China drops the other shoe – on Canadian canola

Not much for Canada to do but carry on building new markets

It looks like China has dropped the other shoe, after first treading into the trade war area three weeks ago.

China stops buying Canadian canola.

It’s no longer just Richardson International that’s prevented from selling Canadian canola to China. While the Chinese customs authority does not appear to have explicitly banned Canada’s canola from being purchased and imported, it seems to have sent a chill through importers, through onerous inspections, and no more Canadian canola sales are being made to China at the moment.

“While there’s no official Chinese government notice about not purchasing canola seed . . . the importers in China appear to be unwilling to enter into new contracts,” Jim Everson, president of the Canola Council of Canada, told me a few minutes ago.

Previously contracted cargoes that are on the water or presently being imported still seem to be getting through, and “we’re certainly hopeful that they go through the inspection process . . . I suspect there will be a heightened inspection process in China because of the concerns that they have raised.”

There are also worrisome signs that the Chinese government has also managed to scare-off Chinese buyers from looking at Canada’s other crops, which often find a good market there.

So crashes a market that was expected to take more than 40 percent of Canada’s canola this year. That’s the problem with depending so heavily upon one gigantic market, and it being one not governed by the rule-of-law or with a commitment to good intentions in trade. None of this will likely resolve until Meng Wanzhou, the Huawei executive detained in Canada under a US extradition request, is settled.

Canadian farmers have a terrible dependency upon a few gigantic markets: China, the U.S. and India are the most prominent. We’d like to have more interaction with the European Union market, but regardless of Canada’s new free trade deal with the bloc, the EU is not an easy egg to crack, with a fearsome bureaucratic and regulatory system that a cynic might suggest operates as an effective imports-prevention regime.

How to respond to these giant players who slap around little Canada? I talked about that in my two most recent Hedge Row columns. Canada needs to find like-minded nations; International order best defence;

There’s really no easy way to make any reprisals and play trade war games, like are happening between China and the US right now, because we’re just too small a nation. I don’t get the sense that anybody in Canadian farm country or any of the agriculture industries thinks we can play that game.

There’s really not much to be done other than continue to build new markets, focus on expanding access in the dozens of smaller markets that are growing and still look promising, and hunker down to wait out the Chinese tantrum. Canada survived US President Donald Trump’s bullyboy behaviour and China can be waited out too. China likes to act tough, but it’s involved in multiple tussles with many nations, and it is not food self-sufficient. As Trump is finding out, when you’re fighting with everybody, it gets pretty lonely out there. At some point China will want to have less fraught relations with one of its best food suppliers.

The only small silver lining to this dispute is that it relieves Canada of harbouring naive notions that Canada can ever have any sort of a true free trade deal with China. The country is presently demonstrating that it is willing to politicize its import inspections, legal system and commercial sector in order to achieve political ends, and there’s no reason to think it won’t always do so. Trading with China will always be a cash-on-the-barrelhead endeavour, at least as far as agriculture goes. Making trade deals with China will be useful in terms of formalizing the rules that apply during the good times, but as with India, when the good times are disrupted, everything’s off the table.

For now, Prairie farmers will be stuck with canola in the bin, poor prospects for next year, and lower prices for whatever sells. It’s not that the canola won’t sell and move. It’ll go, just for less and later than anybody in Canada wanted.

 

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