The Comprehensive and Progressive Trans-Pacific Partnership agreement that enters into force on Dec. 30 should result in new canola crush facilities being built on the Canadian Prairies, says an industry official.
Very little Canadian canola oil is shipped to Japan because it faces import tariffs of 15 percent on refined oil and 12 percent on crude oil.
That will change as oil and meal tariffs are eliminated in stages through the CPTPP over the next five years, starting with the first reduction on Dec. 30.
The Canola Council of Canada expects that by the time the tariffs are completely erased Canada will be shipping 700,000 tonnes of canola oil to Japan.
“We will need more processing capacity to take advantage of that opportunity in Japan,” said Brian Innes, vice-president of public affairs with the council.
The reason the council is banking on increased oil exports to Japan is that Canada’s crush facilities are modern, efficient and globally competitive while Japan’s are dated, small and less efficient.
“When our facilities can compete on an equal playing field we think that favours processing canola in Canada to produce oil rather than processing it in Japan,” he said.
If the council is correct, that 700,000 tonnes of additional oil exports would require production from a facility 1.5 times the size of the ones located in Yorkton, Sask.
Innes said increasing crush at existing plants in Western Canada is not feasible because they are already running at or near full capacity. That means somebody is going to have to build one or two new plants.
The federal government recently provided another incentive for investment in a crush plant with its announcement that the full cost of machinery and equipment used in the manufacturing and processing of goods can be written off.
Innes said swapping seed sales to Japan with value-added oil sales would be a good development for farmers because crush plants provide them with nearby, stable, year-round markets for their canola and they offer competitive prices.
He is particularly pleased that the first two of five canola oil tariff reductions in the CPTPP agreement are happening in a compressed time frame with the second reduction occurring in April 2019.
That will allow Canada to catch up to Australia, which has had a free trade agreement with Japan since Jan. 15, 2015, that also reduces tariffs on oil and meal.
“We will catch up very quickly to where Australia is in their treatment with Japan,” said Innes.
He doesn’t expect increased sales of oil and meal to Japan in 2019 because the tariffs will still be prohibitive but starting in 2020 the volumes will increase and eventually it will create a new market for $780 million in oil and meal exports.
“The canola industry has been focused on eliminating tariffs in Japan for decades. The fact that it is now happening is a moment for us all to celebrate,” said Innes.