China, Canada, and Canola.
An armchair analysis of China’s claims about pests in Canadian shipments, and the impact it might have on Canadian canola farmers.
Preface: Canola is Canadian branded rapeseed. I use the terms canola and rapeseed quite interchangeably throughout this article.
Against the backdrop of a trade war between the U.S. and China, Chinese oilseed processors have halted orders of Canadian Canola seed, and the Chinese government has revoked the export permits of 2 Canadian canola exporters. Chinese officials cite the blackleg fungal disease, which is found in some Canadian crops, as the primary reason for barring imports from Canadian producers. Similar claims were made in 2012 and in 2016 when China threatened to change the maximum levels of allowable foreign organic material in rapeseed imports from 2.5% to 1%.
Many analysts believe the trade barrier may have been erected by the Chinese government in response to Canada’s detention of Huawei executive Meng Wanzhou in December 2018 on behalf of an extradition request from the United States Government. Since Meng’s arrest, President Trump has indicated that he would be willing to intervene in the legal process if it strengthened the possibility of a U.S.-China trade deal being reached, leading some to suggest that the extradition order was politically motivated.
Are China’s concerns over blackleg founded?
Probably not.
The blackleg fungal disease has not been introduced to Chinese rapeseed crops yet even at the 2.5% level of allowable foreign material (dockage), which is likely a good indicator that the disease will not establish itself in Chinese crops. This due both to the nature of the disease, and the logistical nature of rapeseed processing.
To process oilseeds such as rapeseed and soybean into marketable goods, the seeds are crushed at processing plants which separate the seeds from the oil. Typically, the crushed seed (meal) is used in livestock feed, and the oil is used as cooking oil in home cooking and commercial food production.
There are 14 Chinese oilseed crushing plants that have been approved to process Canadian Rapeseed. All 14 plants are located along the coast of China in areas where rapeseed is not produced. In most cases, oilseed will be processed in these coastal plants before heading inland, where the domestic rapeseed crops grow. Transmission of the disease would require direct contact between infected dockage and the uninfected crop, which is unlikely to happen.
A number of plant disease experts believe China’s Claims are not scientifically founded. In a 2016 interview with the Globe and Mail, Dr. Dilantha Fernando, a Professor of Plant Sciences at the University of Manitoba , claimed that transmission of blackleg to Chinese crops was unlikely and that a reduction in dockage levels would not lead to a significant decrease in the probability of the disease establishing itself, which, even at the 2.5% level, is extremely low.
Does China need Canadian canola?
Probably Not.
Here is a cool visualization of China’s rapeseed imports provided by resourcetrade.earth.
95% of all rapeseed imported into China in 2017 came from Canada, and 25% of all rapeseed processed in China came from Canada. This has led some in the media to claim that China needs Canadian canola in order to sustain it’s consumption levels of rapeseed products, what they have not considered are the functional substitutes of rapeseed.
Rapeseed is used by the Chinese to produce vegetable oil for cooking, and rapeseed meal for use in livestock feed. Soybeans are a functional substitute to rapeseed and can be processed with similar methods that require the same facilities. This flexibility allows crushers and downstream processors to more easily substitute canola for soy.
In 2016 rapeseed oil accounted for 24% of edible oil consumption in China, soybean oil accounted for 44%, and palm oil for 18%. While there are nutritional differences between the oils described above, Chinese consumption preferences for vegetable oils are regional in most cases, and consumers are price sensitive. So a Chinese consumer who lives in a rapeseed producing province may have a preference for rapeseed vegetable oil over soybean oil, but if the price of rapeseed oil increases, they will likely respond by substituting towards a cheaper alternative such as soybean vegetable oil.
China imports a lot more soybean than it does rapeseed. To make up for the lost Canadian rapeseed imports, China may increase it’s soybean imports slightly (possibly less than 10% if this year is anything like 2017 or 2018).
What does this mean for Canadian canola growers?
According to Statistics Canada, at the end of December 2018, there were 13.4 million tonnes of canola stored on Canadian farms. If farmers are unable to move this product to off-farm elevators, there may not be enough on-farm storage space for the next harvest and may result in spoilage. This problem is compounded by farmers unwilling to sell at the current price, which took a sharp decline following higher than expected yields and a slow in Chinese imports of Canola. Without the ability to export raw seed, an influx in domestic canola oil production is to be expected, but currently, crushers in Canada are at capacity possibly to an influx of US soybeans entering Canadian crushers following Chinese tariffs on US Soy. Even as this substitution takes place, it is unclear that the seeds can be processed fast enough to clear the space required for farmers to store new harvests. If there is an urgency to move product as the next harvest comes in may cause further downward pressure on prices.
