Canola oil is in danger of being crushed out of the market by soybean oil.
Unless fundamental problems in the industry are fixed, canola processors will consider refitting their plants to crush other types of seeds for vegetable oil, said Murray Davis, chief executive officer of Canamera Foods.
Crushers need stable production, high quality seed and reduced trade barriers to stay competitive, he told the annual meeting of Manitoba Pool Elevators, which is part-owner of the crushing company.
These days, soybean oil and canola oil are almost completely interchangeable, Davis said.
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“Only a relatively small percentage of canola oil sales are made to premium markets. The vast majority of sales are made to the generic veg oil market.”
Soybean yields are rising as canola yields steadily decline. And while soybean crushers have been delighted by major breakthroughs in lowering saturate levels in soybean oil, canola oil saturates have been inexplicably rising over the past 18 months.
“We have a new competition in soybeans, a more aggressive competitor,” Davis said. “The bottom line is that soya and canola are more and more now head-on competitors, and sales will strictly be determined on price.”
Meanwhile, Japanese duties of $200 (U.S.) per tonne on canola oil, which is worth less than $800 per tonne, mean Japanese crushers can outbid Canadian crushers on canola.
Canada feels squeeze
“In a year of limited supply and production of seed, the Canadian industry, frankly, gets shafted,” said Davis.
Studies sponsored by the Canadian and U.S. governments have helped unite the world’s major oilseed processors in trying to eliminate discriminatory tariffs.
But the story on whether this can be achieved will start to unfold in 1999 at the next round of World Trade Organization talks.
“We already have enthusiastic support by the Department of Foreign Affairs and International Trade, but unfortunately we are handicapped by Agriculture Canada, who at times almost act as an anti-force,” Davis said.
He said “well-placed colleagues” in Paris and Washington have told him that trading partners dismiss Canada’s requests because Canada has an “intractable position on supply-managed commodities.”
Crushers haven’t been able to make an adequate return on investment in the past year, said Davis, although Canamera hasn’t lost money. The uncertainties are preventing industry growth.
If farmers consistently produced six million tonnes or more of canola, and progress was made on trade issues, crushers would handle five million tonnes of seed, Davis said.
“New investment would explode.”
He said Canamera would like to put a refinery at its Harrowby, Man. crushing plant.
In 1996, small acreage pushed prices “abnormally” high and crusher margins were poor. Some crushers shut down plants, but Davis said Canamera crushed close to its capacity at enormous cost.
He estimates crushers and refiners lost $120 to $125 million last year. It would have been cheaper in the short term to shut down and lose market share in the United States, said Davis, “but it would have taken years to recover marketplace credibility and probably at far greater cost.”
