A STRONG PARTNERSHIP

The Canada–United States Wheat Trade
A mutually beneficial partnership

Canada and the United States enjoy the largest two-way trading relationship in the world. This relationship includes a dynamic flow of agricultural products in both directions, driven by such factors as comparative advantage, geography, and demographics. In fact, Canada and the United States are each other’s best customers for agricultural products.

The total bilateral trade in agriculture and agri-food products has nearly tripled since 1989, when the Free Trade Agreement (FTA) was implemented. In 2003, it totalled $20.0 billion. Although this bilateral trade in agricultural products is roughly equal, per-capita consumption figures show how heavily Canadian consumers rely on American imports of safe, fresh agricultural products year-round. While each American consumed an average of $38 worth of Canadian agricultural products in 2003, each Canadian consumed $294 in U.S. agricultural products for the same year.

Grains are one important component of this vast and diverse agricultural exchange. This brochure shows how Canadian wheat fills an American demand for high quality spring wheat and durum, and provides details on how it fills a small niche market in the United States that is not supplied by American wheat growers.

World market share of Canadian wheat exports rank 2nd or 3rd

By far, the United States is the world’s largest wheat exporter. Although Canada is often the second-largest wheat exporter and sometimes third after Australia, it produces about 40% of the wheat that America does. While production in Canada averaged less than 23 million tonnes annually during the 1999-2000 to 2003-04 period, the United States produced an average of 57 million tonnes.

Of those 23 million tonnes, Canada uses one-third of the wheat it produces at home, and exports the remaining two-thirds. Between 1999-2000 and 2003-04, Canadian wheat exports averaged 15 million tonnes annually. Canada sells the bulk of its exported wheat to third-country markets like the European Union and Japan. Exports to the United States represent approximately 7% of the wheat Canada produces (and only 10% of its total exports).

Only 5% of wheat consumed in the U.S. is grown in Canada

From 1999-2000 to 2003-04, annual U.S. imports of Canadian wheat represented less than 5% of the average amount of wheat consumed in the United States. A full 95% of the wheat that Americans use is produced domestically by U.S. wheat farmers.

Note: All dollar figures cited in this brochure are in U.S. dollars.

U.S. millers import Canadian wheat for its unique quality

U.S. millers value Canadian wheat because of its uniformity of quality within and among shipments, and because of other factors such as product cleanliness and reliability of supply. Canadian wheat grades, which are more tightly defined than in the United States, result in higher consistency and reliability of performance for producing flour.

For example, Canada Western Red Spring wheat, Canada’s main class of hard red spring wheat, is uniquely suited as a blending wheat, and can be an especially effective complement to U.S. wheats in producing flour. American millers blend Canadian wheat with U.S. wheat to add value to their operations.

Supply of U.S. durum wheat is well below demand for export and domestic use

U.S. producers significantly increased production of quality durum wheat during the past two years. However, production still does not equal domestic demand. In addition, the United States continues to export a large proportion of its production (over the last five years, 49% of American-grown wheat was exported). The result is that U.S. industry has insufficient supplies of durum wheat for domestic use.

U.S. processors and retailers make up for the domestic shortage of quality durum wheat by importing Canadian durum wheat and products, such as pasta, from a number of different countries. By importing Canadian durum, U.S. processors are simply making up for the domestic shortage of quality wheat.

The U.S. meets demand by importing durum and durum products

While the consumption of durum wheat in the United States has virtually doubled since 1975-76, American production has not shown any long-term increase. To meet the growing demand, the U.S. has either increased its imports of unprocessed durum wheat and/or processed durum products. U.S. imports of durum wheat products have risen consistently for much of the past decade.

The U.S. Department of Agriculture gathers statistics on imports of durum wheat as grain and its products, e.g., pasta. These statistics show that, in some years, the U.S. imports more durum in the form of products than durum wheat as grain.

Between 1999-2000 and 2003-04, imports of pasta (mainly from Italy) and other processed durum products accounted for 48% of total U.S. durum imports. During this period, imports of durum as grain from Canada averaged 364,000 tonnes, while imports of processed durum products from all sources totalled 391,000 tonnes.

Trade actions to limit imports of Canadian durum wheat over the last two years resulted in increased imports of durum products, mostly from countries other than Canada.

The United States imports pasta from around the world

U.S. imports of pasta have increased significantly in recent years, rising from $285 million in 1996 to $415 million in 2003. This represents an average increase of 5.8% each year.

During this eight-year period, Italy supplied over 34% of U.S. pasta imports, followed by Canada with a 29% share. Other major suppliers of pasta to the U.S. market include Japan, Thailand, Mexico, and China.

The pasta trade is strong between Canada and the United States

While the pasta trade between Canada and the United States is increasing in both directions, the U.S. continues to export more pasta to Canada than it imports from Canada. From 1999 to 2003, annual pasta exports to Canada averaged $117.5 million, compared to an average value of $101.8 million for Canadian pasta exports to the United States.

In most years, the value of U.S. pasta exported to Canada exceeds the value of durum wheat imported into the United States from Canada. In addition, U.S. processors add value to imports of Canadian wheat by transforming them into finished products like pasta, couscous, mixes, and dough. This manufacturing process contributes to the strength of the U.S. economy by providing employment and other economic benefits.

Canada helps U.S. farmers deliver their wheat to Americans

Since 1999, Canada has facilitated the in-transit movement of U.S. grain through Canada to U.S. destinations. As a result of this industry-led initiative, it has become easier and less expensive for U.S. farmers from 17 states to send their wheat by rail through Canada to U.S. locations on the east and west coasts. More than 3.6 million tonnes of U.S. wheat, barley, and other grains have been shipped in-transit through Canada since the program was introduced in 1999. Shipments have been primarily from northern states such as North Dakota, Minnesota, and Montana, although other states have also participated in the initiative.

In 1995, Canada also eliminated its subsidy on rail freight rates for grain to inland and terminal destinations. Because Canadian farmers now pay the full cost of transporting their product, all grain shipments to U.S. destinations are sent on a commercial basis. Neither Canada nor the Canadian Wheat Board subsidizes the export of wheat or any other grain.

In addition, the United States is not restricted in terms of the volume of wheat it exports to Canada. Exporters of American wheat and other grains can and do access Canadian markets, duty-free.

Canadian wheat is "well-placed" to supply some U.S. centres

The U.S. Department of Agriculture concluded that "the geography of wheat production and use in North America and basic economics indicate that some Canadian wheat is well placed to supply U.S. use centers."

– Agricultural Outlook, June-July 1999, p. 9

Wheat sales are driven by market realities, including geographic location. For example, internal transportation costs within the United States can work against American producers, making it more costly to ship U.S. wheat to some U.S. millers than Canadian wheat. A number of cost factors, such as quality considerations, price, availability, marketability and transportation, are relevant in finding and securing markets.

In fact, most Canadian wheat producers are located in the south-central and southeastern parts of the Prairies, which are relatively close to major U.S. millers in central and northeastern U.S. markets. Top importing states vary annually but recently have been Ohio, New York, Missouri, Minnesota, Pennsylvania, and Virginia, which together account for more than half the total U.S. imports of Canadian wheat. From 1999-2000 to 2003-04, less than 1% of U.S. wheat imports from Canada were shipped to destinations in Montana or North Dakota.

World market shares are declining for both countries

Over the last 25 to 30 years, shares of the world’s wheat market have changed dramatically. There are now many players in the international wheat market, and exporters enter and leave the market as conditions dictate. In fact, irregular exporters can exceed one-third of the world’s wheat trade in any given year, and in 2002-03 took 39% of the market.

Canada’s share, which was consistently about 20% for decades, has declined over the last 10 years to average below 17%. Similarly, the U.S. share of the world market has declined from over 44% in the 1970s, to the most recent 10-year average near 30%.

In the 1980's, the European Union took an increasing share of world markets. However, since the mid-1990's Australia (almost 15% of the world market) and Argentina (9%) have been exporting more and more wheat, joined most recently by the states of the former Soviet Union and smaller exporters.

The bilateral grain trade benefits both countries

Although Canada has a surplus with the United States in the overall grain trade1, the United States enjoys a trade surplus in corn, soybean meal, and other grain and oilseed products. For the past decade, Canada has been importing more and more U.S. corn, averaging 2.75 million tonnes every year over the past five years. In fact, Canadian imports of American corn reached 4.2 million tonnes in 2002-2003.

On the other hand, U.S. imports of Canadian wheat stabilized near 1.6 million tonnes annually between 1999-2000 to 2003-04. Annual average U.S. purchases of Canadian wheat at 1.9 million tonnes remain lower than average Canadian imports of U.S. corn. In addition, two successive years of Prairie drought (2001-02 and 2002-03) drastically reduced the amount of Canadian wheat that was available for export.

Having different marketing systems doesn’t make either one unfair

Wheat marketing systems in the United States and Canada have not evolved in the same way, both countries have unique regulations, policies, and programs that affect the sector.

Canada’s focus is related to quality assurance, grain handling, and the marketing system. The Canadian Wheat Board (CWB), established in 1935, markets Western Canadian wheat and barley exports (excluding domestic feed and seed sales). The CWB sells the grain on behalf of Western Canadian farmers, and then disburses the returns from those sales to growers in an equitable fashion.

The CWB secures the highest possible prices for Prairie farmers from all available markets. Accordingly, CWB sales to the United States maximize overall returns for producers, while responding to the needs of buyers in the United States.

Past and current investigations show Canada acts in accordance with accepted standards and agreements

A lengthy list of investigations and studies over the years have found that the CWB is a fair trader and does not distort international trade. As such, CWB operations comply with all of Canada’s international trade obligations under the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO), including the requirements under GATT’s Article XVII on state trading.

Most recently, a WTO Dispute Settlement Panel was formed in 2003 to examine the practices of the CWB. The Panel found that the CWB’s mandate, structure and activity are consistent with Canada’s international trade obligations. More specifically, the Panel dismissed the allegation that the CWB has an incentive to undercut wheat prices because of its mandate. Similarly, the Panel noted that "the CWB’s current governance structure, which gives Western Canadian producers control over the CWB.. makes it more rather than less likely that the Canadian Wheat Board markets wheat solely in accordance with the commercial interests of the producers whose marketing agent it is." The assertion that the CWB does not operate according to commercial considerations was rejected by the Panel. A subsequent U.S. appeal to the WTO Appellate Body confirmed the findings that the practices of the CWB are consistent with Canada’s international trade obligations.

U.S. decision of injury is being challenged

The U.S. Department of Commerce announced in 2003 an affirmative finding in both its countervail and anti-dumping investigations of imports of Canadian wheat, resulting in duties of 14.15% on Canadian hard red spring wheat. Subsequently, the U.S. International Trade Commission (USITC) determined in October 2003, that imports of Canadian durum wheat neither caused nor threatened to cause injury to U.S. producers. However, it also decided that imports of Canadian hard red spring wheat caused material injury to the U.S. industry. The CWB is challenging the USITC finding of dumping through a NAFTA panel.

Canada has requested a NAFTA panel to review the countervail ruling that imports of Canadian wheat are subsidized. Canada believes that there is no basis for the U.S. countervailing duty. Canada has suspended a parallel challenge of the injury decision at the WTO pending the outcome of the NAFTA proceedings.

Working together brings many benefits

Grains are a vital component of the dynamic and diverse agricultural exchange between Canada and the United States. The wheat industries of both countries can better advance their common interests by working together. By pursuing such activities as seeking to dismantle export subsidies and trade-distorting domestic subsidies, and by improving access to other markets, both nations can benefit from a larger, freer economic environment.

For more information

For more information on the Canada–U.S. wheat trade, please contact:

Canadian Embassy
501 Pennsylvania Avenue NW
Washington, D.C. 20001
(202) 682-1740
www.canadianembassy.org

1 Includes all wheat and wheat products, oats, barley and products, rye, corn, animal feed, sunflower seed, flax, soybeans and products, canola and products, and mustard seed.