Structure of the World Wheat Market: Some Implications for Strategic Trade Policy?

Market structure has a crucial bearing on the price formation mechanism. The present study is an attempt to analyze the market structure of the world wheat market. Market power of the `traditional oligopolists' (US, Canada and Australia) is assessed using the standard oligopoly models. Structural and partially reduced-form models are used in the estimation of market power. The results indicate absence of market power in international markets for any of the major wheat exporters. The absence of market power in international markets has one important implication for trade policy of the exporting countries. In the absence of evidence of any imperfection in international market structure, the present subsidization of wheat production and exports by EU and US cannot be justified on the grounds of strategic trade policy of the new trade theories.