Speakers examine challenges Australia faces in its quest to gain greater global market share.
The 2016 Australian Grains Industry Conference (AGIC), held July 25-27 in Melbourne, featured discussion about Australia’s changing role in the global grain market as well as reaction to a surprise announcement that Archer Daniels Midland Co. (ADM) had recently tried to sell its 19.9% interest in GrainCorp. Ltd.


Speaking at a panel session on the final day of the conference, which drew 800 attendees, was Mark Palmquist, managing director for GrainCorp. Palmquist said he was unaware of ADM’s intentions and did not want to speculate on why it had decided to sell. He said GrainCorp would continue to conduct business as usual and remain focused on its diversification strategy.

GrainCorp spokesperson Angus Trigg said regardless of ADM’s intentions, it would remain an important customer and GrainCorp would continue to work closely with the Chicago, Illinois, U.S.-based agribusiness giant.

“GrainCorp’s performance is underpinned by growing demand for our products and strategic assets around the world,” Trigg said. “These strong fundamentals have not changed and are not affected by the speculation. We remain firmly focused on delivering our strategic projects to grow underlying earnings.”

Once that development was addressed, Palmquist joined Andrew Crane, CEO of CBH Group, and John McKillop, CEO, Hassad Australia, on a panel discussion that addressed the need for foreign investment to ensure the Australian grain industry had the capital needed to compete.

Palmquist said the current regulatory environment and mechanizations surrounding foreign investment were good and did not require further tightening, but he was concerned that current Australian political rhetoric was misplaced. Australia, Palmquist said, was an appealing choice to international investors who were looking to diversify their portfolio to manage the cyclical nature of agriculture.

Crane said investment in supply chain assets, such as his organization’s investment in trains, had helped CBH achieve the lowest supply chain costs in Australia. He also warned this benefit may be eroded if, as in the case of rail in Western Australia, access was not competitive — referring to the state’s high rail access fee.

Another theme that emerged during the conference was the need for a single organization that could market Australian grain internationally. Referring to the U.S. Wheat Associates, which performs this role for the U.S. grains industry, there was discussion among the panel of the benefits of this model.

It was suggested the industry may benefit from an organization that could work with the entire industry and international buyers to sell the attributes of Australian grain and invest in research and development to ensure grain was meeting the needs of processors.

This is particularly important considering an emerging idea that grain should be viewed not as a bulk commodity but rather a value-added premium product. Driving this push has been historic low ocean freight rates due to excess shipping capacity and the erosion of Australia’s freight advantage into Asia.

To achieve this, international buyers need to be confident the Australian product is worth the premium. Palmquist said competing with the Black Sea countries and Russia on price would be a race to the bottom, and instead the industry should be focused on producing a product that was worth a premium.

Crane mentioned a Chinese customer who was launching a premium craft beer into the Chinese market. He said this was a good example of Australia supplying malt barley to a premium market that was looking for transparency and quality that was Australia’s competitive advantage over its competitors.

He said Australia could compete on cost of production but would need to lift yield by 10%, adding that such an effort would require investment in plant varieties and the sharing of information among growers across state borders. Crane said Australia needed an organization that could work on government-to-government relations to manage “flare-ups” between trading partners. He said this would help Australia compete.
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ACCC’s role in aiding exports

Mick Keogh, ACCC commissioner. 

Mick Keogh, newly appointed commissioner of the Australian Competition and Consumer Commission (ACCC), presented a keynote address. The ACCC is responsible for ensuring markets are fair and not subject to anti-competitive behavior. While it is involved in many sectors and areas, the ACCC’s role as bulk export port regulator is one that attracts the most attention from growers and industry stakeholders.

Keogh explained agriculture needed to be competitive if it was to capture future opportunities. Citing Australia’s share of Asia’s agricultural commodity market, he said it was not possible for it to be the region’s food bowl.

“Australia’s chances of even supplying a small part of the additional demand that we’re seeing emerge out of places like Asia is pretty difficult to imagine given that we supply about 6% of net agricultural exports to North Asia and roughly that same number to Southeast Asia,” Keogh said. “We’re actually only a small player in those agricultural markets. Countries like the U.S., Brazil, Argentina, Uruguay, Kazakhstan, Ukraine, Denmark and Canada are actually growing their market share in those markets faster than Australia.”

Keogh explained it was the ACCC’s role to provide the regulatory environment that would place the industry in the best position to capture additional market by ensuring the market supply chain and market operated as fairly and efficiently as possible.

Critical to this is its role in the monitoring and regulation of Australia’s eight bulk grain terminals and how new operators may be brought into the industry, creating a more competitive and efficient system.

“ACCC enforces the regulations in the code and monitors compliance,” he said. “It has a specific role in assessing and making determinations on the degree of competition that exists within a particular port and that there is sufficient competition.”

He said the ACCC’s requirement on port operators to publish shipping data and stocks at port has been loosened with the emergence of new port operators, particularly on the east coast.

“The infrastructure required for that technology and innovative design provide opportunities for new entrants to take on the incumbents and to develop a more complicated competitive environment,” Keogh said. “Should this reach its full potential, many growers will enjoy the benefits of additional export options marketing arrangements and alternative supply chains to port.”
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Needing an Australian grain brand

Another panel discussion examined the role of industry representative groups and what the industry should look like in the future. The focus of this discussion was largely on a need for an Australian grain brand and what industry functions each group should perform.

Joining a panel discussion on the future of the industry’s representative bodies was Richard Simonaitis, CEO of Australian Export Grain Innovation Centre (AEGIC), who said value drives the entire industry regardless of whether it was a grower, plant breeder, buyer or processer. He said driving this value was customer satisfaction and that it was the source of wealth for the industry.

Simonaitis said the focus on value should be on where it starts, not where it ends up, and that it relied on customer perception. He also suggested pulling together market signals, price and grain volume to derive value.

David McKeon, general manager, GrainGrowers, said Australian grain farms were achieving high turnover and profitability. He also said grain traders were performing well over the last few years, and that the industry was adapting to a shift in market from 70% grain exports to the Middle East before wheat deregulation to 70% now going to Asia.

McKeon said the basic fundamentals of businesses in the industry were right but there was further development required for industry groups to establish who should do what and why.

This value must be derived from an industry working together to capture value right across the supply chain and produce a product that meets the needs of the customer. These needs include the matching of grain qualities with technical requirements needed to make the final product.

Adding pressure on the need to articulate the value of Australian grain is the effect historically low ocean freight is having on the flow of grain globally. Palmquist said in recent months shipments of U.K. feed wheat had moved into Vietnam, and German wheat and barley into Japan.

Palmquist also said recent regulatory changes made by the Argentinean government coupled with the devaluing of its currency had made it competitive against Australian grain, particularly as production runs to a similar calendar.

McKillop mirrored these comments, citing the Australian Farm Institute report that Asian market share had been lost in recent years. He said the industry should focus on the high end to differentiate from others. He said he was more concerned Australia remained in the top quartile for premium products, because the industry was not big enough to do anything else.

Crane said CBH’s Asian flour mills had used Argentinean wheat, which was of very good quality. He said Australia’s advantage was its close proximity to Asia, noting that Argentina couldn’t compete on freshness due to the distance it had to travel from origin.