Integration of Canadian and U.S. Cattle Markets

The face of international trade is altering quickly, especially with globalisation as one of the key catalysts for change. It can be argued that freer trade leads to better allocation of resources and increased competitive forces, which reduce production costs and ultimately consumer prices. The opportunity for growth and prosperity are magnified for smaller economies like Canada. This was evidenced in the Canadian cattle industry with the onset of the Canada-U.S. Free Trade Agreement (CUSTA) in 1989 and the North American Free Trade Agreement (NAFTA) in 1992. CUSTA eliminated tariffs on both live cattle and beef within a few years of its implementation. NAFTA refined the policies outlined in CUSTA and extended them to Mexico. In Canada and the U.S., the cattle and beef industries have a significant impact on the economy and play a major role in the agriculture of both countries. Cash receipts from the sale of cattle and calves in Canada were $6.2 billion in 1999, or 18.5% of all farm cash receipts, while in the U.S. the corresponding amount was $54.2 billion or 17.0% of all farm receipts (in current Canadian dollars). Alberta has the largest share of cattle production of all the provinces at 50% of cash receipts. In the U.S., The Great Plains account for about half of cash receipts. The importance of cattle production in the farm economy in the U.S. has remained fairly stable over time, whereas in Canada the importance has increased. As integration of the global economies deepens, nations face major opportunities and challenges. To realize the potential benefits of economic integration, businesses need to manage the challenges of intense international competition and the pressures for structural and technological adjustment. In Canada, feeder cattle production expanded in Alberta where feed grain is abundant and relatively inexpensive. The elimination of government subsidies, such as the Crow's Nest Rate in 1995, means that western producers now use more grain to feed cattle and market them to the U.S. In the U.S. there has also been a general shift to the west in cattle production. Trade with the US in live cattle has increased the importance of the Canadian cattle sector as an export industry. Although domestic per capita consumption of beef has remained stable, the cattle and beef industry in Canada has expanded due to population increases and export markets in the U.S. Canada exported $1.2 billion in cattle to the U.S. in 1999, and this value is much higher than $690 million in 1990 (in 1992 dollars). Canada's share of Canadian-U.S. cattle production went from 8.7% in 1990 to 9.8% in 1999. Canada's share of beef production went from 8.0% in 1990 to 9.1% in 1999. In contrast to the Mexican industry, which has a significantly different composition, the structure of the U.S. and Canadian cattle sectors is very similar. The structural similarity, the lack of trade barriers, and relative unimportance of government intervention in the industry have contributed to the integration of the two markets. Trade data (from Statistics Canada and U.S.D.A) for slaughter cattle, feeder cattle and beef is analysed to further assess the impact of integration of Canadian and U.S. cattle markets.