For any company looking to export its goods overseas, the Chinese market is incredibly attractive. The country has the highest population in the world, which means plenty of potential consumers; they’re also seeing some of the highest rates of GDP growth in the world, and their middle and consumer classes are growing rapidly. The country can be a bit fickle, though; the most powerful governing force is the Chinese Communist Party, and businesses in China know it’s not wise to cross them.
Recently, China stopped buying Canadian canola seed. They cite the quality of the canola for this, noting worries about pests and fungus. The Canadian Food Inspection Agency has run tests on canola that would be exported, and has found no signs of pests or other health concerns. The Canadian government has offered to send scientists to China to assuage their worries about health; there has, so far, been no response.
All of this might make you suspicious; there’s good reason for that. Canada is the world’s biggest exporter of canola; the “can” in canola stands for Canada, and the crop was originally created and bred in Manitoba. The standards of quality for our canola crops are incredibly stringent, and we typically export billions of dollars worth of canola to China every year. While we can only speculate as to why China is refusing to import our canola, there may very well be political motivations behind the ban.
As I alluded to in the first paragraph, there is a deep connection between Chinese businesses and the Chinese Communist Party, which runs the country. Late in 2018, Canada arrested the CFO of Huawei, Meng Wanzhou. Huawei is one of the most powerful telecom companies in the world, and is based in China. This arrest was conducted as part of an extradition agreement with the United States, who have charged her with violating sanctions against Iran. Meng is on house arrest in Canada, and is largely free to go where she pleases in the Vancouver metro area; nonetheless, China is willing to apply all kinds of tactics and pressure to have her released.
Though it’s not certain that Meng’s arrest is the reason for the block on canola exports, we do know that farmers are suffering as a result. China is one of the biggest importers of Canadian canola, and there are two negative effects caused by the blockade. The immediate effects are obvious: losing one of your biggest buyers hurts the pockets. The more long-term, insidious effect might be one of chilling; uncertainty around the Chinese market may create reluctance in producers, diminishing Canada’s overall supply of canola.
Investors in the canola industry would do well to consult with Compass Accounting about how they can claim potential losses on their tax returns. A well-established budget and a knowledgeable team can help you through times of uncertainty; with a market like China’s, the ability to bounce back from the unexpected is essential.