As tensions rise in ongoing trade disputes, China's latest move is adding to concerns for Canadian producers. The country recently announced a 100 per cent tariff on canola oil and meal exported from Canada, compounding the uncertainty already present due to U.S. tariffs.
Farmers caught in the middle
The new tariff has many farmers wondering how to best proceed and that includes Curtis Sims, owner of Emeline Farms near MacGregor, Manitoba. Sims grows canola and is worried about the impact of these trade measures.
"For some of the other crops, not quite so much, but canola is sandwiched between the Chinese tariffs, which technically aren't on seed, and the American tariffs. They're on oil, which we don't sell much of, anyway. But also, meal was a big deal, and we sell fair bit of the meal. So, that and the American tariffs, if they come on as they're scheduled, are certainly a big concern, for sure. It's going to be kind of serious on the price of canola."
Dropping prices raise concerns
Sims explains that while the cost of growing canola remains unchanged, the projected price has already dropped to around $2 a bushel. This is particularly troubling given that prices were not strong even before this latest announcement.
""It's enough that you're reexamining how much of this should I grow? Can I get by with something else instead? And of course, the other thing is not just the U.S. tariffs, but also even if we get by them somehow, they're also restricting its use in some of the biofuels and green fuels, and so on. There's a lot of turmoil going on on that usage, and we sell an awful lot of oil down to the US, some of which is used in food products, which is good. But a lot of it has been going into this fuel use of various sorts. We're caught from two directions at once on the canola."
Looking for alternatives
Sims says he is already considering how to adjust his farm’s focus in response to these challenges.
"Already assuming these tariffs come on to the U.S. as well, it'll suppress, and we'll will try and divert some acres into various other crops. Whether we start a whole new different crop; I'm not quite sure if I would say that. Some might. It's particularly, I suppose, binding in some of the Western stuff. We grow corn and soybeans too, and people grow oats and things, but there's a lot of farms that grow mostly corn, sort of like in the U.S. Corn and soybeans are there, and here, it's wheat and canola have been the big money makers. So, if that's mostly your rotation, then that gets a little more binding. 'What do we do now?'"
Sims says seeding usually starts in early May, though occasionally it happens later.
"We've been as late as almost June if monsoon season strikes. So, there'll be a little bit of time yet to think it over and so on. I know canola seed sales were really slow all winter when normally there would be a lot more bought. Then they picked up some; the price of canola kind of came up. And now, we're kind of blind-sided. This Chinese one hit us from out of the midst of wherever. Plus, this U.S. thing is getting more binding. So, people will be trying to reduce their acres. Crop rotation is a big thing on the farm, too; agronomics and so on, as I referred to."
Speculation and uncertainty
Sims notes that while some reduction is inevitable, farmers still engage in speculative growing, hoping trade conditions improve by harvest.
"You just watch the byproducts of oil and meal, and what impact is it likely to have on that, which will then reflect back through the crushing plants here on the domestic crushing, and what they're willing to pay. That's what the problem is. You're just waiting, as the old expression goes, we have a shoe to drop, I guess, and they're fussing away, too. Well, they may end up putting a big tariff on even the seed. That will be tougher for them because they still need canola seed over there, and Canada grows so much in the world basis. There's not really a lot of other available supply, but they might try and do something on some of it; not as severe, but still."
China’s past actions and global impact
China purchased a significant amount of canola oil last fall, which gave producers a temporary reprieve. However, Sims says this might not last.
"It may be suppressed for a while before we know where we're really at, but it won't be especially good. They'll try and coast long enough to make a point on that, and try and buy some from somewhere else for a bit, but that only lasts so long. It happens with a lot of agricultural products sometimes. It's like squeezing a balloon. There's only so much in the world, and people need it. But whenever you start shifting around the whole shipping system and logistics with stuff from that country instead of this one, and so on, there always seems to be a cost. There's more freight, there's more uncertainty, and it always comes out of the farmer's pocketbook."
Sims adds that when it comes to corn, Canada is a net importer. Wheat, on the other hand, is primarily exported to overseas markets, while oats are in demand in the U.S.
"The Americans don't have any oats. So, they're going to have to pay the tariffs on oats to get it to use. In the short to medium term, there's little that certain of the buyers can do except pay up. We can't afford to take any less money on our end, so it's the importers who are going to have to pay on crops. However, canola is the one that's the most exposed, and I guess that's where we are with trying to grow some of these other crops that seem a little more secure. But you never know, too. Everyday in the U.S., Trump changes his mind about something. But if we're importing the crop instead of exporting it, or if they don't have any alternative sources for quite a while, then we can kind of get by that one for a little bit."
Lessons from past trade disputes
Sims recalls a similar situation when China imposed tariffs on canola during the "Two Michaels" affair. China detained Canadians Michael Spavor and Michael Kovrig after Canada arrested (on behalf of the United States) Huawei’s chief financial officer, Meng Wanzhou, in 2018.
"We took a hit then, but the U.S. and other markets picked up the slack. Europe has been known to impose sanitary rules, sometimes fabricating issues with various products. We’ve seen this before, but this situation is more intense. China’s tariffs on oil, combined with likely restrictions on seed and U.S. trade disruptions, are making it very serious."
He notes that China has previously claimed contamination issues with Canadian canola, using trade barriers as a political tool.
"When the Chinese get a whim, they put up tariff barriers that check us back and cost us money. This time, it seems bigger. With U.S. actions possibly causing a recession that reduces demand in general, we’re caught in a much more severe position. A lot of canola is used in food products, but a significant portion goes to biofuels, and that sector is particularly vulnerable to regulatory whims."
As trade disputes escalate, farmers like Sims face difficult choices about what to plant and where to sell their crops, with no clear resolution in sight.