Analysis: Australia Could Be Canola Trade Winner if China Overcomes Fungus Concerns By Reuters

By Peter Hobson, Naveen Thukral, and Mei Mei Chu

Australia stands to gain significantly from shifts in global canola trade should China decide to impose tariffs on Canadian canola imports. However, Beijing must address its concerns regarding a fungal disease impacting Australian crops.

As the largest canola importer globally, China has disrupted trade by launching an anti-dumping investigation into Canadian canola—a major export for Canada, which is the world’s foremost supplier of this oilseed used in cooking oil, biofuels, and animal feed. The trade between China and Canada is valued at approximately $2 billion annually.

For China to replace Canadian canola with Australian supplies, it would need to revisit its stringent testing requirements for blackleg, a fungal disease that affects Australian canola crops. Chinese regulations aimed at preventing the spread of blackleg have halted Australian shipments since 2020.

"China doesn’t have many options," noted Ole Houe, an advisory services director at IKON Commodities in Sydney. "They’d pretty much have to come to Australia for canola. Supplies in the European Union and Ukraine are limited. While Russia has a larger crop, it’s insufficient to meet all of China’s demand."

China aims to complete its investigation by September 9 of next year, but this could be extended by six months. In the meantime, Chinese buyers are hesitating to enter new contracts for Canadian canola, with sources indicating that no new deals have been made since the investigation announcement in early September.

Canola, also known as rapeseed in Europe, is commonly cultivated in Canada, Europe, and Australia, transforming fields into vibrant yellow landscapes. The oilseed is crushed to produce cooking oil and other products, such as renewable fuels and animal feed.

Typically, about 40% of Canada’s canola exports are sent to China, comprising 90% of China’s canola imports. The blackleg disease, which harms plants and lowers yields, has previously led to trade tensions over canola imports from both Canada and Australia. From 2011 to 2013, China ceased Australian imports, and in 2009, Canadian shipments faced restrictions, primarily due to blackleg concerns, which poses no risk to human health.

China could quickly enter the Australian market for canola by adjusting its import regulations. "China would need to amend their blackleg requirements in their import specifications. It’s a simple matter of changing the rules," commented Rod Baker, an analyst at Australian Crop Forecasters.

Australia is currently collaborating with China to reinstate canola exports. In June, both nations agreed to trial shipments. These trials involve processing canola upon arrival at ports to prevent potentially contaminated materials from spreading into rural areas, a procedure already in place for Canadian imports.

Export data indicate that 500 metric tons of canola were shipped to China in June.

Although blackleg is also present in Canadian canola, exporters meticulously clean their seeds before export to eliminate potential contamination, a practice not followed in Australia. China mandates under 1% impurities in canola imports, while Australian standards allow up to 3%. Most Australian farmers, however, produce canola with impurity levels closer to 1%-1.5%.

Despite the potential for increased demand from China, analysts highlight that Australian producers have alternative markets offering better prices. "We have other options than China," stated Vitor Pistoia, an analyst at Rabobank. "A significant portion of Australian canola is non-genetically modified, making it a premium product with higher demand in markets like the European Union."

Most Canadian canola is genetically modified, which presents further challenges for China in sourcing alternatives. If Canadian imports are eventually banned, China might face higher costs in sourcing canola oil and meal, ultimately affecting its seed-crushing industry. Potential imports from Ukraine and Russia would be limited compared to Australia, and many Ukrainian shipments already go to the EU, which has import demands that compete with those of China.

Should China halt Canadian canola imports, it is likely that it will have to pay increased prices to secure supplies from other markets, especially the EU. "We would expect to see heightened demand for our product and a favorable pricing outcome," remarked Mark Fowler, who cultivates various crops including canola in Western Australia.

Currently, Australian canola is priced higher than Canadian varieties, with Australian exports pegged to the European market. As of late September, the value for Australian canola was assessed at 448.76 euros per ton, compared to Canadian exports at 436.56 euros.