U.S.-Canadian ‘Pasta War’ Has Both Sides in Boil

In what was known as Defense Scheme No. 1, Canada once planned to respond to a U.S. invasion by seizing Albany, N.Y., and Minot, N.D. Its bizarre plan was prepared more than 60 years ago by an equally unlikely figure: a Canadian army colonel who, wearing civilian clothes, crossed the border in his private car and scouted potential military targets.

Times have changed. The United States and Canada now face each other across the world’s longest undefended border.

Yet a war of sorts is being waged even now in lush Midwestern fields of durum wheat.

The issue is pasta. Canada has elbowed its way into the U.S. macaroni market.

Convinced that Canada is selling its durum wheat--the stuff of bow-tie noodles, angel hair, common spaghetti and just about every other pasta--at below-market prices in the United States, U.S. farmers are in a boil.

Canadians reply that Americans talk loudly about free trade while trying to keep the competition out. Alanna Koch, executive director of the Western Canadian Wheat Growers Assn. in Regina, Saskatchewan, said that an otherwise neighborly trading relationship will reach a flash point if the United States tries to limit the importing of Canadian grain.

In today’s atmosphere of cutthroat international economic competition, even the best of friends can find themselves on opposite sides. If the United States and Canada can wage economic war over wheat, how much more difficult will it be for the United States and Japan to resolve their disputes?

Sunny weather on the plains coupled with adequate rain have farmers on both sides of the U.S.-Canadian border talking optimistically about bountiful crops this year. But they have bumped up against the reality of the global trend toward open borders and free trade, brought home first by the 1988 U.S.-Canada Free Trade Agreement and now by the North American Free Trade Agreement.

Take the mirror images presented by Gregory D. Downs, who raises wheat in the dark, rich soil near the Red River of the North in North Dakota, and Warren Jolly, who does the same near the Saskatchewan town of Mossbank, 50 miles southwest of Moose Jaw.

Both are fourth-generation farmers. Downs is 42 years old; Jolly is 43. Each has two daughters and a son. Each has sunk hundreds of thousands of dollars into combines and tractors. Now, to save money, each is buying used equipment. Each has an academic degree in agriculture.

Downs works 2,700 acres, which he seeded this year with hard spring wheat for bakers, sunflowers to produce edible seeds, white bulbous beets that put sugar on America’s kitchen tables--and durum wheat. Jolly plants durum over roughly 3,500 acres, an area about as large as Beverly Hills. The two men this year probably will raise about 142,000 bushels of durum--enough to feed a plate of penne to every person in Beverly Hills.

And each admits that if he were in the other’s mud-clogged boots, he would have done just as the other has, taking advantage of trading opportunities when they presented themselves and fighting them when they became a threat.

But their similarities, down to a preference for aviator glasses and Western-style work shirts with mother-of-pearl buttons, do little to mask the concern and confusion that have built up over the impact that free trade--or at least a cross-border trading system in which the rules have been rewritten with unpredictable results--is having on their lives.

It is a story being told all along the 5,500-mile border, from the Pacific, where the two nations are arguing over salmon fishing, to the Atlantic, where the efforts of farmers in Maine to sell poultry, eggs and dairy products in Quebec are being challenged. Canadians, meanwhile, are pushing south, trying to sell their peanut butter, sugar and, increasingly, barley in the United States.

In an angry speech that shook up international traders, Roy MacLaren, the Canadian trade minister, warned in Washington in May of “a growing list of disputes--from pork to beer to steel--that, if allowed to escalate, risk creating a trade and investment chill between our countries.”

“We’ve moved out of a very calm period into one that has gotten testier, with a longer list of issues to deal with,” said Joseph J. Jockel, director of Canadian affairs at the Center for Strategic and International Studies in Washington.

When he was in office, President Ronald Reagan established a camaraderie with then-Prime Minister Brian Mulroney, a fellow conservative, and President George Bush slipped so comfortably into the relationship that Mulroney was a frequent guest at Bush’s oceanside home in Kennebunkport, Me.

But President Clinton and Jean Chretien, Liberal Party prime minister since October, have encountered each other only once. Each has focused on domestic matters.

That has left plenty of room for trade disputes. U.S. poultry sales in Quebec play into the much more difficult question of whether the province will break away from the rest of Canada. Canadian wheat sales in the upper Midwest influence the economic recovery there, which in turn can affect congressional elections this year and the presidential election in 1996.

President Dwight D. Eisenhower was said to have once remarked, “If you can’t get along with Canada, who can you get along with?”

But the history of U.S.-Canadian relations is replete with examples of contentious disputes that, while not forcing Canada to activate Defense Scheme No. 1, nonetheless have soured the neighborly relationship.

The kernel of the conflict over durum wheat is whether Canadians engage in unfair practices in selling their crop in the United States, because the sales are based on monopoly pricing and government subsidies that cut the cost of transporting the crop to grain elevators and mills.

The U.S. International Trade Commission is expected to complete an investigation, requested by the White House, on Friday. It could call for quotas or tariffs on U.S. purchases of Canadian wheat, a decision to be made by Clinton.

U.S. Trade Representative Mickey Kantor said the Canadians have captured as much as 40% of the U.S. durum wheat market by using unfair practices. The chief economist of the U.S. Department of Agriculture testified before the commission in April that Canadian sales had reduced U.S. farm income so much over the last three years that the government has had to pay an additional $682 million in price supports.

There is little certainty about the price Canada is getting for its grain because the Canadian Wheat Board, the only legal seller of Canadian wheat in bulk, is not required to disclose such information.

But while U.S. farmers may not know the actual price Canada is getting for its wheat, they see the huge tractor-trailers hauling the golden Canadian crop to grain elevators scattered across the upper Midwest. They see the elevators filling up with cheaper imported grain. They see a diminishing market for the U.S. crop. And it adds up to this: lower prices being paid to farmers for wheat raised on U.S. farms.

More than that, U.S. production has dropped steadily from 3.3 million metric tons in the 12-month period ending June 30, 1991, to a current level of about 2 million metric tons. American farmers blame the increased competition from Canada, and particularly the government subsidy for transportation costs.

They suspect that Canada is undercutting U.S. prices by roughly 10 cents a bushel--a difference too small to show up on grocery shelves but big enough to make a difference to the farmers who sell the wheat and the millers who turn it into pasta. But some agriculture economists wonder whether there really is any undercutting at all.

“That’s what the North Dakota producers allege, but it hasn’t been borne out by much evidence,” said Demcey Johnson, an assistant professor of agriculture economics at North Dakota State University in Fargo.

As seen in Canada, the issue is one driven by “regional and local political considerations in the United States rather than by any real trade issue,” a Canadian government official said.

The official, speaking on condition of anonymity, dismissed talk of transportation subsidies and complaints about the Wheat Board as “red herrings.” U.S. quotas on Canadian wheat sales, he said, could bring retaliation “across a broad range of products in the agriculture area.” For instance, Canada could impose quotas on California wine or on the amount of finished pasta that it would accept from U.S. factories.

Canadian officials and farmers also criticize U.S. subsidies to farmers who sell wheat overseas. The subsidies are mainly in retaliation for similar European export subsidies, but the Canadians argue that Canada’s growing wheat sales in the United States are merely filling the void created when American farmers take advantage of their own subsidies for wheat exports.

“It’s almost like extortion,” said Daniel Schwanen, a senior policy analyst at C.D. Howe Institute, a Toronto-based economic policy research organization that generally endorses free trade. “What (U.S.) wheat farmers want is a higher price at the expense of everyone else. The U.S. can’t argue that we’re dumping wheat or we’re subsidizing our wheat. It’s just that we’re selling too much.”

Try telling all this to Gregory Downs, mild-mannered, lanky and ready at the drop of an ever-present baseball cap to quietly lay out his case.

While the price of wheat fluctuates from month to month and last year averaged $4.35 a bushel in North Dakota, the National Assn. of Wheat Growers is expecting an average price this year of $3.20 a bushel.

By Downs’ figuring, it costs him at least $3.11 to raise a bushel of durum, a figure that includes such costs as seed and fertilizer, but not such indirect costs as renting his land, paying his $5,300 annual health insurance premium and transporting his wheat 100 miles to a mill in Carrington, N.D., where it is made into penne and rotini and other pasta.

He estimates that a crop that otherwise might sell at $3.50 a bushel might fetch only $3 when the market is flooded with Canadian wheat. “That’s what will kill us--if they drive the price below the operating expenses,” he said.

So over the years, Downs has cut back consistently on the durum he has planted from a high of 1,200 acres to his current 450 acres.

Across the border, the picture is quite different.

Warren Jolly is optimistic about this year’s crop and the cash it will bring. Prices are up. And subsidies for European farmers, which had made it difficult for Canadians to compete, have been limited.

Jolly admits to some “pretty heated” discussions with U.S. farmers. He is reluctant to criticize his competitors in the wheat fields across the border, although he is less restrained in his view of their government.

“You guys have a protectionist government down there now and they are just going to take advantage of it and I don’t blame them a bit,” he said. “If I was down there I’d do the same thing.”

As it is, Jolly, a director of the Western Canadian Wheat Growers Assn., is none too happy with the government Wheat Board, to which he must sell all his crop at a non-negotiable price. A U.S. miller offered him $10 for each bushel of top-quality grain, he says, but Canadian law requires him to sell his crop to the government at roughly $4.38 a bushel.

“I’d like to see a continental market where I could deal any place in the continent, even Mexico . . ,” he said. “That should happen. It eventually will happen, but it may be my son who’s farming then.”

For Downs, the prospects looked just as good last year at this time as they do now. Then a cool July nurtured a fungus that drove down the quality and price of North Dakota durum.

“It’s frustrating being a farmer, and then you get the Canadians coming in and it’s just another sore point,” he said.

That reminded him of a story about a giant fish caught off Cuba that was devoured by sharks, bite by bite, before the fisherman could bring it home.

“Did you ever read Hemingway’s ‘The Old Man and the Sea?’ ” Downs asked. “The Canadians are just one more shark taking a bite out of our bottom line.”

Gerstenzang reported from North Dakota and Turner from Saskatchewan.