that they have much to lose from cessation of purchases. If exporters do not provide credible quality signals, and foreign importers judge food quality according to country of origin, honest exporters can suffer negative spillovers from others' cheating under either government or private quality assurance. For both economic and political reasons, the best choice between government and private quality assurance will differ between foods and importing countries.     

Imperfect competition,functional forms,and the size and distribution of research benefits

The effects of functional forms for supply and demand on the size and distribution of the returns to research are examined under a range of forms of competition. Under perfect competition, the choice of functional form is relatively unimportant for the estimation of research benefits. Under imperfect competition, the combination of the choice of functional forms for supply and demand and the nature of the research-induced supply shift can have profound implications for the results. Functional form plays a much more important role than in the competitive model. The most important contrast is between the constant elasticity model and the linear model (along with various cases of a generalized linear model). These findings are illustrated using a combination of analytical results and numerical simulations.     

Are Russian Wheat Exporters Able to Price Discriminate? Empirical Evidence from the Last Decade

Significant changes have taken place in the world wheat market in the last decade. Russia, a former net wheat importer, has become a leading exporter with a world market share of 11.2% in 2009. This increasing importance and the discussion about the establishment of a grain‐OPEC consisting of Ukraine, Kazakhstan and Russia has raised the issue of pricing behaviour of Russian wheat exporters. Although there are several studies on the pricing behaviour of Canadian and US wheat exporters, there is none so far for Russian wheat exporters. This study provides a quantitative analysis of the pricing behaviour of Russian wheat exporters, explicitly taking account of the export tax imposed between 2007 and 2008. We employ a pricing‐to‐market (PTM) model on quarterly Russian wheat‐export data, covering the period from 2002 to 2010 and 25 export destinations. Our findings indicate that (i) Russian wheat exporters exercised PTM in only a few importing countries over the whole time period, and (ii) PTM behaviour was more pronounced in the aftermath of the export tax period (i.e. 2008–2010) than before.     

INCOMPLETE DEMAND SYSTEMS AND SEMILOGARITHMIC DEMAND MODELS

The methodology of LaFrance and Hanemann for analysing the structure of incomplete demand systems is applied to models that are linear or logarithmic in quantities, prices and/or income. The structure of each model is presented when the implications of consumer choice theory are satisfied. The usefulness of the approach is illustrated. It is shown that considerable prior information is obtained from the theory of consumer choice when it is applied to this set of functional forms for demand equations.     

SUPPLY RESPONSE OF AUSTRALIAN WHEAT GROWERS

Alternative specifications of models of the supply response of Australian wheat growers and their economic implications are considered in terms of the existence and nature of production lags, and the choice between expected prices and expected gross returns as the preferred explanator of producers' response to changing economic conditions. The analysis indicates that there are lags which are due primarily to the difficulties and costs of rapid adjustment rather than to the time required to revise expectations. The statistical results were similar for the alternative specifications of gross margins and prices as the economic decision variables. However, the price elasticities derived using the gross margins specification were about a third of those using the prices specification. The gross margins specification yielded additional information in the form of yield and input cost elasticities.     

CANADA'S FUTURE ROLE IN THE WORLD WHEAT MARKET*

Many indicators point to increasing surpluses in the world wheat market. This study presents evidence of this trend by examining the present and projected 1975 levels of import demand and export supply for wheat in the major wheat importing and exporting countries. Domestic policies which directly or indirectly affect the level of wheat trade are also taken into account.
The implications for Canada resulting from these developments are indicated in terms of its anticipated level of exports, required wheat acreage adjustments and indirect effects to other sectors of the Canadian economy.
LA PARTICIPATION DU CANADA SUR LE MARCHÉ INTERNATIONAL DU BLÉ - Plusieurs changements indiquent une augmentation dans le surplus de blé sur le marché international. Cette étude présente une indication de cette tendance en examinant le nrveau actuel et celui de 1975 de la demande d'importation et l'offre d'exportations dans les principaux pays qui importent et exponent le blé. La politique intérieure qui touche directement ou indirectement le commerce du blé est aussi considérée.
L'implication du Canada est exprimée en fonction du niveau d'exportation anticipé, un ajustement dans la superfine et l'influence apportée aux autres secteurs de l'économie canadienne.     

Nonparametric Estimation of Oligopsony Power in First‐Price Auction

This paper proposes a nonparametric procedure to estimate market power for first‐price auction data and applies the procedure to cattle procurement markets. Most previous studies have used parametric methods, which require specific functional forms for retail demand, input supply and processors’ cost equations. However, researchers often find that market power estimates from parametric methods are sensitive to the choice of functional forms and specifications. An application to data from cattle procurement experiments shows that our nonparametric approach greatly outperforms commonly used parametric methods in estimating the degree of market power. While parametric estimates are sensitive to functional form specification and are at least 90% smaller than ‘true’ market power indices, estimates from our nonparametric procedure deviate from the actual value by no more than 25%.     

Determinants of dairy-product trade: Do subsidies matter?

Given the recent changes in the supply and demand of dairy products, many opportunities arise for exporting and importing countries. This paper examines determinants of dairy-product trade by applying the Poisson Pseudo-Maximum Likelihood (PPML) method to the gravity model using panel data on 49 exporting and 235 importing countries for the 17 years from 2000 to 2016. The gravity model is estimated using both interval data and dynamic analyses. The results show that domestic subsidies have a modest, but significant, impact on dairy-product trade across the models. For example, a 1% increase in subsidies leads to a roughly 0.02% increase in trade for an average country. Memberships in trade agreements, market size factors, and government institutions also positively affect dairy-product trade. However, tariffs are insignificant in the main model specification. Results from the lag-policy analysis show that the impact of subsidies disappears after the second year of distribution; whereas for the lead-policy analysis, results suggest at least 3 years of anticipatory effects on domestic subsidies.     

FACTOR SUBSTITUTION IN AUSTRALIAN AGRICULTURE

Studies of the ease of substitution between inputs in production have generally been carried out within a production framework of an explicit functional form. In this study, a somewhat different approach is followed. A model of derived demand for primary factors of production, land, labour and capital is formulated to enable inferences to be made about the characteristics of the unspecified production function. The model is used to obtain estimates of the pairwise Allen-Uzawa substitution elasticities which are secondary parameters of the underlying production function. The reported FIML estimates from aggregate time series data for the period 1920/21 to 1969/70 indicate very low and marginally different substitution elasticities between different pairs of factors, suggesting that both the Cobb-Douglas and CES production function specifications for the Australian agricultural sector are inappropriate.     

Variability in wheat export demand elasticity: Policy implications

Agricultural economists and policy makers in the United States believe that the magnitude of the export demand elasticity is one of the most important parameters used in farm policy decisions. However, past empirical estimates show wide variation in the size of the U.S. export demand elasticity. Reasons for this wide variation go beyond differences in model specification, estimation methods, and period of estimation to involve factors such as trade policies and changes in the supply and demand conditions of foreign countries. In view of the continual variation in magnitude, the elasticity of export demand should be viewed as a variable rather than as a parameter. In this study, U.S. wheat export demand elasticities are computed using a world wheat trade model. The estimates show that the elasticities vary significantly over time. They also reveal that elimination of trade barriers would more than double wheat export demand elasticities.     

Supply Chain Management in Cereal Grains: A Case Study from the U.S. Milling Wheat Industry

This paper studies supply chain management in the grain industry by investigating the effects of wheat quality on marketing arrangements between wheat producers, grain handling companies and processors. Wheat quality is defined by many different characteristics, broadly categorized into physical and intrinsic quality attributes. The complexity of wheat quality places limitations on the effectiveness of industry grading schemes in assuring end-use quality. In the U.S., wheat grading factors mostly reflect physical characteristics. Moreover, the U.S. wheat industry does little to regulate the intrinsic quality of new cultivars. Consequently, there is functional quality uncertainty in the U.S. wheat market, encouraging some individual processors to segregate wheat based on their own quality specifications. The costs and benefits of wheat segregation are illustrated with a case study of wheat procurement taken from the U.S. flour industry. Pendleton Flour Mills Inc. operates a stringent testing program to segregate wheat supplies with specific intrinsic quality attributes from the U.S. wheat market. The paper concludes that the inadequacy of the U.S. grading system in guaranteeing functional quality provides some processors with an incentive to manage the supply chain for milling wheat.     

ANALYSIS OF EXPORT DEMAND FOR CANADIAN WHEAT

The objectives of this study are to identify the main factors affecting foreign countries' imports of wheat, and to interpret the implications for Candian wheat export policy. Analyses have been made if import demands of twelve countries, including four which have purchased approximately 60 percent of Canadian wheat exports during the last five years. The study focuses on methods of estimating the price elasticity of demand in the purchase of wheat by individual countries. Three models were applied: the direct, the substitution, and the market share model. The substitution model performed best and was judged to have the greatest potential for further research. Significant negative price elasticities considerably greater than unity (in absolute terms) were found for several countries, including some major importers. This suggests that there are large potential gains obtainable for Canada by decreasing price. However, unless the Wheat Board adopts multiple pricing, these gains would be at least partly offset by losses in markets which appear to be much less responsive to price. L'objectif de cette étude est ?identifier les principaux facteurs qui affectent les importations de blé aux pays étrangers et ?évaluer la portée de ses facteurs sur la politique canadienne ?exportalion du blé. On a analysé les demandes ?importation de 12 pays, dont quatre ont acheté prés de 60 pourcent des exportations canadiennes de blé au cours des cinq dernières années. Cette etude se concentre sur les méthodes ?estimation de I‘élasticite de demande des pays individuels. On a utilise trois modèles dit: “direct”, “substitution”, et “le portage du marché.” Le modèle “substitution” donna les meilleurs résultats et semble le plus prometteur pour de telles recherches dans I'avenir. Des élasticites négatives et significatives de prix, plus grand que ?unité (en termes absolus) ont été obtenues pour plusieurs pays incluant quelques-uns des plus gros importateurs. Ceci nous laisse croire qu'il y aurait des possibilityée de gains accrues si le Canada réduisait ses prix. Cependant, à moins que la Commission Canadienne du Blué n'adopte une systeme de prix différentiels, ces gains seraient au moins particllemcnt réduits par des pcrtes dans ?autres marchés qui paraissent être moins sensibles aux changements des prix.     

Modelling the Crop Variety Demand of Semi‐Subsistence Households: Bananas in Uganda

We propose an approach to model the derived demand for crop varieties among semi‐subsistence farmers in a developing economy, and apply it to smallholder banana producers in Uganda. We model variety planting decisions as being composed of an extensive margin decision to grow a subset of locally available varieties (variety choice); and an intensive margin decision about the scale or extent of variety cultivation per farm (variety demand). We estimate variety demand equations using a more complete representation of the choice set upon which observed planting decisions are made. Computed elasticities of variety demand with respect to variety attributes indicate that the relative importance of consumption and production attributes varies by location and proximity to markets, from which we draw implications for the social and economic impact of crop improvement. The approach that we propose has broad appeal for analysing adoption decisions for modern or traditional varieties of both major and minor crops in developing countries.     

Consumers' willingness to pay for organic rice: Insights from a non-hypothetical experiment in Indonesia

As in many high-income countries, there is increasing awareness towards organic farming in many low- and middle-income countries. Sustained local demand is an essential requirement for further adoption of organic farming by smallholders, who typically have only limited access to export markets. Until now, only few studies have explored the local willingness to pay (WTP) for organic products in low- and middle-income countries in real purchase situations. This paper analyses the consumers' WTP for organic rice in urban and suburban Indonesia using an incentive-compatible auction based on the Becker–DeGroot–Marschak (BDM) approach. We further study the effect of income and a randomised information treatment about the benefits of organic food on respondents' WTP. Estimates suggest that respondents are willing to pay an average price premium of 20% compared with what they paid for conventional rice outside our experiment. However, our results also indicate that raising consumers' WTP further is complex. Showing participants a video about health or, alternatively, environmental benefits of organic food was not effective in further raising WTP. The results can be used as a basis for the design of alternative awareness measures to increase knowledge, interest and demand for organic food.     

A Note on the Market Valuation of Grain Quality Characteristics

The issue addressed in this paper is whether the grain quality factors used by the Federal Grain Inspection Service in determining the quality grades of wheat exported by the United States including test weight, dockage, moisture content, percentage of foreign material, percentage of shrunken and broken kernels, and protein content are characteristics that influence the price of wheat for export. Using shiplot data on the transactions price for hard red winter wheat, hard red spring wheat, and soft white wheat and the associated quality characteristics covering the period January 1990 through October 1991 and exported to 63 countries, the results suggest that only the test weight and the protein content are characteristics consistently valued by the market.     

The World Trade Organization Special Safeguard Mechanism: A Case Study of Wheat

A special safeguard mechanism is an attractive policy tool for low-income importing countries because it is automatic and does not require an injury test. Exporters might accept a safeguard for low-income countries if it results in larger tariff cuts than in its absence. The effects of a special safeguard mechanism on market stability and welfare are evaluated using wheat as a case study. The results show that a safeguard mechanism is not very trade distorting. Almost 80% of the increase in world welfare is still realized when low-income countries are granted a safeguard mechanism.     

A note on European farmers' preferences under cumulative prospect theory

Explaining farmer decision making using cumulative prospect theory is of increasing importance. We present a systematic review on European farmers' preferences under the cumulative prospect theory framework. We identified 17 studies covering 2324 farmers from 12 European countries. All studies report that (on average) farmers are: (i) risk averse, (ii) loss averse, and (iii) overweight small probabilities and underweight large probabilities. However, there is a large heterogeneity across and within studies. These findings have implications for the analysis and design of policy and insurance.