Concerns in the canola sector are mounting in lockstep with the growing tensions between China and Canada.
“Everybody is very concerned about it,” a senior Canadian grain company official told Commodity News Service Canada. “If the conflict isn’t resolved, (canola) will be the obvious target, and that’s a deep concern to everybody.”
The situation began in December with the arrest in Vancouver of Huawei executive Meng Wanzhou, the daughter of the founder of the huge Chinese communications company. Even though her detention was the result of a U.S. extradition request, an outraged Beijing quickly detained two Canadians. Tensions ratcheted up further earlier this month when a Chinese court abruptly sentenced a Canadian to death on drug charges.
“Everybody is on edge and worried about it, but nothing specifically has come off the rails just yet,” said the grain company official.
That view was echoed by Ward Toma, general manager of Alberta Canola.
“Right now, it doesn’t appear that these diplomatic tensions are causing issues on the food export side, but we’re watching it closely,” said Toma. “A positive note is they recently approved some canola traits that have been sitting in their pipeline for a while. They stuck to the timeline they said they would and didn’t delay it.
“On one hand, yes, there are tensions with Canada. But on the other hand, they stuck to their timeline for approving these traits. That’s a positive sign.”
The trade war launched by U.S. President Donald Trump saw China halt purchases of American soybeans for much of last year, leading to speculation that Canada would see increased canola sales. Then came the U.S. extradition request, which immediately became politicized when Trump said, “I would certainly intervene (in the case) if I thought it was necessary,” to secure a new trade deal with China.
“We’ve been drawn into this conflict between the United States and China, and China doesn’t understand our legal system,” said the grain company official, noting Canadians misunderstand the Chinese perspective as well.
The official said that while there have yet to be any trade disruptions directly related to the issue, there have recently been more complaints about slow unloads and extra inspections at Chinese ports than usual. However, these sorts of non-tariff barriers are a common occurrence with China, so the exporter couldn’t be sure if it was just business as usual or something more.
However, “if you’re a major shipper to China, you certainly have concern,” the official said.
The mixing of politics and trade is unfortunate, said Toma, as Chinese buyers are good customers and “have a need and a want for the product that we have.”
China actually did Canadian farmers a good turn earlier this month when it issued — after more than a six-year wait — import approval for a pair of new canola traits. The move will allow for the rollout of a Liberty tolerance trait from BASF and Bayer’s TruFlex canola varieties, both of which are expected to command substantial acreage.
But China remains a customer too important to lose. In the 2017-18 crop year alone, it bought 4.3 million tonnes of Canadian canola seed (out of the 10.7 million tonnes exported).
“If China does go down that road, a huge chunk of our demand would go away, and that would have implications right through the value chain,” said Toma. “They’re a big buyer not just of canola seed but of canola meal and oil as well.
“That would impact canola seed exports, canola crush margins, and the crush itself. We’d have to find new homes for all that product.”
But so far, it seems to be business as usual, he added.
“They haven’t appeared to be backing off from buying. They’re not dropping pricing.”