Market Power of the Japanese Non-GM Soybean Import Market: The U.S. Exporters vs. Japanese Importers

Genetically modified (GM) soybean acreage has rapidly increased in the world in the past decade and globally the majority of countries now use GM soybeans to produce oil and meal for livestock and human consumption. Japan, however, uses only Non-GM soybeans as widely recognized high quality goods in vertically differentiated import soybeans in Japan, for direct human consumption of which more than 80% are imported from the U.S., Canada, and China. This research used the inverse residual demand model to estimate a U.S.-Japan partial equilibrium trade model to test the existence of market power in the Japanese Non-GM soybean import market. The U.S.-Japan partial equilibrium trade model incorporated the U.S. residual Non-GM soybean supply for Japan, the Japanese residual demand for U.S. Non-GM soybeans, and the equilibrium condition, where the U.S. residual Non-GM soybean supply equals the Japanese residual Non-GM soybean demand. Monthly data from January 2003 to December 2007 were used for the analysis. Empirical results indicated that U.S. Non-GM soybean exporters have stronger market power than Japanese Non-GM soybean importers. The results are different from other countries empirical studies and indicate that Japanese consumers are willing to pay higher prices for soybeans, tofu, natto, miso, and other all soy food products using Non-GM soybeans.