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THE ANALYSIS OF THE EXPORT MARKETS AND PRICING IN THE WORLD MARKETS OF GRAIN
© Zhamkeeva M.K.*
The Kazakh economic university of T. Ryskulov, Almaty
In article pricing questions in the world market of grain crops are considered. Features of development of the markets and as their classification is given are considered.
Keywords: market of grain, export country, country importers, pricing, price discrimination.
For the last decade the structure of the world market of grain significantly changed. According to the Ministry of Agriculture of the USA (USDA), in 1990/91 MG about 81,4 % of the world market of grain fell to the share of five largest export countries grain, while in 2012/13 MG only 54,6 %. Thus shares of the countries which traditionally enter the five of the largest export countries, - the USA, EU and Canada were significantly reduced. The share of the USA was reduced from 39,2 % in 1990/91 MG to 19,1 % in 2012/13 MG, EU share - with 15,5 to
8,7 %, that is more than twice. For the same period the share of Canada in the world market of grain decreased almost twice, from 14.3 % to 8.1 %. The share of Australia remains for decades invariable and makes about 8 %. Argentina increased the share almost twice - from 5,2 % in 1990/91 MG to 11,0 % in 2012/13 MG For the same period there was an essential reduction of the general share of the countries entering ten the largest export countries grain, - with 93,3 to 84,2 % [1].
Reduction of shares of the export countries in the world market of wheat is caused, first of all, by increase in export grain the countries of the Black Sea region - Kazakhstan, Russia and Ukraine (CREWE). The share of these three countries in the world markets grain for the last two decades increased almost three times - with 5,6 to 15,3 % [2].
Similar changes of structure of the market happened also in the world markets of separately taken grain crops, barley, corn and other grain crops. First of all, the share of Kazakhstan, Russia and Ukraine in wheat market considerably increased. Their general share increased from 7,9 % in 1990/91 MG to 17,7 % in 2012/13, that is more than twice. A year before, in 2011/12 MG, their general share reached 24,7 %, that is increased more than three times in comparison with 1990/91 MG In the world markets of barley and corn the share of Kazakhstan, Russia and Ukraine increased according to 11,9 to 21,9 % and with 1,3 to 17,4 %, that is almost twice in the world market of barley and more than by thirteen times in the market of corn [3].
Старший преподаватель кафедры «Менеджмент».
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Occurring structural changes in the world market of grain speak, first of all, about increase in the competition between the export countries. In the conditions of the high or raised competition of the price have to, under market laws, fall. However in recent years we observe substantial increase of the prices in the world markets of grain crops. Rise in prices in the markets of grain crops can be caused by many factors.
On the one hand, rise in prices is connected as with growth of the population and increase according to demand (consumption) in the countries exporting and importing grain, and a rise in prices for production factors (mineral fertilizers, means of protection of plants, fuel, agricultural machinery, etc.). Rise in prices in the markets of grain crops is directly connected with natural cataclysms (for example, droughts in 2010 in Russia, floods of 2010-2011 in Australia, droughts in 2012 in the USA). Many of these factors are often mentioned in mass media and state-of-the-art reviews of the markets provided by the consulting companies. Also these factors are considered and found the scientific justification in many scientific works and the researches conducted by such international organizations and research establishments, as the Food and agricultural organization UN (FAO 2009), the World bank (World Bank 2009) and other organizations [4].
On the other hand, rise in prices in the markets grain can be connected with high degree of concentration of the world and national markets and respectively low level of the competition, both on world, and in the national markets. Besides, rise in prices can be caused by behavior of exporters in the market, use of various forms of price discrimination, and also application of the market power in respect of the import countries. It isn't excluded that in the market of the grain also cartel arrangements (English collusion) between participants of the market in different forms take place. We will give the most widespread forms of cartel agreements (arrangements). The quote cartel (English quota cartel) reflects a situation in the market when cartel coordination of the maximum outputs, realization or export takes place. Price arrangement (English price collusion), or price cartel (English price cartel) is created for the purpose of establishment of uniform prices or maintenance of the prices at a certain level. The cartel according to the market section (English market sharing cartel) represents cartel coordination about the territorial section of the market between participants for the purpose of competition restriction between participants. Thus secret arrangements (English tacit collusion), cartel arrangements which don't enter the open (direct) agreement take place, and occur silently, formally, without having recorded the soglasheniyasgovor. Price leadership (English price leadership) is one of widespread examples of the secret arrangement applied in the conditions of an oligopoly when the leader declares the change in price, and other participants of the market following the leader soon declare the identical prices [5].
As we know, cartel agreements are legally forbidden between the companies (firms) in the countries with market economy. However in the markets grain there
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are intergovernmental agreements on export or grain import. From the economic point of view such agreements differ nothing from cartel agreements. Nevertheless, in one country of the world they legally aren't forbidden neither the antitrust law, nor other acts. In intergovernmental, as well as in cartel agreements export and import volumes make a reservation, the prices are established. As a rule, in such intergovernmental agreements considerable volumes of deliveries which, in turn, have, as a rule, considerable impact on pricing in the market make a reservation. Besides, essential injection on pricing renders also state regulation from the governments of many countries of the world which is shown in such forms as introduction of export quotas, restrictions or a ban both on export, and on import of grain crops [6].
Along with change of structure of the world markets and rise in prices for grain there are questions concerning classification of the world markets which will help to submit possible scenarios of behavior of exporters and their possible influence on pricing including in the markets of grain crops. The Ministry of Justice of the USA and the Federal trade commission of the USA, relying on one of the main indicators of concentration of the market, a market share of the largest seller in a total amount of sales of branch (market), characterize three types of the markets on concentration degree:
1. if the share of the largest seller in the market makes to 15 %, such market is characterized as low concentrated. In this market any of participants of the market can't have impact on price level;
2. if the market share of the largest seller makes from 15 to 25 %, such market is characterized as moderately concentrated [7]. In this market some competitors who can't significantly influence price level compete among themselves;
3. in case the market share of the largest seller makes more than 25 %, such market is characterized as high-concentrated. In this case in the market there is a seller who is able to influence significantly pricing in the market, to dictate and establish the prices in the markets.
In view of classification of the markets, the world markets grain it is possible to carry to moderately and high-concentrated markets. Thus only following the results of 2011/12 MG the world market of wheat treats today moderately concentrated markets. The market share of the USA as most large exporter in 2011/12 MG made
18,2 %. However to 2011/12 MG the market of wheat treated the high-concentrated markets. Following the results of 1990/91, 2000/01 and 2010/11 MG the market share of the USA in the world market of wheat made respectively 28,0 %,
28,5 % and 26,4 %. The world markets of grain of corn, and also the market of wheat treat the high-concentrated markets. So, following the results of 1990/91, 2000/01 and 2010/11 MG the market share of the USA in the world market of grain of corn made respectively 75,1 %, 64,2 % and 50,9 %. Unlike the world markets of wheat and corn grain where a most large exporter remains to the USA,
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in the world market of barley following the results of 1990/91, 2000/01, 2010/11 and 2011/12 MG there was a change of the leader. To 2011/12 MG a most large exporter there was the European Union which market shares respectively made
42,9 %, 42,9 % and 30,7 %. However in 2011/12 MG the place of a most large exporter of barley was taken by Australia which market share made 26,3 % [8].
Considering high degree of concentration of the world markets of grain, state regulation of the grain markets and administrative interventions from the governments and government bodies in the countries both exporting, and importing grain, there is a number of questions concerning the behavior, first of all the largest export countries in the world markets of grain crops. Whether apply the export countries price discrimination in the world markets of grain? Whether there is a market power in the world markets of grain? In what markets, what export countries and in relation to what countries importing grain, price discrimination and the market power is used?
The questions connected with research of behavior of exporters in the export markets, found the reflection in the new theory of trade (English new trade theory) in which development the American scientist, the Nobel Prize laureate on economy Paul Krugman (English Paul Krugman 1986) made the significant scientific contribution. The new theory of trade assumes that international trade is often characterized by oligopolistichesky structure of the market, and owing to what, the imperfect competition. High degree of concentration of the market in one hands can become the reason of price discrimination in the export market on condition of acceptance by the exporter of the optimum cornerstone at the heart of which maximizing profit is. Paul Krugman (Paul Krugman, 1986) theoretically proved existence of a special form of price discrimination of the third degree in the export markets which he called «pricing in the market» (English pricing to market, abbr. PTM). It is one of forms of the imperfect competition in the market which essence is that the seller at sale of uniform goods divides buyers into categories, for each of which establishes extra price. In 1989 the American scientist Michael Knetter (Michael Knetter, 1989) offered econometric approach to an assessment of parameters of model «pricings in the market» which in Englishspeaking literature is better known under the reduced name as PTM models. In a model basis «pricings in the market» the assessment of influences of exchange rates of currencies of the seller (exporter) and buyers (importers) and the export prices for various buyers (importers) is put. Using PTM model, it is possible to estimate behavior of the exporter in the market on the basis of empirical check of hypotheses of influence of exchange rates and the export prices and to give the answer to questions concerning existence of competitive pricing in the export market or price discrimination in the import-dependent countries [9].
Ten years later Michael Knetter (Michael Knetter) together with Pinelopoy Goldberg (Pinelopi Goldberg) published in 1999 article in which the econometric solution of an assessment of elasticity residual demand elasticity (residual de-
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mand elasticity, abbr. RDE) which is known in English-speaking literature under the reduced name RDE model was presented. Besides the prices and exchange rates of currencies in model of «elasticity of residual demand» export volumes, and also information, as concerning the import country, and the export countries competing among themselves in the market are considered in addition. On the one hand, additional information includes the variables reflecting behavior of other export countries, competing with the country the exporter, including exchange rates of currencies and the price of agricultural producers of the rival countries. On the other hand, the variables influencing change of demand in the import country, including consumer prices and a gross internal product [10].
Unlike model «in market» model «elasticity of residual demand» intensity of the competition in the market gives the chance not only to estimate pricings, but also to measure degree of the market power of the seller (exporter). The essence of the market power in the market consists in ability of one or groups of exporters to establish the prices above limit expenses by means of a price price markup (English price markup), known in literature as a margin or a price margin (English price margin). As a result of it exporters have opportunity to receive so-called excess profit (English superprofit, or supernormal profit), known in literature still as the economic profit (English economic profit) who is possible for receiving only in the presence of the market power when the market is in a condition of a disbalance and is characterized by the imperfect competition in the market [11].
As far as we know, the American agrarian economists Daniel Pik and Timothy Park (Pick, Park 1991) the first applied PTM model to empirical research of behavior of exporters in the markets of cotton, grain of corn, soy, soy meal and wheat of the USA. Results of their researches on the basis of quarter data from 1978 for 1988 specify that the American exporters applied price discrimination in the export market of wheat on the relation to many countries of the world, including in relation to China, Egypt, Japan, South Korea, Venezuela, the USSR, Taiwan and Philippines [12].
Three years later again American agrarian economists Daniel Pik and Colin Carter (Pick, Carter 1994) who modified the previous model «pricings in the market», found the results of researches confirming price discrimination in the majority of the countries, importing wheat grain from the USA, except for such three countries, as South Korea, Taiwan and Philippines. In addition, using quarter data on wheat export from Canada, they received results of an assessment which confirm a hypothesis of application of price discrimination by the Canadian exporters in the export market of wheat during the period from 1978 to 1988 in relation to such countries as Japan, the USSR and China. While the received results reject a hypothesis of application of price discrimination concerning the countries of the European Economic Community (EEC) [13].
The model «pricings in the market» found quite broad application in empirical researches of behavior of exporters in the international markets, including the
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analysis of the export markets and pricings in the world markets of grain crops. Results of the empirical researches, the received Peak and Park (Pick, Park 1991), Peak and Carter (Pick, Carter 1994) on the basis of model «pricings in the market», were also confirmed with results of other researches which for example are carried out by such researchers, as Carew (Carew 2000), Carew and Florkovski (Carew, Florkowski 2003), Lavoie (Lavoie 2005) and Jin (Jin 2008). Results of their researches also testify to the price discrimination which is carried out by the American and Canadian exporters in the markets of wheat in such countries, as Belgium, Italy, China, Mozambique, South Korea, Japan, etc.
Unlike model «pricings in the market», the model of «elasticity of residual demand» yet didn't find broad application in empirical researches concerning the analysis of the market power in the export markets grain. It can be caused by need of collecting and preparation of more extensive information and data, as concerning the import country, and the export country, and also about the countries which compete in the market. As far as we know, now there are only a few empirical researches analyzing the market power of the largest export countries of wheat, including the USA, Canada and Australia. Thus one of the main problems which are considered in these works, activity of the state trade enterprises, such as the Canadian council for wheat (to English Canadian Wheat Board, abbr. CWB), the Australian council for wheat (to English Australian Wheat Board, abbr. is. AWB), Japanese food agency (English Japanese Food Agency, abbr. JFA) which, according to authors, influence pricing and the competition in the world markets of grain [14].
Results of an assessment the models received by Carter, etc. (Carter et al. 1999) on the basis of quarter data from 1970 for 1991, specify that, unlike the Canadian and Australian exporters, American apply the market power in wheat market in relation to Japan. Yang and Li (Yang, Lee 2001), using quarter data from 1993 for 1999, were received by the results confirming a hypothesis that the American, Canadian and Australian exporters apply the market power in wheat market in relation to South Korea. Cho, etc. (Cho et al. 2002) on the basis of annual data on wheat export from the USA to Indonesia, Japan South Korea, Malaysia, Philippines and Singapore from 1973 for 1994 were received by the results confirming use of the market power from the American exporters concerning four countries: South Korea, Malaysia, Philippines and Singapore.
Against food crises in the world both in 2007-2008, and in 2012 the sharp rise in prices for grain, bread and bakery products in foreign and domestic markets of many countries was observed. First of all, rise in prices and pricing questions in the markets of grain are actual for the import countries which substantially depend on import of grain and which, as a rule, have low extent of integration into the world markets, for example, the countries of Central Asia and the Caucasus. In spite of the fact that questions of pricing and instability of the prices in the world markets of grain already became a subject of discussions of politicians and repre-
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sentatives of mass media in many countries, still in the world markets of grain only a few scientific researches are devoted to studying of questions of pricing.
Along with Australia, Canada and the USA, Russia is wheat most large exporter in the world. In this regard questions of pricing and behavior of the Russian exporters in the world markets, including the questions concerning research of price discrimination and the market power of the Russian exporters, become more and more actual. Using quarter data on wheat export from Russia during the period with I quarter 2002 on II quarter 2010, Pall, etc. (Pall et al. 2013а) received results which specify that the Russian exporters applied various strategy including strategy «pricings in the market». Thus results of an econometric assessment of model confirm on the basis of empirical tests in 5 of 25 import countries, in a total which amount of import the Russian wheat made a primary share. Besides, results concerning influence on pricing of export duties on grain which Russia entered twice, with I quarter 2002 on III quarter 2007 and with III quarter 2008 on II quarter 2010 were received also. While results of the analysis of the first period testify that price discrimination is present at four countries (Lebanon, Mongolia, Pakistan and Syria), results of the second period indicate price discrimination in 9 countries (Algeria, Armenia, Cyprus, Georgia, India, Libya, Mongolia, Pakistan and Syria) [15].
In addition to model «pricings in the market» Pall, etc. (Pall et al. 2013b) carried out an inspection of a hypothesis of the market power of the Russian exporters of wheat on the basis of model of «elasticity of residual demand». Thus the analysis included the countries which markets are classified by degree of concentration of the market as the high-concentrated markets, that is the share of the largest supplier of wheat makes more than 25 % in a total amount of import. So, in a total amount of import of wheat the share of the Russian wheat made more than 50 % in three countries, such as Albania (63 %), Georgia (66 %) and Lebanon (53 %), and also from 25 % to 50 % in five countries, such as Azerbaijan (47 %), Greece (34 %), Egypt (29 %), Mongolia (28 %) and Syria (28 %). Considering advantages and shortcomings of econometric methods, Pall, etc. (Pall et al. 2013b) applied in the analysis two econometric methods: on the one hand - a method of quasimaximum likelihood of Poisson (English Poisson Pseudo Maximum Likelihood, PPML) and on the other hand - the generalized method of the moments (English Generalized Method of Moments, GMM) [16].
Results of an assessment of model confirm a hypothesis that the Russian exporters exercised the market power, acting as a so-called defining the price of the price, or a defining the price (English price setter, or price maker), and established the prices in three countries: Albania, Georgia and Greece. Thus it is necessary to emphasize that parameters of model indicate insignificant degree of the market power in these three countries. In other five countries (Azerbaijan, Egypt, Lebanon Mongolia and Syria) the Russian exporters had no opportunity to influence the prices and acted as the recipient of the price, or a defining the price (English price taker), agreed with the price in the market and perceived the price as the set size.
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Structural changes occurring for the last decades in the world markets of grain crops, first of all due to essential reduction of shares of the countries which traditionally enter the five of the largest export countries, such as the USA, EU and Canada, speak about increase in the competition between exporters. However, as we know, in recent years there was a significant increase in the prices in the world markets of grain. On the one hand, rise in prices happens at the expense of increase in demand (consumption), and also at the expense of a rise in prices for production factors. On the other hand, rise in prices can be caused by redistribution of market shares and, first of all, increase in degree of concentration in the market, with reduction of number of sellers (exporters) in the market, and also their behavior. Results of empirical researches testify that the largest export countries, including the USA, Canada and Russia, apply price discrimination, and also the market power in the export market of wheat in many countries. Besides, results of the econometric analysis specify that exporters apply price discrimination and the market power in those import countries which are badly integrated into the world market. As a rule, in such countries where the export countries possess a high market share in the total amount of import of the import country, occupying a dominant position in the market, and in the import countries which have, as a rule, one or two countries delivering wheat. Especially it is inherent in the countries which in view of their geographical position have no outlet to the sea and treat the so-called midland countries, for example Mongolia. Thus results of an assessment of parameters of RDE model say that as a whole the structure of the Russian market of export of wheat is characterized in comparison to results of the previous other researches concerning behavior of the Australian, American and Canadian exporters by more intensive competition, than the markets of export of wheat of Australia, Canada and the USA.
Literature:
1. Carew, R., 2000. Pricing to Market Behavior: Evidence from Selected Canadian and U.S. Agri-Food Exports. Journal of Agricultural and Resource Economics 25(2), 578-595.
2. Carew, R., Florkowski, W.J., 2003. Pricing to Market Behavior by Canadian and U.S. Agri-food Exporters: Evidence from Wheat, Pulse and Apples. Canadian Journal of Agricultural Economics 51 (2) 139-159.
3. Carter, C. A., MacLaren D., Yilmaz, A., 1999. How competitive is the world wheat market?.Working Paper No. 99-002. Department of Agricultural and Resource Economics, University of California Davis.
4. Cho, G, Jin H. J., Koo, W. W., 2002. Measuring the market power of the U.S. wheat exporters in Asian countries: an issue about adjustment of nominal exchange rate when using as a cost shifter. Selected Paper for presentation at Annual conference of the American Agricultural Economics Association, Long Beach CA.
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5. FAO, 2009. Agribusiness Handbook Wheat Flour. Rome, FAO.
6. Goldberg, P. K., Knetter, M. M., 1999. Measuring the intensity of competition in export markets. Journal of International Economics 47 (1), 27-60.
7. Jin, H., 2008. Competitive structure of Canadian wheat exports in the world market. Applied Economics Letters 15 (13), 1059-1064.
8. Knetter M. M. (1989). Price Discrimination by U.S. and German Exporters, The American Economic Review, Vol. 79, No. 1, pp. 198-210.
9. Krugman, P. (1986). Pricing to Market When the Exchange Rate Changes, Working Paper No. 1926. Cambridge, MA: National Bureau of Economic Research.
10. Lavoie, N., 2005. Price Discrimination in the Context of Vertical Differentiation: An Application to Canadian Wheat Exports. American Journal of Agricultural Economics 87 (4). 835-854.
11. Pall Z., Perkhozhuk, O., Teuber, R., Glauben, T., (2013a). Are Russian wheat exporters able to price discriminate? Empirical evidence from the last decade. Journal of Agricultural Economics, 64 (1), 177-196.
12. Pall, Z., Perekhozhuk, O., Glauben, T., Prehn, S., Teuber, R., (2013b). Residual Demand Measures of Market Power of Russian Wheat Exporters. Agricultural Economics (forthcoming).
13. Pick, D. H., Carter, C. A., 1994. Pricing to market with transactions denominated in a common currency. American Journal of Agricultural Economics 76 (1), 55-60.
14. Pick, D. H., Park, T. A., 1991. The competitive structure of U.S. agricultural exports. American Journal of Agricultural Economics 73 (1), 133-141.
15. World Bank, 2009. A State Trading Enterprise for Grains in Russia? Issues and Options. Report No. 454925-RU, Washington, DC: The World Bank.
16. Yang, S. R., Lee, W. J., 2005. Exporter’s market power in agricultural import markets in Korea. Selected Paper Session for presentation at Annual conference of the American Agricultural Economics Association, Chicago Illinois.
