Farmers with long memories tell their grandchildren that there was a time in Australia when wheat prices were so low that Australian wheat production had to be restricted to help drive up prices. At the instigation of the Australian wheat industry, in 1969 restrictions were placed on the quantities of wheat that could be delivered to the Australian Wheat Board. Each wheat grower was given a quota to reduce the build-up of excessive carryover stocks after the record 1968–69 Australian wheat harvest that coincided with increased world wheat stocks that suppressed global wheat prices.
Expert grains industry analysis and commentary from AEGIC’s Economics and Market Insight Team on a range of big-picture topics that affect Australia’s export grains sector.
Opportunities for Aussie grains are on the rise in South East and North Asia as consumers increasingly look at not just price, but sustainability and health benefits, when choosing grain-based foods.
Labelling on products can provide a consumer with information that helps the consumer to buy the product, or not. Recent research by AEGIC scrutinised the labelling claims on grain products in South East and northern Asian markets. We investigated the type of claims made on these products, the food sectors they are used in, and the prevalence of claims on new food products. And, we looked ahead at leading markets to get an indicator on the direction in which labelling could go.
Since the mid-2000s the bulk freight capacity of international shipping has grown strongly (Figure 1), on the back of a huge ship-building program in the period 2006 to 2012 (Figure 2). However, in very recent years new construction of bulk ships as a proportion of the trading fleet has been very low (Figure 2), despite the volume of grain traded globally continuing to grow as has demand for other main bulk commodities (iron ore and coal).
It could be that many Australian grain farmers are soon to have another fine season; underpinned by the separate or combined forces of high grain prices and favourable yields. What’s the evidence to support that statement? Firstly, when Russia, the world’s largest wheat exporter, invaded Ukraine, the world’s fourth largest wheat exporter; it caused a cascade of problems that inevitably will support high wheat prices for months. Ukrainian access to its key southern ports from which it cost-effectively exports its wheat is no longer possible. Moreover, the size of the Ukrainian winter wheat crop harvest this year will be markedly less, as field operations that would normally support usual yields are no longer feasible. Ukraine’s main farm group is forecasting 18.2mmt of Ukrainian wheat production in 2022-23, a 15mmt drop from the 2021-22 crop year.
Some recently released market research from Mintel confirms there are sound growth prospects for the consumption of biscuits, cookies and crackers in Asia. As shown in Figure 1, Australia and New Zealand consumers already individually consume on average over 6 kilograms of biscuits, cookies and crackers each year. By contrast, consumers in many Asian countries individually consume far less; but the prospects for consumption growth over the next five years make those markets attractive to suppliers of the ingredients (e.g. wheat flour) for those products.
There is a famous Monty Python sketch that touches on “What have the Romans ever done for us?” where one character repetitiously asks that question; only to eventually receive a long list of things provided by the Romans — sanitation, medicine, education, wine, public order, irrigation, roads, a fresh water system, public health, and peace.
A structural shift appears underway in China. Its rising per capita wealth is causing dietary change that generates greater dependence on feed grains and oilseeds. China can no longer satisfy its grain and oilseed demand wholly and simply from its domestic supply. As a result, imports of grain and oilseed imports are increasing and imports are forming a larger share of China’s grain and oilseed supply. This is creating new or enlarged structural market opportunities for some Australian grains and oilseeds.
Most farmers, or at least their parents, will remember the heady days of the late 1980s when there was a resurgence in wool prices. In 1987/8 the eastern market indicator for wool averaged 1117 cents per kilogram, a price level farmers would not see again for 23 years. After the crash in wool prices in the early 1990s wool fell out of favour for many farmers. In the 1990s many farmers in Australia switched their enterprise mix away from wool into crop production and sheep flock structures mostly moved away from wool towards sheep meat production.
What is Asia’s WOW factor that will affect market opportunities for Australian grains? It’s simply that Asian populations are becoming wealthier, older; and the combination of age and wealth seems to be generating wiser consumption. So, the WOW factor is consumers becoming wealthier, older and wiser.
An article in a recent National Poultry Newspaper caught my attention due to its similarity to an issue often raised in the grains industry: payment for quality.
The ability of large farms to extract advantages from economies of size still seems to be true. When I was an undergraduate, the late Henry Schapper at my university gained a somewhat infamous reputation for his slogan that farmers needed to get big or get out. The idea was simple. Production of agricultural goods was underpinned by economies of size so spreading large fixed costs across more hectares helped lower unit costs of production and raised profit margins per hectare.
Often in introductory economics courses, diagrams are drawn of downward sloping demand curves and upward sloping supply curves and their intersection is known as the market clearing price. Implicit in these diagrams are a range of assumptions not always made evident to students. One of the key assumptions is the homogeneity of the good being produced and demanded.
Australia’s national anthem says it all: Our land abounds in nature’s gifts of beauty rich and rare. For decades we’ve been selling off our mineral wealth; coal, iron ore, nickel, zinc and gold to name a few. Lands have been cleared; crops planted, sheep and cattle introduced, and agricultural wealth generated. People with skill and opportunity have flocked to Australia and helped develop a rich, diverse economy.
Consumers in different countries pay different relative prices for bread and cereals, and grain flows and market prospects are affected. For various reasons, governments in some countries introduce policies to make bread and other cereal-based foods more affordable to their populations. Egypt subsidises bread consumption. Russia imposes wheat export taxes to make its wheat domestically more affordable. India imposes a raft of policies to ensure grain-based foods are affordably available to its low-income groups. At the other end of policy spectrum, the Japanese government controls the importation and sale of certain types of grain to provide income support to Japanese farmers, with Japanese consumers then paying more for certain bread and cereal foods.
There is an adage that “an apple a day keeps the doctor away”. It could be just as true to say that “a daily handful of oats keeps the doctor away” because oats bestow an impressive array of health benefits.
Upholding its supply reputation for safe and healthy grains, Australia could help South East Asian governments combat their emerging dietary problems.
Proposing valid, long term grain consumption scenarios – as required by players in the Australian grains industry – requires a different approach and tools to short-term forecasts, some of which are slightly fuzzy and challenging for us data driven analysts.
Australia continues to increase its production and export of wheat; Australia’s principal grain. However, growth rates in the global export of other grains outstrip that of wheat. This is causing the pie of international traded grains to grow, with Australian wheat’s share of that pie gradually shrinking; even though wheat production in Australia remains profitable.
Australia’s climate remains highly variable, challenging agricultural production and its related sectors. Yet despite Australia being a global leader in volatility of agricultural production, farmers and scientists are consistently delivering improvements to ensure farming remains profitable.
Loss of a major grain market like China’s barley market can trigger calls for greater market diversification and more niche markets. However, developing niche markets has pros and cons. Developing niche markets usually requires careful effort.
Key message: and development, governments often encourage local value-adding opportunities based on feed grains. One outcome is more affordable meat.
Australia could make healthcare savings of more than $1.4 billion annually in the prevention of heart disease (CVD) and type 2 diabetes, simply by swapping just three serves a day of refined grain foods to whole grains.
Increases in grain production are mostly underpinned by continuous improvement. The cumulative impact of continuous improvement generates significant additional wealth.
Australian grain farmers can count themselves fortunate. The economic and climatic conditions in a 2020 world affected by COVID, as luck may have it, have actually favoured Australian grain farmers. Yet again, Australian grain farmers can say they live in the Lucky Country.
A huge spatial change in the global distribution of middle class incomes is underway. By 2030 five countries will be the source of over half of the world’s middle class. Four of those countries are geographically close to Australia; and its grain producers.
Structural change in the size and composition of countries’ populations offers further grain export market opportunities for Australia
In Part One of this two-part series I explained some of the key factors underpinning Saudi Arabia’s long history of using barley for animal feed. Historically speaking, Australian barley has long dominated this market, however, due to a number of reasons the status-quo has recently been upended, effectively ending Australia’s dominance of the Saudi market for barley.