Canola School: The Pros & Cons of Component Pricing

A new report commissioned by SaskCanola says there would be no net benefit to producers from implementing a component pricing system that offers premiums or discounts based on canola’s oil content.

“There was some discussion a few years ago when crush margins were widening — are farmers receiving a fair amount for the canola they’re growing and would introducing the concept of component pricing provide a more transparent price?” explains Tracy Jones, policy and producer relations manager with SaskCanola, in this Canola School episode.

canola oil (1)A resolution brought forward at the organization’s 2014 annual meeting called on the SaskCanola board to evaluate the pros and cons of component pricing, which is used in Australia and the UK. Advocates for the system feel Canadian producers are missing out on premiums for higher oil content.

Based on the analysis completed by New West Public Affairs, the SaskCanola board is not supporting a move to the component model.

“The premiums would also result in discounts because of the costs of segregation and testing,” notes director Charlene Bradley.

Some of the key findings in the report (which is still in the final drafting stages):

  • There is limited ability for producers to control oil content through management practises.
  • A more complicated marketing system would add costs which would be distributed across the supply chain, including back to farmers.
  • A baseline would be set with both premiums and discounts.
  • The export market is not willing to pay more for higher oil content (about half of the seed grown in Saskatchewan is destined for export markets like China).

Jones says they concluded “canola has an advantage of being a product with a one major end use and this lends to efficiencies in the market.”

The study will be published on the SaskCanola website shortly, after which Jones says they intend to give producers an opportunity to interact with the authors of the report.


Find other Canola School videos here!

Wake up with RealAgriculture

Subscribe to our daily newsletters to keep you up-to-date with our latest coverage every morning.

Wake up with RealAgriculture