Opportunities and challenges
Month Day, Year
by Mike King
The challenges and opportunities confronting Australia’s growers in the years to come are many and varied. Asia’s swelling middle classes are demanding more meat, bread and noodle products, creating huge new markets for millers and farmers. And for many buyers, Australia’s reputation for quality and its ocean freight advantage makes it a shoo-in as first choice supplier.
However, Australian growers also face huge pressure. Many feel they lack the government support available to rivals in the U.S. and Canada and suffer from outdated infrastructure and logistics systems. Grower profits – where they are generated at all – are under increasing pressure from buyers, marketers and bulk handling companies. And low margins make it more difficult to invest in market research and technology to generate output and yield gains, and to communicate effectively with customers to ensure the varieties planted match the needs of rapidly changing markets.
“The Australian Governments – federal and state – don’t bother much about agriculture,” said WA Grains Group (WAGG) executive Ray Marshall. “You only have to look at our third world transportation infrastructure. We have some of the highest supply chain costs in the world. We cannot compete against our competitors.”
WAGG is a self-funded grower group set up in 2007, prior to the liberalization of the Australian grain industry a year later, as an alternative to traditional state agricultural lobby groups. According to Marshall, the Australian agriculture sector’s combined debt based on Reserve Bank of Australia figures was A$64 billion in November last year, compared to A$30 billion in 2003.
High cost of production
Part of the reason for mushrooming debt is that growers in Australia face ever increasing red tape: truck audits, firearm licenses, fork lift tickets, compliance charges, stamp duty, high payroll and carbon taxes, work safety costs and chain of responsibility regulations.
“Government policies have been the main cause of our inability to compete,” said Doug Clarke, WAGG chairman. “Government has put in policies on wages, welfare, superannuation and tax that have made agriculture unsustainable.
“The cost of producing wheat in Australia is double that of Argentina, Russia and Ukraine. Australian agriculture has the highest costs, lowest yields and most volatility in weather. With increasing rural debt, this is decreasing the ability of farmers to replace infrastructure.”
Dr. Michael Southan, general manager for Grower Interests at GrainGrowers, a country-wide, member-based grain producer organization, also believes that many Australian farmers are being weighed down by costs of production far higher than in rival production areas such as the Black Sea. “We have very little financial assistance and costs such as land, labor and fertilizer are higher here so we quite often are not competitive on price,” he added. “What we do have is good quality wheat and other products which are always attractive.”
Clarke claimed uncompetitive monopolies in the supply chain, citing bulk handling companies CBH, Glencore and Graincorp, was also putting inflationary pressure on costs. “The single highest cost to Australian Grain Farmers per hectare is supply chain cost, which is 30% of their costs of production, according to one AEGIC report,” he said.
One of the key complaints of millers at a recent conference in Singapore was that there was a lack of mechanisms through which they could express their product needs direct to growers. Dr. Southan said meeting the fresh demands of fast-growing markets was getting more difficult, adding that Australia was also now finding it hard to keep making the yield advances that had been possible in the past.
“I think we need to talk more to millers direct so we know what they want in terms of quality and this is then supported by price signals so growers have a margin,” he said.
“We’re also pretty much reaching the top of our production potential from a variety perspective. We have to look at other areas minimizing production. So in the research community we are looking at abiotic influences on yield and constraints on yields from pests and improving management systems. But this has to be about yield and price if you are going to be competitive.”
More dialogue needed
Marshall also accepted that there needs to be more dialogue with customers. “We discovered on a visit to China the preference for white wheat flour,” he said. “There are mixed messages as some customers prefer yellow wheat flour.
“It is why the information flow is so important. The WA Grains Group’s opinion is that there must be a far greater liaison between the grower and customer. This is the Paddock-to-the-Plate concept, although there is a conflict here as it may impinge on the marketers’ territory.”
However, Marshall argued that relying on organizations such as Wheat Quality Australia and Australian Export Grains Innovation Centre (AEGIC), which are part grower-funded through the Grains Research & Development Corporation, was not really aiding farmers in Western Australia.
“Information flow is at best spasmodic, at worst very little,” he explained. “The WAG Group has close ties with Murdoch University and this is one of our main sources of information.”
WAGG is now attempting to develop a suitable high yielding, high kilo-joule feed grain, which could be wheat and/or barley based, although Marshall said it had been disappointing that growers did not have support in this type of research.
“From our information since the deregulation of the wheat industry, there is no group or body now giving out the information on the crop quality, quantity and technical information to our grain customers,” he said. “In 2013, the WA Grains Group was on a study tour of China and visited the Guchuan Milling Company in Beijing and was told that they were the first representatives from Australia that had visited since deregulation.”
GrainGrowers attempts to ease the research burden by supporting producers in identifying varieties that are profitable and sustainable for their business. The organization’s head office at North Ryde is fully equipped with laboratories, a pilot bakery and mill where advanced research is undertaken.
“We also have an Asian foods and dough rheology lab where further research is carried out,” said Southan. “Our pilot mill is the largest of its kind in the Southern Hemisphere and a vital research asset. Our laboratories are used to carry out a variety of functions, including nutritional testing of grains and products for major food companies and detailed analysis of the annual Australian wheat harvest.”
He insisted that Australia’s farmers do respond to market signals when they are there. “We can’t control the price though,” he added. “When customers say they are getting the right varieties, the issue is usually quite straight forward. Maybe millers want feed wheat rather than milling wheat. But the best way of ensuring millers getting what they want, is a system that rewards farmers in terms of price.
“All the millers are looking for cheap wheat, but even some instant noodles require high quality wheat which demands a higher price. We can’t compete in Australia purely on price. We can compete by supplying specific wheats that are high quality and that suit more quality demanding and higher priced products. However, the market will be about price and therefore we need to ensure our customers understand what Australian wheat can do to appreciate its value. Growers will have to maintain productivity and profitability to stay in business.”
Despite all the challenges facing growers in Australia, Marshall remains upbeat about what the future holds for the sector.
“Asians like our grain,” he said. “It is reputed to be sound, clean and fresh. Food safety is important, especially to the Chinese. The Group is very positive as to farmers’ ability to supply high quality, safe agriculture food products from Western Australia to all Asian customers. The proviso is that the weak links in our system need attention.”
Michael King, a freelance journalist and editor, has been writing about shipping, transport and commodities for more than a decade. Currently based in Indonesia, he can be reached at: Michael@borderline.eu.com.