Canadian canola producers have long sought closer-to-home markets for their products. The search was about to be realized as global demand for biofuels shot up, chasing new non-petroleum energy regulations around the planet.
Projected demand for biofuels drove so much interest that companies including Viterra, Richardson, Cargill, Federated Co-ops, AGT and Parkland Corp. all declared plans to build oilseed crushing and refining facilities.
The combined demand for canola to feed these projects would use more than one-third of the crop annually. The dream of Western Canada to move from being hewers of wood and drawers of water — or moving from raw grain and oilseed suppliers to become processors of export goods — was at hand.
Like many prairie dreams, the proof is the processing. A recent U.S. government announcement indicates that country will subsidize its biofuel producers with a blenders’ credit, but only for biofuels crushed or distilled in the United States, not only used domestically, but also exported.
For bio and renewable diesel, the credit is between 20 cents and a $1 per gallon and will take effect in 2024. It is a steep subsidy that will make it difficult for other biofuel suppliers to compete.
The news has already prompted Parkland Corp. to cancel its plans to build a 6,500 barrel per day renewable diesel facility in Canada. So far, the other companies that announced new or expanded crushing capacity on the Prairies are continuing their plans to process canola for the biofuels market.
In December, Canadian canola was accepted by American officials as a suitable product for biofuels. The raw product is therefore eligible for the U.S. subsidy program. Once the blenders’ credit is applied, the U.S. can export the refined product back to Canada, where it will compete against this country’s domestically crushed product or the biofuel it sells internationally.
Thus the new American policy will see crushers compete for Canadian crop and then compete against Canada with processed product. Oddly, this does not appear to run afoul of any trade deals the two nations are party to, though it could crush some Canadian value-added agriculture dreams.
Canadian farmers might find the new American market for canola, padded by the U.S. treasury, is a positive development because it will add more competition for their crop — so long as the planned domestic facilities come to fruition.
Canadian governments, business and trade groups welcomed new value-added processing in Western Canada when canola crushing projects were first announced. Advanced Biofuels Canada was among them, but it is now calling on the federal government to match the American subsidy, including its lack of program caps and ease of application.
The alternative is to launch a protracted trade dispute process with the Americans that won’t stop the U.S. from enacting its legislated subsidy program. The European Union is considering this path, but it could take years to resolve and, in the meantime, it would expose the Canadian industry to more uncertainty.
Matching agricultural subsidies tit-for-tat is unpalatable and expensive, but when dealing with international trade bullies, there are few choices available.
Will Canadian farmers be the ones to suffer in the longer term in this case? It will depend on whether domestic crushers can stand the uncorked flow of subsidized American biofuels into the region and whether they can compete for feedstocks from the very fields that surround their refineries and crush plants.
Karen Briere, Bruce Dyck, Barb Glen and Mike Raine collaborate in the writing of Western Producer editorials.
