Grains Research and Development

Date: 01.09.2001

Canola: and the future looks... promising! by Julian Lee

Graphs

The future for Australian canola growers looks rosy if they can take advantage of the strong rise in world consumption expected over the next nine years.

A GRDC-supported ABARE report, Future of Canola Production in Australia, reveals that, in regions where yields are high, canola can provide up to triple the returns relative to winter cereal crops such as barley and wheat (see graph 1, this page).

Furthermore, strong world demand for canola oil is driving an increase in prices to 2002, after which prices are projected to fall only slightly in response to increasing world production of low cost soybean and palm oil (graph 2).

According to the report, “demand for vegetable oils in general is strongly related to incomes {graph 3) with the potential for increased consumption of oils per person highest in developing countries”.

In contrast, per person consumption is high in developed countries, and therefore has less potential to increase as incomes increase.

Economic growth = more processed oil consumption

Economic growth, particularly in developing countries, is therefore likely to have a strong influence on future world demand for canola oil.

While world economic growth is assumed to average around 3.7 per cent a year over the medium term to 2005, the report states that, in non-OECD Asia, economic growth is projected to be higher at 6.0 per cent over the medium to long term.

These worldwide trends will be crucial to Australian growers because with small domestic markets the Australian canola industry has become reliant on exports.

This is reflected in an increase to almost 80 per cent in 1999-2000 of the proportion of Australian canola exported.

This has seen canola rise from less than 10 per cent of Australian oilseeds production to nearly 65 per cent over the 1990s. Despite this, Australian vegetable oil and protein meal represent a very small proportion (less than 1 per cent) of world production.

Currently the European Union, China, Canada and India produce over 80 per cent of world canola production.

The potential for the Australian canola industry to expand its share will depend heavily on favourable world canola oil prices relative to the price of other vegetable oils.

Most vegetable oils have similar end uses in the food industry and producers often blend oils depending on their relative prices.

The relatively high substitutability among vegetable oils means that their prices in international markets are likely to be similar.

Palm oil still the benchmark

The report indicates that palm oil will be the oil to keep an eye on as the key determinant of future oil prices.

Production incentives in Malaysia and Indonesia, which account for over 80 per cent of world palm oil production, will contribute significantly to its production outstripping all other oils.

In combination with its low cost of production and high yield, an abundance of palm oil will depress its price and other oils with it.

Another factor determining Australia’s ability to expand its world share is its comparative advantage relative to other world producers, particularly Canada.

Currently the competitive advantage of the lower Australian dollar is offset to a certain extent by domestic support and import tariffs in other countries.

The report states that the speed and extent of trade liberalisation are expected to have a significant effect on this.

Overall the future of canola in Australia will be shaped by a combination of policy and market developments in domestic and world markets.

Future of Canola Production in Australia can be obtained from Rural Connect.

Free call: 1800 110 044

Freefax: 1800 009 988

Free post: Reply Paid Rural Connect PO Box 178, Noble Park Vic. 3174

Email: ruralconnect@ozemail.com.au

Ordering code GR 184 Price: $40.00 plus postage and handling