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Page 3 of 12 - AI Writing Submission Submission ID trn:oid:::29034:90338354
Economic Analysis of Canadian Canola in the Context of Domestic and
International Trade Dynamics
Student’s Name
Institution Affiliation
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Economic Analysis of Canadian Canola in the Context of Domestic and
International Trade Dynamics
Question 1: Demand Shifts for Canadian Canola Oil
Demand for Canadian canola oil is influenced by multiple economic and structural
factors. First, international consumption trends, particularly in China and the U.S., directly
impact export demand. Canada is projected to export 7.5 million tonnes of canola in 2025, with
the U.S. being a key market (Danielson, 2025). Any geopolitical disruption or import restriction
in these markets results in a decrease in demand. Second, competition from substitute products,
especially soy and palm oil, has intensified. According to Danielson (2025), with global soybean
production up and prices falling, canola oil faces a price disadvantage, which can further
suppress demand.
Third, domestic processing expansion is driving internal demand growth. In 2025,
Canada is expected to reach a record 12.0 million tonnes of canola crushed domestically,
supporting food, biofuel, and industrial sectors (AAFC, February 2025). This leads to a demand
increase from processors. Fourth, climate-induced nutritional decline in canola oil is emerging as
a demand risk. A study shows a reduction in essential fatty acid content due to warming trends,
potentially reducing health-conscious consumer uptake and thus lowering demand (Bukowski et
al., 2025). These four factors—global consumption, substitute prices, domestic crush capacity,
and nutritional quality—critically define the direction of demand shifts for Canadian canola oil
in 2025.
Question 2: Supply Shifts for Canadian Canola Oil
The supply of Canadian canola oil is directly shaped by agro-economic and trade factors.
First, adverse climatic conditions—particularly drought in the Prairie provinces—have caused
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significant yield reductions. AAFC (February 2025) reports a drop in national average yield from
2.17 to 2.02 tonnes per hectare, resulting in a 7% decline in overall canola production, thereby
decreasing supply. Second, elevated input costs for fertilizers, fuel, and chemicals are
discouraging cultivation. The same report forecasts a 3% decline in seeded area to 8.5 million
hectares, as producers cut back due to tight margins, leading to a further supply contraction.
Third, expansion in domestic crushing capacity is a positive supply driver. Canada’s 2025
canola crush is projected to reach a record 12.0 million tonnes, signaling strong industrial
demand and incentives for future production increases (Danielson, 2025). This would increase
supply through improved market access and value chain integration. Fourth, trade uncertainty—
particularly China's anti-dumping case—has undermined producer confidence and export
stability (Slade & Kerr, 2025). This volatility constrains future supply, especially from export-
dependent producers. While processing expansion supports supply, climate, cost pressures, and
geopolitical risks are causing a net decline in Canadian canola oil supply in 2025.
Question 3: Impact of a 25% U.S. Tariff on Canadian Canola Oil
Imposing a 25% tariff on Canadian canola oil by the U.S.—Canada’s key trading
partner—would significantly distort market equilibrium. In 2024-25, Canada’s canola exports
were forecasted at 7.5 million tonnes, with the U.S. being a major destination (AAFC, February
2025). A tariff would raise the landed price of Canadian canola oil in the U.S. market, leading to
a leftward shift in the demand curve from U.S. importers as American buyers reduce purchases
due to higher costs. This would directly decrease export demand, placing downward pressure on
Canadian prices.
From a supply perspective, domestic producers would be faced with a surplus as their
product becomes less competitive internationally. This surplus would exert downward pressure
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on prices, and the supply curve would not immediately shift, but producers may reduce future
planting or hold inventory in anticipation of price recovery. AAFC (2025) projected carry-out
stocks at 1.3 million tonnes in 2024-25; such a shock would likely increase these figures
significantly, reducing revenues and profitability for producers, especially in Saskatchewan and
Alberta.
Additionally, the domestic market may see moderate gains in processing activity as more
raw canola is diverted to crushers. However, even with record domestic crush forecasts of 12.0
million tonnes (Danielson, 2025), processing infrastructure has limitations. The net effect is a
short-term supply glut and price suppression, with longer-term consequences including acreage
reduction, delayed investment, and market reorientation. The tariff distorts both domestic and
export demand, compresses margins, and generates broader inefficiencies across the Canadian
canola value chain.
Question 4: Market Structure and Tariff Effects on Canadian Canola Oil
The Canadian canola oil industry operates under a perfectly competitive market structure
at the farm production level. This structure is characterized by the presence of many small
producers, each too small to influence market prices individually. In 2025, major production
regions such as Saskatchewan and Alberta are dominated by thousands of independent farms
producing canola on standardized terms (AAFC, February 2025).
First, a large number of sellers ensures that no single farm has pricing power. Farmers are
price takers, accepting prevailing global prices set by commodity markets. Second, homogeneity
of product defines this sector. Canola oil, especially after refining, is standardized for oil content
and fatty acid composition, as specified by international quality benchmarks. Even though
Bukowski et al. (2025) document climate-induced declines in essential fatty acid content, the
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product remains largely undifferentiated in global markets. Third, there is free entry and exit, as
minimal regulatory or capital barriers exist for new entrants, though economies of scale still
benefit larger producers. Fourth, perfect information exists among buyers and sellers, with
market pricing, export volumes, and input costs widely disseminated through government
publications like the AAFC’s Outlook reports.
The nature of perfect competition magnifies the industry’s exposure to tariffs, as
individual producers cannot adjust prices to maintain margins. A 25% U.S. tariff significantly
reduces export demand, causing the demand curve for Canadian canola oil to shift leftward. With
price rigidity and no price-setting ability, producers absorb the full brunt of revenue loss, which
discourages further production and leads to suppressed prices in the domestic market (Danielson,
2025). The inability to restrict output in the short run results in surpluses, pushing prices toward
or below average variable cost (AVC).
Under perfect competition, the shutdown point occurs when the market price falls below
AVC. This point indicates that producers are unable to cover even their variable costs such as
seeds, fuel, and fertilizer. AAFC (2025) notes a drop in seeded area and yield forecasts for 2025-
26, implying that smaller or less efficient producers are already responding to unprofitable
conditions. If the post-tariff domestic price of canola oil drops below the threshold of sustainable
marginal costs, rational producers should halt production to minimize losses. Hence, the market
structure not only dictates vulnerability to policy shocks like tariffs but also determines the exit
mechanism for unsustainable operations.
Question 5: Graphical Representation and Tariff Impact
The graph below illustrates the demand and supply dynamics for Canadian canola oil
before and after the imposition of a 25% U.S. tariff. Initially, the market was in equilibrium at
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point E, where the original demand (D) and supply (S) curves intersect. According to Agriculture
and Agri-Food Canada’s (AAFC) (2025), this reflects the balance of export demand and
domestic supply under normal trade conditions, with exports projected at 7.5 million tonnes and
a carry-out of 1.3 million tonnes.
Once the tariff is imposed, the demand curve shifts leftward to D1 due to reduced U.S.
import demand. This contraction reflects price sensitivity in export markets, where the added
25% cost reduces competitiveness. The new equilibrium point E1 shows a lower price and
quantity, aligning with Danielson’s (2025) forecast that global canola prices would decline under
adverse trade pressures.
Although supply may not shift immediately, in the medium term, some producers might
marginally increase domestic supply due to surplus redirection from export markets. This
potential minor outward movement is reflected in the dashed S1 curve. However, capacity
constraints in domestic crushers limit this response. The net effect is price suppression, excess
inventory, and producer strain, validating the economic repercussions of demand shocks in a
perfectly competitive export-dependent sector.
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Question 6: Summary and Critical Impact of Five 2025 Canadian Articles on Canola Oil
The first article, Canada: Outlook for Principal Field Crops, 2025 by Agriculture and
Agri-Food Canada (AAFC, February 2025), presents current data on canola acreage, yields, and
market forecasts. The report highlights a 3% decline in canola seeded area due to weather
volatility and input cost concerns. It also projects total production at 17.2 million tonnes and
forecasts a domestic crush record of 12.0 million tonnes. This article directly informed my
analysis in Questions 1 and 2 by providing credible figures on supply constraints, processing
capacity, and the market's structural shifts. It clarified how droughts and rising costs reduce
output and how expanded crush demand drives partial recovery in domestic supply.
The second source, Danielson’s Oilseeds and Products Annual (2025), offers granular
insights into global market dynamics and Canada's canola export exposure. The report
documents Canada’s export forecast at 7.5 million tonnes and shows increasing pressure on
prices from competing oilseeds, especially soybeans. It also stresses the risk posed by tariff-
induced demand contractions in major markets. This directly influenced my discussion in
Question 3, where I used Danielson’s data to support the analysis of reduced U.S. demand and
the downward price pressure stemming from a 25% tariff. It also reinforced the logic of how
limited export market diversification heightens exposure to trade shocks.
The third article by Bukowski, Goslee, and Barthet (2025) presents a scientific
assessment of climate-driven nutrient degradation in canola oil. The study finds a measurable
decline in essential fatty acid content, notably linoleic and alpha-linolenic acids, linked to
changing climatic conditions across the Prairies. This source shaped my argument in Question 1
by providing a factual basis for why long-term demand might weaken among health-conscious
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consumers. It substantiates the hypothesis that even a homogeneous commodity like canola oil
can suffer demand-side quality erosion due to non-market factors such as environmental change.
The fourth article by Slade and Kerr (2025) analyzes China’s anti-dumping actions
against Canadian canola. It details how trade disputes not only restrict market access but
generate long-term reputational damage and policy uncertainty for exporters. The authors
emphasize the chilling effect such trade actions have on producer confidence and investment.
This article significantly supported my discussion in Questions 2 and 3 by providing a real-world
case of how geopolitical trade tensions can suppress supply responses and lower price
expectations, especially under conditions of perfect competition.
Finally, Nadon et al. (2025) explore the nutritional impact of canola meal versus soybean
meal in dairy cows. The study finds comparable nitrogen flow levels, validating canola’s utility
in animal nutrition. This supported my broader understanding of canola's demand in feed
markets and was relevant in Question 1, as it shows consistent demand from the livestock sector
regardless of export trends. It demonstrated the resilience of industrial demand, even amid
international volatility.
Together, these five articles anchored every section of my analysis in empirical,
Canadian, and timely data. They offered critical, discipline-specific insight into supply
dynamics, trade policy, climatic effects, and industrial utility, all essential to evaluating Canadian
canola oil within its domestic and international trade context.
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Reference
Agriculture and Agri-Food Canada’s (AAFC). (2025, January 20). CANADA: OUTLOOK FOR
PRINCIPAL FIELD CROPS, 2025. Language selection - Agriculture and Agri-Food
Canada / Sélection de la langue - Agriculture et Agroalimentaire
Canada. https://agriculture.canada.ca/sites/default/files/documents/2025-
01/Canada_Outlook_for_Principal_Field_Crops_202501.pdf
Agriculture and Agri-Food Canada’s (AAFC). (2025, February 19). CANADA: OUTLOOK FOR
PRINCIPAL FIELD CROPS, 2025. Publications du gouvernement du Canada |
Government of Canada
Publications. https://publications.gc.ca/collections/collection_2025/aac-aafc/A77-1-2025-
2-19-eng.pdf
Bukowski, M. R., Goslee, S., & Barthet, V. J. (2025). Longitudinal cohort study of Canola
composition demonstrates changes in the climate and the food system are decreasing the
essential fatty acid content of Canola. The American Journal of Clinical
Nutrition, 121(2), 304-314. https://doi.org/10.1016/j.ajcnut.2024.11.021
Erin Danielson. (2025). Oilseeds and Products
Annual. https://apps.fas.usda.gov/newgainapi/api/Report/DownloadReportByFileName?fi
leName=Oilseeds%20and%20Products%20Annual_Ottawa_Canada_CA2025-0017.pdf
Nadon, F., Charbonneau, É., Lapierre, H., Binggeli, S., & Ouellet, D. (2025). Effects of Canola
meal or soybean meal on duodenal flow of nitrogen fractions in dairy cows. Journal of
Dairy Science. https://doi.org/10.3168/jds.2024-25773
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Slade, P., & Kerr, W. A. (2025). Collateral damage: China's anti‐dumping case against Canadian
Canola. Canadian Journal of Agricultural Economics/Revue canadienne
d'agroeconomie, 73(1), 5-15. https://doi.org/10.1111/cjag.12381
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