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Business Commentary The Huawei feud isn’t the only reason canola exports to China are tanking

The accepted narrative in Canada is that canola farmers have become scapegoats in a nasty feud between Ottawa and Beijing over the arrest of a top Huawei Technologies executive in Vancouver.

Ottawa has responded by doubling the interest-free loans available to farmers, who worry about losing a $4-billion-plus per year export market.

Speaking to reporters in Ottawa last week, Trade Minister Jim Carr cast the financial aid as part of an effort to “navigate the challenging period with China.”

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It is true that China has banned two of Canada’s largest canola exporters – Richardson International Inc. of Winnipeg and Viterra Inc. of Regina – over allegations that some recent shipments contained weeds and other contaminants.

But there is another equally important reason why Canadian canola exports to China are plunging. And it has nothing to do with Huawei or Chinese import restrictions.

Across China, hundreds of millions of pigs have died or been slaughtered as an epidemic of African swine fever sweeps the country. Pigs infected with the highly contagious virus first develop a high fever, then their extremities turn blueish-purple, they start bleeding from their ears and stomachs, and soon they die. Producers have killed even more animals in a bid to stem outbreaks, so far without success. Some farmers have stopped raising young pigs altogether, fearing they too will become diseased, and worthless.

It is estimated that China – home to half the world’s pigs – will produce 150-million to 200-million fewer of them this year. Output could fall by 20 per cent compared with last year.

What, you might ask, does any of this have to do with canola – a crop developed in Canada and successfully sold around the world?

A lot. Canola is generally sold as seed, which is then crushed to produce oil for human consumption and animal feed. Roughly 56 per cent of the canola seed is turned into animal feed; the rest, oil.

The collapse of China’s swine industry means the country has dramatically fewer pigs to feed than it did just a few months ago.

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And that was true even before the Chinese government targeted Canadian canola.

Roughly a third of the $4.4-billion worth of canola Canada sold to China last year wound up as feed, mainly for pigs, based on a back-of-the-envelope calculation. As much as 40 per cent of Canada’s canola exports go to China, and the market is literally collapsing.

So, yes, it’s a compelling narrative that canola farmers are innocent victims in a political fight between Ottawa and Beijing over the arrest of Huawei Technologies chief financial officer Meng Wanzhou on a U.S. warrant.

But it does not tell the whole story.

It was likely an easy call for China to ban Canadian canola earlier this year, given that its demand for feed was falling sharply because of the swine fever epidemic. Conveniently, the move also riled up farmers across Western Canada, turning them against the Liberal government in Ottawa and enlisting them as unwitting allies in Beijing’s defence of Huawei.

And the ban may be relatively painless for China. Beijing can quickly lift it when demand for feed picks up again. In the meantime, it is coping by importing a lot more pork, including from Canada, to make up for what its own industry can’t produce.

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For Ottawa, this is all a bit of a minefield. It clearly can’t ignore the financial pain facing canola farmers. The industry has already lost $1-billion in sales and farmers are scrambling to figure out how much canola to plant this year.

At the same time, the government may be helping farmers weather a normal drop in Chinese demand for their product, as much as it is indemnifying them for the fallout from a diplomatic feud.

This more nuanced story is not the one Mr. Carr and Agriculture and Agri-Food Minister Marie-Claude Bibeau were spinning last week as they announced emergency financial aid for farmers.

Unfortunately for Canada, the situation is poised to get even more complicated. China has reportedly suspended two Quebec-based pork processors from selling in China. This would mark a dangerous escalation of tensions between Beijing and Ottawa.

And unlike the canola ban, blocking pork imports from Canada makes no economic sense. That suggests it’s probably a bureaucratic glitch on China’s part, rather than an act of retaliation.

China might not need as much of our canola at the moment. But it could sure use our pork.

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