U.S.-CANADA WHEAT TRADE AND ITS EFFECTS ON U.S. PRICE AND INCOME

The objectives of this study are to analyze the factors causing an increase in wheat imports from Canada and to estimate the effect of increased wheat imports on U.S. prices and farm income. An econometric model is developed and estimated to determine these factors and effects. Canadian exports to the United States are estimated as a function of U.S. price, the U.S. - Canada exchange rate, and other variables, while U.S. price is estimated as a function of imports from Canada, U.S. domestic supply and consumption, and exports. The two equations are estimated simultaneously. Results from this model are used to estimate the effect of imports from Canada on U.S. farm prices and income. Results indicate that imports from Canada have a significant negative effect on U.S. hard red spring and durum wheat prices and consequently decrease farm income for U.S. producers. However, while the effect is significant, it is still only a small portion of the total decrease in price in recent years. Some portion of the increased wheat imports is due to the elimination of import restrictions under the Canada - U.S. Free Trade Agreement, but other factors such as the exchange rate are also important.