Don’t let Black Sea send Aussie grain into the red

31 Mar, 2016 01:00 AM
Comments
15
 
Ukraine has a well educated farming sector, efficient supply chain infrastructure, better internet connectivity than Australia and it grows bigger yielding wheat crops than us for $100 a tonne less.
Ukraine has a well educated farming sector, efficient supply chain infrastructure, better internet connectivity than Australia and it grows bigger yielding wheat crops than us for $100 a tonne less.

It's the biggest country in Europe, with arguably the world's best cropping soils, and it represents the biggest threat to Australian grain exports in generations if our industry does not take preventative action quickly.

Smack in the middle of the fast emerging Black Sea grain industry, Ukraine is not only blessed with a third of the world's humus-rich chernozem topsoils covering 40 per cent of its land mass, it has good technology, a diverse mix of cropping know-how, low labour costs and is annoyingly close to Australia's long-established wheat markets.

Australian Export Grains Innovation Centre's (AEGIC) economics services manager, Professor Ross Kingwell warns many Australian graingrowers dismiss Ukraine as a developing Eastern European country often at the centre of military tensions with nearby Russia.

In fact it has a well educated farming sector, efficient supply chain infrastructure, better internet connectivity than Australia and it grows bigger yielding wheat crops than us for $100 a tonne less.

Last year 2.6 million tonnes of Ukrainian wheat was exported to Asia - a million tonnes more than the previous year.

Markets in North Africa and the Middle East, which have long been regular buyers of Australian grain, are even closer to southern Ukrainian ports.

AGEIC is about to release a detailed report into the competitive challenges presented by the Black Sea region (Russia, Ukraine and Kazakhstan) and based on Professor Kingwell's summary it will not be comfortable reading.

He told the recent agricultural Outlook 2016 conference, Russia which already produces a 60 million tonne annual wheat crop, also has huge potential for growth, as does oil-rich Kazakhstan.

Ukraine produced about 25m tonnes of wheat in 2014-15.

Its yields now average just under four tonnes a hectare, or double their average in 2000-01.

Australian average yields have remained about 2t over the same period.

Ukrainian cereal production would likely be much greater if not for the fact the country's grain croppers, backed by significant foreign investment, were also increasing production of soybeans, sunflowers and corn, primarily in areas with better rainfall and soil types.

"Fortunately for Australia, a lot of Ukrainian production is switching to crops with greater gross margin returns, which tend to be oilseeds and corn," he said.

"Wheat plantings tend to be shifting south to areas with lower rainfall and slightly poorer soils - which is good news for us.

"The bad news is wheat productivity is not actually declining and these southern production areas are even closer to ports, therefore further improving the supply chain advantages."

Growing wheat in Ukraine last season cost about $186/t, including a supply chain cost of $53/t, while in Australia the average total cost was at least a third more at $291/t with supply chain costs averaging $84.60.

Ukraine also had potential to slash transportation costs even further if it started moving grain to port by barges.

However, while the Black Sea's monster-sized competition challenge looms dangerously large for the Australian wheat industry, Professor Kingwell said our growers, plant breeders and grain marketers still had time to take pre-emptive action.

Most Ukrainian croppers were currently focused on non-cereal production and their country was torn by political strife, economic uncertainty and corruption in many of its government and business sectors.

With nearby Asian markets critical to our export sector's success Australia must use every opportunity to engage closely with Asia, identifying what customers liked about our wheat and characteristics they would pay premiums for.

"We must know more about what other competitors like Argentina, too, and develop grain quality systems that service our markets better," he said.

"We need to be forewarned if we are to be properly forearmed.

"We need to use this window of opportunity very carefully.

"If we don't prepare for the threats ahead we'll end up seriously disserving our valuable Australian grains industry."

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FarmOnline
Andrew Marshall

Andrew Marshall

is the national agribusiness writer for Fairfax Agricultural Media
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READER COMMENTS

Jock Munro
31/03/2016 3:24:35 AM

We had the iconic wheat export single desk to put us at the forefront of the global wheat trade and Rudd Labor and Nelson's Liberals abolished it. Foreign mega merchants now control our crop and the integrity of our industry is in tatters.
Philip Downie
31/03/2016 6:45:00 AM

Sounds like a re invention of AWB but it wont work, the knowledge has gone but still a few trips here and there. Our current system has failed and will continue to fail. we did engage closely with all our markets we did now what they wanted for their end products, we did produce said wheat. We don't have marketers we have traders probably the same ones selling Ukraine wheat to Asia. This guy contradicts himself in each para.
ProfitAg
31/03/2016 7:32:12 AM

Jock, the article states that the cost of production and yields are the major factors in the Black Sea advantage over Australia. What difference would the single desk make to these factors?
Mock Junro
31/03/2016 7:46:53 AM

Not sure how the wheat board would benefit right now Jock? World price for milling wheat is about US$180 FOB... yet Australia is US$210 FOB. There are cheaper suppliers and cheaper origins, all producing milling wheat, for a cheaper price - which in this day is all the customer is after.
Jock Munro
31/03/2016 8:20:30 AM

Because Profit Ag we had a quality and service advantage- now we are down in the gutter with the rest of them. Take note of Phillip Downie's contribution . Nothing will sort this mess out until we adopt a similar structure to that which we had prior to 2008. And no Mocker- there is no substitute for quality especially when the world is awash with wheat.
Ken
31/03/2016 9:13:53 AM

Philip, Completely agree re: traders. I remember a group of people coming down from asian flour mills a while back to visit some growers. They were all complaining about trader antics and comparing it to the "golden days" of the AWB where they were treated well and received better wheat. Those days are gone (and for many, not so golden), so rather than wishing we had a time machine, we need to work with what we have. By the way - what did you mean regarding "contradicting himself"?
Deregul8
31/03/2016 9:13:58 AM

Buckle up folks. We got a period of below cost prices ahead. Maybe couple of years at least. Hopefully this will clean out the dead wood in this industry once and for all.
Philip Downie
31/03/2016 11:59:10 AM

Ken, Good news, bad news is basically the same news they are better off, we are worse off. Actually lower rainfall maybe be an advantage to, higher protein. Pre emptive action will take how many years before it is visible in the market, lots. This stuff is on going evolution not Oh we better go and fix it tomorrow and by tomorrow night it will be OK. Its like turning the Queen Mary time and lots of inputs. trouble is GRDC have been focused on Yield, yield, yield. They can't replace the missing links because they don't know they are missing. But they are obvious, to some of us.
Jock Munro
31/03/2016 12:00:30 PM

Dereg- can we have a definition for dead wood?
Consolidated
31/03/2016 3:17:56 PM

So if what you say is true Mr Downe, why is it that ever since we lost the Single Desk in Western Australia which services the bulk of Australia's export markets, we have had a circa $30/t basis over CBOT? The facts don't lie. You cannot escape the trend in Chicago in this world but you can minimise losses to top heavy bureaucracies servicing their salaries. When I sell to Dreyfus, Cargill or ADM, the costs are transparent, the price transparent, Chicago transparent. That's the kind of market place everyone benefits from, except the ones who industry is better off without anyway.
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