The focus of inadequate processing capacity, recently directed on cattle and before that on hogs, has now shifted to canola.
Speakers at Crop Production Week in Saskatoon noted that the European Union needs more canola oil for its booming biodiesel industry than it can produce. It has forced canola oil prices higher in Europe.
Canadian crushers have sold some oil to the EU but are almost at capacity already, so their ability to ship more is limited, despite its profitability.
Bunge announced last week plans to significantly increase the crush capacity at its Nipawin, Sask., plant and more than double its current refining capacity there.
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The news was welcome. Over the previous 10 years, Canadian crushers have on average processed about 45 percent of the crop, less when there were bumper crops, a bigger percentage in small crop years.
This year, with a record crop, the domestic crush is expected to be only 34 percent. Canada has learned time and again the pitfalls of allowing too much of its agricultural production to be processed elsewhere – lost jobs and economic activity and tenuous market access.
But there are reasons to be cautious. The conditions that coincided to produce almost 10 million tonnes of canola this year might not be repeated.
Nolita Clyde of Ag Commodity Research notes that following a year of disappointing prices, prairie farmers on average cut acreage by 17 percent. There is also no guarantee that the timely rain in Alberta and Saskatchewan that generated record yields will be repeated in 2006. Just a few years ago, when crops were small and seed prices stronger, Canadian crushers were operating at 50 percent capacity and profit margins were tight or non-existent.
But most in the industry believe that thanks to the high yield potential of new hybrids, Canadian canola production has moved to a higher plateau of eight million tonnes or more.
New markets, domestic and export, will have to be developed to consume this increased production.
Although the European Union is taking slow steps toward allowing imports of genetically modified canola seed, the pace is glacial and it is unlikely there will ever be demand there for large quantities of GM seed from Canada.
But it will import oil from GM seed if it is destined for biodiesel refineries. Because of environmental policy and favourable tax treatment, the EU biodiesel market is growing rapidly. This argues in favour of more crush capacity in Canada.
But another warning is that places like China have invested recently in crush capacity and new plants in Canada will have to be competitive. Efforts must also be made to widen canola oil markets by eliminating tariffs on canola oil in China and elsewhere that protect their crushers.
But while there are opportunities for increased crush in Canada, canola growers must ultimately be focused on increased profitability and getting a bigger share of the final value of canola components. Increased domestic crushing will be of little benefit to growers if all the profits stay with the crusher.
Clyde notes that canola growing could become more profitable if oil content in the seed could be increased and if the feed value of the meal was improved. If the components of canola fetched a higher value, crushers could pay growers more for their seed.
