Impact of the Crow rate and Western Grain Transportation Act on western Canadian grain production

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Xu, Changjing
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The Crow's Nest Pass Agreement (introduced in 1897) and its successor, the Western Grain Transportation Act (WGTA) (introduced in 1984) are the transport programs designed specifically for agriculture. These Acts are the major agricultural programs affecting western Canadian agriculture in terms of monetary transfers made to Prairie farmers over the period of 1950-87. The impact of the Crow/WGTA and issue of changing method of payment has been widely studied. However previous studies on the grain production impact of Crow/WGTA either reached conclusions without any supporting empirical evidence or on the basis of inappropriate empirical studies in terms of methodologies. This thesis attempts to simulate the production effect of removal of Crow/WGTA through a better defined econometric model for the western grain sector. The objectives of the thesis are to simulate the short-run and long-run possible economic impacts of Crow/WGTA on the western Canadian grain sector and to draw policy implications from the empirical findings. These objectives are accomplished by simulating the econometric model for the grain sector. The thesis begins with a brief review of historical and current major issues of Crow/WGTA and the current methodological problems with supply response models as used in related studies. This is followed by a theoretical discussion of the impact of Crow/WGTA subsidies and changing the method of payment. Subsequently, the econometric model and key econometric results used in simulation of the study are described. The study then focuses on simulating the possible production impact of complete removal of Crow/WGTA on western grain production during the period of 1960-87. Finally, the simulation results of the study are reported and discussed. The main conclusion from the analysis is that the Crow/WGTA does cause resource misallocation in western Canadian grain production although the effect is relatively small. The impact of removal of Crow/WGTA on grain production differs by time frame. Wheat production would experience a decrease in all three time frame. Production of barley, rapeseed and other crops (flax, rye and oats) would increase in the long-run with rapeseed experiencing the largest increase. Increases in barley and rapeseed production would be relatively minor. Results also suggest that all crops could be adjusted to long run equilibrium levels in a relatively short time frame.