Our last blog recommended that Australia needs to very carefully choose what grain battlefield it enters. We follow the theme by looking more closely at wheat; but with less humour (sorry reader!).
Wheat is an ancient grain. We’ve found many uses for it. We use it for foods like bread, noodles, pasta, cakes and biscuits. We need to retain some of it as seed. It’s used as an animal feed and we use it in industrial processes such as manufacturing ethanol. With so many different potential uses the strategic question facing wheat industries around the globe becomes: what sorts of wheat are best to grow?
Should we mostly focus on feed wheats, or durum wheat for pasta? Do we try for high protein bread wheat or lower protein wheat with traits suited to noodle-making? What do we learn from market history?
Figure 1. Global total consumption of wheat; wheat for feed and wheat for food: 2003/04 to 2017/18.
Source: Data from the International Grains Council
Figure 1 shows that the use of wheat for food smoothly increases at around 1.2% per annum whereas use of wheat for feed increases less smoothly but at a greater rate of around 3.3% per annum. However it’s important to note that the apparent greater rate of annual increase in use of wheat as feed comes from a much lower base. Each year around 70% of all wheat is consumed as food.
Although it may be tempting for Australia to hitch its wheat wagon to the feed wheat sector that enjoys a higher annual rate of growth (in percentage terms), it’s worth pausing to reflect on some other facts. Firstly the absolute annual growth in consumption of wheat for food is actually higher than that for wheat as feed. Over the period 2002/03 to 2017/18the average annual growth in wheat for food was 5.7 mmt versus 3.1 mmt for wheat as feed. Secondly, there is much greater volatility in the use of wheat for feed as shown in Figure 2.
Figure 2. Annual change in global use of wheat for feed or food: 2003/04 to 2017/18.
Source: Data from the International Grains Council
Eying the data in Figure 2 shows how more volatile are the changes in volumes of wheat used for feed. More formally, this volatility can be measured by a metric known as the coefficient of variation. This coefficient for the annual change in volume of wheat used as food versus feed is 34% for food versus 475% for feed.
So, is this the logic? Australia already has one of the most challenging environments for wheat production and accordingly has marked volatility in its production, yet it should embrace further market volatility by heavily committing to feed wheat production? Australia, by international comparison, already has relatively high unit costs of production and challenged supply chains. So where is Australia’s comparative advantage in producing feed wheats that need to compete against feed wheats from other origins, as well as competing against alternative feed grains like corn and soybeans that already are produced cheaply in many other origins? Is the answer mildly obvious? Can Australia realistically benefit from re-directing its wheat industry away from a focus on wheat for food towards one that advocates producing feed wheat for export?
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