February 2 – Will Canadian Oats Ever Get Into China?

Earlier this week we got asked about Chinese oats demand. We know this area well but our comments didn’t make it into the article, so we’re sharing them now

Earlier this week, Richard Kamchen reached out to us about Chinese oats demand. Subsequently, he published a piece on the subject, but our responses didn’t make it into the article (or maybe just didn’t make the publishing deadline).

Regardless, we decided to share them with you anyways. We also grabbed a chart from a previous article on Chinese oats demand that we’ve covered for our GrainCents oats subscribers.

The bolded font are the questions asked in an email

I’ve seen some figures on Chinese oat demand and imports, and observe they’re rising fast. From one article I’ve read, that demand was attributed to growing interest in ready-to-eat cereals and snack bars. What are your thoughts?

China’s fast-rising middle class is wealthier, and with that wealth is aiming to be healthier. Dietary transition is the major driver, and it goes beyond breakfast and snacks. Sure, oat meal  and oat-rice-based snacks are increasingly popular among its citizens. But there is a lot of innovation that is going to tap into China’s hunger for oats.  The Australian Export Grains Innovation Centre (AEGIC) is working on projects to determine the value of oat noodles, oat milk, and oat rice in China – mainly because they will help drive oats prices higher. This year, you’ll see an increase in whole grain oat flour for mooncakes during the country’s autumn festival. There is a lot of opportunity, which is why Quaker Oats expanded into the country back in October 2015.  This is just the first inning of something big. Remember that oats represented just 0.2% of the nation’s total grain imports during 2016/17. There is nothing but growth potential.

At that pace of growing demand and imports, can Australia remain their main (only?) source of imported oats? 

From a pure numbers perspective, they could. You’d have a pretty significant amount of Australian acres going into this to keep up demand – but would farmers want to make that shift? It’s possible given their challenges from Russia. China should diversify its sourcing of oats in order to meet its demand. It doesn’t make sense to just overly rely on one source, especially given Australia’s ongoing weather woes.

Prairie Oat Growers Association tells me Canadian oats for food and feed consumption are simply not allowed into China from Canada. Do you know why? Do you think China’s bigger appetite for oats will encourage or force them to change their policy?

It’s not that they aren’t allowed in China. It’s a matter of tariffs that make Canadian oats uncompetitive against those of nations that China maintains a free trade agreement. Yes, China has engaged in new free trade agreements and it has slashed tariffs on the basis of rising demand for certain products. They just cut the tariffs on scotch, and demand went through the roof. I’d say that if the Chinese middle class is buying, there’s a chance for the government to revise its deal.

Could China’s growing appetite for imported oats jump start oats seeding levels in Western Canada? At what point might Prairie oats seedings climb — and to what extent?

Absolutely, but we have to see these tariffs reduced or eliminated. Assuming that China and Canada are able to strike a deal to eliminate these tariffs, yes. One should look at Canada’s FTA with South Korea as a model of expected export growth. [HOW MUCH DID IT INCREASE?] Values were an uptick from $3 million to $8 million… Or the other scenario is that China just cuts them like they did with 200 consumer goods in November. To answer you question, it will come down to the price. The rule when farmers make planting decisions is that oats prices are trading roughly 50% below of spring wheat prices. So, if there is a rise in global demand, those prices could push higher. 

Also: Would this increased demand lead to expanded Prairie oats processing? And again, to what extent?

I can’t really speak to this one. My guess is that there would be potential opportunity to develop oat rice processing plants given the demand for the product in China.

What is the likelihood of a free trade agreement between China and Canada?

This is a difficult question to answer because so many variables exist. I can only give you an American’s perspective. My sense is that Canada has very serious concerns about China’s human rights issues and state-owned enterprises. 

But there is no doubt that China – given its massive consumer population – would offer a significant boon to Canada’s population, particularly in the agricultural, mining, and energy sectors. China is already Canada’s second-largest export market.

 A bit of a contrarian argument – I think that the FTA is critical not just because of bilateral trade between the two nations. Canada has a very similar economic and political structure to Australia, a country that already has a trade deal and proximity to its advantage. A deal is essential to making Canada competitive against Australia. 

china-oats-demand increasing

 

Canadian farmers hungry to enter China oat market

Prairie growers hope to benefit from China’s projected voracious demand for oats.

“Chinese demand will probably double every five years and rival the United States within 15 years if the trends remain in place,” says Randy Strychar, president of Ag Commodity Research.

The U.S. is the world’s largest importer of oats, estimated by U.S. Department of Agriculture to take about 1.7 million tonnes in 2017-2018.

The USDA predicts China’s oat imports to reach 300,000 tonnes in 2017-2018, a huge increase from 87,000 tonnes in 2012-13.

Middle class

“The new Chinese middle class is looking for healthier food and more nutritious products to complement staple traditional foods, such as rice and wheat noodles,” explains Prairie Oat Growers Association’s executive director Shawna Mathieson. “Oats fit well into that diet.”

Snack bars and breakfast cereals, in particular, are fuelling China’s growing oats appetite, adds Strychar.

“We can see breakfast cereal and snack bar trends out to 2022, and the largest growth globally is in the Asia-Pacific market, and that’s China,” he says.

Canada locked out

But it’s Australia that’s benefitting as it comprises about 97 per cent of China’s oat imports.

“Right now, [raw] oats for food and feed consumption are simply not allowed into China from Canada,” Mathieson points out.

The Prairie Oat Growers Association submitted a request through the federal Market Access Secretariat in 2015 to get restrictions lifted.

The Canadian Food Inspection Agency and its Chinese counterpart AQSIQ signed a 2018 work plan in which oats are included, which POGA calls the first milestone toward a phytosanitary agreement and market access.

“The fact that the protocol is taking so long to put in place, it doesn’t seem like the Chinese are in a hurry to look for alternative sources or for any increased competition,” Strychar notes.

Access equals more acres

“If Canadian oats are allowed into China, it will increase demand and therefore increase seeded acres of oats in Canada,” Mathieson says. “In addition it will provide another significant market for oats, as right now nearly 90 per cent of Canadian oat exports go to the USA.”

Strychar cautions Australia could remain China’s dominant supplier.“Australia’s got a very flexible market… Pay them to grow the oats, they can grow all the Chinese would need.”

Bottom line

Chinese oats demand could rival that of the U.S. and present a huge boon to Prairie growers if trade access is granted.

H/T: Farm Credit Canada
About the Author
Brennan Turner

Brennan Turner is the CEO of FarmLead.com, North America’s Grain Marketplace. He holds a degree in economics from Yale University and spent time on Wall Street in commodity trade and analysis before starting FarmLead. In 2017, Brennan was named to Fast Company’s List of Most Creative People in Business and, in 2018, a Henry Crown Fellow. He is originally from Foam Lake, Saskatchewan where his family started farming the land nearly 100 years ago (and still do to this day!). Brennan's unique grain markets analysis can be found in everything from small-town print newspapers to large media outlets such as Bloomberg and Reuters.