1. L EIBNIZ I NSTITUTE OF A GRICULTURAL D EVELOPMENT IN T RANSITION E CONOMIES IAAE Symposium 2016| 4 – 6 April

2. Residual demand elasticity estimates of Russian wheat exports Kerstin Marit Uhl IAAE Symposium 2016 | 4 – 6 April

3. www.iamo.de 3 Overview Motivation Research questions Literature review The residual demand elasticity approach Estimation results Summary

4. www.iamo.de 4 Motivation Wheat is a staple crop with relevance for food security; Differences in import prices suggest market imperfections in international wheat trade; Russia emerged as a major exporter; Dependency of several countries on Russian wheat.

5. www.iamo.de 5 Motivation II

6. www.iamo.de 6 Motivation III Share of Russian wheat imports in total wheat imports (2006 – 2014) Concentration ratios of Russian exporters (2006 – 2014) EgyptTurkeyArmeniaAzerbaijanGeorgia CR – 43722674751 CR - 106344806263 EgyptTurkeyArmeniaAzerbaijanGeorgia Share in %34.1352.4087.2442.1267.20 Source: Own compilations; UN Comtrade, APK Inform.

7. www.iamo.de 7 Research question Are Russian wheat exporters able to price discriminate in international wheat markets? To which extent do they exert market power?

8. www.iamo.de 8 Literature review Studies targeting Russian wheat exports: Applying Krugman`s (1986) pricing-to-market approach: – Pall et al. (2013); – Friebel et al. (2015); – Gafarova et al. (2015); Applying the residual demand elasticity approach: – Pall et al. (2014).

9. www.iamo.de 9 RDE study Quantification of market power by Russia; Countries under study: Egypt, Turkey, Armenia, Azerbaijan, Georgia; Analysis based on weekly data over 2006 - 2014.

10. www.iamo.de 10 Theoretical background Baker & Bresnaham’s (1988) residual demand elasticity (RDE) approach: – A downward-sloping RD implies that a seller can influence the export price by choosing its export quantity; – Estimation of an exporter’s RDE; – Absolut value of the RDE bears information regarding the extent of market power.

11. www.iamo.de 11 Theoretical background II (1) (2) (3)

12. www.iamo.de 12 Theoretical background III (4)

13. www.iamo.de 13 Theoretical background IV (5)

14. www.iamo.de 14 Theoretical background IV (6) (7) (8)

15. www.iamo.de 15 Econometric implementation (9)

16. www.iamo.de 16 Econometric implementation II

17. www.iamo.de 17 Econometric implementation III Variables included in the econometric model Cost shiftersEgyptTurkeyArmeniaAzerbaijanGeorgia Exchange rate USAXX Exchange rate FranceX Exchange rate UkraineXXX Exchange rate KazakhstanXXXX Export price USAXX Export price FranceX Producer price UkraineXXXX Producer price KazakhstanXXXX Oil priceXXXXX Export ban KazakhstanXXXX Export tax UkraineXXX

18. www.iamo.de 18 Econometric implementation IV Variables included in the econometric model Demand shiftersEgyptTurkeyArmeniaAzerbaijanGeorgia Real GDP per capitaXXXXX CPI foodXX Wheat retailer priceXXX TimeX Other variablesEgyptTurkeyArmeniaAzerbaija n Georgia Dummy seasonXXXXX Dummy currency depreciation X

19. www.iamo.de 19 Econometric implementation V Selected instruments Notes: Ban Russia is a dummy variable for the period of Russian wheat export ban (15.08.2010 - 30.06.2011); Tax Russia is equal to the export tax rate (10 (12.11.2007 - 30.04.2008), 40 (29.01.2008 – 30.06.2008), and 0 otherwise; Q Caucasus is the total Russian wheat export quantity to the Caucasus; War GEO is a dummy variable for the period of war between Russia and Georgia (07.08.2008 - 16.08.2008); PP Russia is the Russian wheat producer price. InstrumentEgyptTurkeyArmeniaAzerbaijanGeorgia Ban RussiaXXXXX Tax RussiaXXXXX Q CaucasusX War GEOX PP RussiaX

20. www.iamo.de 20 Econometric implementation VI Statistics regarding relevance and validity of chosen instruments Notes: Criteria for relevance of instruments: F-value of first-stage regression; criteria for validity: Test of overidentifying restriction (H0: Overidentifying restrictions are valid): Hansen’s J statistic (Egypt, Turkey, Azerbaijan, Georgia) and Sargan test (Armenia); term in brackets are p-values. Selection criteria EgyptTurkeyArmeniaAzerbaijanGeorgia Relevance50.74 [0.0000] 24.31 [0.0000] 8.63 [0.0000] 43.97 [0.0000] 30.53 [0.0000] Validity1.16251 [0.2809] 0.583754 [0.7469] 5.84852 [0.0537] 0.932238 [0.3343] 2.29768 [0.3170]

21. www.iamo.de 21 Data Estimations based on a weekly dataset provided by APK Inform; Data period: 2006 week 1 – 2014 week 52; Number of observations EgyptTurkeyArmeniaAzerbaijanGeorgia 348328269388349

22. www.iamo.de 22 Contact: Kerstin Marit Uhl Leibniz Institute of Agricultural Development in Transition Economies Tel: +49 345 29 28 570 Fax: +49 345 29 28 299 Address: Theodor-Lieser Str. 2, 06120 Halle Saale, Germany email: uhl@iamo.de www.iamo.de https://twitter.com/iamoLeibnizhttps://twitter.com/iamoLeibniz #SilkRoadConf https://www.facebook.com/iamoLeibniz/ Thank you for your attention !

23. www.iamo.de 23 Selected estimation results VariableEgyptTurkeyArmeniaAzerbaijanGeorgia Export q RUS-0.0261-0.1039***-0.1457***-0.0181-0.1608*** ER KZT-0.0153 0.6771*** 0.2510 0.2150 ER UAH 0.3262*** 0.4852*** 0.6880*** PP KAZ 0.1258*** 0.7164*** 0.4818*** 0.0830 PP UKR 0.4117*** 0.5234*** 0.6878*** Export p FR 0.4732*** Export p US 0.1206** 0.4214*** GDP_r_cap 0.2837*** 0.3011**-0.1552 0.2359 0.4695 CPI_food-1.7418***-0.0615 Wheat RP 4.1222*** 1.9810***0.6534** Dummy season -0.0022 0.0685*** 0.0941**-0.11190.1340*** Notes: Export q RUS abbreviates Russian wheat export quantity; ER KAZ, ER UAH are the exchange rates in national currency per KZT and UAH, respectively; PP KAZ and PP UKR are the Kazakh and Ukrainian wheat producer prices; Export p FR and Export p US are the French and US wheat export prices; GDP_r_cap is the real GDP per capita of the importing country; CPI_food is the CPI for food; Wheat RP is the wheat retailer price in the importing country, and Dummy season is a dummy variable capturing seasonal effects.

24. www.iamo.de 24 Conclusion Evidence for Russian market power in Armenia, Georgia, and Turkey based on RDE estimation; No evidence for Russian market power in Egypt, and Azerbaijan; Considerable differences in wheat import prices among these five countries: – Turkey pays highest wheat import prices; – Azerbaijan pays lowest wheat import prices; High dependency of Caucasus on Russian wheat imports: – Armenia (87 %), Azerbaijan (42%), Georgia (67%); Concentration ratios of Russian wheat imports high in Armenia, and moderate in other states; Estimation results in line with Hotelling’s model of spatial price discrimination.

25. www.iamo.de 25 References Baker, J. B. and T. F. Bresnaham. 1988. Estimating the residual demand curve facing a single firm. International Journal of Industrial Organization 6 (3): 283-300. Friebel, K. M., O. Perekhozhuk and T. Glauben. forthcoming. Price discrimination in Russian wheat exports: evidence from firm-level data, Journal of Agricultural Economics. Gafarova, G., Perekhozhuk and T. Glauben. 2015. Price discrimination and pricing-to-market behavior of Black Sea region wheat exporters, Journal of Agricultural and Applied Economics 47 (3): 287-316. Goldberg P. K. and M. M. Knetter. 1999. Measuring the intensity of competition in export markets. Journal of International Economics 47 (1): 27-60. Knetter, M. M. 1995. Pricing to market in response to unobservable and observable shocks, International Economic Journal 9 (2): 1-25. Krugman, P. 1986. Pricing to market when the exchange rate changes. Working Paper No. 1926, Cambridge MA, National Bureau of Economic Research. Pall, Z., O. Perekhozhuk, R. Teuber, and T. Glauben. 2013. Are Russian wheat exporter able to price discriminate? Empirical evidence from the last decade, Journal of Agricultural Economics 64 (1): 177- 196. Pall, Z., O. Perekhozhuk, R. Teuber, T. Glauben, S. Prehn and R. Teuber. 2014. Residual demand measures of market power of Russian wheat exporters, Agricultural Economics 45 (3): 381-391.

26. www.iamo.de 26 Appendix I: Summary statistics EgyptMeanStd. Dev. Quantity9.28e+077.06e+07 Price_t_USD217.590859.69476 GDP_real_capita70.114227.272818 CPI_food101.0691.588793 Oil price86.2437322.66057 EGP_EUR7.968570.7959349 EGP_USD5.9553260.5832629 EGP_UAH0.82348150.1885084 Export price US239.404661.1048 Export price France182.869346.81779 Producer price Ukr1514.784558.1194

27. www.iamo.de 27 Appendix I: Summary statistics II TurkeyMeanStd. Dev. Quantity5.14e+074.04e+07 Price_t_USD227.314252.79223 GDP_real_capita15.623381.686969 CPI_food100.871.636161 Oil price89.1297122.82146 TRY_USD1.6917480.2999471 TRY_UAH0.21686970.0314591 TRY_KZT0.01129410.0010962 Export price US248.881254.28319 Producer price Ukr1640.474544.1551 Producer price Rus6397.9732087.246

28. www.iamo.de 28 Appendix I: Summary statistics III ArmeniaMeanStd. Dev. Quantity74006186147196 Price_t_USD225.235878.5632 GDP_real_capita6034.367671.1075 Wheat RP100.28882.657507 Oil price99.81314.28485 AMD_KZT2.5812340.2475405 Producer price Kaz23479.496116.872 Quantity_Cauc_Rus3.21e+072.10e+07

29. www.iamo.de 29 Appendix I: Summary statistics IV AzerbaijanMeanStd. Dev. Quantity1.19e+071.25e+07 Price_t_USD225.18972.76159 GDP_real_capita18.795073.059922 Wheat RP100.77743.267009 Oil price99.830923.963304 AZN_KZT0.00570530.0009595 Producer price Kaz23130.826705.376

30. www.iamo.de 30 Appendix I: Summary statistics V GeorgiaMeanStd. Dev. Quantity1.10e+077938890 Price_t_USD220.516354.47653 GDP_real_capita19.667042.294259 Wheat RP100.39572.901382 Oil price99.927194.046399 GEL_UAH0.24449990.0787526 GEL_KZT0.01199960.0019218 Producer price Ukr1516.795594.8149 Producer price Kaz22660.036967.728

31. www.iamo.de 31 Appendix II: Estimation results VariableEgyptTurkeyArmeniaAzerbaijanGeorgia Export q RUS-0.0261-0.1039***-0.1457***-0.0181-0.1524*** ER KZT-0.0153 0.6771*** 0.2510 0.2540 ER UAH 0.3262*** 0.4852*** 0.6792*** PP KAZ 0.1258*** 0.7164*** 0.4818*** 0.0888 PP UKR 0.4117*** 0.5234*** 0.6981*** Export p FR 0.4732*** Export p US 0.1206** 0.4214*** GDP_r_cap 0.2837*** 0.3011**-0.1552 0.2359 0.4435 CPI_food-1.7418***-0.0615 Wheat RP 4.1222*** 1.9810*** 0.6281** Oil price-0.1327-0.3113* 0.1229 0.4462 0.1972 Dummy season-0.0022 0.0685*** 0.0941**-0.1119 0.1317*** Ban Kazakhstan-0.0172-0.1197-0.0170-0.0609 Tax Ukraine-0.0044*-0.0082***-0.0061

32. www.iamo.de 32 Appendix II: Estimation results II VariableEgyptTurkeyArmeniaAzerbaijanGeorgia Time 0.0022*** Depreciation 1 -0.5957*** Depreciation 2 -0.8786*** Constant6.9470***0.8373-13.5411***-15.2422***-1.7357 EgyptTurkeyArmeniaAzerbaijanGeorgia Number of obs348328269388349 R squared0.93760.89270.46540.52570.4942 Adj. R squared0.93540.88820.44900.51180.4776