AUSTRALIA will face a growing challenge to retain its market share in South East Asian wheat markets as key importers turn to the cheaper and improved Black Sea product.
That was the warning issued by Kernel Holding chief operations officer Konstantin Litvinsky at last week’s Grain Industry Association of Western Australia (GIWA) forum in Perth.
Since its inception in 1995, Kernel Holding has grown to become one of the Black Sea’s leading diversified agribusiness companies, handling approximately seven million tonnes of agricultural commodities each year, including sunflower oil, corn and wheat.
The company operates more than 600,000 hectares of farmland in the Ukraine, and exports more than 5mt of grain annually.
According to Mr Litvinsky the company’s growth is a reflection of the broader rise in production across the Ukraine since the demise of the Soviet Union.
Ukrainian Agricultural ministry figures held grain exports at about 39mt in 2015-16, and about 44mt for 2016-2017.
With 32 million hectares of highly productive soil, favourable climatic conditions, a relatively low cost of production and a growing capacity to produce large volumes of grain, Mr Litvinsky said the opportunities for the Ukraine were abundant.
“Let’s take a look at world production of grains 10 years ago, the market was being dominated by big players like the USA, Canada, EU,” Mr Litvinsky said.
“Brazil, Argentina, Australia and Ukraine and Russia were relatively middle players.
“That situation is changing a lot, Ukraine is exporting in big volumes to ASEAN (Association of Southeast Asian Nations), to North Africa but also other markets – same with Russia.
“This growth is not the end of the story, our idea is that in 10 years – in the years 2027-28 – Ukraine should produce over 100 million tonnes of grain.”
Mr Litvinsky said the potential for increased Black Sea production would be influenced by a number of factors, including a rise in investments in farming and infrastructure, as well as a shift towards larger-scale land holdings.
Climate change was also opening the door for increased production in regions previously considered marginal.
Mr Litvinsky said obstacles such as political instability, strict land regulations and a lack of government support in the agriculture industry were present, but could be overcome.
With wheat quality on the improve, the Kernel boss said several new markets were opening up for the Black Sea in South East Asia, as the demand for a cheaper alternative to Australian wheat grew.
“I do not expect that Russian/Ukrainian wheat will be exported soon to such markets like Japan or Korea, but dealers in Asian countries – first of all Indonesia and also Malaysia – they realise that Black Sea origin is much cheaper and the quality is not that bad,” Mr Litvinsky said.
CBH Group general manager of marketing and trading, Jason Craig, said while Australia still had a good reputation for quality wheat, several important customers were recognising the improved quality of the Black Sea product.
“I think previously the Black Sea product was quite ordinary, you only used it if you really needed it and you’d use it as a filler wheat,” Mr Craig said.
“Today we’re selling into South East Asia in particular and we’re really competing against the Black Sea.
“They are now starting to use these products, they’ve got the capabilities to handle it, they’ve got the capabilities to mill it and so we’re seeing a big difference from probably five and even seven years ago and we’re seeing some of the quality consistency.
“Australia’s quality is still well regarded, it’s just that that gap is getting shorter and shorter.”
Mr Craig said while there was increased pressure to retain South East Asian markets as the Black Sea exporters moved in, Australia had its own competitive advantages, including proximity and quality.
He said although the Black Sea region posed a significant threat to Australia’s market share, there was still plenty of opportunity for Australia in South East Asia.
“We have seen in the last couple of years where the Ukraine and Russia are taking some of our market share, but this is on a growth platform if you remember and particularly in places like Indonesia, Vietnam and the Philippines, they’re growing anywhere between three and five per cent,” Mr Craig said.
“It’s how we use that growth as an opportunity to increase our productivity here in WA and of course in Australia.
“We’re under pressure here but it’s about investing not only in the supply chain but in the productivity, and that’s a whole industry investment.
“It can’t be just farmers investing, it can’t be the supply chain investing, we’re going to need a large investment across the industry.”
Mr Litvinsky said while he expected the Black Sea’s wheat production to continue to increase, it was not a priority for the region’s growers.
He said alternative crops such as sunflower and corn were more attractive to the producers in the region, and would remain the focus for exporters.
Mr Litvinsky said while the Black Sea was a key competitor for Australian wheat, he believed there would be room for both Australian and Black Sea exporters in the growing South East Asian market in the coming years.
“The Black Sea market will be growing and it will be playing a bigger and bigger role on the world export market, but we expect that traditional exporters – Australia in particular – will still be present in the world market,” Mr Litvinsky said.
“Our competition will be fruitful and will finish with the increase of yield from both sides and from both sides we’ll have to optimise our structure, optimise our logistics, optimise our finance.
“We both will have enough demands in the world market, including the Asian market.”
