U.S. Perspectives on Grain Trade with Canada

Introduction Grain trade presents a number of contentious issues for the United States and Canada. While both countries are traditionally net exporters, the United States has imported large amounts of wheat and barley in recent years--to the consternation of many U.S. producers. Differences in market organization between the United States and Canada and changes in the policy environment for agricultural trade have left plenty of room for public confusion about the causes of U.S. grain imports and whether anything can be done about it. This paper presents a summary and critique of U.S. perspectives on the Canadian grain problem. To be clear, it is the wheat and barley producers in northern-tier states (and their congressional representatives) who are most concerned about grain imports. While other U.S. groups have a stake in the evolution of continental grain trade--specifically, millers, maltsters, grain merchants, and their trade associations--there are overshadowed in public discourse and political influence by the concerns of grain producers. Hence, much of this critique is addressed to the perceptions (and misperceptions) of U.S. wheat and barley producers and their political advocates. Popular Views of the Grain Problem Some complaints by U.S. producers are misguided. An example is the assertion that producers reap an unfair advantage because of the exchange rate. It is true that changing exchange rates can shift the competitive advantage between countries. However, a Montana farmer's letter to the Joint Commission on Grains (included in Volume II of its Final Report) reveals misunderstanding on a more basic level: A farmer told me last week that the price of a bushel of wheat in Canada and here were comparable, but if he sold it down here he could get a 35% premium because of differences. In other words, I sell my wheat and I get $3.50 per bushel. The dumps his load in the same pit with mine and he gets 35% more, or $4.77 in his money. To the Montana farmer, it appeared that money differences led to a higher return for his counterpart. (Presumably, part of the problem is that Canadians stubbornly refuse to change the name of their currency. If the farmer earned 4.77 loonies instead of dollars, the U.S. farmer would worry less about being cheated.) From an economic perspective, what matters is changes in exchange rates and how these are passed through to costs of goods and services, rather than the levels of exchange rates per se. When the dollar loses value (depreciates), as it did during 1992-94 and most spectacularly during 1998, goods become more competitive in U.S. and offshore markets. But, at the same time, the farmer's depreciated dollar buys him less. Although Canada's competitive position has been enhanced by currency depreciation, this is properly viewed as a result of market forces. In an era when most governments (including Canada's) do not directly control their exchange rates, the fairness of currency fluctuations for U.S. producers is not really at issue. (1) One of the most widely repeated, but (as yet) unsubstantiated, claims is that Canada unfairly subsidizes its grain exports to the United States. This is an almost reflexive allegation--that is, a knee-jerk one--by some U.S. farmers and politicians. It seems to stem from the identification of the Wheat Board (CWB) as a state trading enterprise and the conviction that the CWB does not play fair in international competition. Farmers are also perplexed by the fact that the United States imports any wheat. After all, one-half of the U.S. wheat crop is typically exported; why should a surplus producer be importing grain from Canada? Answer: It must be subsidized. In fact, subsidies are a slippery concept, admitting different interpretations and means of measurement (Huffbauer and Erb 1984, 9-13)

Agricultural economics · Business · Commission · Economics · Grain trade · International trade · Political science · Politics · Agricultural Economics and Policy · Law

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