STRUCTURAL changes in the global market are set to bring future growth opportunities for Australia’s canola industry, according to a newly-released industry report by Rabobank.
With global and Australia canola prices already breaking records in 2021, the report, says Australia’s canola industry has more potential upside ahead with policies to curb emissions in North America and Europe expected to lift global demand for oilseeds, and in particular canola, through to 2030.
The report, ‘Global Canola Opportunities in the Sustainable-Fuel Future: Is Australia fit and ready?’, says that over the next decade government initiatives to curb emissions in the northern hemisphere will fundamentally change, and be the key drivers of, the global canola market.
“This will present opportunities for Australian canola exports,” report co-author, Rabobank agriculture analyst Dennis Voznesenski said.
“In our base case outlook, these are modest initially, but grow as a result of structural shifts in the global industry in 2024/25 due to Canada’s falling exportable surplus and then again from 2026/27 onward due to the European Union’s increasing canola import needs.”
Global supply of canola in the current 2021/22 season has been severely reduced by drought in Canada, the world’s largest canola exporter, and by continued heavy EU import demand. And this has been benefiting Australia and other exporters.
Canola prices domestically are edging towards the A$1000 a tonne mark while overseas markets already broke through that level earlier in the year.
A substantial lift in global canola production is expected next season (2022/23) however, the report says, driven by improved seasonal conditions and elevated prices, which will expand acreage worldwide.
“Both will contribute to a large re-supply globally,” Mr Voznesenski said.
“However, in 2024/25, we expect new Canadian crushing capacity to come online to supply a growing renewable diesel sector across North America and this will reduce Canada’s exportable surplus, primarily to price-sensitive markets in Asia and Mexico, but also to Europe.”
Canada typically produces close to 30 per cent of the world’s canola and accounts for around 64 per cent of global exports.
“Then from 2026/27 onwards we expect sizeable reductions in the EU’s use of palm oil as a feedstock for biodiesel as it is phased out to meet sustainability commitments,” Mr Voznesenski said.
“The feedstock gap created will deliver an opportunity for even greater use of canola in the EU. Even under favourable European growing conditions, we could see EU import demand for canola then rise to levels similar to those of recent drought years.”
Both these factors will lift global demand for canola.
However just how much Australian canola, and canola prices, benefit will depend on a number of variables.
These include how quickly the EU phases out palm oil in biofuels and how much Canadian canola exports drop, as well as how much global production grows and what additional sustainability requirements may be placed on Australian canola.
“While the road to 2030 for canola contains many uncertainties, we can be sure that the global exportable surplus is on a downward trajectory. And this will create opportunities for the Australian canola industry,” Mr Voznesenski said.
“In years when global production significantly underperforms, which it inevitably will, shortages will result in even greater opportunities for Australia.
“Australia can lift canola production, and it will continue to have an export surplus, potentially much larger in periods of supportive price signals and favourable seasonal conditions. However, its capacity to fully capitalise on the opportunities presenting over the course of the decade will depend on meeting sustainability credentials and being ‘fit’ for the future global market.”
Australian area planted to canola has grown from a modest 100,000 hectares in the early 1990s – representing less than one per cent of total winter cropping area – to an average 2.5 million hectares and almost 12 per cent of winter cropping area this past decade, the report says.
“The availability of more resilient varieties, hybrid and genetically-modified (GM) in particular, and the widespread adoption of crop rotations – which use canola as a beneficial break crop in cereal crop programs – and no-till farming have supported the expansion,” Mr Voznesenski said.
The price ratio between canola and cereals has also been critical to the expanded adoption of canola in Australia’s winter cropping program.
“In particular, we have seen lifts in the pricing of canola relative to wheat and barley causing a sustained step-up in average planted area.”
Incentivised by good price prospects and supported by early and good season rainfall, Australia’s planted canola area increased 25 per cent year-on-year in 2021 from 2.4 million to 2.9 million hectares, 15 per cent above the five-year average.
The capacity to expand further however, is limited by a number of factors, including the need to limit canola in cropping rotations to manage disease risks, lack of additional available cropping land for expansion and the fact canola production is most reliable in medium to higher-rainfall zones (which are showing a drying tendency).
“Notwithstanding these limitations, and if seasonal and market conditions are favourable in any given year, there is the potential for Australia to increase planting to 2.5 million hectares on average in the short term, and even to three million tonnes on average towards the end of the decade, with favourable years seeing even more upside,” Mr Voznesenski said.
The report forecasts average Australian area planted to canola to increase by the end of the decade, with production averaging just over four million tonnes (Mt) by 2030 and exports averaging 2.9Mt (up 23 per cent from the five-year average of 2016/17 to 2020/21).
The greatest increase in planted area, and therefore production, in Rabobank’s outlook is in the already dominant canola-growing states of New South Wales and Western Australia.
‘Fit’ for future markets
Moving towards 2030, the Australian canola industry will continue to have two primary export outlets in any given year, the report says – Europe (for accredited canola) and Asia, where sustainability requirements by governments are to date minimal.
“These options will not be mutually exclusive and, in fact, in years when EU production is high and large volumes of imports are not required there, the industry will need to price itself competitively to capture Asian sales,” Mr Voznesenski said.
“Also, we don’t discount the growing demand for accredited canola in Asia, driven by the commercial/private sector rather than regulation.”
In that regard, Australian canola will need to ensure it will be ‘fit’ to take advantage of these future export opportunities, in particular in meeting the sustainability credentials which will be increasingly required in export markets, especially Europe.
Mr Voznesenski said a large proportion of Australian canola was already fit for the EU market by way of International Sustainability and Carbon Certification (ISCC) accreditation, but being prepared for further changing requirements would be key to being “market ready” into the future.
“Being mindful of changing EU restrictions on agri chemicals that can be used in production, potential changes to the EU’s views on which canola varieties are considered non-GM, and also carbon intensity scrutiny as part of the region’s Fit for 55 ambitions to reduce its greenhouse gas emissions by 55 per cent in 2030 compared with 1990 levels, are all going to be critical to capturing the European canola opportunity,” he said.
By nature of its geographical location, Australia will already be at a disadvantage on the carbon front in the future compared with competitors such as the Ukraine, Mr Voznesenski said, given the distance – and associated carbon emissions of transport – that Australian canola has to travel to Europe.
Looking out past 2030, the report says, EU biodiesel demand – and hence canola demand – is expected to ease as the region transitions to electric and hydrogen-powered transport.