Australian Grains Industry Conference
April 28, 2014
by Michael King
It was no accident that the 2014 Australian Grains Industry Conference (AGIC) was held in the heart of Southeast Asia this year. Leaving Australia’s shores for the first time, AGIC’s usual cast of Australia-based handlers, traders and growers landed in Singapore in a bid to reach out directly to buyers.
Around 60% of Australia’s grain production is exported each year on average and most is now shipped to Asian customers, as pointed out by Peter Reading, chair of Grains Trade Australia (GTA).
“This trend has been exacerbated in recent years with Asian markets now taking 70% of wheat exports,” he said.
Indeed, some 50% of Australian grain exports are now purchased by just five countries – Indonesia, Japan, South Korea, Vietnam and India.
Hosted by GTA, the Australian Oilseeds Federation (AOF) and Pulse Australia, AGIC Singapore attracted delegates from Malaysia, the Philippines, Indonesia, India, China, Singapore, Thailand, Vietnam and Korea in addition to a sizeable Australian contingent. The event was, as GTA’s Geoff Honey put it, an opportunity for the Australian grains industry “to hear first-hand from its customers.”
A raft of leading executives told delegates that Asian demand for grains will continue to expand for the next decade and more as Asia’s middle class swells and traditional rice-based diets are supplemented by more grain and meat consumption. But while Australia is well positioned geographically to supply Asia, its grains industry faces multiple challenges if production is to be sufficiently increased, and competition for market share from rivals in North America and the Black Sea will be fierce.
In his opening address Reading lauded Australia’s reputation “for delivering a quality product to our customers” aided by the formidable advantage of its proximity to Australia and the ocean freight advantage this offered. But he also issued a stark warning to his members and peers, one echoed throughout the conference.
“It would be an absolute folly to expect that Asian customers will place future orders based purely on past performance, and as we all know freight advantages can evaporate,” he said.
After hearing from millers that for many Asian products, such as instant noodles, the highest quality grain was not always what buyers required, Ron Storey, head of NZX Agribusiness Australia, said the take-home message for Australia and its growers was that output needed to be “fit for purpose.”
“The most profitable answer may not be the highest grade,” he added.
Storey said Australia had been on a five- to six-year run of high output across its major grain crops during which time the only major shift in growing patterns was a slight shift towards canola, which now represents 10% of the crop.
The big change during this period has been on the buying side. Southeast Asia now easily surpasses the Middle East/North Africa region as Australia’s biggest wheat market, while North Asia has dramatically increased in prominence.
With alcohol consumption on the rise, North Asia is also now the biggest market by some distance for Australian barley and sorghum, while exports of canola to Asia are also accelerating.
Executive Director of the Australian Oilseeds Federation Nick Goddard claimed that, as the number two exporter of canola in the world, Australia was currently punching well above its weight. However, there were still challenges.
“Australia needs to better exploit and market its strong quality aspects of canola such as high oil content and low moisture levels,” he said. “These attributes place us in a highly competitive position compared to our major competitors.”
Indonesia the leading buyer
Vietnam, South Korea, China and Japan are key export markets for Australian wheat but Indonesia is now the leading buyer, accounting for around 3 million tonnes per annum on average from 2007-08 to 2011-12 and over 4 million tonnes in 2012-13. Indonesia now draws over 70% of its wheat requirements from Australia, with Australian varieties preferred for noodles and sponge cakes.
Michael Whitehead, director of agribusiness research at banking giant ANZ, said Australian wheat had functional advantages in Asian markets, especially in noodle applications where it was important for the product to appear bright. However, in some sectors Australia was facing severe pressure from rival suppliers.
“The lower protein Black Sea wheat, with 11%-12% protein, performs well in biscuits and general purpose food applications,” he said. “And in bread making, Canadian and U.S. spring wheat perform better than APH and AH wheat.”
Dr. Larisa Cato, a wheat quality specialist at AEGIC, said Australian wheat was in high demand across Asia and was particularly dominant in the noodle sector. However, the scope for further market penetration remained high. She said the Asian baking sector was still largely the preserve of North American wheats which offered high protein and strong stable doughs. Australia, she argued, needed to produce more high quality functional wheat varieties to compete more effectively in these fast growing markets.
“The baking sector is a challenge, but also an opportunity,” she added.
Storey said that buyers of Australian grains had probably been over-serviced under the old Australian Wheat Board regime. He said that since deregulation in 2008 there had been a realignment of price and service standards, although the core product quality remained the same. As the sector matured, customers that wanted better service would have to pay for it.
“Customers have spoken loud and clearly and said that price is the most important factor,” he said. “AWB offered good service, but there has been a shift since then. Anecdotally, customers are saying they are not happy about quality. But exporters are saying they are performing to contract, so clearly there is a gap.
“What is being supplied is meeting the contract spec, but falls short of some customers’ past experience. There has been a realignment of value.”
Australia now exports some 2 to 2.5 million tonnes of grain in containers each year, but delegates heard that low-cost exports of containerized wheat from the Black Sea now posed a challenge in some markets.
Storey broke down the patterns of bulk versus box shipments by country in some detail for Southeast Asia. While the Philippines and Indonesia largely rely on grains shipped as bulk, Malaysia, Vietnam and Singapore take quite a high percentage of their imports in boxes, and containers entirely dominate the Taiwan market.
Australian exporters using containers have tended to take the blame when buyers complain that the quality and consistency of Australian grain has declined since deregulation. However, Storey expects container shipments to remain a key part of the export mix in the years ahead and predicted they could also be used to serve niche, premium markets.
“Container shippers are often blamed for quality inconsistency, but they are actually probably best positioned to supply the high end quality products,” he said.
“Containers are the ideal supply chain to deliver that quality consistency. So rather than being the source of inconsistent quality, containers may in fact be the solution.”
Storey was also outspoken about Australia’s rail freight system which he called the grain sector’s Achilles heel and which he likened to “a garden hose” that prevented efficient movement of grains to ports, which, after recent investments, would soon have excess capacity in some regions. He called for more investments in rail infrastructure, rolling stock and a reorganization of upcountry networks.
“We need to improve infrastructure, train speeds and sizes,” he said. “This is the biggest challenge to increasing exports.”
Boosting output to meet rising demand from Asia also presents technological challenges for Australian growers. Richard Clark, chairman of the government-funded Grains Research & Development Corporation, said some A$180 million had been invested in more than 900 projects in 2013-14. He said the GRDC’s remit was to provide growers and supply chain players with the information and resources to boost crop yields, meet market requirements, advance profitable farming systems and protect crops — information they may not be able to afford to access without federal support but which will be vital to meeting increasing demand.
“Since 1975 acreage has doubled, but yield tripled in Australia,” he said. “Australia is also now more reliable and it’s more than just about wheat. India, for example, dominates pulses and China dominates barley and sorghum.”
Recent GRDC projects include investments in wheat with enhanced nutritional properties which registers low on the glycemic index and can aid weight and diabetes management. Canola is also being developed as a source of Omega-3 oils essential for heart health and brain development and currently only available from fish, via algae, which is unsustainable.
Clark said meeting the burgeoning requirements of Southeast Asian markets would require sophisticated supply chains and research and development advances. GRDC, he insisted, was ready to work in partnerships with stakeholders to help Australia’s producers deliver value to growers.
“We are open for business,” he said. “We are open to invest or co-invest with anyone with ideas that will help Australian growers. We have to keep the pace of innovation up because the moment we slow down, our competitors will push ahead.”
Michael King, a freelance journalist and editor, has been writing about shipping, transport and commodities for more than a decade. Currently based in Southeast Asia, he can be reached at: Michael@borderline.eu.com