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The big kahuna in canola

Although most thought that Canada’s relations with China would get easier with a new regime in Ottawa, things are becoming complicated again.

Some farmers are edgy these days and for good reasons. China is threatening to buy canola elsewhere if Canada is unwilling to fix its fungus issue with canola. China intends to apply new inspection standards on September 1, which may block Canadian exporters from selling canola to Chinese importers.

Stakes are significant for the largest exporter of Canola in the world. Over 40% of our Canola exports, $2b worth, is bought by China every year.

Canada relies on its big kahuna, China, to sell this versatile commodity so it can pursue what is considered by many Canada’s greatest agricultural story in its young history.

More than 40 years ago plant breeders in Manitoba, Canada created canola. For consumers, it represents one of Canada’s greatest contributions to world agriculture as it produces the world’s healthiest vegetable oil. It is also quite affordable. In livestock, due to its high protein content, canola is also ideal for animal feed. Anyone who visits China would realize how intertwined both canola and Canada are.

With well over 43,000 producers involved, canola is Canada’s Oil for global food systems. Science, capital markets, intellectual property management, and economic development know-how all combine forces to generate what is now a very successful canola industry. The canola story is so compelling that Canadian producers are trying to replicate similar magic with other crops such as lentils.

The standoff in China, however, is about the dockage level which reports high concentrations of plants and weeds in Canadian canola. China is concerned that the current dockage level will spread blackleg disease to Chinese crops. However, the concerns regarding blackleg are not new.

China registered concerns a few year ago and applied new standards. Nevertheless, China bought more than 4m tons of canola from Canada this past year, which is 90% of its imported canola. But this time it’s different.

China is slowly becoming a food sovereign nation on many fronts. It is producing more hogs, chicken, grains, and so forth. China has imported a record amount of canola over the last decade, but this amount has begun to decline since 2014. Imports have decreased by about 5% over the past few years.

By using its centrally-coordinated economy, China is enticing consumers to eat less meat, which puts less pressure on its agricultural system to produce more. This change in focus may result in lower grain imports over the long term. China is struggling to increase yields but is attempting to give its agricultural system a chance by making its market less protein-hungry.

Nonetheless, if China implements new certification standards related to blackleg, it has alternative options and can buy elsewhere. What is making matters worse is that Canadian canola farmers may be dealing with a bumper crop this year, the second largest in history.

Canola futures are down more than 15% since May as some are predicting stockpiles before next year’s harvest which may push prices even lower. If China stays on the sideline, prices may drop even further. Although some expect price fluctuations to be moderate.

On the other hand, Canada also has options should China play hard to get. Canada can sell its excess canola supplies to the EU, the Middle East and other parts of the world. Trades go both ways and whatever the outcome with China, market conditions will adjust. It is the beauty of global trades. Canola is too much a perfect commodity to pass up.

It won’t be a disaster for Canada regardless of the outcome. However, Canada should note that it is not dealing with the same Chinese customer. China has a different attitude and has been incredibly successful in increasing production capacity. It is also upholding stricter standards, and is becoming a better steward of the land. These changes are happening quickly, more so than many Canadians can appreciate.

Subsequently whatever solution we come up with, we just need to remember who the customer is. Being the inventor of canola does not give Canada immunity, but it does bestow the responsibility of making the commodity adaptable to new market conditions. Diplomacy can go a long way, particularly in agricultural trades since the Canadian brand is really what is at stake here. After all, canola has our identity written all over it.

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