AUSTRALIAN wheat is more competitive in South East Asian markets since the deregulation of the Australian grains industry, according to Soon Soon Group managing director Dr Neoh Soon Bin.
Speaking at the 2014 GRDC Crop Updates last week, Dr Soon Bin said there had been a steep increase in wheat exports to South East Asia post-deregulation, particularly in the form of containerised shipments.
But increased competition lay ahead, with the Black Sea emerging as a competitor in the space.
"We have been buying Australian wheat for a very long time and overseas as well, and we do appreciate the quality," he said.
"But at the end of the day a lot will depend on competitiveness, in terms of cost and quality."
Dr Soon Bin said Australian wheat exports had increased since deregulation partly due to an increase in production, and most of that increase had gone to Asia.
"Significantly, the South East Asian wheat importers are also favouring Australian wheat," he said.
"Wheat from other origins has remained about the same or gone down, but Australian imports have gone up."
Dr Soon Bin said the Black Sea was emerging as a competitor in South East Asian markets in terms of quality and price.
"Obviously there are dark clouds on the horizon, and the Black Sea region is increasing its exports of wheat and it could be about 14 million tonnes, which is double what Australia exports," he said.
"Last year Russia and the Ukraine alone increased exports by about 10mt so that is a major area of competition."
Mr Soon Bin said bulk freight rates from Australia into South East Asia were cheaper compared with Canada, the US and the Black Sea region.
"So what is making Australian wheat competitive in bulk is that freight rates are about $US25-30/t cheaper than North America and $US50/t than the Black Sea region," he said.
"If you look at container freight the same track exists, so it is about $40 here but in the US and Canada it is between $72 and $75.
"But if you look at the Ukraine and the Black Sea area, it is down to about $55, so basically you only have a $15 advantage in freight spread.
"Is that enough to keep the Black Sea away from you?"
Dr Soon Bin said South East Asia could buy containerised shipments of wheat from the Black Sea at a cheaper rate than the cost of purchasing Australian wheat in bulk.
"That is where the competition is coming from, containerised shipments of wheat from the Black Sea is significantly cheaper than similar shipments from the rest of the world," he said.
He said Black Sea wheat could discount Australian wheat by up to $US50/t at certain times in the season.
"Significantly the containerised wheat is also discounting Australian APW wheat in bulk and this is the reason we are seeing this increase in Black Sea wheat coming into the region," he said.
Expanding on the competitive position of Australian wheat in South East Asia post-deregulation, Dr Soon Bin highlighted a number of advantages and disadvantages for wheat buyers in the five years since deregulation.
He said the major advantage for buyers was the increased number of sellers in the market, which he said had led to a more competitive price due to increased competition.
But according to Dr Soon Bin having more sellers had proven a double-edged sword.
"There are more sellers in the market, but that may not be such a good thing if you consider that most of the flour mills in the region were virtually married to the Australian Wheat Board for 20 to 50 years," he said.
"Suddenly there are these new sellers with very attractive packages, so who do you go with, who do you date.
"So it's not always a good thing when you have a lot of sellers, you have to be able to distinguish between the good guys and the bad guys.
"But of course because there are so many more sellers the price then becomes more competitive and then the free market principle applies."
On this, Dr Soon Bin added that deregulation had meant there were no special allocations to any buyer, there was no discrimination against buyers with smaller volumes and the highest bidder received the goods.
He said the deregulated trading environment also made it possible for buyers to contact growers for special-needs contracts.
"In the old days no customer actually met with any farmer but today you could if you wanted to," he said.
On the contrary, Dr Soon Bin said there were a number of disadvantages for wheat buyers in the deregulated trading environment.
He said sometimes price would not align with international markets due to local supply demand conditions.
And perhaps most importantly, he noted large quality fluctuations in containerised shipments and less reliable supply, and said there was no unified information on crop quality or technical support for buyers.
"We have some problems with quality since deregulation, particularly a lot of foreign matter," he said.
"We also have a lot of variation from container to container and we have a lot variation in seed itself.
"This is because a lot of it is loaded straight from the farm and it is not really quality controlled."
Dr Soon Bin said there were also problems with wheat classification.
"We are not sure when we receive what we think is Prime Hard wheat," he said.
"Is it Prime Hard or Australia Hard variety?
"There is no way to ascertain which variety is which."
Dr Soon Bin said there was also the occasional shortage of containers and container-loading facilities.
