Canadian farmers and fishermen are sending big new shipments of wool, lobsters and canola oil to China, driving a rush of new exports to the world’s second-largest economy amid the disruptions to the flow of global goods caused by the U.S. trade war with Beijing.
From April to August of 2018, according to Statistics Canada data, the value of Canadian merchandise exports to China rose 23 per cent, a surge of nearly $2-billion over a period that coincides with the period of greatest tariff escalation between the United States and China.
Canada’s global exports are up this year, but exports to China since April have risen more than twice as quickly as those to the United States. In some cases, China has become a direct replacement for sales that once went to the Americans, shoving Canadian firms into the kind of diversification strategy that federal and provincial leaders have increasingly sought.
In September, Saskatchewan Premier Scott Moe travelled to China for a series of meetings “to discuss potash purchasing, uranium and ag products,” spokesman Jim Billington said in a statement. “We intend on expanding our exports over the next number of years, so we need to consistently and constantly look for new markets.”
Exports to China are just one-fifteenth of those to the United States, the Public Policy Forum noted in a recent report, but “the U.S. is no longer the sole driver of the world economy, nor is it the reliable partner it was. This necessitates an aggressive strategy of purposeful diversification.”
In some areas, the trade war has now made that happen with breathtaking speed.
Take wool: The industry’s U.S. market has “basically evaporated on us this year,” said Eric Bjergso, general manager of the Canadian Co-operative Wool Growers Ltd., which markets more than 90 per cent of Canadian wool. Chinese tariffs have largely rendered American wool uncompetitive, and, as a result, the United States is now flooded with local product. So Canadian wool is moving in far greater numbers to China − shipments of unprocessed greasy shorn wool to the United States have vanished in recent months, but soared nearly eight-fold to China this August relative to last year.
In logistical terms, the shift has been remarkably simple. Wool is baled and packed into containers, each stuffed with just over 20 tonnes. Containers once trucked to the United States are now being shipped to China. “This year, we’re going to probably to see 80 per cent of our exports going to China,” Mr. Bjergso said.
For Canadian exporters, some of the gains stem from rising commodity prices: The value of pulp sold to China from April to August is up by more than a quarter, although volumes shipped have not changed much.
Elsewhere, Chinese tariffs are blocking U.S. goods, and, as a result, giving a new lift to Canadian producers who had already been courting growing appetite in China for their goods, particularly high-end agricultural products. Boneless-beef exports to China were up 220 per cent in August; since April, overall shipments of animal products to China have risen 8.5 per cent. John Chang, whose Oxfield Agriculture Technology Investment (Canada) Corp. brings to China several dozen tonnes of Canadian beef a month, estimates his own sales are up 30 per cent this year. He is optimistic such gains will continue. “The next five years is going to be very positive between Canada and China,” he said.
Canadian canola, too, has seen steady gains in recent years. But the growth has been especially large in 2018: Oil-seed shipments to China nearly doubled this July, compared with last year, while overall exports of Canadian grains and vegetables are up by a third since April. Exports of refined canola oil to China rose 930 per cent in August. At Sunora Foods, a small Calgary-based food-oil trader, second-quarter overseas sales rose 71.2 per cent.
Chief executive Steve Bank dismissed the trade-war influence. ”I think our canola oil is a better product than some of the things that are domestically available. And that’s more of a factor than just something that’s happened in the last few months,” he said. Chinese consumers “want nicer things.”
Yet, Chinese buyers are also seeking Canadian supplies to help replace the enormous volumes of U.S. soya beans priced out of viability by tariffs. Canada is a relatively small soya-bean producer, but Chinese buyers are bringing in other goods, including canola and peas, as nutritional substitutes.
“As a result of the trade clash between China and the U.S., there’s a huge gap in protein products. So it creates a good opportunity for protein products from other countries to enter the Chinese market,” said Zhang Mingjie, senior business manager with the overseas resources department at Holley Group Co. Ltd., a large Hangzhou-based industrial conglomerate.
But Canada is hardly alone in attempting to fill the gaps left by U.S. soya beans. In addition to South American supplies that have flooded the Chinese market, other northern-hemisphere competitors have pivoted quickly: Ukraine with sunflower-seed meal, Russia with linseed, said Pan Xiaofeng, chief executive of Shanghai Lianfeng Grain and Oil Products Co., a small importer.
Those two countries “have far surpassed Canada” in their effort at courting Chinese market share, he said. “I don’t think Canada is doing enough in growing its Chinese market. It’s relatively conservative.”
He urged Canadian farmers to consider planting more soya beans next year.
But caution toward rushing to China remains high, even among companies that are counted among the biggest Canadian export success stories. For example, Clearwater Foods, based in Bedford, N.S., sells 16.5 per cent of its product to China, second only to Europe. Some Canadian seafood products have seen substantial gains into China this year: The value of lobster exports in August rose 87 per cent. Clearwater’s overall second-quarter sales to China surged 23 per cent.
Still, Clearwater chief executive Ian Smith said it’s too soon to tell how the trade war will affect Canada. “It will take at least six months of a sustained tariff environment (or longer) to see how trade and prices change and how/whether there is a meaningful benefit to Canada,” he said in a text message.
“Our view is a trade war is never good, even if Canada happens to enjoy a short-term benefit. Because any benefit is ultimately artificial, short-lived and unsustainable.”
China has been pushing Canada to resume stalled talks toward a free-trade deal after Ottawa’s agreement last month on a new North American trade accord.
Critics have argued that the United States-Mexico-Canada Agreement (USMCA) will make it difficult to pursue a similar pact with Beijing. That’s because Ottawa agreed to a clause that allows a country to be punted from the proposed North American agreement if it enters into a free-trade deal with a “non-market country.” That language is widely seen as a veiled reference to China, and many believe the clause gives the United States an effective veto over any prospective trade pact between Ottawa and Beijing.
With a report from Alexandra Li