Wednesday 20 April, 2016
The Australian grains industry is being urged to respond to the growing challenge of Ukrainian wheat exports to Asia over the coming decade.
The Australian Export Grains Innovation Centre (AEGIC) today released Ukraine: An emerging challenge for Australian wheat exports – a wide-ranging report into the Ukrainian grains sector.
The report warns that Ukrainian wheat has the potential to undermine Australia’s competitiveness in our key Asian markets.
Lead author Ross Kingwell said the Australian grains industry needed to formulate a cohesive strategic response to the challenge posed by Ukraine.
“Ukrainian wheat is already making inroads into some of Australia’s key Asian markets,” Professor Kingwell said. “The profitability of grain production in Australia will be affected by how well Australia strategically responds to the challenge posed by Ukraine, as well as other emerging Black Sea producers such as Russia and Kazakhstan.”
Professor Kingwell said Ukraine boasted 32 million hectares of arable land – more than 12 per cent of Europe’s total arable land area. “Ukraine also has highly fertile soil and a favourable climate for grain production,” he said.
“In addition, Ukraine’s supply chain costs are relatively low, and there is significant scope to improve infrastructure, which would increase efficiency and drive supply chain costs even lower. There is also the likelihood that Ukrainian growers will continue to embrace modern farming methods, which should lift on-farm productivity and help end-product functionality.”
“It is clear that the potential exists for Ukraine to greatly increase its wheat exports.”
However, despite its many apparent advantages, Professor Kingwell said Ukraine faced a range of significant challenges which meant the threat from Ukraine remained modest for the time being.
“There remains great uncertainty regarding Ukraine’s potential impact on Australian wheat exports,” he said. “Political instability, financial problems and widespread corruption continue to impede foreign investment and economic potential. In addition, increased military expenditure due to the conflict in Eastern Ukraine will limit the government’s ability to modernise the country’s aging transportation infrastructure. And while Ukraine’s large, vertically-integrated “agroholdings” are often well-funded, modern farming operations – much of the country’s wheat crop is still produced using inefficient farming practices.”
“It is also important to note that Australian wheat production is dominated by high-quality milling wheat which is well-suited to Asian staples such as noodles, while a large proportion of Ukraine’s wheat production remains destined for feed and lower-paying markets. Corn and oilseeds, which offer better gross margins, will also continue to be favoured by many Ukrainian growers at the expense of wheat.
“Essentially: Ukraine wheat exports to Asia are a tide, not a tidal wave, and Australia has time to take proactive steps to meet this challenge. However “proactive” is the operative word here. If we simply react to the loss of market share in the future, these markets may be difficult to claw back, as strategic actions can take time to bear fruit.”
This report on the Ukrainian wheat industry will be followed by similar reports on Russia and Kazakhstan later this year. This series, which ties with AEGIC’s report on the Canadian grain supply chain, aims to provide in-depth analysis on a range of competitive threats facing Australian wheat exports over the coming years.
Ukraine - An emerging challenge for Australian Wheat Exports
AEGIC predominantly focused on Ukraine’s export grain value chain. AEGIC compared and contrasted the Ukrainian and Australian grain value chains and reviewed the factors that may influence the future of Ukraine’s grains industry.
View more on information our Supply Chain and Business Analysis.
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