Australia would likely benefit most from a shift in global canola trade flows if China imposes tariffs on Canadian imports of the oilseed. However, Beijing will need to address its concerns over blackleg fungus.
China, the largest importer of canola The world's largest oil producer, the world's largest oil producer, has shaken the market by announcing an anti-dumping investigation into Canadian canola imports. Canada is the world's largest exporter of the oilseed, which is widely used to produce cooking oil, biofuels and animal feed, and is also China's main supplier.
Canola trade between China and Canada is worth approximately US$1.4 billion per year. However, to access Australian canola, the world’s second-largest exporter, China would have to review cargo testing requirements for blackleg, a fungal disease found in Australian crops.
Since 2020, China's quarantine rules, designed to prevent the spread of the fungus, have blocked canola shipments from Australia.
China faces difficulties
According to Ole Houe, director of advisory services at IKON Commodities in Sydney, China has few options. “They would basically have to go to Australia to buy canola. Supplies from the European Union and Ukraine are tight, and although Russia has a bigger crop, it is not enough to meet all of China’s demand.”
China’s anti-dumping investigation into Canadian canola is due to be concluded by Sept. 9 next year, with a possible six-month extension. Since the announcement, Chinese buyers have shied away from signing new import contracts for Canadian canola, trade sources said.
“Canola trade between China and Canada has come to a virtual standstill,” an industry source said. “Importers are concerned about the deals already in place.”
Canola, known in Europe as colza, is widely grown in Canada, Europe and Australia. Its yellow flowers are used to produce cooking oil, biofuels and animal feed meal. Approximately 40% of Canadian canola exports are destined for China, accounting for 90% of Chinese imports of the oilseed.
China and Australia seek solutions
Blackleg, a fungus that reduces oilseed yields, continues to be the focus of trade disputes over canola imports from Canada and Australia. For example, before the most recent disruption, China suspended Australian imports from 2011 to 2013 due to the disease. In addition, the Chinese government also limited Canadian shipments in 2009 over similar concerns.
However, experts believe China could quickly reopen the Australian canola market by adjusting its import rules. “China would have to change its requirements on blackleg. In fact, they could do that easily, it’s just a matter of changing the specifications,” said Rod Baker, an analyst at Australian Crop Forecasters.
Meanwhile, Canberra is working with Beijing to resume canola exports. The two governments have agreed to conduct trial shipments, a spokesman for Australia’s agriculture ministry said. The trials involve processing the canola near ports of entry to avoid contamination of rural areas.
Finally, trade data shows that Australia shipped 500 metric tons of canola to China in June.
Problems with black leg
Blackleg is also present in Canadian canola. However, Canadian exporters clean their seeds before shipping, removing impurities such as chaff and broken seeds that may contain the fungus. Australia allows up to 3% of impurities in shipments, while China requires a maximum of 1%.
Analysts point out that Australian farmers have options beyond China, exporting to markets that pay higher prices, such as the European Union. “Australia is not dependent on China for its canola exports,” said Vitor Pistoia, an analyst at Rabobank.
Most Australian farmers grow non-GM canola, which commands higher prices in the European market. In contrast, Canadian farmers grow almost exclusively GM canola.
Still, China would have few alternatives outside Australia if its investigation into Canadian canola results in a ban. Importing canola oil and meal would be more expensive and would hurt the country’s seed crushing industry.
China could also import canola from Ukraine and Russia, but these countries export smaller volumes than Australia. European demand for canola also rivals that of China, which would drive up prices for Australian cargoes.
“We expect an increase in demand and a positive impact on canola prices,” said Mark Fowler, a producer in Western Australia.
Australian canola is currently more expensive than Canadian canola, priced at €448.76 per tonne, compared to €436.56 for Canadian canola, according to European Commission data.
Source: Reuters | Notícias Agrícolas
