Business

4 reasons you should care about canola's role in Canada-China relations

Prime Minister Justin Trudeau's first official visit to China coincides with a Sept. 1 deadline that the Asian economic giant has set for Canadian producers to tighten their screening of our exports of canola to the country.

There's a $2B market at stake for Canadian canola producers, and it has broader trade implications

Canadian farmers are expected to produce about 17 million tonnes of canola this year. (Scott Mason/The Winchester Star/Associated Press)

Prime Minister Justin Trudeau is making his first official visit to China this week, hoping to bolster relations with the Asian economic giant that is Canada's second-largest trading partner.

Trudeau's trip, however, coincides with a Sept. 1 deadline that China set for Canadian producers to tighten their screening of our canola exports to the country.

Saying they want to prevent the spread of a disease called blackleg to their own crops, the Chinese want the dockage rate — the amount of stems, pods, weeds, and other matter that ends up in shipments — cut to one per cent from 2.5 per cent. 

Given that backdrop, here are four reasons to care about the politics of canola:

1. Big market slice

Statistics Canada says Canadian farmers anticipate producing 17 million tonnes of canola this year. That is down about one per cent from last year, but producers are said to be on track for the second or third biggest harvest on record.

Canada ships about 40 per cent of its canola seed exports — about four million tonnes — to China. The country is the biggest foreign consumer of our canola exports, and it represents a market worth around $2 billion to Canada.

2. Costing farmers 

At the same time that a big harvest is putting some downward pressure on canola prices, the Sept. 1 deadline set by the Chinese is also said to be playing a part. On Monday, the November canola futures contract dipped $3.50 per tonne to settle at $456.20. 

If China doesn't budge, prices may drop further, although some observers expect price shifts to be moderate, said Sylvain Charlebois, dean of management and professor in food distribution and policy at Dalhousie University, in a commentary this week.

Ward Toma, the general manager of the Alberta Canola Producers Commission, said there is no evidence that lowering the dockage rate will lead to a reduction in the risk of disease transmission.

Canadian canola may face stricter regulations from China. 2:14

"All it's going to do to is push costs on to the Canadian industry," he said, adding that the enhanced screening being demanded by the Chinese will also slow down shipments.

"It takes a lot longer to clean these seeds," he said. "We have to remember that we're talking about a seed that is the size of a poppyseed. It is very small — a third the size of a peppercorn."

3. Too perfect to pass up

If the canola screening issue remains at an impasse, both countries could wind up looking elsewhere to satisfy their needs.

China could look to its domestic market and to Australia, although reports suggest that wouldn't be enough to make up for the loss of Canadian sources.

Canada, meanwhile, could sell its excess canola supplies to the European Union, the Middle East and other parts of the world, Charlebois said. 

"Trades go both ways and whatever the outcome with China, market conditions will adjust. It is the beauty of global trades. Canola is too much a perfect commodity to pass up," he said.

4. The bigger trade picture

Canola is expected to be a central issue in trade discussions between Canadian and Chinese officials.

Both countries have said they want to resolve the matter, though Chinese officials have accused Canada of being unfair in its position on the issue. International Trade Minister Chrystia Freeland has said the matter needs to be settled before the relationship between the two countries can grow.

​"Regardless of how well you plan, there is always an issue that at least influences the tone [of the meeting], and this is one of them." said David Mulroney, Canada's ambassador to China from 2009 to 2012.

In the context of the broader global trade picture — where questions remain about Brexit, and both Donald Trump and Hillary Clinton say they oppose the Trans-Pacific Partnership — former ambassador Mulroney sees getting something moving with China as very important for Canada.

"Nobody says we have to go out and negotiate a bad deal, but simply sitting down with the Chinese and looking at the breadth of the trading relationship, focusing on some areas where we want to make sure that we've good improved and fairer access, is not a bad idea at all," he said in an interview with Peter Armstrong, the host of The Exchange.