The federal government may be throwing canola producers a financial lifeline amid a growing dispute with China, but finding Canadian exporters alternatives to replace their biggest market will be no easy task, industry experts say.
Canada’s agriculture and trade diversification ministers announced Wednesday that they were temporarily increasing loan limits for farmers under what is known as the Advance Payments Program.
For 2019, those limits would be hiked to $1 million from $400,000 on advances for all commodities, while canola-related advances would also be interest-free on the first $500,000, up from the usual $100,000 for all commodities.
While the Canadian government says they are committed to getting full-market access for Canadian canola seed exports to China, International Trade Diversification Minister Jim Carr also announced he is heading off on a “canola trade mission” to Japan and South Korea in early June, in a bid to drum up new business for the signature Canadian crop.
Ottawa’s announcement came after China blocked seed shipments from two of Canada’s biggest exporters and as Chinese buyers are said to be shunning Canadian canola.
The bans followed the arrest of a Huawei Technologies Co. Ltd. executive in Vancouver and are viewed by many as a result of the ensuing diplomatic spat between Canada and China.
But just where canola growers and exporters will turn for a substitute to China is a major question mark. Around 40 per cent of Canadian canola seed, oil and meal exports had gone to China, and the country was the destination for $2.7 billion in Canadian canola seed exports last year, according to the Canola Council of Canada.
“There isn’t a real simple answer to this one, because the tonnage that China has been purchasing has been so large,” said Al Mussell, research lead and founder of Guelph, Ont.’s Agri-Food Economic Systems Inc. “You’re looking for probably a range of small markets here and there. You’re looking for additional utilization of whatever capacity we have in Canada … but you’re not going to solve this problem overnight.”
The feds highlighted recent trade deals with the European Union and Pacific nations, saying they had granted Canadian farmers preferential access to major markets.
Japan, which is part of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, has already been a more than $1-billion market for Canadian canola seed, according to the Canola Council of Canada. Tariffs of around 15 per cent on canola oil, however, had stifled those exports, a hurdle that is expected to come down under the new trade deal.
Mussell also said Canada is selling more beef and pork under the CPTPP, which could help boost domestic demand for canola meal used to feed livestock.
“It’s an ideal time to bolster our efforts to provide our top quality products to other customers,” added Jim Everson, president of the canola council, in a release. “We need to seize the opportunity to develop markets, especially in Asia, building on our trade agreements.”
The council welcomed Wednesday’s help, but is also pushing for a “government-industry export diversification office” to try to boost sales to Asian markets.
The spat between Canada and China also looks to be putting pressure on commodity prices, with National Bank Financial noting earlier this week that canola futures have fallen to a “post-2014 low,” and that soybean and wheat prices have dipped since the start of the year.
“We continue to see the deterioration in trade relationships with China as a negative for farmer sentiment and income, while concurrently increasing demand for short-term storage,” analyst Greg Colman wrote.
According to Mussell, one of the worst things that could happen would be a “panic,” where uncertain farmers bail on the canola business. That would be bad for processors and the other export markets, he added.
“So you gotta stop that, and I think this does achieve it,” Mussell said of the government’s measures. “However, it still leaves open the question of, when harvest time comes, who exactly are we going to be selling all this canola to? And at this point, frankly, I don’t know if there is a good resolution to that question.”
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