Russian market power in international wheat trade and implications for global food security

Kerstin Marit Uhl
2021 unpublished
International wheat trade is increasingly relevant for global food security. The global trade volume rose significantly in recent years with world wheat imports soaring by more than 50 % between 2000 and 2016. Growth in world wheat trade was mainly driven by soaring import demand from Asian and African countries. A smooth functioning of the world wheat market is important for food security in some wheat-importing countries. However, welfare gains from trade can be lowered if wheat exporters
more » ... t market power. This doctoral thesis contains a description of the world wheat market. Significant changes have occurred on the world wheat market since the turn of millennium. Russia, a former net importer of wheat, emerged as a major wheat exporter and is today one of the top exporters on a global scale. Thereby, Russia increasingly contributes to global food security. Russia's main export markets are located in North Africa and West Asia. Russia predominantly exports to developing and emerging economies with traditionally wheat-based diets. The annual per capita wheat consumption in West Asia averages 147 kg, and 136 kg in Northern Africa. The descriptive analysis of the Russian wheat export market shows that the bulk of Russian wheat in the period 2006-14 was exported by ten exporting firms. Thereby, the annual share of Russia's top exporter fluctuated between 11% and 19 %. Russian wheat exports to several export markets are more concentrated. For instance, up to 60 % of the annual Russian wheat exports to Armenia in 2006-14 were sold by one exporting company. And up to 23 % of the annual Russian wheat exports to Egypt, Russia's top export market, were exported by one firm in the same time period. These high concentration ratios (CR) in some of Russia's export markets suggest that Russian firms might be able to exert market power. This doctoral thesis aims to study Russian pricing behavior in international wheat trade and to measure Russian market power against the background of oligopolistic market structures in international wheat VII Russian market power in international wheat trade and implications trade, Russia's new position as a major wheat exporter, high CR in Russia's wheat export industry, and soaring grain prices since 2006/07. Previous empirical studies on Russian pricing behavior are, to my knowledge, all based on aggregated data. The empirical studies presented in this doctoral thesis are based on annual firm-level data for the period 2002-11, and daily firm-level data for the years 2006-11. The theoretical background of my empirical studies is the pricingto-market (PTM) method as well as the residual demand elasticity (RDE) approach, which goes back to Baker and Bresnahan (1988). The PTM approach identifies third-degree price discrimination, and thereby the violation of the law of one price (LOP) after an exchange rate shock between the currency of the exporter and the currency of an importer. In contrast, the RDE method directly measures market power by estimating the exporter's inverse residual demand elasticity. I estimate Russian pricing behavior in international wheat markets by means of two PTM studies. The first PTM study relies on annual firm-level data for the period 2002-11. Large price fluctuations might result in parameter instability. Therefore, I estimate Russia's pricing behavior for the entire period as well as separately for the period of high world wheat market prices from 2006. The estimation results for the years 2002-11 indicate Russian price discrimination in 25 out of 61 export markets. For the period 2006-11, the estimation results provide evidence for Russian price-discriminatory behavior in 14 out of 49 export destinations. The estimation results suggest that Russia amplifies the effect of the exchange rate shock in times of high prices, and thereby contributes to price volatility. The second PTM study is based on daily data for the years 2006-14. In contrast to the first PTM study I estimate Russian pricing behavior for different firm groups separately. Berman et al. (2012) argue that larger exporters price discriminate stronger after an exchange rate shock than smaller exporters. Therefore, the second PTM study contains estimations for all firms, Russia's top 5 exporters, and the top 6-10 exporters. The estimation results of the second PTM study largely confirm the findings of Berman et al. (2012) . This is particularly evident for Russia's main export market in North Africa and Western Asia. The estimation results of the Leibniz-Institut für Agrarentwicklung in Transformationsökonomien STUDIES ON THE AGRICULTURAL AND FOOD SECTOR IN TRANSITION ECONOMIES Miranda Svanidze Vol. Perspectives on agriculture in transition: Analytical issues, modelling approaches, and case study results ed. by Witold-Roger Poganietz, Alberto Zezza, Klaus Frohberg and Kostas G. Stamoulis 2000, 433 pages, ISBN 3-8175-0323-7 Vol. Land ownership, land markets and their influence on the efficiency of agricultural production in Central and Eastern Europe ed. by Peter Tillack and Eberhard Schulze 2000, 485 pages, ISBN 3-8175-0325-3 Vol. Landwirtschaft und Industrie in Russland -Der Transformationsprozeß in der Ernährungsindustrie Jürgen Wandel (PhD) 2000, 361 Seiten, ISBN 3-8175-0334-2 Vol. Food consumption in Russia. An econometric analysis based on household data Karin Elsner (PhD) 2001, 256 pages, ISBN 3-8175-0335-0
doi:10.22004/ag.econ.327295 fatcat:r3kgc3klmzhb3gnsvvxingvdqq