The world is full of customers who think they are special.
They are the people who send their meal back in a restaurant if it isn’t cooked to their liking, or the ones who brag about never paying full price for anything.
If truth be told, even a few farmers have used their scale or long-term loyalty as leverage to extract a little better deal from their suppliers. In business, that’s considered astute.
Whether they get away with it depends on their ability to go without or take their business elsewhere. Likewise, if the supplier doesn’t need their business, they get shown the door.
The only thing science based about it is psychological — the dynamics of finding equilibrium in that see-saw of power between buyers and sellers.
So it is a little surprising to see the leadership in Canada’s canola industry beating the “science-based” drum in the ongoing spat over the amount of dockage China will accept in the canola it buys from Canada.
Canada’s biggest export customer for canola seed, the one that buys 40 per cent of what gets sold offshore, is saying it will only buy canola that has less than one per cent dockage as of Sept. 1. The current export maximum is 2.5 per cent.
Chinese officials cite the risk of importing the blackleg disease in the dockage, something Canadian officials dispute. Trade observers suggest it has more to do with the fact that the Chinese have stockpiles of oilseeds right now.
Either may or may not be so, but the fact is, it doesn’t much matter.
By focusing on whether dockage can transfer the disease to another continent, the Canola Council of Canada and the grower groups writing letters are missing the point.
It is also disingenuous to suggest meeting China’s demand can’t be done.
The “dirty little secret” of Canada’s grain export system is that dockage is routinely added back into the cargo holds to bring levels back up to near the maximum 2.5 per cent allowed for commercially cleaned grain. That implies the system is capable of cleaning it to well below that standard. The Canadian Grain Commission measures dockage in increments of .1 per cent. The commission’s statistics for dockage in canola during the crop year just past averaged below two per cent.
Farmers routinely complain that the dockage in the grain they deliver is well below the maximum, yet they still get charged for “cleaning.”
In short, we have the technology. Some exporters have already started making sales under the new terms. The fact that it is achievable negates the suggestion that this is a non-tariff trade barrier.
Does it add extra cost? Absolutely. Instead of getting 97.5 per cent of the canola it’s paying for, this customer is essentially saying it wants to get 99 per cent. That’s going to come out of somebody’s pocket. That 1.5 per cent either gets absorbed by the seller or collected from the buyer.
Chances are, farmers haven’t been getting that 1.5 per cent anyway. The question of who captures the value from dockage management in Canadian grain shipments has always been a bit muddy. That said, chances are equally high that grain companies will pass along these “extra” cleaning costs to farmers. So farmers’ unhappiness with this development is justified.
There is also the issue of blackleg itself. Rather than make the adjustments necessary, namely extended rotations, to keep this disease at bay, the industry has decided it is more economic to continue its push for volume and rely on fungicides to keep it under control. It would seem that choice has some unintended consequences.
The biggest fear within the canola trade appears to be that other customers will embrace China’s shrewdness, which will undermine Canada’s competitiveness in the export market. “Accepting costs without scientific justification today tells others we’ll accept it in the future,” says the letter from canola grower groups. You can find the full text on page 5.
We expect the industry to protest this customer specification with all its might. But dragging the prime minister into what is essentially a contract dispute and tying it to Canada’s future trade with China, as indicated by Trade Minister Chrystia Freeland last week, is counterproductive to this country’s broader trade agenda.
Frankly, the bigger risk to Canada’s export competitiveness will be its unwillingness to adjust to customer demands. This country is positioning itself as a world-class exporter and yet it acts as though customers owe it their business.
When an important customer asks for special treatment, the question of compliance really comes down to how badly they want what we have to offer, and how badly we want — and need — them as a customer.