State Trading Enterprises in a Differentiated 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 members of the World Trade Organization 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 the 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 study suggests that two STEs and other exporting countries were in Cournot competition. While some distortionary impacts from the STE prepayment systems are possible, it does not appear to be a tool that either STE employs. Empirical results from the precommitment stage show that the two STEs did not set their initial payments low enough to maximize their profits.