Current Agriculture, Food & Resource Issues
G. N. Vlontzos
Threat of New Entrants
STEs that focus on exports face threat from new entrants because on a global level there
are no monopolies. This threat can be minimized by using various contracting methods
that do not allow new firms to claim market share. Such methods include direct contracts
between exporting and importing STEs, and tariff rate quotas (TRQs) administered by the
“historical importers” and “state traders” methods. Under these methods no new entries
are possible, the level of competition is very low and the market is monopolistic or
oligopolistic.
In the case of STEs that focus on imports, no new entries into the market are possible.
There is no competition in the internal market, which is monopolistic.
Bargaining Power of Suppliers
The bargaining power of suppliers in markets where STEs focus on exports is quite
important, because usually the quantities being traded are very large and can give traders
the opportunity to claim better prices and enlarge their market share.
In the case of STEs that focus on imports, the bargaining power of suppliers is
absolute; they have the ability to set any price they wish by using political targets as
criteria, ignoring the existing market balances on an international level.
Bargaining Power of Consumers
The bargaining power of consumers in the case of exporting STEs is not very strong,
because the quantities being traded are very large and the number of such enterprises is
quite low. This leads to the conclusion that there are not many alternative choices for
consumers, and the market is oligopolistic.
The trading environment that is created where STEs focus on imports leaves no
choice to consumers, and thus no bargaining power to consumers. In most cases, such a
situation has positive effects for the consumers of developing countries and negative
effects for the consumers of developed countries. This occurs because the aim in
developing countries is to satisfy demand with low-priced agricultural products, while in
developed countries the aim is to protect internal production from international
competition.
The operation of an importing STE is the most effective way to stabilize prices at a
level high enough to cover production costs and create a satisfactory profit for producers.
Threat of Substitute Products
The threat of substitute products is not strong, because agricultural products being traded
by STEs are usually cereals or dairy products, which are irreplaceable and are
characterized by inelastic demand. This lack of substitute products becomes the most
important reason to establish market conditions that will create competition and decrease
trade distortions.
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