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Photos courtesy of AGIC.
New to the agenda this year was a discussion on big data and emerging technology to create more efficiency and understanding of consumer demands.
A panel of grain industry chief executive officers, which included Tim Hart (Ridley), Brendan Bourke (Port of Melbourne) and Graham Turley (Institutional Banking ANZ), discussed technology, sustainability and globalization.
Starting off the discussion on the topic of “what’s keeping you up all night,” Hart talked about energy prices, which has been a high-profile theme in Australia in recent months as high energy prices have put pressure on manufacturing and other businesses whose operations depend on affordable energy to stay profitable.
“In general industry, one of our biggest challenges is energy pricing,” Hart said. “As a non-controllable, we’ve seen a threefold increase in pricing over the last few years.”
He also expressed concern about the dry weather in Australia that is making production challenging, particularly in Queensland, where Ridley has production plants.
Bourke discussed concerns about the supply chain and making sure infrastructure gets the best result in moving commodities to port. He also pointed to a rail access agreement that is being worked on and said they plan to align port activities to encourage more rail over road movements. Currently the port receives 35 trains per week.
“The Victorian government in the last few weeks has announced large expenditure in the upgrade of rail that is important for grain because the improvements will allow rail to be used under all conditions,” Bourke said.
He said part of this efficiency was the upgrade of rail lines that in summer prevented or restricted trains from pulling heavy grain wagons. The Port of Melbourne, he said, is looking at ways it can improve its facilities to receive more via rail, especially containerized freight.
Turley emphasized, from a financial industry perspective, a need to address “license to operate” for the industry in respect to sustainability, as well as biosecurity and food security in the supply chain.
“Whenever you hear of a stock bioscare on-farm, that immediately reverberates (to supply),” he said. “What’s the impact on a dairy or meat factory?”
Turley also addressed changes in technology and how they can work with maintaining competitiveness.
“There are a lot of good things happening in precision farming, and how do we block-chain in supply chain,” he said, adding that it’s the smaller players who can innovate and larger organizations like ANZ can build on this innovation.
Hart said innovation at Ridley centered on gut health and how improving it increases productivity as animals digest grain more efficiently.
When asked why Australia doesn’t produce more, Bourke said in 2017 the port had exported, in a volume sense, a two- or four-fold increase, attributing it not to capacity constraint but the amount of grain available for export.
He also said there is an increase in containerized grain, especially after deregulation, that has opened up export opportunities.
Turley said Australia can’t “feed the world” and said the blockage occurs because the commodity mindset does not adequately meet consumer wants that can vary from country to country.
“People in different countries eat and use food differently,” he said.
He said the industry is learning how to manage technology, food security, provenance, supply chain and food quality technology better and is heading in the right direction to better meet and understand consumer demand.
Hart added there was room to remove barriers and improve costs in the supply chain with better use of data in supply chain planning and customer forecasting.
In terms of export markets, Hart said Australia should be a “delicatessen” because generally the country’s geography meant supply was reliable and had a solid brand and reputation for clean and green produce. However, he said the Australian brand is fragmented.
“I think we should have a national Australia brand,” he said, pointing out that, internationally, states compete rather than work together.
Turley also spoke on the issue, but said being a “delicatessen” meant the Australian grain industry needs to understand its customers in detail, and that it shouldn’t think about producing as much as it can for least cost.
He said the consumer expects more for a “delicatessen” approach and that a lot more work could be done to understand these expectations.
Speaking on globalization and the rising sentiment against open trade, the panelists were optimistic international trade will continue. Bourke said trade was positive in the first half of 2017 and didn’t see any “dark clouds” on the horizon.
Hart commented that rule changes have a larger impact on his business than the anti-globalization sentiment. He cited an example that saw Ridley report a potential AI (bird flu) contamination in its protein meal three years ago. The reporting resulted in the product being blocked from many countries, including China. It continues to be blocked there today despite the product being cleared of contamination.
He argued that despite the United States having much larger A1 outbreaks, China does not apply the same rules as those applied to Ridley because the company isn’t a major supplier.
“If China could not get access to U.S. meal, its industry would have stopped,” Hart said.
He said that unless big tariffs become more common, the inconsistent application of the rules was more of a concern for his business.
Wrapping up the discussion on globalization, Turley said that despite rhetoric from some world leaders the digital world and consumers will continue to drive trade.
Graham also outlined the global challenge of government and the G20 needing to play catch-up with developments in digital technology. Data is the critical factor in organizations and the consumer, through data, will drive global trade, he said.
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Feed grain update
During a discussion focused on feed wheat demand in Indonesia, the Philippines, Thailand and Bangladesh, it was noted that Australian feed wheat should view those markets as a strategic opportunity, rather than an ongoing one due to the high cost of production against others in Russia, Ukraine, Argentina, etc.
Luke Mason, head of grains, Concordia Agritrading (COFCO member), spoke of the growth in these markets from 16 million tonnes in 2013-14 to 25 million tonnes today.
“In years like last year, when Australia had a large exportable surplus of low protein wheat, these are the markets that can easily soak it up,” he said.
Mason also predicted Indonesia will grow to be the world’s largest wheat importer, overtaking Egypt, in two to three years.
In 2015, the Indonesian government moved to protect local farmers and introduced a ban on private corn imports, which then fueled demand for wheat. This was followed up in 2016 with the government banning feed millers from importing feed wheat.
“This year demand for ASW with 11.5 protein shot up, but this program will be quickly replaced by Black Sea wheat in the second half of 2017,” he said.
Demand for Argentinian wheat has reduced due to Indonesian government regulation. However, Ukraine is growing.
In the Philippines, Australia enjoys a 7% tax advantage compared to other origins that allow it to be competitive with low-cost producers.
Thailand continues to demand feed wheat as local corn costs are some of the highest in the region. This demand is supplied by Australia and Ukraine, but the bulk of it comes from the Black Sea region.
This demand for feed wheat should decrease because the Thai government requires the purchase of 3 million tonnes of local corn for every 1 million tonnes of feed wheat imported. Despite this, Mason pointed out that over half of wheat imported into Thailand was used for feed purposes.
Bangladesh, he said, is a least-cost buyer but its demand has jumped significantly in recent years due to high Indian wheat prices ($300 FOB). Over 67% of demand into Bangladesh is met by Black Sea origin grain.
“The biggest program in Bangladesh is whatever is cheapest,” he said. “If that’s Australia they will be there, but generally they focus on Black Sea and Argentina.”
Mason said Australia shouldn’t want to target these markets for feed wheat due to the difficulty in competing with low-cost produced Argentinian and Black Sea wheat. He did note that there was an opportunity in Asia, which was a ready market for feed wheat and one that will continue to grow.
Domestically, Tess Herbert, president of the Australian Lot Feeders Association (ALFA), said cattle numbers on feed remain strong, but not as high as forecasted with numbers decreasing from 1 million in 2015 to 850,000 in 2017.
Michael Whitehead, head of Agribusiness Insights, ANZ, agreed and added that Australia accounts for 3.5% of global production (beef) and 15.7% of global beef exports. He also expects a decrease in Australian beef production due to herd re-building, but this will marginally recover through 2021.
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