NEWS for North Dakotans
Agriculture Communication, North Dakota State
University
7 Morrill Hall, Fargo, ND 58105-5665
March 12, 1998
Sharp increases in Canadian durum and barley exports to the United States under the United States and Canada Free Trade Agreement, implemented in 1989, have caused the U.S. durum price to drop between 6.5 and 15.3 percent, and the barley price to drop between 1.3 and 4.4 percent, according to a new report by Won Koo, agricultural economist at North Dakota State University.
Consequently, every year since 1994 the average income of North Dakota wheat and barley producers has been down between $49 million and $94 million from what it would otherwise have been.
The negative effect on the state's economy each year, says Koo, has been a loss of between $130 and $250 million that would have circulated and recirculated in North Dakota if the state's producers had received the higher prices.
The general reason why U.S. prices have fallen since trade barriers fell, says Koo, is that Canada has, since then, exported far more durum and barley to the U.S. than the U.S. has exported to Canada. As Canadian grain flowed into the United States, the supply increased and the U.S. price dropped.
Five major circumstances, working together, have allowed the Canadians to do this.
First, the U.S. export enhancement program, when it was active, helped maintain U.S. competitiveness in off-shore markets, but at the same time it raised the U.S. domestic prices of durum and barley, thereby encouraging flows of cheaper grain from Canada.
Second, in 1995 Canada eliminated an indirect rail subsidy to Canadian farmers—and suddenly it became cheaper, in many Canadian producing regions, to ship grain to the United States rather to Canadian ports for offshore markets.
Third, U.S. millers demand high quality durum and the United States has not been able to produce enough of this in recent years. So the millers have gone shopping in Canada.
Fourth, some U.S. wheat millers prefer to import Canadian wheat because its quality is more consistent than that of wheat sold by U.S. trading firms. Canada's export wheat quality is controlled by the Canadian Wheat Board.
Fifth, the U.S. dollar has appreciated against the Canadian dollar, making U.S. grain more expensive, Canadian grain cheaper.
Koo notes that the lower durum and barley prices, while hurting farmers, have benefitted U.S. processors and consumers.
For a copy of his report, "Bilateral Trade of Durum Wheat and Barley Under CUSTA and Implications for Farm Price and Income," call the NDSU department of agricultural economics at (701) 231-7441.
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Source: Won Koo (701) 231-7448
Editor: Barry Brissman (701) 231-7866