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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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Cathy Guo

Iris HanMihaela Mardare

Mark Liew

Presentation Outline

1. Introduction

2. Market Overview

3. Policy Impacts and Case Studies

4. Conclusions


  • 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

History (I)

  • 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

  • History (II)

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


    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)

    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

    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

    Canola supply chain
    Canola Supply Chain

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

    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

    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

    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

    Import Map-2011




    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.


    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

    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

    Correlations in price movements pre vs post biofuel legislation
    Correlations in price movements Pre vs Post-biofuel legislation

    Canola and w heat production substitutes
    Canola and Wheatproduction substitutes

    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

    Biodiesel demand c reates blending opportunities
    Biodiesel Demand Creates Blending Opportunities

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

    Energy Security

    Greenhouse Emissions

    Europe Crude Oil Production


    “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

    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

    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


    Oilseed Processing

    1. Price Stabilization

    Price Floor and Subsidies

    Price Floor and Subsidies: China

    China farmer subsidy

    Freight and 9% import tariff





    CIF China: $730/mt

    FOB Vancouver: $600/mt








    Exporter (in $ terms)


    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

  • 1.Price Stabilization

    Biofuel Production Control

    COFCO controls the biofuel production strictly under regulation of the government

    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

    1. Price Stabilization

    Adjusting Consuming Quantities








    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






    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)

    2. Domestic Industry Protection

    Purchase From Farmers at higher price

    China farmer subsidy

    Freight and 9% import tariff





    CIF China: $730/mt

    FOB Vancouver: $600/mt










    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








    Largest Producer≠Highest Yield