Implications of the Multilateral Trade Agreement for Canadian Agriculture: A Computable General Equilibrium Evaluation

This study evaluates the impacts of the Uruguay Round Agreement (URA) on Canadian agriculture in a single-country general equilibrium framework. For this purpose a computable general equilibrium model of the Canadian economy that involves six agricultural and two non-agricultural sectors was constructed and calibrated on 1991 data. To assess whether Canadian agriculture benefits from the URA, two sets of anticipated changes in world prices, taken from studies of the global effects of the URA, were introduced into the model exogenously. The simulation experiments show that the minimum increases in world prices from global studies are too small to offset the negative effects on agriculture of the reductions in tariffs, export subsidies and domestic support. However, if world prices were to change by the maximum level of global projections, Canadian agricultural producers gain from the URA. The sectors that benefit the most are wheat, other grains, and processed foods, for which production and exports increase appreciably. Imports of milk and poultry products increase substantially and livestock sector imports also increase. Labour and capital demand increase in agriculture, particularly in the wheat and other grains sectors. The highest increase in factor returns in agriculture is for agricultural land. Since the export prices applied above are exogenously determined, a third experiment is conducted to determine the extent of the world price changes for agricultural exports that would offset the negative effects on sectoral domestic production of the URA policy commitments. This would require world prices that are about eleven per cent higher than in the base period for wheat and about ten per cent higher for other grains. The greatest increase in prices--by nearly thirteen per cent--would be required for the milk and poultry sector. More modest changes in world prices for the other agricultural sectors are needed to offset the impacts of the reductions in sectoral support necessitated by the URA. Most of these price changes lie within the ranges of world price projections from studies of the global effects of the URA.