Canola marketing crisis averted for now

There is some bemusement in watching Prime Minister Trudeau talking about Canola during his visit to China. It's unlikely big city boy...

There is some bemusement in watching Prime Minister Trudeau talking about Canola during his visit to China. It’s unlikely that big city boy Justin Trudeau even knew where canola oil came from outside of a grocery store. All that talk about canola also took away some of his precious time from discussing more sexy topics like climate change and human rights. But that was probably the plan all along from the Chinese perspective who probably wanted to put the new kid on the block in his proper submissive place. Such cunning manoeuvering is all part of these events, mostly designed to give one side the upper hand at the meetings. I would suggest that the Chinese won the brinkmanship battle by suggesting to extend the deadline on the canola dockage issue. Canada quickly grasped at the offer to kick it down the road and off the agenda of the visit. Trudeau at his theatrical best then tried to make it look like Canada had won some great victory, no doubt the inscrutable Chinese were amused with his naïve discomfort. One wonders what Canada had to offer up in return. Perhaps we will see Trudeau becoming less strident about Chinese human rights abuses. I expect you won’t hear him highlighting Chinese hypocrisy on climate change either. The Chinese won this round.

Chinese trade threats on canola imports are typical of market access mischief that many countries engage in on a regular basis to favour or increase domestic production. The European Union is notorious for such trade treachery with their restrictions on GM corn and oilseed imports and the phony beef hormone issue. The USA engaged in such trade deceit with their COOL beef restrictions. Market analysts note that China has surplus production of its own canola (which they continue to call rapeseed) and has a large stockpile of millions of tons of various domestic vegetable oils that it has purchased at subsidized prices. Restricting canola imports would surely help reduce those surpluses and stockpiles. Some have noted that this issue may have also involved a conniving assault on canola pricing mechanisms and marketing. China would have continued to buy 2.5 per cent dockage canola, but it would have been at a discount to their 1 per cent dockage demand had they imposed the new restriction on Sept. 1. As the world’s largest canola buyer, China holds all the cards and they know how to wield that power.

Canola industry and government officials like to proclaim that science does not support the dockage position of the Chinese government. Millions were spent to scientifically prove that the canola disease, Blackleg, was not likely to spread through dockage. That matters little when devious governments want to restrict imports of a particular product for domestic politics. The problem for exporters is how to respond to such outrageous trade threats and actions. The usual recourse is to take the trade miscreants to a World Trade Organization tribunal, but that can take years of agonizing and expensive litigation as the COOL trade dispute with the US so well demonstrated. The other approach is to submit to such trade mischief and blackmail but that’s not always fair or even reasonable. The underlying argument to such compliance is to give the customer what it wants even if it’s based on dubious reasoning.

The canola dockage issue could have been addressed differently. Canada could have just bit the bullet and agreed to the lower dockage level and negotiated a phase-in period of several years, and that may still occur as negotiations continue. Those affected tend to paint apocalyptic visions of the canola industry collapsing, but history has shown that markets will adapt through premiums or penalties to some sort of equilibrium and life will go on for canola exports to China.

Technology does exist that could reduce the present 2.5 to a 1 per cent level; but it will be expensive for buyers and exporters to install the equipment. Those folks will probably want to stay in business so they will either extract that extra canola cleaning expense out of the buyers or more likely from canola growers. The Australians, who also sell canola to China, seemed to have capitulated to the Chinese 1 per cent dockage demand so that has set the precedent for Canadian submission to this sort of trade tyranny. The only reprieve would be if Canada agreed to some other trade demand like open access for all Chinese government-owned companies to acquiring Canadian energy businesses. It’s all part of the fun of international trade politics.