After a decade of dramatic change and significant challenges, the Australian grain industry should expect more of the same in the next 10 to 20 years, according to Peter Reading, managing director of the Barton, Australia-based Grains Research and Development Corporation.
In a speech entitled, "The Challenges and Future Outlook for the Australian Grain Industry," which he delivered at the International Grains Council Conference in London, England on June 8, Reading cited increased market volatility and competition, declining rates of productivity growth, climate change and the continued consolidation of the country’s grain industry supply/value chain as challenges that Australia must address to maintain its stature as one of the world’s pre-eminent grain producers and exporters.
"Many of these challenges are not only relevant to the Australian grain industry but are common either wholly, or at least in part, to the broader global grain market," Reading said.
The dramatic rise in grain prices in late 2007 and through most of 2008, which were driven by a historically low stocksto-use ratio and commodity pricing speculation, and the ensuing sharp decline in prices, due mainly to the increased plantings in response to strong market signals, profoundly impacted the Australian grain market, he said.
"It was more dramatic due to the strength of the Australian dollar, which, except for a short period during the height of the global financial crisis and over the past few weeks, has continued to strengthen against the U.S. dollar," Reading said.
Increased international competition from major grainexporting nations, especially from the Former Soviet Union (FSU) countries in the global wheat market, has also impacted Australia.
A decade ago, the FSU represented approximately 2% of international wheat trade, but Reading noted that today the region represents 22% of world trade and has gained market share in the Middle East, which has traditionally been a major buyer of Australian wheat.
Another issue facing the Australian grain industry is declining productivity growth rates.
"Between 1977-78 and 2007-08, total factor productivity grew at a rate of 2.1% per annum, which was considerably higher than other commodity groups and benchmarked well internationally," he said. Reading noted that the growth over that period was due to a number of factors including improved varieties, the development and adoption of improved farming practices, new fertilizer chemicals for crops, machinery developments and farm consolidation.
But in recent years the rate of productivity growth has slowed, he said, mainly because of extended periods of drought and a long-term slowdown in the growth in publicfunded research and development investment.
Climate change is one of the principal long-term challenges facing the global grains industry, and its impact on grain production in Australia has been more significant than in many other parts of the world. Reading said average annual rainfall has declined over the past 40 years across most of the country’s grain belt, but thanks to improved varieties and farming practices, grain producers have been able to double yields over that time period.
Without question, two of the biggest issues that have shaped the Australian grain industry in recent years have been the consolidation of the supply/value chain and the deregulation of the export marketing of wheat.
In the 1980s, most of the post-harvest grain supply chain, including transportation, storage and handling, and marketing, was state-based and controlled through stateowned facilities and statutory-controlled grain marketing arrangements.
Reading noted that the industry has now consolidated down to four major national integrated marketers/bulk handlers: publicly listed companies GrainCorp, Viterra (formerly ABB) and AWB, and the grower-owned cooperative CBH Group. (Editor’s note: In late July, just before World Grain went to press, GrainCorp and AWB announced their intention to merge. See article, page 10).
"These companies have also diversified into either first-stage processing, such as flour milling and malt operations, or along the supply chain such as rural mechanizing," Reading said. "Viterra is now Canadian-owned; AWB has significant U.S. involvement; and Sumitomo (a Japanese company) has recently acquired a grain logistics company (Emerald Group) in Australia.
"The impact of these changes has resulted in an ongoing frenzy of activity throughout the grain industry supply chain. This consolidation is expected to continue."
As for the deregulation of the export marketing of wheat, Reading said it has proceeded relatively smoothly, although some importers have raised concerns regarding grain quality. Also, there have been a number of issues regarding the availability and flow of information on grains stocks, grain quality, and shipments, which was previously supplied by AWB.
"Growers remain divided over the impact of deregulation on their profitability, and there is ongoing debate about the need for — and who would pay for — generic wheat marketing and the provision of market data," he said.
In 2008-09, 24 companies were accredited to export wheat in bulk, and a total of 12.3 million tonnes were exported by 17 accredited entities to 42 countries. Eight exporters shipped 90% of the volume and two shipped in excess of 2.5 million tonnes. In addition, 2.4 million tonnes were exported in bags and containers.
"The majority of the bulk shipments went to Asia and the Middle East, while most of the bags and containers were shipped to Southeast Asia," Reading said.
FORECASTING THE FUTURE
Reading said it will be interesting to see how the industry evolves over the next 20 years as it faces many familiar challenges as well as a few new ones.
He doesn’t foresee a major change in the types of crops that are grown in Australia. Wheat and barley will continue as the primary crops and sorghum plantings will remain strong in the northern grain belt.
"It is expected that broadleaf crops, including pulses and canola, will increase in the crop rotation from what is currently less than 10% to around 15%," he said. "The main drivers will be increased crop yields and the cost efficiency of producing that yield."
He added that there will be increased opportunities for value-added grain such as the development of high-amylose wheat and the development of grain segregations for specific consumer needs.
"However, these opportunities are likely to be less than 500,000 tonnes," he added.
The western grain belt (Eyre Peninsula and Western Australia) will remain strongly export focused based on its limited domestic market and proximity to growth markets in Asia, Reading said, while the eastern grain belt will increasingly serve the domestic market, driven by human consumption and the increase in livestock production.
Reading noted that climate change will continue to influence the country’s grain industry. There will be a major emphasis, he said, on increasing water use efficiency and overcoming abiotic and biotic stresses, and producing grain quality to meet market needs.
"There will be a continued movement of production into the higher rainfall regions and there will be an increase in irrigated crops, subject to water availability and profitability," he said.
Other developments that Reading foresees in the Australian grain industry over the next two decades include:
• Grain quality and traceability will be increasingly important, driven by both market and regulatory needs, and a more discerning consumer.
• The number of grain farms will continue to decline, with enterprises becoming larger and more commercially driven.
• Second-generation biofuels production will be relatively localized and determined by the availability of feedstock, power and water access, and proximity to markets.
• The grain industry supply chain will continue to consolidate domestically and become increasingly globalized.
• Australian research development and extension will become more nationally coordinated, more output driven and be increasingly supported by private investment, with the key drivers being productivity, profitability and sustainability.
• There will be an increased focus on advanced breeding technologies, including GM traits in wheat, but it is unlikely these traits will be available in the next 10 years.