A potential for massive growth in global oil and fat demand promises a big increase in Canadian canola exports
BRANDON — All the ducks seem to be in a row: canola crushers in Canada operate close to full capacity, the country has a new trade deal with Japan, which should boost canola oil exports, and the world needs more vegetable oils.
“You will never hear a name from me … but let’s put it this way — I wouldn’t be surprised if we see an increase in crush capacity in the next year (or so),” said David Mielke, a market analyst with Oil World, the German research company that specializes in the global oilseeds market.
“I know that a lot of the large companies are considering to increase their crush facility in Canada.”
Fourteen oilseed crushing plants operate in Canada with 11 located on the Prairies. In 2018 those plants crushed about 9.3 million tonnes of canola seed, based on data from the Canadian Oilseed Processors Association (COPA). That’s up from 9.2 million in 2017 and 8.85 million tonnes in 2016.
Mielke thinks the canola crushers are operating at about 90 percent capacity.
“So, close to maximum capacity if you consider downtime for maintenance and everything,” Mielke told reporters last month at Manitoba Ag Days in Brandon.
The last major investment in a canola crushing plant was three years ago, when Richardson spent $120 million to upgrade its Lethbridge facility.
In 2015 Cargill expanded its plant in Camrose, but the private firm didn’t disclose the cost of the project.
Mielke isn’t alone in his prediction.
With Japan reducing tariffs on canola oil, following last year’s signing of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, Canada is in a position to export more canola oil to Asia.
“We will need more processing capacity to take advantage of that opportunity,” Brian Innes, Canola Council of Canada vice-president of public affairs, said two months ago.
Beyond Japan, Mielke sees a bright future for vegetable oils over the next five to 10 years.
Protein has been the dominant narrative in agriculture for the last few years, but people in emerging economies also want to eat more fats and oils.
Oil and fat consumption is 50 to 60 kilograms per year in regions like America and Europe but only 15 kg per year in highly populated countries like Nigeria, Bangladesh, India and Vietnam.
It’s unlikely that per capita consumption in India will reach 50 kg, but even reaching 20 kg, in a country with 1.4 billion people, would result in a massive demand increase for vegetable oils.
Palm oil dominates the vegetable oil market and it would likely grab a large chunk of the new demand.
Mielke said global palm oil production increased to more than 72 million tonnes last year from 10 million tonnes in 1990.
Production is still expanding in Indonesia and Malaysia, but the rate of growth is slowing.
“That’s important to understand. Supplies are still rising but … this is not going to continue,” Mielke said.
“Environmental issues or labour issues are going to cap or further limit the growth, which in the years ahead will create new marketing opportunities for Canadian canola oil.”
One of the challenges for palm oil producers is that global companies such as Unilever, have introduced sustainability protocols for palm oil.
Part of Unilever’s policy is “no deforestation and no development on peat (lands).”
A slowing of palm oil production is bullish news for canola over the next decade. Still, there are challenges in the short term.
Soybeans have been relatively cheap over the last year or so, and some traditional buyers of canola are now using soybeans in their crushing plants.
Consequently, Canadian canola seed has lost market share in Mexico, the United Arab Emirates and Pakistan because of cheap U.S. soybeans.
“The question is: how can (canola) regain some of the market share in those countries?”