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China and Canada in Canola Dispute

Beginning April 1, China is planning to enact tougher standards regulating the amount of foreign material allowed in shipments of Canadian canola from the current allowable range of between 2% and 2.5% to 1%, according to Reuters.

The Canadian Food Inspection Agency (CFIA) was notified of the decision by Beijing to lower the dockage allowance by China’s quarantine regulator, the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ). In response, Patti Miller, the president of the Canola Council of Canada told Reuters by email, “We will be talking about next steps in escalating the issue politically as well as through government channels.”

Concern from Beijing has been building since December over the possibility of the presence of blackleg fungus in Canadian shipments, however, Canadian scientists have found no risk of transmission of blackleg to Chinese farms via foreign material in canola shipments.

Some traders however, are claiming that the lower dockage allowance is stemming from China’s large rapeseed oil inventory, which if left too long will spoil. After years of stockpiling, estimates are that China is currently holding 5.8 million tons of rapeseed oil that needs to be sold down.

During the 2014/15 crop year, China was the top importer of Canadian canola, importing 4.1 million tons according to data from Statistics Canada, and Chinese buyers have increased their purchases of Canadian canola for shipment between April and June on the back of improved crush margins according to one trader who told Reuters that shipments may top 300,000 tons per month.

The change in regulations is expected to be an expensive one for Canadian exporters, and there is concern that shippers will be reluctant to sell on the Chinese market for fear of shipments being rejected. And although Beijing has stated that it will honor all contracts already in place, there is concern over actions that may possibly be taken with shipments arriving after April 1.

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