Rumblings that China may cut its tariff on all types of vegetable oil by two-thirds have canola industry executives excited.
“That would be great news,” said Dave Hickling, vice-president of utilization at the Canola Council of Canada.
Earlier this week, stories broke that China’s ministry of finance was meeting to discuss cutting its soybean import duty to three percent from nine.
Nothing had happened as of The Western Producer’s May 26 deadline but industry officials said a reduction of that magnitude was plausible.
“We’ve heard that on many occasions,” said Bob Broeska, president of the Canadian Oilseed Processors Association.
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The Chinese government faces pressure from its domestic food industry to import more soy oil to keep up with demand for the product from the country’s ever-expanding middle class.
But it is unlikely that the tariff reduction would be limited to that one product. India and Malaysia, two important palm oil producers, have led the charge to reduce all vegetable oil tariffs including canola.
“We met with the (Chinese) trade ambassador in Geneva not so long ago and he is suggesting there will be across-the-board cuts in palm, soy, (sunflower) and rape oil, which would include canola oil,” said Broeska.
If the rumours are true, China would join a tariff reduction trend taking place in the developing world as countries try to control food price inflation.
In April, Egypt eliminated its two percent tariff on edible oil and India slashed punitive duties of 45 to 90 percent. India has eliminated the tariff on crude oil imports and has shrunk the duty on refined edible oils to 7.5 percent effective April 1.
China has been pressured by its rapeseed producers to keep the import duties intact, but in the face of rising domestic demand for vegetable oil and extreme pressure from exporters, now is probably a good time to act as the risk of alienating producers is lower than normal.
“At these world (oilseed) prices everybody is enjoying considerable buoyancy so I think it’s relatively easier for the Chinese administration to deal with these tariffs,” said Broeska.
Hickling hopes oil tariff reduction will also benefit canola seed exporters. Soybean oil tariffs were linked to canola oil and canola seed tariffs under the agreement that paved the way for China’s ascension to the World Trade Organization.
“Let’s hope that they just don’t do soybean oil and leave the others, but I’m thinking they may have difficulty doing that,” he said.
Canola seed faces a nine percent duty compared to the one percent duty on soybean exports. The eight percent differential disadvantages canola.
“Right now, most of our exporters would say that we’re priced out of the Chinese market,” he said.
Canadian exporters shipped 485,300 tonnes of canola to China as of the end of March, making it Canada’s fourth largest customer. They shipped another 150,000 of oil to that destination as of the end of February, second only to the U.S.
But any tariff reduction could boost both of those numbers.
“It could only be positive. I expect it would put us back into the market and it would certainly help our exports of both seed and oil,” said Hickling.
While the Chinese duty isn’t as high as those in India, Broeska said attaching a nine percent tariff to a product that sells for around $1,000 per tonne is a serious impediment.
“In the old days when oil was less than $400 a tonne, the tariff wasn’t so significant. But now it is.”
Like Hickling, he is excited by the prospect of reduced duties. But he worries about the industry’s ability to supply the growing offshore demand, rising interest from the domestic food industry and the expanding needs of the biofuel sector.
