IN THIS EDITION: Countries that sanctioned China still see trade growth, Canadian agricultural exports up, experts weigh in on canola crush push
Countries that sanctioned China still see trade growth
While the UK, Canada, Australia and others recently placed sanctions on China, trade is still growing for some of the countries despite geopolitical tensions.
China recently replaced Germany as the UK’s biggest single most import market, according to the UK’s Office for National Statistics, due to demand for Chinese textiles for face masks and PPE. Imports of goods from China to the UK increased 66% since the start of 2018 to £16.9bn in the first quarter of 2021, according to the Office for National Statistics. Imports from Germany fell by a quarter over the same period, to £12.5bn. The EU remains the largest trading partner for the UK.
UK Trade Secretary Liz Truss recently warned that the UK must not become “dependent” on trade with China, as she said Western countries had turned a “blind eye” to Beijing’s controversial trade practices in the past. (Director, Trade and Investment Centre, note: This is a message UK consumers and private sector obviously don’t seem to be getting or want to hear. For Canada, it will be interesting to see what, if any, practical measures, beyond vague warnings, that the UK government can develop to shift consumer and private sector behaviour)
According to Roland Rajah, Lead Economist and Director of the International Economics Program at the Lowy Institute, Australian exports to China (excluding coal) were A $9.6 billion in January 2019 and dropped to A $2.9 billion in January 2021. At the same time, the same exports to other countries have gone from A $9.3 billion in January 2019 to A $12.2 billion in January 2021. Rajah says this “[l]imited damage shouldn’t be a surprise. China has targeted products for which it thinks the cost to itself is relatively low, mostly because alternative suppliers exist.” However, “[this] also means there are alternative buyers. And this reshuffling of global trade is precisely the reason the damage inflicted on Australia has been limited.”
More recently, Joseph Capurso, head of international economics at Commonwealth Bank of Australia, said “[t]he outlook for Chinese exports is positive.” China reported a 49 per cent increase in Australian imports in April and a 20 per cent increase in exports to Australia.
As discussed in a previous China Brief: China is the biggest customer for New Zealand dairy and forestry products, and both commodities are benefiting from rising prices. The New Zealand Statistics Agency reports average milk powder prices increased 12% since December to an 11-month high in April, while untreated log prices have jumped 18% in the same period. In January, New Zealand and China signed an upgraded free-trade deal that’s expected to bolster New Zealand exports. These trade increases come at a time when many, such as Minister Mahutu, are calling for diversification efforts by New Zealand exporters to combat possible Chinese trade actions; the government has announced no formal plans or initiatives to support diversification efforts. The New Zealand Government did confirm it would join Australia’s WTO complaint against China’s 80 per cent tariffs on Australian barley as a third party.
Canadian agricultural exports up
Meanwhile in Canada, western agriculture exports to China remain strong despite political tensions. Statistics Canada data as of March 31 shows stocks of all major crop kinds including wheat, canola, barley, soybeans, peas, oats and lentils were down compared to a year earlier.
The amount of Canadian canola delivered to export terminals at the Port of Vancouver averaged almost 170,000 tonnes a week in April, easily surpassing the pace of deliveries in April 2020.
StatsCan cited record exports and strong global demand for Canadian crops during the COVID-19 pandemic, particularly “led by China, which has been actively purchasing grain worldwide and was the main driver behind higher Canadian exports for most principal field crops.” Some assign this growth in Chinese grain interest as a need to address shortage of China’s stockpiled corn. Estimates of Chinese corn stocks are in dispute, with a writer from Dim Sums: Rural China and Economics Policy saying “China’s frantic grain imports over the past year [were] part of a campaign to refill grain reserves that were faked, looted or rotten.”
Alberta, UK take different approaches on research
The Alberta Government’s Minister of Advanced Education Demetrios Nicolaides ordered the province’s four comprehensive academic and research institutions: “to pause the pursuit of any new or renewed partnerships linked to the Chinese government or ruling Chinese Communist Party, to undertake a thorough review of their institution’s relationships with any potentially linked entities, and ensure these ongoing partnerships follow stringent risk assessments and due diligence.”
The request gives the institutions, the University of Alberta, University of Calgary, University of Lethbridge, and Athabasca University, 90 days to submit a report as part of the order. The move comes after a Globe and Mail article on the University of Alberta’s research projects with ties to Chinese government affiliated entities – see this previous brief. The Manitoba-based National Microbiology Laboratory ties to Chinese military researchers drew attention as a Chinese researcher from the People’s Liberation Army worked at the lab and two other Chinese researchers were fired after the Canadian Security Intelligence Service (CSIS) recommended that their security clearances be removed over national security concerns.
Federal and provincial governments may be interested in the United Kingdom’s recently announced research collaboration advice team “to promote government advice on security-related topics, such as export controls, cyber security and protection of intellectual property. It will ensure researchers’ work is protected, and that the UK research sector remains open and secure.” Universities UK also provided guidelines for institutions last year on “the considerations and measures they should take to guard against hostile interference and promote academic freedom.” This approach does not mean that there are not concerns specific to China and research – UK paper The Times reported in February that “[a]lmost 200 British academics are being investigated on suspicion of unwittingly helping the Chinese government build weapons of mass destruction.”
In other news:
- “Sluggish demand, increased imports and panic selling by farmers after fresh outbreaks of African swine fever have combined to see wholesale pork prices plunge in China” according to this report from the SCMP. The drop is not expected to ease until next year or possible 2023 according to Muyuan Foods, China’s largest hog breeder, and is largely due to farmers holding onto obese pig stock in the hope that prices would rise and dumping over ASF fears.
- In follow up to the last China brief, Surrey furniture retailers feel the pressure from Canadian tariffs on Chinese and Vietnamese furniture. Jeet Jaswal, owner of a store in Newton, Surrey, said the move cost his business thousands of dollars and suspects more face the same as they turned back containers and cancelled orders.
- As the world shifts to more environmentally friendly construction, the Financial Post takes a look at the emerging opportunity for Canadian steel over Chinese steel. While Chinese steel is typically cheaper, Canadian steel has a lower carbon footprint and could be a competitive player if procurement policies shift to consider footprint as well as cost.
- The G7 nations signed onto an agreement to stop financing overseas coal projects, which puts pressure on countries which still rely on coal, such as China. The COP26 climate summit will also put coal on the agenda, according to COP26 President Alok Sharma, and could have significant impacts for the industry if a similar agreement is made.
- Former US Ambassador Earl Anthony Wayne made the case for Canada, the United States and Mexico to “collaborate on upskilling workers” to “increase competitiveness for all three countries against China and other economic powerhouses” in a recent op-ed for the Hill. He recommends developing a tri-lateral council to develop a North American, post-pandemic workforce agenda.
Canada-China canola has obviously been an issue and Canada has now drastically increased its canola crushing capacity with projections showing that by 2024 capacity will increase 4.6 million tonnes, or almost 42 per cent, to 15.6 million. This move has significant potential to impact Canadian agriculture trade globally and with China in particular. What are potential impacts of a dramatic rise in Canadian canola crush capacity for Canadian canola production, for trade diversification efforts, for domestic logistics and transportation as well as for trade with China and other partners more broadly?
The China Brief requested submissions from a broad range of relevant stakeholders and we have published the responses that we received. The views expressed in this section are opinions and do not necessarily reflect the views or positions of the Canada West Foundation or the China Brief authors.
Brant Randles, former president and director of Louis Dreyfus Company
To quote Yogi Berra: “It’s like deja vu all over again.” The last home run in ag happened in the late nineties with the double whammy of robust Chinese demand coupled with wide-spread adoption of bio-fuels into the mix from several jurisdictions. Fast forward to 2021 and we are back at it again with renewed emphasis on decreasing carbon intensity through, among other pathways, renewable diesel. This is coinciding with unprecedented Chinese demand for just about everything ag. Record farm gate prices are great for not only the farmer but everyone in the value chain.
The recent announcements of major investments in Canadian canola crush capacity (a 5.7 million tonne increase at last count) by 2024 are a reaction to the impending renewable diesel demand as Canada and the U.S. strive to meet their renewed climate commitments.
The interest in canola crushing could also be a boon to protein innovation. Several technologies exist for enhanced protein recovery for those with the foresight and courage to innovate as they invest.
The impressive increase in domestic canola crush is a great set up to equalize Canada’s middle weight stature to China’s heavy weight dominance. The trade leverage Canada will soon have with diminished dependence upon China should help to balance the commercial scales. China’s recent import appetite is not based solely upon the US/China trade agreement but rather by substantial draw-down of state reserves of corn and wheat as the hog sector exploded into recovery mode. Ag supply security is a long-term issue for China and Canada has a role to play as a strategic, and equal, partner.
Mark Hemmes, President, Quorum Corp.
The announced new projects provide more material for questions than they do answers. First, when (or better, if) all this crush capacity comes online, how much seed is going to be left for export? Ostensibly it appears it would lead to a drop based on the difference between production and crush capacity, but what happens with the offshore crush capacity we to which we are presently selling, i.e., China, Japan, EU and the UAE?
Second, where is the oil and meal going to go? If into the Canadian market, this would necessitate something like a bio fuel mandate, yet we have not yet seen any concrete evidence of such a policy. Or, is an upwards trend in the North American demand for human consumption oil product being seen by someone? If the oil is going into the export market, where is the terminal capacity going to be built? Capacity at the Port of Vancouver is very close to full, and there is none planned for Prince Rupert (yet).
Or is this a market response by companies racing to meet projected current demand increases with the first ones there getting the prize? Or, was this a “knee jerk” response to the recent escalation of global price? Hopefully not the case.
All of this begs the question of how many of these “planned” crush plants will actually make it from the drawing table to shovels in the ground. Insofar as the China market is concerned, the apprehensions that their trade action would have a detrimental impact on the overall canola markets were quickly allayed when other buyers such as the EU biofuels market swept in to take up a large portion of the balance and was partially the reason price was driven up. How sustainable are those markets? My understanding is they are.
Chris Vervaet, Executive Director, Canadian Oilseed Processors Association
The recent crush expansion announcements are a boon for farmers, the canola industry and the Canadian economy. With each new investment, we help transform Canada’s reputation as “hewers of wood and drawers of water” to one of value-add and innovation.
Increased value-added production links well with growing demands in Canada and the United States to decarbonize transportation fuels and reduce greenhouse gas emissions. Canola oil is among the least carbon intensive and most sustainable feedstocks used in biofuels today, contributing to real and meaningful GHG reductions.
While growing domestic demand for biofuels could provide an important market diversification opportunity, international trade and supplying our global customers remains an important priority. Increasing supplies of canola seed, oil and meal will help satisfy growing demands for healthy vegetable oils and proteins used in food and feed applications. This will allow the industry to connect with a broader customer base, supporting market diversification and canola’s utilization around the world.
Rail transportation will be key to help support this growth. Shipments of canola oil and meal, whether destined for North American or global markets, are nearly 100 % reliant on rail. Competitive, consistent, and predictable rail service will be critical to ensure new value-added investments are not left stranded.
Carlo Dade, Director, Trade & Investment Centre, Canada West Foundation
With news of four new or upgraded major canola crush facilities in Saskatchewan generating a significant amount of attention, key stakeholders on the foreign marketing and transportation and logistics stakeholders have remained typically quiet, keeping valuable proprietary information close to the vest. The news therefore leads to questions with respect to where products will go and how the developments will affect domestic and foreign markets.
For foreign sales, the CERES plant, located a few feet inside the Canadian border which is on BNSF track just inside the border at Northgate Saskatchewan, would seem to have the easiest access to the most US gulf coast ports and an ability to avoid capacity issues at Canadian ports. A second observation is that the rise in crush capacity seems certain to strain Canadian export capacity. Canola production can be increased as occurred in 2019 with a ramp up in demand and access to the Chinese market showed. But even if production is ramped up, capacity constraints still appear likely. If capacity is strained, then a potential question for companies that exporti grain and oilseeds from Canada would face is which foreign customers to cut.
Given recent poor treatment of some, but not all, of these companies by China, a choice between cutting exports to a good, reliable, long-standing customer for grains and oilseeds like Japan or cutting China would seem simple if grain and oilseeds markets worked that way. At the very least, comments from former Canola Council of Canada VPs estimating that a Canadian renewable fuel standard could require almost as much bulk canola as is exported to China, seem to be a signal to China. Finally, on the possibility that these plants are being built to meet a possible Canadian biofuel standard, announcements of new crushing plant construction will certainly bring pressure for such a standard in Canada. (Given the power of the U.S. corn lobby it is hard to see Canadian biofuel exports to the U.S.) If a biofuel standard, based largely on canola, was also pitched as a way to lessen trade dependency on China or even as a way to teach China an object lesson on the cost of mistreating Canadian suppliers that would build political support for the idea. This idea would be limited to Canada though as the power of the U.S. corn ethanol lobby would present a formidable barrier to Canadian canola-based fuel entering that market.
– Stephany Laverty, policy analyst and Mehera Salah, intern policy analyst
The China Brief is a compilation of stories and links related to China and its relationship with Canada’s West. The opinions expressed in the links are those of the articles’ authors and don’t necessarily reflect the views of the Canada West Foundation and our affiliates.