by Professor Ross Kingwell – AEGIC Chief Economist.
Key message: Feed grains often occupy the lower rungs of the grain price ladder. Nonetheless farmers are attracted to grow feed grains if their gross margins are sufficiently attractive. To encourage regional employment and development, governments often encourage local value-adding opportunities based on feed grains. One outcome is more affordable meat.
The largest, most valuable grain markets in the world are feed grain markets. Corn, soybean meal, feed wheat and feed barley are fed to millions of animals; chickens, pigs, cattle, fish and sheep. As the world’s population and per capita incomes grow then more feed grain is demanded to supply the animal protein and animal products that people’s higher incomes can afford.
In the competitive world of grain production a farmer’s choice over whether to plant a grain for feed or human consumption often boils down to their relative yields and prices. Farmers or their advisers undertake a gross margin analysis that examines the gross profit earned from growing a feed grain or a human consumption grain. As expected, farmers respond to profit signals and so tend to sow whatever plant variety offers the higher net returns.
Just as farmers make investments in grain production, so do governments make investments to grow the economic and social health of their societies. When it comes to government investments that support grain production then feed grain production offers several economic advantages. Like human consumption grains, feed grains can be grown, stored and shipped, unprocessed to overseas customers. Also like human consumption grains that can be transformed into products like malt or flour, feed grains can be processed into a variety of compound feeds for a wide range of end uses by different animals. In turn, animals reliant on feed grains produce products like eggs, milk, hides and a range of meat products subsequently sold in local retail shops or exported to overseas consumers. It is the transformation of the feed grains into other saleable products that underpins local value chains that complement any processing of human consumption grains. These value chains that draw on feed grains are important sources of additional employment and value-adding that are desired by governments. Hence, often governments see strategic merit in aiding feed grain value-adding possibilities.
Supporting feed grain production, local value-adding animal production and processing helps keep grain-based meats affordable to Australian households (see chart). Chicken meat is increasingly affordable and is now the cheapest meat available to households. Over the last handful of years beef and sheepmeat that are far less reliant on feed grains have become increasingly expensive. By contrast, chicken and pork, both grain-fed meats, are the most affordable, helping household budgets to stretch further.
In summary, efficient production of feed grains and their use in animal production provides value-adding opportunities which benefit households.
Above: meat price indices over time. Source: ABARES
HORIZONS: the AEGIC Economics and Market Insights blog
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.
