Canadian barley exports surging on booming demand from China for beer

Canadian barley farmers are the unintended beneficiaries of a diplomatic spat a world away, as exports of their product to China are picking up.

China is engaged in a trade dispute with Australia right now, accusing the antipodean nation of dumping agricultural products. Beijing slapped an 80 per cent tariff on imports of a number of Australian crops, including malting barley.

Australia is normally China's No. 1 supplier of barley, but the trade tensions have caused China to look elsewhere for that product.

Bloomberg first reported that Canada has seemingly stepped in to fill that gap, exporting 240,000 metric tonnes of barley internationally in May, according to the Canadian Grain Commission. That's more than double April's level, and most of it — some 175,000 tonnes — went to China.

Typically, barley is harvested in the late summer, and most of the export crop is shipped out in the last three months of the year. But so far in 2020 Canada has already exported almost as much barley as it did all of last year, with the biggest months yet to come.

That bumper crop is partly built on China's insatiable appetite for another Canadian staple: beer.

China's the world's biggest market for beer, and barley is a major ingredient. Canadian barley is especially favoured by Chinese brewers because of its higher protein content, said Peter Watts, managing director with the Canadian Malting Barley Technical Centre in Winnipeg.

That's because Chinese beer makers typically mix barley with other grains such as rice and wheat in their brewing process, which requires more protein and other enzymes from the barley to achieve the desired balance, he said.

"Canada does have the ability to offer that higher protein content in malted barley to markets like China that are looking for it so that is part of the Canadian value proposition," Watts said.

Watts said it's premature to call what's happening in barley a boom, but he's very optimistic about where Canada's barley industry is headed.

"We've been working very hard in recent years, promoting Canadian malting barley and feed barley into China and other markets and it's paying off." 

Errol Anderson, president of commodity broker Promarket in Calgary, agrees that "the stars are aligning for our exports this year."

"It will pick up once we get to that October, November, December period." 

About a quarter of the barley produced in Canada is of the malted variety, destined to be used in beer, and most of that is for export. The rest is typically used as animal feed, a good portion of which is consumed domestically and the barley boom could be a double edged sword for that part of the market. 

Prices for lower grade feed barley are also rising, and if the trend continues, farmers in Southern Alberta where most of Canada's barley gets consumed will soon feel the pinch. "When we do get an export market brewing, that competes with domestic market and supports prices," Anderson said.

Barley versus canola

Sunny skies for barley contrast against a gloomy Chinese outlook for another major Canadian crop, canola.

Last year, China moved to block Canadian canola shipments in a maneuver experts say was likely retaliation in a simmering trade dispute between the two countries over the ongoing detention of Huawei executive Meng Wangzhou.

China revoked the import licenses of two Canadian canola companies last summer, first Richardson's then Viterra, alleging pests in the crop. While China has been happy to use canola as a negotiation tactic, so far they are unwilling to do the same with barley, potentially because it is a key ingredient for the country's growing beer industry.

China consumes more beer than any other country in the world, which is why "canola is a political target, barley is not," Anderson said.

Given what happened to canola, the executive director of the Barley Council of Canada said any increase in sales is welcome, but the current protectionist climate afoot in international trade is worrying. Erin Armstrong said China's moves against Australian barley seem to be " politically motivated versus ... science based reasons," so she's concerned about taking any sales uptick for granted.

"Of course we'd like our exports to continue to grow, whether it's China or anywhere else but we don't want them to grow for political reasons rather than for, you know, the quality of our products," she said.