Saudi Arabia’s main state wheat buying agency has told grains exporters it will no longer buy Canadian wheat and barley in its international tenders, European traders said on Tuesday, as a diplomatic dispute between the two countries escalates.

Traders said they had received an official notice from the Saudi Grains Organization (SAGO) about its decision.

Canada on Monday refused to back down in its defense of human rights after Saudi Arabia froze new trade and investment and expelled the Canadian ambassador in retaliation for Ottawa’s call to free arrested Saudi civil society activists.

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“As of Tuesday August 7, 2018, Saudi Grains Organization (SAGO) can no longer accept milling wheat or feed barley cargoes of Canadian origin to be supplied,” a copy of the notice seen by Reuters said.

One European trader said it was not clear if the decision involved only new purchases or delivery of previously agreed contracts. “But I would not deliver Canadian grains to Saudi Arabia now, even on previous contracts,” the trader added.

Another trader said: “This is to me clearly part of the diplomatic dispute between Saudi Arabia and Canada, there is no other reason.”

The Canadian Wheat Board was taken over in 2015 by a joint venture of the state-owned Saudi Agricultural and Livestock Investment Co. and U.S. grain company Bunge. The Winnipeg-based grain company, now known as G3 Ltd. and majority controlled by the Saudi fund, said it has no plans to change or reduce its purchases of Canadian crops.

“It’s business as usual,” said G3 vice-president of Brett Malkoske. G3 is "an independent Canadian grain handler. We buy and sell all varieties of oilseeds produced in Canada” and we sell “to customers all around the world.”

Mr. Malkoske said in an interview the company is continuing with construction of its Vancouver terminal and Prairie expansion and has plans to build elevators in Alberta.

According to Statistics Canada, Canadian wheat sales to Saudi Arabia were 66,000 tonnes in 2017 and 68,250 tonnes in 2016. No sales were made in the first five months of 2018. Barley sales totalled 132,000 tonnes in 2017 and 66,000 in 2016.

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Canada exported a total of 14.7 million tonnes of wheat and 1.3 million tonnes of barley in 2017, government data show.

Analysts said the Middle East had been importing less wheat from Canada and the United States in recent years due to higher shipping costs, while China has become a bigger barley buyer.

“There will be plenty of opportunities for Canada to sell barley and wheat elsewhere,” said Chuck Penner, analyst with LeftField Commodity Research, based in Winnipeg.

But given tightening global grain supplies due to weather problems in Russia, Europe and Australia, Canada might have been poised to win more Saudi barley business.

“This year could have been a year where we could have seen some (Canadian) barley trade there in October-November,” said Jerry Klassen, manager at trading house GAP SA Grains and Products in Winnipeg.

With reports from Eric Atkins