Canada’s lobster industry fears dispute with China could see it move from winner to loser

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Stewart Lamont knows what it’s like to be on the winning side of someone else’s trade war.

When then-U.S. president Donald Trump hammered China with tariffs in 2018 to “make America great again,” Beijing fired back with levies on hundreds of U.S. exports, including lobsters hauled from the waters off the coast of Maine and Massachusetts, that instead made American goods more expensive in China.

“We already had a superior product and all of a sudden we had a price edge, too,” said Mr. Lamont, managing director of Tangier Lobster Co. Ltd., a Nova Scotia exporter of live Canadian lobsters to 21 countries, including China, which grabbed up all the lobster Canada could send it. “I was ecstatic.”

Now Mr. Lamont is nervously watching as Canada’s relationship with China sours, raising the possibility that his industry could be pulled into the fray the same way other parts of the agricultural sector were when China last sought to punish this country through trade.

“We know that if China retaliates, it may not just be canola or soya beans this time, it could be lobster,” Mr. Lamont said. “Geopolitics is a concern for our industry in a way it never was before.”

So far, the diplomatic dispute between Ottawa and Beijing has been limited to tit-for-tat measures, with Canada expelling diplomat Zhao Wei for political interference, and China ordering a diplomat in Canada’s consulate in Shanghai to leave.

But with China declaring it “reserves the right to further react,” and many businesses on edge, the lobster and soybean sectors provide a lens to examine how quickly industries can go from winners to losers in global trade fights.

Even before the China-U.S. trade fight, Canada’s lobster industry was on a roll in China, having shrewdly marketed its clawed crustaceans as a middle-class alternative to the pricey, clawless Australian rock lobster served at banquets and luxury hotels. From 2010 to 2017, Canadian lobster exports to China rose from around $1-million to $173-million. American lobster producers had enjoyed a similar boom – until politics got in the way.

“The U.S. absolutely shot themselves in the foot with the trade war with China,” said John Sackton, an industry analyst and founder of SeafoodNews.com. Prior to the trade hostilities, the Chinese market for live lobster was roughly shared evenly by Canada and the United States in volume terms. Once the Chinese tariffs were in place, Canada seized three-quarters of the market.

The COVID-19 pandemic disrupted the flow of Canadian lobster to China, not to mention prices, but the industry is still far ahead of where it was. After canola and wheat, crustaceans were Canada’s third-largest agricultural export to China last year, with more than $1-billion in lobster, crab and shrimp shipped there, up 43 per cent from 2017, according to Farm Credit Canada.

That could make the sector a target, said Mr. Sackton, though an outright ban on Canadian lobster by China is seen as unlikely. That’s because the product is so popular with Chinese households. With the tariffs still in place on U.S. lobsters, import restrictions on Canadian lobster would drive up prices, incurring the wrath of consumers.

That said, China could still hurt the Canadian industry if it began suggesting that it is “unpatriotic to buy Canadian lobster products because China and Canada are having this dispute,” he said. “We’ve seen that in the past with Japanese products, and that is where Canada is vulnerable.”

China has used lobster in its trade war arsenal to punish other countries over perceived affronts. Australia has been caught in a multi-year trade battle with China, a conflict that accelerated in 2020 after then-prime minister Scott Morison backed an investigation into the origins of COVID-19. Furious Chinese officials responded with a series of tariffs, bans and restrictions on coal, barley, copper, sugar, timber, wine and lobster.

Overnight, Australia’s $680-million rock lobster trade with China ground to a halt as customs officials began quarantining incoming shipments.

Tension have eased in recent months. China lifted its ban on Australian coal in March, and Australia’s Trade Minister is in Beijing this week pursuing talks to lift the remaining bans on other products, including lobster.

Canada’s soybean industry is used to the roller-coaster ride of doing business with China.

Not long ago, Canadian producers, like their lobster-exporting counterparts, were profiting from the China-U.S. trade war. In 2018, Canada exported more than $1.7-billion of the legume to China, an increase of 72 per cent in just one year, according to figures from Statistics Canada. China is easily the world’s largest buyer of soybeans, which it turns into tofu, soy sauce and other grocery staples.

The soybean boom didn’t last long. Within weeks of Canada arresting Huawei executive Meng Wenzhou on a U.S. extradition warrant in late 2018, shipments of Canadian soybeans, peas and other products were subject to lengthy testing at Chinese ports. The Canadian industry viewed these inspections as a retaliatory measure that forced Chinese buyers to look elsewhere for product.

Canada’s largest soybean market effectively vanished overnight. After a record-breaking year for soybean exports to China, they shrivelled to just $33-million in 2019 – a decline of 98 per cent.

In search of new customers, Canadian sellers had to cut their prices. And since the disruption, farmers are focusing more on other crops: 2017 was the peak for Canadian production of soybeans.

Still, the situation was not entirely glum. Exporters quickly redrew their trade routes and developed new markets. During a turbulent period, they showed resilience.

DG Global Inc., a Toronto-based exporter of oilseeds and pulses, was able to lean on strong relationships in Southeast Asia when the Chinese market dried up. “We just flipped the switch, and instead of shipping to China, we just shipped more to Indonesia, Malaysia, Thailand,” chief executive officer Dwight Gerling said.

Iran imported $406-million of Canadian soybeans in 2020, an increase of 550 per cent in two years, making it briefly Canada’s top customer. As recently as 2018, there were virtually no sales to Algeria. Now it’s a $200-million market.

The Canadian industry is “very agile” with shipments, said Brian Innes, executive director of the association Soy Canada.

More recently, the Chinese market has rebounded strongly and reclaimed its title as the No. 1 buyer of Canadian soybeans. However, the concern now is that frosty relations between the two countries could lead to another round of damaging trade disputes.

“Our industry has come to expect unpredictability from China,” Mr. Innes said.

With this particular crop, China can easily mess with Canada, which is a small producer of soybeans, lagging behind giants such as the U.S. and Brazil. China is also bulking up its domestic production and buying from Russia.

This crop year, Chinese buyers account for roughly 15 per cent of DG Global’s soybean business – down from 30 per cent last year.

“My whole motto is, when China buys, you sell,” Mr. Gerling said. “Because you don’t know when that door is gonna close.”

In the lobster industry, Mr. Lamont said the price advantage Canada once enjoyed over the U.S. due to China’s tariffs has evened out because logistical costs for flying planeloads of live lobsters to Asia from the Maritimes have risen faster than in the U.S.

Even so, the U.S.-China trade fight enabled Tangier Lobster to win and retain several new clients, though Mr. Lamont said he’s been careful to ensure his client base is diversified. “We never wanted all our eggs in the Chinese basket,” he said.

As for the rest of the Canadian lobster industry, the focus is on continued international expansion.

“Business has chugged along regardless of the politics of the day,” said Geoff Irvine, executive director of the Lobster Council of Canada. “It’s a vital market for Canadian lobster and it’s important we keep it open.”

The industry is trying to deepen its connection with Chinese consumers, going to them directly in the coming months with a video and social-media campaign promoting Canadian lobster.

At the same time, though, the sector has been seeking to diversify its customer base to rely less on the U.S., which is Canada’s largest lobster export market, and China. Lobster producers and distributors recently mounted a trade mission with other Canadian seafood companies to Thailand, Vietnam and other countries in the region.

Meanwhile, the extended pandemic lockdown in China forced some Canadian lobster producers and exporters to pivot their focus to Europe.

“Everyone knows having only two major markets is not a great strategy,” Mr. Irvine said.