Unless a trade negotiation miracle occurs, Chinese tariffs are going to be a fact of farming for the foreseeable future.
If that’s the case, calls for farmer compensation will continue to increase.
The simple solution touted by many would see Canada drop its 100 per cent tariff on Chinese electric vehicles in the hope China would reduce tariffs on canola seed, canola oil, canola meal and peas. Unfortunately, the situation is probably more complicated when you consider what the U.S. reaction would be.
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The disruption to trade caused by the U.S. president’s passion for fluctuating tariffs will likely make new machinery more expensive.
Newly elected Conservative leader Pierre Poilievre is calling for an end to the Liberal government’s EV mandate, but he hasn’t been calling for an end to the tariff against the Chinese. The political backrooms probably know more than what’s said publicly.
Prime minister Mark Carney says his government will support canola farmers, but no further details have been released. Estimating the loss and paying compensation in an equitable fashion will be no easy task, but it can be done.
The recently announced tariff of nearly 76 per cent on canola seed is a much bigger issue than the previously enacted 100 per cent tariff on canola oil and meal. In recent years, China has taken more than half of our canola seed exports.
Canola futures were limit down following the news, but recovered somewhat that day and in the days to follow.
The price is dramatically off the highs enjoyed a couple months ago, but how do you isolate the impact of the tariff when so many other factors are simultaneously at play?
Economists and market analysts will come up with loss numbers based on various models, and while it will never be a definitive number, it will a reasonable estimate.
I’m not a big fan of ad hoc government support programs, but in this instance, farmers have a valid case. Chinese tariffs were caused by the actions taken by the Canadian government.
Often overlooked in the discussion is the impact on peas. Market analysts such as Chuck Penner of Left Field Commodity Research believe the pea market is likely to be hurt more than canola.
Canola seed exports were already set to decline this year as the Louis Dreyfus canola crush expansion comes on stream at Yorkton and the new Cargill canola crush plant gets up and running in Regina.
Meanwhile, Canada will have a big pea crop and has lost one of its two major markets. Depending on the year, either China or India is the top destination for Canadian peas. The loss of China is one of the main reasons why pea prices are so low.
Assuming the federal government agrees to compensate producers, how could this be best accomplished. Let’s assume studies show a one dollar per bushel price drop for canola and a $1.50 a bushel drop for peas.
The government shouldn’t just prop up the price of canola and peas at the time of sale because you may store product into the future or you may be selling inventory from previous years.
I’d suggest compensating producers according to their average yields under crop insurance. A producer with 1,000 acres of canola and a long-term crop insurance yield of 40 bushels per acre would be assumed to have 40,000 bu. eligible for the per bushel compensation.
For producers not in crop insurance, the area average yield could be used. The same type of calculation would be done for peas.
There are reasonable methods to pay compensation if the political will exists.
