Canada Braces for Influx Of Wheat From the US

Free-trade provision likely to kick in soon; Canadians are wary

CANADA, the world's second leading wheat exporter, faces the imminent and unwelcome prospect of wheat imports from the United States. This is the latest complication arising from the free-trade agreement between the US and Canada, which began to take effect at the start of 1989.

Canada's decades-old barrier to imported wheat could be removed as early as next month. This would allow low-cost imports of US wheat, flour, and baked goods to engage Canada's own production in a costly battle for market share, adding another burden to the country's already struggling agriculture sector.

"Maybe we should look for a way to get out" of the free-trade agreement, says Charlie Swanson, president of the Manitoba Pool Elevators, a grain-elevator cooperative.

Wheat provides one-third of Canada's farm cash receipts. Farmers there grow five times as much as their domestic market can use. The rest goes to the international market.

The world's granaries, however, are bursting. Prices have plummeted. In the US, the January wheat price average was the lowest in 19 years.

But trouble for Canadian farmers started in 1985, when the US began subsidizing exports in answer to European export subsidies that were driving world prices down. The export subsidy issue has helped stall a new round of trade negotiations under the General Agreement on Tariffs and Trade.

In Saskatchewan, where two-thirds of Canada's wheat is grown, farm income has plunged 80 percent since 1985. One in five farmers in the province is in danger of foreclosure, says Verna Mitura, an economist at the Saskatchewan Wheat Pool.

"I wouldn't view [wheat imports] as the final disaster," says Mr. Swanson, "but one more thorn in the side of Canadian farmers."

When it signed the free-trade agreement in 1988, Ottawa was wary of competition from US grain, which historically had received a 20 percent greater subsidy. So it retained the right to require import licenses on US wheat, flour, and baked wheat products.

"Not one license has been granted. Not one grain of US wheat has gone to Canada since free trade was signed," growls Susan Miller of US Wheat Associates, the industry's export-development arm. Canada did allow imports of $10.8 million worth of products like crackers and noodles last year, up from $6 million in 1989.

In contrast, Canadian wheat and products have always had free access to the US market. Two years ago US farmers were in an uproar, charging that Canada was dumping durum wheat, used to make pasta, into this market.

Swanson, though, charges that the US has violated the free-trade agreement by targeting export markets already served by Canadian wheat. Canada's agriculture minister has protested several times to the US agriculture secretary, he says.

Meanwhile, the free-trade agreement stipulates that each year the countries would compare their wheat subsidies over the previous two years. If the US average were ever lower, then Canada would discontinue requiring import licenses.

Nature and the difference between the two countries' subsidy programs may have accom- plished that. During the drought of 1988-89, Canadian farmers received insurance payments for the crops they lost. US farmers, in contrast, received smaller deficiency payments because the drought drove market prices closer to the federal target price.

Canadian and US agriculture officials exchanged preliminary calculations this month. They will announce final results in early May. But various Canadian grain interests have already reported that Ottawa's subsidy exceeded Washington's by 2 to 6 percent.

"It appears quite likely" that the wheat barrier will fall, says Bruce Knight of the National Association of Wheat Growers, in Washington, D.C., which represents 50,000 farmers in 20 states.

Once removed, the barrier could not be reimposed unless the US changed its subsidy program in a way that caused a surge in exports to Canada.

It remains to be seen how much grain will cross the border if import licensing ends. Mr. Knight says he believes Canada will price its own grain to keep US wheat out.

Already the Canadian Wheat Board, which acts as a marketing agency for 140,000 farmers, has cut its sales price by around 25 percent. The new domestic price now reflects the world market.

That may remove the incentive to import US wheat, "but we've lost price. That's what hurts," Swanson says.

But if not US wheat, then Canada might import flour and wheat products produced cheaply by larger, more efficient US mills. "That's where the US possesses a competitive advantage over Canada," says Mark Simone, who analyzes that market for the US Department of Agriculture.

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