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Canola. Cathy Guo Iris Han Mihaela Mardare Mark Liew. Presentation Outline . 1. Introduction 2 . Market O verview 3 . Policy Impacts and Case Studies 4 . Conclusions. Introduction. What is Canola History of Canola Canada’s Trademark Canola Oil – Health Benefits and Dangers

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canola

Canola

Cathy Guo

Iris HanMihaela Mardare

Mark Liew

slide2

Presentation Outline

1. Introduction

2. Market Overview

3. Policy Impacts and Case Studies

4. Conclusions

introduction
Introduction
  • What is Canola
  • History of Canola
  • Canada’s Trademark
  • Canola Oil – Health Benefits and Dangers
  • Canola Supply Chain
  • Canola Oil/Meal Share vs Soybeans; over time
what is canola
What is CANOLA?

Canola was developed through conventional plant breeding from rapeseed, an oilseed plant already used in ancient civilization as a fuel.

Canola refers to a cultivar of either

  • Rapeseed(Brassica napus L.) or
  • Field Mustard(Brassica campestris L. or Brassica Rapa var.)

Its seeds are used to produce:

- edible oil for human and livestock consumption

- biodiesel

http://www.oilmillplant.com/canola-oil-processing-unit.html

slide5

History (I)

http://www.fusionrenewables.com/products-services/biodiesel/types/

  • Hundreds of years ago, rapeseed oil was used:
            • in Asia and Europe as a fuel in lamps
            • in China and India as natural (unrefined) oil
  • Limited use until the development of steam power
  • High demand - World War II critical shortage
  • Canada began to expand its limited rapeseed production
  • After the war - demand declined sharply
  • Farmers look for other uses for rapeseed and rapeseed oil
slide6

History (II)

In 1956 - rapeseed oil extracts were first put on the market as food products

but

suffered from unacceptable characteristics:

  • disagreeable taste
  • greenish colour (due to the presence of chlorophyll)
  • high concentration of erucic acid (considered to cause heart damage)
  • not appealing to livestock (sharp-tasting compounds)

http://wallpapertube.com/photography/rapeseed-field-by-daniel-schwen-wallpaper

canola canada s trademark
Canola = Canada’s trademark
  • Originally Canola was bred naturally from rapeseedat the University of Manitoba, Canada in the early 1970s,

=> different nutritional profile much less erucic acid

  • Name "CANOLA" <= "CANadian Oil, Low Acid" in 1978
  • In Canada, an official definition of canola is codified in Canadian law
  • 1998 is developed the most disease and drought resistant Canola variety

(using genetic engineering)

  • In 2011 -> 96% of canola crop grown in Canada was genetically modified
canola oil nutrition facts
Canola Oil Nutrition Facts

Canola oil nutrition facts and safety has become a controversial issue with no definite answer. 

  • Health benefits:
  • contain some essential fatty acids - have beneficial effects on the heart and cardiovascular system
  • significant amount of omega-3 and omega-6 fatty acids – may increase the level of good HDL cholesterol in the body
  • improve immune functions and promote brain health
  • contain a small quantity of saturated fats

=> is considered as a superior oil than many other commonly used cooking oils

http://www.doctorinmyhome.com/2010/07/canola-oil-nutrition-facts/

http://pacificcoastcanola.com/canola_demand.php

dangers of canola oil
Dangers of Canola Oil

Side effects:

  • derived from a hybridized, genetically modified rapeseed plant
  • contains erucic acid -> cause heart damage and produce free radicals
  • presence of trans fats in canola oil -> have an increased risk for cancer and heart disease
  • it has been shown to cause lung cancer(Wall Street Journal: 6/7/95)
  • manufacturing process:
    • involves the use of solvents that have adverse effects on human health
    • can alter the content of omega-3 fatty acids

=> extra virgin / cold pressed canola oil is recommended

http://www.pristinegourmet.com

canola supply chain
Canola Supply Chain

Retail: $3.82 /1.42L $2,920 / MT

Amazon.com

Wholesale: $1303/mt

Farm: $645/mt

USDA Oil crop yearbook (2011)

oil meal share canola vs soy
Oil/Meal Share (Canola vs Soy)

Crush Me for Oil

Crush Me for Protein

Based on Chicago prices for soybeans and Vancouver FOB prices for Canola

historical oil share canola vs soy
Historical Oil Share (Canola vs Soy)

Up to 20% variance in oil share historically

market overview
Market Overview
  • Global Vegetable Oil Production, Rapeseed Share
  • Yields across the World; over time
  • World Production and Consumption (S&D)
  • World Trade - Major players
  • Canola Major Markets
  • Canola Price Trends
vegetable oil production
Vegetable Oil Production

After soybean and palm, rapeseed and canola together have become the third leading source of vegetable oil in the world in the last two decades.

2000: 14mil MT 2012: 24 mil MT

http://www.fas.usda.gov/oilseeds

slide15

Rapeseed World Supply and Demand – 2011

Note: Domestic supply = ending stock of last season + production of this season. Thus we use production data here not the supply data.

Data source :USDA

slide16

Rapeseed World Trade Viewed by Countries - 2011

Total rapeseed product = (seed + meal + oil)

Fairly thinly traded

Traded Quantity = 12.5 / 60.5 = 20.7%

Data source :USDA

slide18

Import Map-2011

Canada

Ukraine

Australia

what canada doesn t have the highest yield
What? Canada doesn’t have the highest yield?

Because of the harsh winter, Canada grows Spring Canola, while EU and China grow Winter Canola.

Winter Canola has higher yields because it flowers at a more optimal temperature and season than Spring Canola (summer)

In decreasing order of production

m arkets for canola
Markets for canola

Futures markets:

  • In North America, canola is traded on ICE Futures Canada (formerly Winnipeg Commodity Exchange)
  • In Europe, rapeseed is traded on the Euronext-Liffe exchange (now NYX)
  • In China, rapeseed Oil is traded on Zhengzhou Commod Exchange (ZZCE)
  • Physical OTC Markets:
  • FOB Vancouver (Seed/Oil/ Meal)
  • FOB Rotterdam (Oil)
canola price trends canada vs europe
Canola Price Trends (Canada vs Europe)

High degree of freedom of trade between EU and Canada. EU banned Canola for food, still uses for Biofuel

world policies case studies
World Policies/Case Studies
  • North America
    • Price Trends (Substitution)
    • Trade Flows (LOOP)
    • GM Market Power
  • European Union
    • Biofuel regulation and its impact on markets
    • Seasonality and Blending Economics
  • China (中国)
    • Price Stabilization Policies
    • Protectionism
north america growing regions
North America Growing Regions

Canada: 99% of canola crop is grown in Alberta, Saskatchewan, Manitoba and BC (peace river)

USA:90% of the canola crop is grown in North Dakota.

http://www.canolacouncil.org/markets-stats/industry-overview

slide29

90%

90% of Canadian Canola is exported out of Vancouver to Japan, China and Mexico.

The other 10% goes to the USA and east of from Ontario to the EU

market power in n america
Market Power in N America

Retail: $3.82 /1.42L $2,920 / MT

Amazon.com

The ABCD of Oils & Grains Processing and Trading

A – ADM

B – Bunge

C – Cargill

D – Dreyfus (Louis Dreyfus)

Wholesale: $1303/mt

Monopolistic profits in mid-downstream sector here

Farm: $645/mt

USDA Oil crop yearbook (2011)

banning gm foods
Banning GM Foods

Several countries have banned GMO foods including GM Canola, including:

  • Several European countries

(led by Germany)

  • Japan
  • Australia
  • New Zealand

Price difference between Natural Canola and GM Canola

Australia : Natural Canola trades at ~ 6% premium to GM

Europe : No mention of this => Biofuel Policy is key

biofuel mandates in the eu
Biofuel Mandates in the EU

EU Biofuel Consumption

rapeseed oil vs ice gasoil diesel
Rapeseed Oil vs ICE Gasoil (Diesel)

EU commissions biofuel as part of energy policy

rapeseed oil vs go and wheat
Rapeseed Oil vs GO and Wheat

(Fuel) (Food)

Prices: RSO: FOB Rotterdam

GO : ICE GasoilWheat: Milling Wheat – EU origin

crushing capacity squeeze
Crushing Capacity Squeeze

Sources: Rapeseed Oil Price: Fob Rotterdam, source : bloomberg

Rapeseed Price: Euronext futures, Fob France/Germany/Belgium

in summary eu biofuel policy is about
In Summary, EU Biofuel Policy is about

Energy Security

Greenhouse Emissions

Europe Crude Oil Production

china
China

“So an army perishes if it has no equipment, it perishes if it has no food, and it perishes if it has no money.” – Sun Tzu, Art of War

“To the ruler, the people are heaven; to the people, food is heaven”王者以民为天,而民以食为天

- Book of Han

“An army marches on its stomach” “C\'est la soupe qui fait le soldat” – Napoleon Bonaparte

slide45
COFCO(SOE) makes contribution to

Price stabilization

Price Floor and Farm Subsidies

Restricting Biofuel production

Adjusting consuming quantity

Domestic industry protection

Purchase from farmers at higher price than PW

Restrict import quantity

China Policies

Using a private SOE to purchase agri products instead of a direct Government purchase

slide46

Oilseed Processing: Oligopoly

COFCO (SOE):

the largest domestic company involved in purchasing from farmers, processing, marketing, bio-fuel production in China

controlling shareholder is the country

China Agri-Oil Holdings Limited (CAIHL)

is the subsidiary of COFCO, responsible for oilseed processing, biofuel and beer production

30% of market share in oilseed processing

Kerry Oils & Grains

isa subsidiary of SG-listed Wilmar Group

has the lion’s share of the processing market at 45%

Market Share

of

Oilseed Processing

slide47

1. Price Stabilization

Price Floor and Subsidies

Price Floor and Subsidies: China

China farmer subsidy

Freight and 9% import tariff

S

S-s

ES

Sa

CIF China: $730/mt

FOB Vancouver: $600/mt

P1

ED

Db

Da

Q1

D’

ED’

Exporter (in $ terms)

Importer-China

World Mkt

  • COFCO supports domestic Rapeseed farmers
      • with a planting subsidy (CNY150/ha)
      • with a guaranteed floor price (2011:730$/mt)
  • This has led to a ~$600 Canadian export price (FOB Vancouver)
  • The $130 difference can be accounted for by freight and 9% import tariff in China
  • In 2011, COFCO purchased a grand 69% of the summer harvest (4 mil MT)
  • The Chinese Government’s buying decisions (both price and quantity) have important feedback effects on tradeand world prices
slide48

1.Price Stabilization

Biofuel Production Control

COFCO controls the biofuel production strictly under regulation of the government

slide49

1. Price Stabilization

Biofuel Production Control

Regardless of the increasing consumption, COFCO controls the process of biofuel oil.

  • It suppresses price by suppressing the demand of bio-fuel of canola, due to protection of food security and domestic price.
  • 341 million liter=0.3million MT
  • The total oil from canola is 40%* total production in 2012=5.2 million MT
slide50

1. Price Stabilization

Adjusting Consuming Quantities

S

S

P

Pnew

Pnew

P

D

COFCO controls the process of oil production of canola:=> decreasing the production of oil when the market price of canola seeds is high => consuming a lot when the price is low (demand curve shift)In 2010, price was predicted to fall => purchasing amount was 5 million tonsIn 2011,price was predicted to increase => purchasing amount was 2 million tons

Dnew

Dnew

D

2010

2011

slide51

2. Domestic Industry Protection

Restrict Import Quantity

Protection of Domestic Industries

Restricting imports as part of price controls

In 2012, COFCO:

  • purchased 4,000,000 MT,
  • equivalent to 69% of the annual domestic production
  • imported only 700,000 MT
  • equivalent to 38% of total imports

(even though the world price is much lower than the domestic price)

slide52

2. Domestic Industry Protection

Purchase From Farmers at higher price

China farmer subsidy

Freight and 9% import tariff

S

S-s

ES

Sa

CIF China: $730/mt

FOB Vancouver: $600/mt

P1

ED

Db

Q

Da

Q

ED-new

D’

Importer-China

World Market

  • COFCO purchases canola seeds from farmer at $730/mt

-> $130/mt higher than the world market price.

-> part of this $130 is due to the 9% tariff on Rapeseed imports

  • Protects farmers’ benefits, in case of suffering from price volatility
conclusions1
Conclusions

Profit

America

Energy

Europe

China

Food

Largest Producer≠Highest Yield

FUEL

FOOD

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