The significance of quality differences for the United States and Canada wheat trade

Some insights are provided as to why the United States, the fifth largest wheat producer in the world, imports a significant amount of wheat from Canada. After reviewing intra-industry trade theory and the relevant empirical constructs, an implicit price function of the import demand for wheat focusing on the physical and intrinsic characteristics of wheat is estimated. The results are revealing. There is a premium for the protein content and the percentage of heat-damaged kernels in wheat. Clearly, the fact that wheat is a differentiated commodity possessing a mix of physical and intrinsic characteristics together with price considerations helps to explain why the import of Canadian wheat by the United States exists and why this became a significant issue in 1993.