Impacts of NAFTA and CUSTA on Agricultural Trade Flows: A Northern Great Plains Perspective

Won W. Koo

Professor and Director

Center for Agricultural Policy and Trade Studies

North Dakota State University

Purpose

To evaluate changes in agricultural trade flows between the United States and Canada under CUSTA and impacts on Northern Plains agriculture

Changes in trade flows of agricultural commodities and products under CUSTA

HRS wheat durum wheat malting barley feed barley Live cattle and hog beef and pork processed products

Table 1. U.S. Trade Flows to and from Canada, Grain

(metric tons) Before After

Imports 115,596 1,201,433 HRS Wheat Exports 272 11,223

Durum Imports 90,690 394,521 Imports 107,358 644,625

Barley Exports 218 4,867

Table 2. U.S. Trade Flows to and from Canada, Livestock

(Metric tons) Before After

Imports 510,809 1,092,949 Live Cattle Exports 287,777 414,643 Imports 68,109 192,407

Beef Exports 7,820 22,579 Imports 611,585 2,032,467

Live Hogs Exports 406 2,281 Imports 183,347 166,992

Pork Exports 48,006 58,503

Spring Wheat Imports from Canada

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

met

ric to

ns

Durum Imports from Canada

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

met

ric

tons

Malting Barley Imports from Canada

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

met

ric

tons

Feed Barley Imports from Canada

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

met

ric to

ns

Live Cattle Trade with Canada

($1,000)

($500)

$0

$500

$1,000

$1,500

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

mill

ion

dolla

rs

Imports

Exports

Trade balance

Live Hog Trade with Canada

($400)

($300)

($200)

($100)

$0

$100

$200

$300

$400

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

mill

ion

dolla

rs Imports

Exports

Trade balance

Monthly Beef and Veal Trade with Canada

-40,000

-30,000

-20,000

-10,000

0

10,000

20,000

30,000

40,000

50,000

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

met

ric

tons

Beef & Veal Imports from Canada Beef & Veal Exports to Canada Trade balance

Monthly Pork Trade with Canada

-30,000

-20,000

-10,000

0

10,000

20,000

30,000

40,000

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

met

ric

tons

Pork Imports from Canada Pork Exports to Canada Trade Balance

Factors affecting trade flows Lower transportation costs relative to other

major markets Continuous appreciation of the U.S. dollar

against the Canadian dollar Quality of wheat and malting barely Export enhancement program Elimination of Canadian Rail subsidies

under WGTA

Empirical Model

CX= f(USDP, CDP, EXR, OTHX)

USDP=g(CX, DCS, OTHP)

HRS Durum Malting Barley Feed Barley

Export Equation Intercept -22.41

(-2.64) -3.71

(-1.27) -0.91

(-0.00) -1.15

(-0.00) Exchange Rate 2.78

(1.68) 2.06

(1.96) 1.06

(1.72) 1.68

(1.85) Variance (ER) -1.36

(-0.89) -0.10

(-0.15) -0.45

(-0.00) -0.89

(-0.00) U.S. Price 0.33

(0.35) -0.36

(-1.11) 2.39

(4.57) 1.44

(2.10) U.S. Quality -5.02

(-3.43) -0.11

(-0.29) -0.71

(-4.42)

U.S. Dom. Con. 2.60 (2.07)

0.85 (1.79)

0.04 (0.35)

0.71 (3.81)

EEP 1.10 (1.06)

1.09 (2.35)

CN. Rail Subsidy -1.43 (-1.33)

-0.69 (-1.66)

Agreement -0.66 (-2.29)

CUSTA 2.05 (5.23)

0.67 (3.06)

Quarter 1 -0.80 (-2.06)

-0.44 (-2.56)

-0.18 (-0.95)

0.01 (0.04)

Quarter 2 -0.37 (-1.89)

-0.06 (-0.69)

0.23 (2.40)

0.10 (0.59)

Quarter 3 -0.10 (-0.82)

-0.11 (-1.96)

-0.21 (-3.15)

-0.12 (-0.98)

HRS Durum Malting Barley Feed Barley

Price Equation Intercept 0.78

(1.37) 0.68

(0.92) 0.17

(0.74) 0.23

(2.64) CN. Export -0.03

(-2.38) -0.11

(-1.15) 0.21

(4.98) -0.01

(-1.90) U. S. Export 0.16

(2.12) 0.05

(0.81) 0.05

(2.75) 0.03

(3.39) U.S. Dom. Carry Over

Stock -0.22

(-2.02) -0.11

(-1.00) 0.02

(0.39) -0.06

(-2.85) Lagged U.S. Price 0.75

(7.83) 0.80

(4.99) 0.59

(8.34) 0.96

(38.43) U.S. Quality 0.16

(4.23)

Quarter 1 -0.01 (-0.38)

-0.05 (-0.83)

0.05 (1.36)

-0.02 (-1.59)

Quarter 2 -0.004 (-0.22)

-0.01 (-0.37)

-0.05 (-2.89)

-0.001 (-0.20)

Quarter 3 -0.02 (-1.89)

-0.03 (-1.74)

0.05 (3.98)

-0.01 (-2.86)

System Weighted R2 0.81 0.82 0.62 0.90

Live Cattle Beef Live Hogs Pork Estimated Coefficients (p-values in parentheses) Export Equation

Intercept 9.747 (0.0001)

11.843 (0.0023)

-59.305 (0.0001)

-9.174 (0.0221)

Price difference 0.174 (0.0001)

-0.236 (0.148)

0.006 (0.7745)

0.241 (0.0473)

Real Exchange Rate 1.036 (0.0001)

3.719 (0.0001)

0.634 (0.0883)

-0.279 (0.2068)

Canadian Production/ Inventory -0.828 (0.4084)

7.593 (0.0001)

1.343 (0.0001)

CUSTA 1.032 (0.0001)

0.343 (0.0001)

Pre-1983 dummy variable -1.635 (0.0001)

Post-1993 trend 0.095 (0.0191)

Drought dummy variable 1.015 (0.0001)

Seasonal dummy variables 1 0.150 (0.0026)

0.201 (0.0115)

0.220 (0.0076)

0.036 (0.4461)

Seasonal dummy variable 2 -0.150 (0.0423)

-0.398 (0.0001)

-0.266 (0.0003)

0.078 (0.1009)

Live Cattle Beef Live Hogs Pork Estimated Coefficients (p-values in parentheses) Price Equation

Intercept 9.057 (0.0001)

4.670 (0.0001)

20.296 (0.0001)

9.388 (0.0001)

U.S. Production/ Supply -0.518 (0.0001)

-0.456 (0.0001)

-1.229 (0.0001)

-0.925 (0.0001)

Imports from Canada -0.092 (0.0001)

-0.082 (0.0001)

-0.053 (0.0291)

-0.285 (0.0001)

Imports from Canada lagged 4 months

-0.112 (0.0001)

Imports from Canada lagged 6 months

-0.085 (0.0001)

Pork price 0.256 (0.0001)

Beef price 0.542 (0.0001)

March-May dummy variable 0.035 (0.0214)

April-June dummy variable 0.024 (0.0106)

System Weighted R2 0.736 0.831 0.881 0.708

Effect of Canadian Exports on Price

Beef Live Cattle Pork Hogs

HRS Wheat

Durum

Price Flexibiliy Coefficient -0.082 -0.092 -0.285 -0.072 -0.03 -0.11

Percentage Price Changes 1989-90 -0.7% 3.7% 0.3% 0.6% -20.2% -3.0% 1990-91 -0.6% -0.3% 2.9% -1.4% -2.2% -4.1% 1991-92 -4.0% -2.7% 0.9% 2.6% -8.9% -4.0% 1992-93 -2.0% 0.8% -0.1% -1.8% -1.0% 1.6% 1993-94 -1.2% 1.0% -0.2% -0.7% -2.0% 1.1% 1994-95 0.0% -1.5% -1.4% -6.6% 1.3% 4.0% 1995-96 -2.6% -2.5% 0.9% -4.3% 0.4% 0.5% 1996-97 -1.5% 0.8% -0.1% -1.0% -2.0% -8.4% 1997-98 -0.8% 0.5% -4.5% -2.1% 0.4% -0.5% 1998-99 -1.2% 2.3% -7.1% 0.0% 0.0% -4.6%

Conclusion (1)

CUSTA has had a significant influence on trade flow of agricultural goods, mainly Canadian exports to the United States.

Conclusion (2) Trade flows of livestock and livestock

products are influenced by exchange rate between the two countries and price differences, while those of wheat and barley are influenced by not only exchange rate and price differences, but also quality of U.S. grain, the EEP, and Canadian rail subsidies.

Conclusion (3) Canadian exports of grain and livestock to

the U.S. have negatively affected U.S. price of grain and livestock, but the price effects are not significant for all agricultural goods except wheat and pork.