Huawei, dockage or both?
When it comes to China’s strategy on Canadian canola seed it’s anyone’s guess to which takes precedence.
“Who knows how much weight is given to the dockage issue,” Canadian Canola Growers Association president and CEO Rick White said in an interview March 31. “I think they just want to control it. I think they also want to penalize us for the Huawei issue.
“I think the Huawei one weighs pretty heavy with them right now.”
In 2009 China proposed that the Canadian canola it imported have just one per cent dockage instead of 2.5 per cent. China claimed less dockage would protect China from getting a race of blackleg that Canada has, but China doesn’t. Blackleg is a fungal disease that attacks canola and rapeseed.
So Canada agreed to ship its canola to Chinese crushers near ports, far away from China’s rapeseed-growing area.
China’s rapeseed areas couldn’t economically serve those plants because of high transportation costs. Coincidently China also had burdensome stocks of domestically produced rapeseed.
It’s speculated by some that China’s move helped boost domestic rapeseed prices. And when China needed more Canadian canola dockage wasn’t as much of a concern.
And then there was Huawei. China could punish Canada for arresting Meng Wanzhou, the Chinese technology firm’s vice-president and ultimately get its way on dockage too.
As some industry officials see it, China has established it’s calling the shots and created a convenient lever for adjusting the future inward flow of Canadian canola.
Some Canadian farmers are suspicious too, noting most years they deliver canola to country elevators with less than one per cent dockage. Exporters add dockage on so long as it’s within specifications. Some farmers see that as proof they are underpaid for their grain. But presumably in a competitive, open market farmers are getting a fair price. If you don’t like the price try another buyer.
It’s legal for grain companies to add dockage but if the company screws up and exceeds the limit the buyer gets a discounted price at the seller’s expense.
There’s also the argument that with lower dockage buyers get a better deal, because they aren’t paying canola prices for dockage which has less value. But various industry players say that can be addressed in the contract.Canola with 2.5 per cent dockage will sell for a certain price.
“If you’re buying it at one per cent presumably you’re paying a premium,” one industry official said.Price is one consideration, but operations are another.
“In Canada we have a very tight logistics pipeline,” an official said. “We’ve got a limited number of rail cars, we’ve got limited capacities in elevators and the port doesn’t want vessels to be at anchor very long. We’ve got to get stuff in and out real quick. That’s the name of the game — rolling the assets we have and being very efficient. One per cent dockage works completely against all of that.
”Canada and the canola industry say they are committed to restoring the Chinese market, but some observers question how hard to push.
The argument is selling 30 per cent of what was once exported is better than losing it all.
That’s a bad precedent, the official added.
“I think the days of China being a reliable trading partner are long gone. They’ve shown themselves to be quite adversarial. That being the case I don’t understand what the downside is to take a bit of a stand.”