Acreage Response to Policy Variables in the Prairie Provinces

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Several recent attempts have been made to estimate the acreage response of Canadian wheat, oats, and barley to changes in price (Capel, Schmitz, Schmitz and Bawden, Missiaen and Coffing). The estimated elasticities of wheat acreage response to wheat price have been found to vary from 0.42 to 0.88 in the short run and from 0.62 to 1.30 in the long run. The wide range of elasticity estimates are due in part to the different definitions of wheat price employed in each study.' Capel used the Canadian Wheat Board international wheat agreement price for No. 2 northern wheat during March at Fort William. Schmitz used the latest final price (including the final payment) prior to seeding, while Missiaen and Coffing used the farm price of wheat lagged one year as did Schmitz and Bawden. Since there seems to be disagreement about which price farmers respond to, a short discussion of Canadian grain pricing practices may be useful. The Canadian Wheat Board is a crown corporation with monopoly control over the marketing of wheat, barley, and oats produced in the Prairie provinces and the Peace River area of British Columbia. The board pays producers an initial payment for grain delivered to it, pools the grain for sale, and returns the profits from the pool to producers in a final payment. The initial payment is a floor price with the Canadian government making up the difference if the average selling price is below the initial payment (Missiaen and Coffing).2 Initial plus adjustment payments for wheat have ranged from $1.40 to $3.75 per bushel between the 1949-50 and 1973-74 crop years.3 Proceeds over and above the initial plus adjustment payment are paid to producers in a final payment made approximately eighteen to twenty-four months after the crop is planted. Final plus interim payments for wheat since 1949-50 have ranged from nothing on the 1968-69 pool to 82.8o per bushel on the 1973-74 pool.4 Barley and oats are handled in a similar mann r to wheat, although in separate pools. Given these pricing practices of the Canadian Whe t Board, it is hypothesized that grain producers react to two different prices in determining what crops and how much to plant: the initial plus adjustment payment, which has been quite stable, and the final plus interim payment.5 None of the acreage response studies mentioned earlier differentiate between farmers' reactions to changes in initial paym nts and changes in final payments. This paper reports on a study undertaken to determine if Prairie farmers react differently to ch nges in initial and final payments in making their wheat, oats, and barley planting decisions. To test this hypothesis, acreage response functions are estimated using initial and final payments as separate variables. These functions are then compared in terms of expected signs, goodness of fit, and estimated elasticities to response functions incorporating only one price variable. If farmers do react differently to changes in initial and final payments, this information can be used to influence the acre-