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Trade agreement a big deal for canola growers

Trans-Pacific Partnership trade accord comes as canola acreage poised to grow once again

The timing couldn’t be better.

Tariffs on Canadian canola oil into Asia could be scrapped as early as January if the new Trans-Pacific trade deal goes into effect. And that’s good news as canola growers seem poised to boost acreage this coming spring.

Canada ratified the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) late last month and, at press time, Australia was racing to do the same by Nov. 1, which would make it the sixth country to do so and bring the deal into effect by the new year.

Ratification will give Canada’s canola industry a major boost, said Jim Everson, president of Canola Council of Canada.

“We need to do what we can to make sure we meet this deadline and get six countries ratified,” said Everson. “Then we’ll be able to benefit from the reduction in tariffs.”

Currently, Canadian canola can enter countries such as Japan and Vietnam tariff free — but value-added canola oil is subject to a 16 per cent tariff in Japan and a 20 per cent levy in Vietnam.

“It’s a prohibitive tariff, so there isn’t much oil that’s shipped from Canada to Japan, which is an important market for Canadian canola,” said Everson.

“If those tariffs are reduced — and the schedule before the CPTPP is that they would be reduced over a five-year period — it becomes more possible for us to market oil, which is a higher-value product.”

By lowering tariffs, the Trans-Pacific trade deal will greatly boost the market for canola oil and meal, says the Canola Council of Canada.
photo: Canola Council of Canada video

Once those tariffs on canola oil and meal are fully eliminated in Japan and Vietnam over the next five years, exports could increase by up to $780 million a year, he said.

“Oil is a higher-value product, so we’ll be able to gain additional returns to the marketplace” said Everson.

But any additional delay to the ratification process will push Canada even further behind competitors like Australia, he added. Australia already has a free trade agreement in place with Japan that reduces tariffs on Australian canola oil, so Canadian canola oil faces a tariff that’s six per cent higher than Australian canola oil.

“We want our industry to stay competitive, and if the CPTPP isn’t passed in time, it would just delay that scheduled tariff reduction for Canada,” said Everson.

Four other nations (Mexico, Singapore, Japan, and New Zealand) ratified the deal ahead of Canada. Australian legislators have also voted in favour of the deal and their government was expecting to have it formally ratified by Nov. 1, which would trigger the 60-day period for bringing the Trans-Pacific deal into force.

Growing global demand

So what will this mean for canola growers in Western Canada?

Even if the tariff reduction begins in early 2019, it will take some time for the canola industry to feel the full impact of those changes, said Bruce Burnett, director of MarketsFarm at Glacier FarmMedia (the parent company of this paper).

“If previous trade deals are any indication, it takes awhile for these agreements to have an impact,” said Burnett. “Typically in these types of agreements, the tariffs will decline on a five- to 10-year period, so any immediate impact will be muted. It’s going to be the same thing with the CPTPP.”

However, in the longer term, the tariff reduction will be key to expanding Canada’s reach in the global canola market, said Everson.

“With those tariff reductions, we would be able to expand into other Asian markets,” he said.

“There are fast-growing markets in Asia for sure, so it’s likely that Asia will play a big role in any growth in our market.”

And the canola sector is counting on growing international demand for both oil and meal.

“We currently export about 90 per cent of what we produce in the canola industry, so we’ve really turned our attention to how we can expand our exports,” said Everson. “We’ve set a target for increasing production from about 21.3 million tonnes to 26 million tonnes by 2025. That target has been set to meet our anticipated global demand for canola.”

Canola growers appear set to get closer to that target in 2019.

In Alberta, pulse acreage is expected to drop by up to 15 per cent next year as a result of tariffs on Canadian pulses exported to India, while durum acreage may also drop as a result of trade barriers to Italy.

Many of those acres look destined to go into canola, said Burnett.

“That did happen to some extent this year on the pulse side, and certainly we’ll be looking at a lower durum area next year,” he said. “So we could see a slight pickup in canola area in the coming year.”

But it will depend largely on the growing conditions heading into spring seeding, he added.

“We still need to get some moisture in the southern Prairies before a lot of farmers will be comfortable planting a lot more canola,” said Burnett.

“But if we do see improved growing conditions in the spring, we’ll probably see some increases in canola acres.”

If Alberta producers do decide to put a few more acres into canola next year, they should be able to find a good home for their crop, said Everson.

“There’s a strong demand for canola, whether it’s seed, oil, or meal, and Alberta is a province that’s very well situated to meet that demand,” he said.

While the Trans-Pacific deal will be key to expanding markets for Canadian oil and meal, there’s increased demand around the world for high-quality protein and vegetable oil.

“We tend to forget about Latin America, but there is a fairly consistent demand from Mexico and other Latin destinations on the western side of South America,” said Burnett.

“Just in general, canola demand is increasing over time. We produce record-large crops every year, and the demand for canola seed, meal, and oil seems to move along as well.”

About the author

Reporter

Jennifer Blair is a Red Deer-based reporter with a post-secondary education in professional writing and nearly 10 years of experience in corporate communications, policy development, and journalism. She's spent half of her career telling stories about an industry she loves for an audience she admires--the farmers who work every day to build a better agriculture industry in Alberta.

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