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Determining the production and export potential for medium quality wheat using a sectoral model for Canada

University of British Columbia

In January 1985, the Canadian Grain Commission licensed a medium quality wheat cultivar, HY320, for production within the new classification "Prairie Spring Wheat". Field trials conducted between 1974 and 1985 have shown that HT320 outperforms Neepawa, a traditional hard wheat variety, by 25 to 30 percent on average. The objective of this study is to examine the impact of this new high yielding variety on production opportunities and incomes for prairie grain farmers and to estimate the share of grain exports that it may command in the future. The study will also provide an estimate of the supply curve for HY320. A linear programming model is developed in which the country is divided into 29 crop regions (22 of which are located in the prairie provinces) and 7 livestock regions for which aggregate activities and constraints are defined. The activities can be divided into three major groups: production, shipping, and marketing activities. The model is sector-wide in the sense that it describes domestic supply and use of major crop and livestock commodities in Canada. The problem is to determine the level of agricultural production which maximizes net returns to the agricultural sector subject to constraints facing the sector. Medium quality wheat is initially introduced into the model by allowing it to compete directly with hard wheat for cropland allocated to wheat production. There is also a limited capacity in the model for the new variety to replace other feed grains and oilseed crops. This constraint was later relaxed in the study. Prices of traditional crops were set at their 1984-85 level based on Thunder Bay. As little medium quality wheat has been sold by the Canadian Wheat Board, there is considerable uncertainty concerning its ultimate price. Consequently, the analysis was performed at eight specific prices between $135/tonne (the lower range for American and Australian medium quality wheat traded on the world market) and $170/tonne (the final realized price for HY320 in 1984-85). These limits correspond to prices of 0.72 and 0.91 relative to the 1984 blended price of high quality wheats ($186/tonne). Results show that although total wheat acreages increase marginally over the price range, class composition changes dramatically. The percentage of medium quality wheat increases from 10% at $130/tonne to 94% at $170/tonne. As the price rises, the new variety becomes profitable to farmers in an increasing number of crop regions. The critical relative price for most regions is between 0.78 and 0.83. When the price is $140/tonne, the new variety is grown in a band from east central Saskatchewan to west central Manitoba. At $160/tonne, it is grown in all prairie regions except in the brown soil zone of south-east Alberta and south-west Saskatchewan. As the price of the new wheat rises, total wheat exports increase, although the quantity of hard wheat exported declines. When the price is $135/tonne, wheat exports, which are up by 5%, consist of 6% medium quality wheat and 94% hard wheat. At $170/tonne, wheat exports have risen by 37%, and 98% of these exports are medium quality. The results indicate that the adoption of the new wheat has a negative impact on the production and export levels of all other grains. Over the price range examined, the increase in net farm income of prairie grain producers varies from $9 million to $715 million. Clearly, any estimate of income effects is sensitive to assumptions regarding relative grain prices. Based on the price of U.S. and Australian medium quality wheat varieties, as well as on market share considerations, the author feels that the export price of Canadian medium quality wheat will be at the lower end of the price range examined, possibly between 0.72 and 0.80 the price of hard wheat, implying gains between $9 million and $155 million for prairie grain producers. Finally, the results of the study have implications for wheat licensing arrangements, marketing strategies, the grain delivery system, the transportation rate structure, farm assistance programs, and the direction of future research.

Text

2010-07-19

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http://hdl.handle.net/2429/26663

Agricultural Economics

University of British Columbia

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