Canada is a major producer of wheat. Because the agricultural sector is so large relative to the size of

the population, they are also major exporters. Not surprisingly, they push hard for open access to foreign markets. Between 1990 and 2000, agricultural goods and food by-product exports increased by more than 100%. To continue this trend, they will have to not only win the battle for lower tariffs, but also battle falling world prices brought about by increases in production (farmed acreage) and productivity.

Productivity in agriculture has skyrocketed due to increases in mechanization, fertilizers, and biotechnology. In some areas, soil that was previously thought untillable

is now planted acreage. In addition, the recent economic downturn and former Soviet State's inability to pay for imports have dampened world demand. The effect on wheat prices has been dramatic. Prices have fallen roughly 75% since 1970. Although agricultural subsidies in the United States and the European Union (EU) are commonly blamed as major culprits in the fall of grain prices, they may only be responsible for one-fourth of the decline. As low-cost producers continue to emerge throughout the world, Canada's agricultural sector will continue to experience the heavy pressure of falling prices. In order to remain competitive, Canadian farmers will have to continue to increase their own productivity. Thus, the problem of U.S. farmers and their continual contribution to lower prices in an effort to maintain profitability through productivity increases is played out on the world stage as well.

1. Should international financial institutions such as the WTO intervene in international agriculture markets to stabilize prices? Who would be helped, and who would suffer if it did?
2. Could the Canadian government act alone to affect the fate of Canadian farmers on international markets? If so, how?
3. Can a competitive firm earn positive profits in the long run? Explain.