China remains strong market for canola

Reading Time: 3 minutes

Published: March 26, 2013

Sustainable growth | Demand for canola continues to rise in many Asian markets

VANCOUVER — Canola is being sold into the right markets, based on a global economic outlook prepared by the Conference Board of Canada.

China has become Canada’s top customer for the oilseed, and there is no sign of any let-up in that market.

The Chinese government has established a new five-year target of 7.5 percent sustained annual economic growth.

Glen Hodgson, chief economist with the conference board, expects China to achieve that target.

He is forecasting eight percent annual growth through 2020 and then a tapering off to 4.5 percent between 2021 and 2035 as the economy matures.

Read Also

Grain corn acres are expected to jump slightly this year in Manitoba, possibly hitting 400,000 acres | Robert Arnason photo

Food vs. fuel debate simmers in the background

The OECD/FAO are forecasting that 27% of the global cereals crop will go to biofuels and other industrial purposes by 2034.

China also has rising incomes and soaring protein demand.

“If I was selling canola, that’s clearly the go-to market,” said Hodgson.

However, factors that will keep the country from sustaining eight percent annual growth after 2020 include its one-child policy and the Communist government.

“The real kicker is, when is China going to grow up and become a more democratic society?” he said.

The entire Asia Pacific region “is where it’s at” when looking into the future.

“It’s led by China, but it’s not just China,” said Hodgson.

South Korea, Vietnam, Indonesia, Thailand and Malaysia are all interesting prospects as potential trading partners.

Japan is the one exception in the region. Canada’s second largest canola customer has the highest public debt levels in the world, a shrinking population and the world’s oldest demographic, with more than one-quarter of its citizens older than 65.

“It’s kind of like a train wreck in slow motion,” said Hodgson.

He expects Japan to be a one percent growth economy for the next couple of years compared to seven percent for the rest of the Asia Pacific region.

The United States is an important seed customer and by far the top buyer of Canadian canola oil. Hodgson said the economy is slowly recovering from recession.

“We’re forecasting what I would call tepid growth, or maybe a more sophisticated word would be crummy growth of 2.25 percent this year,” he said.

The private sector is functioning the way it should. Commercial bank lending has been on a steady climb since January 2011, vehicle sales are up, housing prices and housing starts are on the rise, consumer spending is up and there has been job creation every month for two years.

“If the private sector was all by itself in the U.S., it would be growing at three percent. But government is taking out a full percentage point or more of the U.S. economy,” said Hodgson.

U.S. net debt is approaching 80 percent of the country’s gross domestic product, which is the point where the country could lose its AAA bond rating.

There are no signs the U.S. Congress can get its act together to rein in a federal deficit that will once again exceed $1 trillion in 2013.

The outlook is pretty grim for Western Europe, where Germany is expected to lead the way with a GDP growth of 0.5 percent in 2013.

“Everybody else is in recession,” said Hodgson.

Greece is in the fourth year of economic contraction and hasn’t hit bottom. Spain and Portugal are trying to avoid bailouts from the European Union.

“Even Britain is flirting with recession, so it’s tough times in Europe,” he said.

Russia has become “the real laggard” of the Brazil-Russia-India-China (BRIC) countries, with life expectancy falling by five years since the end of the Soviet Union.

“Russian males are drinking themselves to death. It’s tragic, but it’s true,” said Hodgson.

The Russian economy is expected to grow by three percent a year through 2020 and then slow to two percent through 2035.

“It’s kind of a false democracy. (Russian president Vladimir) Putin has turned it back into a quasi-dictatorship,” he said.

India is expected to perform extremely well in the years ahead.

“The high growth market for the world going forward is going to be India,” said Hodgson.

The Indian economy is expected to expand at a clip of seven percent a year through 2020 and then cool off to a still impressive six percent through 2035.

Indian women have an average of 3.25 children, which will enable the economy to continue expanding. Hodgson said India is 10 years behind China in economic development.

Latin America is another big growth market. Gross domestic product is expected to expand by 3.5 to four percent per year in 2013 and 2014, led by the economies of Brazil, Peru and Chile.

“Unfortunately, Argentina seems to be heading back to a basket case,” he said.

“Every 10 years Argentina has a crisis and they’re probably building up to one right now.”

Venezuela is another “really scary case.” The country has massive oil exports but large current account and fiscal deficits caused by bad management.

Mexico, an important buyer of Canadian canola seed, is becoming a more attractive market as the government embraces economic reform. The economy is expected to grow by 3.25 to four percent per year in 2013 and 2014.

Hodgson said the Canadian dollar will likely trade around par with the U.S. dollar “from here until the horizon.”

Canola Council of Canada president Patti Miller was pleased with what she heard.

“It really confirms that the markets that we’re working in are the markets that we should be focused on,” she said.

About the author

Sean Pratt

Sean Pratt

Reporter/Analyst

Sean Pratt has been working at The Western Producer since 1993 after graduating from the University of Regina’s School of Journalism. Sean also has a Bachelor of Commerce degree from the University of Saskatchewan and worked in a bank for a few years before switching careers. Sean primarily writes markets and policy stories about the grain industry and has attended more than 100 conferences over the past three decades. He has received awards from the Canadian Farm Writers Federation, North American Agricultural Journalists and the American Agricultural Editors Association.

Markets at a glance

explore

Stories from our other publications