What is canola?
Canola is an oilseed developed by researchers from the University of Manitoba and Agriculture and Agri-Food Canada in the 1970s. The ‘Can’ in its name stands for Canada. Researchers wanted to develop an oilseed that had a lower erucic acid level (which, at high levels, can impair health) than traditional rapeseed. Canola has a erucic acid level of less than five per cent and belongs to same plant family as cauliflower and cabbage.
Canola also has high production value. According to the Canola Council of Canada’s website, a single canola seed has more than double the oil content (44 per cent) of a traditional soybean when crushed, while the crushed remnants (known as meal) is very high in protein, making it a popular livestock feed. Canada exports canola seed as well as meal and oil.
Canola is traditionally planted in May and harvested in late September to early October.
How much canola does Canada grow?
Canola is one of the most popular crops grown by farmers in Western Canada, where farmers face a short growing season. Data from Statistics Canada’s shows canola acreage has tripled over the past 20 years. There are 43,000 canola farmers in Canada. In 2018, Canadian farmers harvested 22.5 million acres of canola, which produced 20.3 million tonnes, down slightly from a record 21.3 million tonnes in 2017.
The only crop with higher production than canola last year was wheat, at 31.8 million tonnes, Statistics Canada notes in its November 2018 Principle Field Crop report.
It’s estimated Canada’s canola industry contributes $26.7 billon to the national economy every year, with some 250,000 jobs tied to the sector.
Can’t farmers just plant a different crop?
It’s not as simple as one might think. Farmers start planning their crops months, if not years, in advance. In order to protect their crops from disease and ensure their soil remains healthy, grain farmers must rotate the types of crops they grow in certain fields. For instance, many farms operate on a multi-year crop rotation that explicitly prevents them from planting the same crop in the same field year over year, which makes short-term adjustments particularly challenging.
There’s also a cash question. Canadian farmers often grow canola, which has typically been a profitable crop thanks to higher prices, to help pay the bills on the farm and offset the costs of growing other crops that may not be as profitable. While each farm’s financials are different, most farms operate on a series of loans. With spring seeding fast approaching, many of those bills are due while new operating loans need to be taken out to cover the expenses of this year’s crop.
If a farmer can’t sell his grain, he or she isn’t paid. If the price slumps well below the forecasted price, the farm – and the incomes of those living on the farm – takes a hit.
The timing of the current trade dispute is also a challenge. The majority of farmers have already ordered the seed they need for planting. While a farmer could choose not to go ahead with their seed order, most in the industry have said thus far that they are not expecting acreages to change drastically this seeding season.
Canadian farmers are somewhat limited in the types of crops they can grow, in part, because of ongoing trade issues with other countries. For instance, Canada and Italy are currently embroiled in a longstanding dispute over durum wheat, which is used to make pasta.
Then there’s the dispute with India, which Canada and the United States formally raised at a meeting of the World Trade Organization’s Agriculture Committee in February. Trade issues have also been reported with wheat exports to Vietnam (a market where Canada has effectively been shut out because of concerns about thistles) and Peru, which is a major market for Canadian wheat.
Have Canada and China fought about canola before?
Yes. In 2016, Chinese officials threatened to change regulations around the amount of foreign material – known as dockage – allowed in a shipment. At the time, industry warned that the threshold proposed by Beijing (<1 per cent dockage vs. the current <2.5 per cent threshold currently allowed by the Canadian Grain Commission) would effectively halt Canada’s canola trade to China. China insisted the move was necessary because of disease concerns, notably about a disease called blackleg, where the stem of a plant turns black.
Canadian and Chinese officials managed to reach an eleventh hour memorandum of understanding that saw China agree to honour Canadian blackleg regulations until March 2020. Blackleg is one of the diseases Chinese officials are citing in its current trade dispute with Canada.
So how does 2016 differ from the current dispute?
The biggest difference is that trade never stopped in 2016. While Canadian exports to China slowed, Chinese importers did not refuse to enter into new contracts for canola seed. China also didn’t strip two major Canadian grain companies (Richardson International Ltd. and Glencore Canada’s Viterra) of their export licenses – which companies need in order to legally trade product.
The current trade dispute also comes as diplomatic relations between the two countries remain strained following the arrest of Meng Wanzhou, the chief financial officer from Chinese telecommunications giant Huawei, who also happens to be the daughter of the company’s founder. Wanzhou was arrested at the Vancouver international airport in December after the United States requested she be extradited over allegations of fraud and circumventing American sanctions on Iran. Canada has said it was bound by the rule of law, since Canada has an extradition treaty with the United States.
Shortly after her arrest, China retaliated by detaining two Canadians – former diplomat Michael Kovrig and Michael Spavor. Both men remain in Chinese detention on allegations of espionage. Canada doesn’t currently have an ambassador to China. Prime Minister Justin Trudeau was forced to fire former ambassador John McCallum after he told reporters Wanzhou had a strong legal case.
How much canola does Canada export to China?
Canada exports about 90 per cent of the canola it grows. Of that, 40 per cent goes to China. That’s enough canola to fill a train that stretches between Calgary and Vancouver. In 2018, Canadian canola exports were valued at $2.7 billion. Market demand was considered strong until recently.
China buys more canola than Canada’s next three largest markets (Japan, Mexico and the European Union) combined – a reality that makes finding alternative markets that much harder.
Why are farmers so nervous?
For one thing, the current dispute comes when there are record amounts of canola still sitting in bins on farms and in country elevators thanks to a difficult harvest, cold winter, transportation challenges and ongoing trade uncertainty. In February, Statistics Canada said canola stocks at the end of December were up nearly five per cent over last year, averaging 14.5 million tonnes – despite a slight drop in production between 2017 and 2018.
The majority of Canada’s harvest is stored on-farm. As such, many farmers fear they won’t have the space they need to store the 2019 harvest if the situation with China isn’t resolved soon. But the storage crunch isn’t just on farms. Canadian canola crush plants, which crush seed into oil and meal, are at capacity, while country grain elevators are also filling up.
The result is growing concern in farm country about possible bottlenecks throughout Canada’s grain handling system that could restrict the grain industry’s ability to get other crops to market. Canada’s rail system is already operating at or near capacity – a reality that has seen Canadian farmers deal with serious transportation challenges twice in the past five years, delays that have cost the industry billions of dollars in losses. With more goods, notably oil, expected to move by rail next summer, space will be even tighter.
Lower prices are also being blamed for the higher amounts of canola still sitting on farms. Conservative MPs have estimated the dispute with China has cost the Canadian canola industry $1 billion in losses since it began in early March. Meanwhile, The Canola Council of Canada said prices have dropped 10 per cent in recent weeks.
Falling prices also means many farmers haven’t entered into what’s known as a forward-contract, where the farmer promises to deliver a certain amount of a specific crop to the local elevator by a certain time and the grain elevator agrees to pay the farmer a certain price. Many farmers in Western Canada said they haven’t contracted as much grain as they traditionally do because current prices are simply too low.
Crop spoilage is another thing farmers are worried about. While dry canola can sit in a bin for quite a long period of time, last year’s challenging harvest (thanks to early snow fall and high moisture) means a lot of the canola currently stored on-farm in Western Canada has a higher moisture level than normal, which means the crop cannot be stored as long.