A review of Guansi Li et al., "Competition Structure, Market Power and Pricing Right of Food Market - Analysis of International Soybean Market"
A review of Guansi Li et al., 'Competition Structure, Market Power and Pricing Right of Food Market——Analysis of International Soybean Market??????????????? ?????——????????????’[1], Journal of International Trade (????????), 2020, no.9, pp. 33-49. This article is published in Chinese.
Using monthly data from the international soybean market of 2013-2018, Li et al. analyse the international soybean market's competitive landscape in terms of two dimensions: trade structure and market power, and then empirically examine the international grain pricing mechanism. Based on the G-K model (1999), the authors introduce additional potential factors, such as the residual demand elasticity of exporter and the demand elasticity of importer and international financial markets, to study the determinants of pricing power in the market.
The authors find that the international soybean export market's trade structure has changed from a high monopoly in the United States to an oligopoly in the United States, Brazil, and Argentina over the past 20 years. As for the import market, China's soybean imports have increased rapidly as a proportion of the total global amount, and China occupies an absolute buyer's monopoly.
Overall, through model testing, the authors find that soybean importer’s demand and market climate significantly impact soybean prices. Exchange rates, trade policies, and financial markets are also essential factors influencing soybean prices. The authors examine the U.S., Brazil, Argentina, and China separately and find that the U.S. has substantial market power in the international soybean market and that China's demand or market share does not influence U.S. soybean pricing which indicates that the U.S. has high bargaining power in the market. However, Brazil and Argentina also have heightened market power indices but still have less impact on pricing. Meanwhile, with a buyer's monopoly position, China does not have this ability, either.
The authors identify four reasons why the U.S. holds bargaining power: 1. The U.S. soybean futures price on the Chicago Board of Trade has an inevitable influence on spot prices. 2. Three of the world's four largest multinational grain merchants are from the U.S., and they control the soybean supply chain and thus have the power to manipulate prices. 3. There are seasonal differences between U.S. soybeans and South American soybeans, in addition to the fact that the U.S. accounts for one-third of the world's soybean production, which is difficult to replace in the short term. 4. Trade frictions between the U.S. and China have pushed up soybean prices for a short period, but the impact has not lasted long, and the primary determinant of international soybean prices remains the U.S. futures market price.
Finally, the authors give policy proposals: First, increase China's Dalian Commodity Exchange's influence in the international financial market to have a “voice” in pricing power. The second is to improve China's grain distribution industry's international competitiveness and strive to take the initiative in the global soybean supply chain.
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