Prairie agricultural production decisions under changing grain transportation policies and safety net support levels

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McPhee, Terry Lynn
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This study uses a partial equilibrium model to forecast crop and livestock production under various agricultural policy environments for both the short and long run. In particular, the study analyzes the affects of the elimination of the Western Grain Transportation Act (WGTA) subsidy, changes in the Canadian Wheat Board (CWB) freight deductions, and discontinuation of the Gross Revenue Insurance Program (GRIP) on prairie crop production, Western Canadian grain exports, and cattle populations. Grain and cattle production estimates are prepared for a base year (1993) and forecasts are estimated for the year 2000. Underlying the projected production levels are trends in crop yields and the allocation of land between annual and perennial crops. Supply functions are determined for the Crop Districts within the three Prairie provinces based on each region's capacity to produce wheat and forage crops, the costs of producing annual crops, and the prices for annual and perennial crops. Production estimates are predicted for the regions based on alternative world prices and government program scenarios. Land that is removed from annual crop production under the different scenarios is placed in perennial crop production. The expansion in the cattle herd is calculated based on the productivity of the additional perennial acres in terms of an alfalfa/grass forage crop and the feed requirements of cattle. Sensitivity analysis is performed on the model in terms of the mix of crops exported and the price elasticity of demand for a mix of exports. The short run results indicate a 4.8 million tonne decrease in grain production as compared to the short run production capacity of the Westem Canadian Prairies when the WGTA subsidy is eliminated, the CWB pooling point is shifted to St. Lawrence, and the government safety net subsidy is eliminated. This assumes an equillibrium export price of $169.49 per tonne. The model forecasts a 46 percent decrease in prairie grain production compared to the long run production capacity of the prairies. The assumptions on short and long run export prices and short and long run costs of production are critical to the results of this analysis. The impact of the policy changes analyzed will be larger if grain prices remain low over the long term. Higher grain prices over the long term will reduce the amount of crop land taken out of cereal grain production. Overall, the long run results indicate that prairie grain production is much more sensitive to price changes than previously estimated.