Tag Archives: Environmental Economics

The Environmental Impact of Trade in Canada – a Brief Introduction

Trade liberalization of the agricultural sector in any country often leads to three possible production effects that can affect the environment: a scale effect, a composition effect and a technique effect. In the first case, trade liberalization allows countries to reach new markets, thus increasing the overall production scale. If the country produces goods that negatively affect the environment, then trade generates pollution through this scale effect. However, trade liberalization goes both ways – other countries will now be able to sell to the newly liberalized economy. As a result, countries will tend to specialize in goods for which they have a comparative advantage, switching their product composition to goods they can produce more efficiently. If the country specializes in “dirty” (polluting) goods, then trade generates pollution through the composition effect. Finally, as a result of trade, countries might have access to new productive technology from their counterparts, and will also have incentives to improve its own productive technologies to become more competitive. If any new technology is more polluting than those used before trade liberalization, there will be a negative environmental technique effect from trade.

Trade Liberalization and the Environment in Canada: The Crop Sector

Canada joined the World Trade organization in 1995 and has signed over 11 bilateral or multilateral trade agreements ever since. Canadian crop exports have dramatically increased ever since. Between 1988 and 1998, Canadian vegetable exports (including cereals, fruits and vegetables, oil seeds, fodder and roots) increased in 47%, and between 1998 and 2008 these increased by 102%. During this period, cereals went from representing 74% of total vegetable exports in 1988 to 46% in 1998 and 44% in 2008. In contrast, oilseeds (e.g. canola, soybeans) and vegetables/roots (e.g. beans) increased its share from 16% and 5%, respectively, in 1988 to 30% and 16% in 2008.(1)

Pollution from agricultural trade – is there a case in Canada?

A case can be made for the need to study the environmental impact of crop trade liberalization in Canada, when contrasting exports with environmental changes. For example, most of Manitoba’s agricultural land in 1981 had very low levels of residual soil nitrogen (RSN), between zero and 9.9 kg N/ha.

1981 Residual Soil Nitrogen (RSN) on farmland, © 2010 Agriculture and Agri-Food Canada. All rights reserved.

In 1991, right after signing the Canada-US Trade Agreement (CUSTA), almost all of Manitoba’s agricultural land had either moderate RSN levels (between 20 and 29.9 kg N/ha) or high (30-39.9 kg N/ha) (2). By 2001, most of its land had either high RSN levels or very high (above 40 kg N/ha).

2001 Residual Soil Nitrogen (RSN) on farmland, © 2010 Agriculture and Agri-Food Canada. All rights reserved.

Exports of highly nitrogen-demanding crops also skyrocketed in this period: between 1991 and 2006, exports of vegetables/roots/tubers (including beans) increased in 122%, and exports of oilseeds (including canola and soybeans) increased in 117% during the same period. OECD reported that, in Canada, the average nitrogen requirements of soybeans are 58 kg N/tonne of crops, and dried pulses, rapeseed (canola) and beans had an average requirement of 35 kg N/tonne(3); these are the highest nitrogen-demanding crops grown in Canada in the last 30 years.

Several other factors can influence the environmental impact of crops over soil and water. However, there seems to be a clear pattern between changes in trade patterns, production decisions (crop choices) and environmental degradation across the Canadian agricultural land, which calls for further analysis at a more disaggregated level.

(1) Statistics Canada, Canadian International Merchandise Trade Database, retrieved on April 23, 2012. http://www5.statcan.gc.ca/cimt-cicm/home-accueil?lang=eng

(2) Agriculture and Agri-Food Canada, Agri-Environmental Indicators. Retrieved on February 22, 2012.

(3) OECD Stat, Environmental Performance of Agriculture in OECD countries since 1990, retrieved on February 22, 2012.