In order to compete, industry must highlight its ability to customize product, and proximity to export markets.
|Mark Palmquist, GrainCorp chief executive officer.|
“We have to prove to the customer that there is a reason why they should buy Australian wheat for $15 a tonne more than what they can buy Russian wheat,” he said.
One solution that has been suggested is formation of an international group to promote Australian wheat.
Such a group is needed, said John McKillop, CEO, Hassad Australia, a part of Hassad Food Co., a Qatar-based investor in the food and agribusiness sectors. It could have been created when the Australian Wheat Board was being deregulated, he said.
“It would have been easy to set aside money to establish a body that would represent Australian grains overseas,” McKillop said. “We need to be promoting the attributes of Australian wheat.”
|Andrew Crane, CBH Group CEO.|
“These things tend to flair at certain times and can be motivated by different issues,” Crane said of phytosanitary requirements. “Having a really strong Australian representation directly into the governments in Japan, China, Southeast Asia, where we can sort out trade issues quickly or have pre-certification of shipments, is where I would like to see the efforts go.”
Palmquist said helping customers overseas understand the true value of Australian production is a country issue, not a company issue. It has to be done by the industry, and integrated with the farmer as well.
Some of the factors that make Australian wheat unique are its consistency and the ability to create a customized product, he said.
Australia can compete with the Black Sea region in terms of cost of production, but yield will be a struggle, Crane said. Australian growers already are very efficient and on the leading edge of production technology.
“The challenge is getting the yields up, we can’t get near the ones in Russia,” he said, adding that research and development will be important to improve yields for the bottom half of farmers. “We are on the eve of growers being able to share best practice data anonymously. That’s a way we can lift productivity.”
Australia also faces competition from Argentina, which recently reduced and in some cases, totally eliminated export tax.
“That freed up Argentina to become a very strong competitor in many of the markets we’ve gone into,” Palmquist said. “We have to watch the plantings. We could see acreage increase in wheat, similar to what barely did, when the export tax was lower than what it was for soybeans.”
Grain flows have changed abruptly, he said, not just because of Argentina’s export tax changes, but also the drop in ocean freight costs.
“Ocean freight is half the value,” Palmquist said. “We’re seeing flows that we’ve never seen. U.K. feed wheat is going into Vietnam and barley into the Philippines and Japan, which we would not have seen in the past.”
Crane said Australia should grow the crops that others can’t. While the nation could never replace wheat, it could, for example, grow its oat crop.
“Oat is not easily grown in other places, and of course, pulses,” he said. “What can we grow, and how do we still play the proximity advantage?”
While that advantage is eroded due to low freight rates, Australia is still a reliable supplier with a shorter supply chain to Asia than Argentina, which also translates into freshness, Crane said.
“There’s a whole set of angles we’ve got to play,” he said.
The panel also discussed foreign investment within Australian agriculture companies. The nation has attracted overseas interest recently, including the sale of rail company Asciano Limited to a group that includes Canadian-based Brookfield Infrastructure.
|John McKillop, CEO, Hassad Australia, a part of Hassad Food Co.|
Palmquist said it is important to have foreign investors, particularly given the cyclical nature of the agriculture business. Archer Daniels Midland Co., Chicago, Illinois, U.S., is an investor in GrainCorp, though it attempted to sell its 19.85% share in a “Dutch auction” on July 26. The sale didn’t happen after offers didn’t meet the asking price.
“We have other non-Australian investors that own GrainCorp stock, not just ADM,” he said. “We have to make sure we’re attracting capital from a lot of sources.
“International capital and Australian capital has to be diversified. I’m confident we can attract foreign capital.”
Palmquist added that the appropriate reviews and standards are in place to protect food security and national interests.
Crane expressed concern over the sales of Australian infrastructure such as ports and railway lines to foreign companies.
“These are critical to a country that is dependent on exports,” he said. “I’m not so worried about the owner, but the long-term regulation to ensure they are kept as a means to an end.”
He also questioned why more Australian capital isn’t attracted to agriculture investments.
“What are foreign investors using as yardstick that makes it work for them but doesn’t make it work for us?” Crane said. “Do they have a longer view? Are we too short term?”