Tariffs have canola farmers looking for new markets

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Canadian farmers are facing major uncertainty after the Chinese government announced plans to put tariffs on some Canadian canola value-added products, thereby impacting a large market that cannot easily be replaced.

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Chris Davison, chief executive of the Canola Council of Canada, said the 100 per cent duties on canola meal and oil will make doing business in China prohibitive for sellers.

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“Low-level tariffs at a minimum create uncertainty and unpredictability and increase costs, and high tariffs like this restrict or close markets,” he said.

Canola seed is not being hit with the tariffs, but this could change as a trade probe in relation to that crop is being conducted by the Chinese government.

The Chinese government announced the tariffs on canola oil and meal after an investigation on dumping, which is when goods or commodities are sold in an overseas market at a lower price than domestically. China began investigating Canadian canola after the federal government put tariffs on Chinese electric vehicles along with steel and aluminum.

Davison said the current tariff is different than a previous dispute with the Chinese government in 2019, when two major canola exporters had their sales licences revoked. This action came after the Canadian government arrested Huawei Technologies Co. Ltd. executive Meng Wanzhou at the request of American authorities.

The move limited access to the Chinese market, but did not close it off completely like the recent tariffs will do when they take effect on March 20.

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“You have to look at the characteristics of each situation; they’re not identical,” Davison said.

China’s tariffs on Canadian value-added canola come when producers are already dealing with the uncertainty about tariffs being applied by the United States. U.S. President Trump has imposed 25 per cent tariffs on Canadian exports not covered by the Canada-United-States-Mexico Agreement, but he paused tariffs on canola products and some other goods until April 2.

The U.S. and China are the largest markets for Canadian canola and are not easily replaced, but Davison said there is an opportunity for some growth in Southeast Asia, specifically Indonesia, the Philippines and Vietnam, where there is potential demand for canola meal to service growing feed industries.

But he said those markets are not meant to be a replacement for the U.S. and China.

“When we talk about (market) diversification, we talk about it as something that’s a complement to rather than a replacement for,” he said, adding it is important to work with current trade partners to ensure continued cooperation.

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Davison said a vital component of the canola industry’s diversification strategy is the development of more domestic crushing capacity, as well as working to service the growing biofuels markets in both Canada and the U.S.

“While that doesn’t represent geographic diversity, it does represent product and market diversification,” he said.

The Government of Saskatchewan said the tariffs imposed by the Chinese government on Canadian canola are a concern since its agriculture industry is disproportionately impacted by the tariffs.

In 2024, Saskatchewan exported $3.7-billion worth of agri-food products to China. Half of all Canadian canola oil exports and 41 per cent of canola meal exports came from the province.

“We have reached out to the federal government to request they engage with China for a resolution as soon as possible,” the province said in an emailed statement, adding it is engaging with industry along with other Canadian governments to fully grasp the impact the tariffs could have. “Our primary focus is to advocate for a quick resolution in the best interests of our producers and consumers.”

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In 2024, Canada exported $920-million worth of canola meal and $20-million worth of oil to China, according to Moritz Steinbauer and Reid Usher, analysts at Morningstar DBRS. But they pointed out that the $4-billion worth of Canadian canola seed exported to China is not being tariffed.

“Canola seed appears not to be part of the tariffs announced over the weekend, potentially because there are limited alternative sources to satisfy Chinese domestic demand,” they said in a note.

The analysts speculated that tariffs on value-added canola could lead to an increase in demand for canola seed. While tariffs on canola seed are still a possibility, they said Canadian supplies would not be easy to replace.

“Australia, the world’s second-largest exporter after Canada, has essentially been locked out of the Chinese canola market since 2020, with China citing its zero tolerance for blackleg disease, a fungal disease present in Australian crops,” Steinbauer and Usher said.

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Overall, they struck an optimistic tone about the canola industry’s ability to weather the current tariff storm. The tariffs will cause volatility in the short term along with earnings pressure, but they said the impact is expected to be manageable as trade flows rebalance to meet global demand.

“We believe that the tariffs will not have a material adverse effect on the long-term credit risk profiles of Canadian grain handlers in isolation,” they said.

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