Publication

State Trading Enterprises (STEs) in agri-food markets are governmental enterprises which have been granted exclusive or special rights or privileges in the exercise of which they influence, through their purchases or sales, the direction of imports or exports. STEs represent one of the current stumbling blocks in the negotiations on agriculture in the Doha round at the World Trade Organization. For some, STEs are just a mean for countries to skirt their commitments on export subsidization and introduce significant inefficiencies in the marketing of farm products. For others, STEs allow agricultural producers to counter the market power exercised by increasingly concentrated buyers and thus contribute to raise farm income. This article analyzes this contentious agri-food trade issue from the perspective of the Canadian and US governments. It investigates the behavior of the Canadian Wheat Board (CWB). We focus on the initial payment made to Canadian wheat producers because it is the main instrument available to the CWB to influence transactions in the domestic and world markets. We show that state trading can provide a strategic advantage only through the potential signaling of information. We rely on simulations to gauge the size of Canada's benefits from signaling in the world wheat market.  

Our article aims to settle a decade-old debate between advocates and opponents of STEs. We show that both groups have valid arguments. On the one hand, STE's actions do not necessarily offer export subsidies, and thus should not face disciplines identical to other forms of export subsidization. On the other hand, the formation of STEs can confer advantages to producers of a country and thus their activities need to be monitored closely.