The biggest market for Canadian canola will be shut down if China follows through on plans to implement new allowable dockage limits starting April 1, says the president of the Canola Council of Canada.
China’s quarantine agency, AQSIQ, notified the Canadian Food Inspection Agency Feb. 22 that canola exports from Canada would have to contain less than one percent dockage beginning April 1.
That is a dramatic shift from the existing trade rules allowing a maximum of 2.5 percent dockage for commercially clean grain.
“It would be virtually impossible to meet those kinds of specifications consistently,” said Patti Miller, president of the Canola Council of Canada.
“Number one, I’m not sure it’s physically possible. Number two, it would slow down the system so much it would make things extremely expensive.”
Derek Squair, president of Agri-Trend Marketing, has a different take on the situation. He doesn’t believe exports to China would be reduced.
“The grain companies clean to zero and then add dockage back in typically, so they can regulate it very closely,” he said.
If canola is trading at $460 per tonne and dockage is reduced by one percent, traders will just add $4.60 per tonne to the price to make up for the lost dockage.
“Really, we’re not talking about big dollars or big numbers or big inconvenience,” said Squair.
“I’ve worked in the elevator system for 25 years and know it’s not a big deal to clean canola to two percent or to one percent. It’s not hard.”
Miller said China’s lingering concerns about blackleg disease are behind the threat to drastically reduce the allowable dockage limit.
Canada has been working with China on blackleg research projects since the two countries signed a memorandum of understanding in 2010.
The research projects were in response to Chinese blackleg restrictions in late 2009 that reduced Canadian exports to China by half the following year: 1.5 million tonnes in 2010 from 3.1 million tonnes in 2009.
The last research project was to explore the risk of blackleg being transmitted to China’s rapeseed fields through contaminated dockage on Canadian imports.
“We don’t believe that there is any significant risk of blackleg transmission at current commercial terms of trade,” said Miller.
Chinese officials disagree with the research results. They believe lower dockage levels would reduce the risk of transmission.
Chris Beckman, an oilseeds analyst with Agriculture Canada, said the Canadian canola industry would be affected significantly if China closed its doors to Canadian exports.
China imported 3.97 million tonnes of Canadian canola in 2015, which is almost double the 2.04 million tonnes bought by Japan, the second largest canola customer.
“Exports to China probably will go down. I’ve seen some indication from the trade that they might be sending some oil instead,” he said.
Beckman said seed could also be diverted to other markets, such as the United Arab Emirates or Pakistan.
Squair said people in the trade believe China is using the dockage issue as a non-tariff trade barrier because the Chinese government is sitting on a massive stockpile of rapeseed oil it wants to sell before it goes rancid.
“The Chinese are throwing up red flags to maybe throw cold water on the market a little bit,” he said.
Miller isn’t in that camp.
“It’s speculation. Right now what I’m attributing the motivation of China to is a difference on science,” she said.
“We believe at this point it’s a dispute over the research results and what that means to risk management.”
Richardson International was approached to provide a Canadian crusher perspective on the issue but declined to comment while there are ongoing discussions between the Canadian and Chinese governments.
Grower groups were also contacted but their representatives were on their way to the council’s annual convention in San Diego.
Miller said crushers and exporters are concerned about future trade with China and are pushing for a science-based solution to the issue.
She said the MOU signed with China in 2010 stipulated that any risk management actions would have to be based on science.
Miller hopes China will step back and hold off on implementing the new policy until it has another look at the research results and perhaps initiates new joint research projects on the dockage issue.