THE long-term profitability of the Australian grain sector will depend on how well it can meet changing demands in both export and domestic markets, according to a Rabobank report.
It said the Food and Agriculture Organisation of the United Nations expected modest growth of 1.2pc in cereal consumption in 2004-05, compared to 1.7pc in 2003-04.
It said despite a large increase in global production for this financial year and only moderate increases in consumption, supply was still not expected to satisfy demand at a global level.
This would cause a further fall in world cereal stocks of about 9pc in 2004-5, the fifth consecutive annual decline, the report said.
Coarse grain use would account for most of the 1.2pc increase in global cereal consumption due to higher feed and industrial use.
It said that because demand outstripped supply and the population continued to grow, global per capita supply of wheat was declining.
The trend is expected to continue.
The consumption of staple grains such as wheat and rice was also declining due to rising incomes and changing diets, particularly in China.
The increasing problems of obesity in developed nations had seen a swing to low carbohydrate diets which had also reduced grain-based products.
The Atkins diet was the most well-known of the low-carb diets, which encouraged the use of reduced carbohydrates in a diet rather than fat.
Various reports in the US have given conflicting reports on how many people in that country had adopted low-carb diets.
However, one report this year indicated the low-carb diet fad had peaked but still had an effect on attitudes to eating and living.
Weight loss based on lower carbohydrates was being driven by lifestyles based on controlling carbohydrates, while food manufacturers have seen opportunities to sell Atkins-friendly diet options such as bun-less burgers and low carb bread.
The Rabobank report said the words low-carb could well take a place beside lite and low fat on supermarket shelves.
In Australia, the low-carb mentality has not greatly affected flour consumption, but the influence of the Atkins diet and other obesity-induced health trends could not be discounted in the future.
Most Australian grain is exported but 12pc, or 2.6mt, is consumed domestically through products such as bread, pastries and cereals.
While retail packet flour and packet cake mix volumes had been decreasing in Australia, there had been a growth in sales of bread and cake mixes to hot bread shops, pastry and cake manufacturers.
And while the per capital wheat consumption trend in China was falling, it was rising in Indonesia.
In 2002-03 Australia supplied 1.64mt to Indonesia or 47pc of that country's requirements, mainly consumed as noodles.
However flour was still more expensive than rice, and if the price of flour increased excessively it would dampen demand. Indonesia's per capita consumption of rice a year is 130kg compared to 15kg for flour.
Because Australia is closer, it has a huge freight advantage over other grain-exporting nations to Indonesia, particularly the US.
In the recent high-cost freight environment this has proven very beneficial for maintaining Australia's place in the Indonesian market, at the expense of competitors such as the US.
But in contrast to falling per capita wheat supply, there has been a significant growth in supply of vegetable oils in the past decade.
Vegetable oil consumption for 2003-04 was expected to reach a record 98.6mt or a 4.6pc increase on the year before.
The growth was mainly in developing countries, while consumption in developed countries such as the EU and US was falling.
The promise in developing countries, particularly in Asia, was due to rising incomes which also led to rising vegetable oil and meat consumption.
This would also drive demand for oilseed meals as animal feed.
Asia consumed about 40pc of global consumption of oils and fats, while China was becoming a big producer, consumer and importer of oilseeds, vegetable oils and meals.
Demand was strong for vegetable oils because they were also replacing animal fats in foods and are used in feed and non-food applications
Health concerns overseas about trans fatty acids (TFA) in oils such as soy - due to a stablisation process called hydrogenation - could provide more opportunities for Australian canola, particularly the high-oleic variety.
Studies have indicated that TFAs can lead to higher risks of coronary heart disease and allergies.
Denmark has banned TFAs above a certain level in commercial products while the US will soon require all products with TFAs to be labelled. The EU was expected to go the same way.
The Rabobank report says TFAs are not a big concern in Australia because it has altered processes to limit their production.
Elsewhere TFA is present in most foods that contain hydrogenated oil or fat products such as biscuits, confectionary, margarine and spreads and other foods such as fast food which contain or are fried in vegetable oils.
While palm oil is considered the most economic alternative to other hydrogenated vegetable oils, high oleic canola and high oleic sunflower may be the preferred alternative for food processors.
This is because the oleic content mimics the process of hydrogenation without producing TFAs.
A further benefit in the fatty acid profile of oleic canola and sunflower oils is that they tend to have lower saturated fatty acid content than palm oil.
Lower levels of saturated fat are considered healthier.
"The EU aversion to TFAs and genetically modified organisms both of which are an issue with soy oil, helps to lift the profile of other oils, canola included," the Rabobank report says.
Australia as a food producer and exporter of canola could find food manufacturers domestically and in non-traditional markets more responsive to canola, particularly a high oleic variety.