Journal of Agricultural and Resource Economics
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This study examines the optimal approval strategy for genetically modified (GM) wheat varieties in Canada and the United States. Without an affordable segregation system, the introduction of GM wheat will create a market for “lemons” that will result in the loss of important export markets. Using a differentiated product trade model for spring wheat, with endogenous technology pricing, a payoff matrix is generated for the possible approval outcomes. Results show that the existence of the market externality removes the first-mover advantage for wheat producers from the approval of the new GM wheat variety. There are large distributional effects; wheat producers lose economic surplus, while consumers and the biotech company gain economic surplus. With a larger domestic market, the United States is more likely to experience net gain in economic surplus from the introduction of GM wheat.
According to the U.S. General Accounting Office, the Canadian Wheat Board (CWB) is the largest state trading enterprise reporting to the World Trade Organization under article XVII requirements. This study estimates the market power exerted by the CWB in international barley markets. The analysis incorporates international price discrimination across markets for similar types of barley, the intertwining relationships between feed and malting barley markets, and producer behavior in the absence of the CWB. The CWB was able to capture an annual average of $72 million in additional revenue beyond the amount that would have been generated by purely competitive multiple sellers of Canadian barley during the period 1985-94.
Canada and the United States have used different trade policies to support their wheat industries. Canada conferred sole export powers to the Canadian Wheat Board, allowing it to price discriminate among markets. The U.S. government has funded transfers to its wheat producers from taxpayers, instead, through export subsidies. This study compares these two ways of supporting producers in terms of their transfer efficiency and overall deadweight losses, the incidence on different domestic interest groups, and their consequences for third party traders. In the analysis we consider the implications of market power of wheat marketing firms for the comparison of policy alternatives in the context of the Canadian wheat industry.
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