Lessons from US wheat model

17 Nov, 2015 01:00 AM
Comments
29
 
The money farmers provide for export promotion is well worth the investment

THE US Wheat Associates (USW) delivers a US$45 return in increased net revenue to wheat growers from every dollar they invest in overseas marketing, a new economic study has shown.

The USW manages export market development on behalf of US wheat producers and is funded primarily through producer checkoff dollars and other combined programs including with the USDA’s Foreign Agricultural Service (FAS).

Australian industry groups have considered developing a local version of the USW to perform a similar market development function, since the AWB single desk monopoly was deregulated in 2008.

Such an organisation would interact with customers in overseas markets - like flour millers, bakers and food processors - where Australian wheat competes against the US, to improve value and returns for producers.

However, that new marketing body has yet to eventuate, despite efforts to raise warnings about the loss of market share for Australian wheat exports in key Asian markets, to traditional competitors like Canada and US, and the Black Sea region’s expanding influence.

Last week, the USW released a statement about its new economic study which said US wheat producers invested an average of US$4.9 million in checkoff funds per year to promote their milling wheat overseas, between 2010 and 2014.

And for every one of those dollars those producers received up to $45 back in increased net revenue.

The USW commissioned the study with funding from the USDA’s FAS Market Access Program which was designed and conducted by Dr Harry M Kaiser – a director of the Cornell Commodity Promotion Research Program.

Dr Kaiser said the study showed that investing in US wheat export promotion had a large and beneficial impact for producers and the US economy that far exceeded its cost.

“The econometric models we used showed that between 2010 and 2014 the total investment in wheat export promotion by farmers and the government increased total annual gross revenue by US$2 billion to US$3 billion,” he said.

“So for every $1 farmers and the government invested, the estimated return in gross revenue to the US economy was between $112 and $179.”

Dr Kaiser’s quantification of the wheat export promotion program’s impacts was achieved via modelling which accounted for various factors affecting commodity export demand, like prices and exchange rates.

The study also determined that cutting the promotion program by 50 per cent between 2010 and 2014 would have significantly reduced wheat exports by about 15pc, the USW said.

USW president Alan Tracy said his organisation was accountable to wheat farmers and other taxpayers who fund the market development work they do.

He said Dr Kaiser’s research methods were well respected and the conclusions echoed previous studies conducted in 2004 and 2009.

“We can very confidently say that the money farmers provide for export promotion is well worth the investment,” he said.

“In fact, the study predicts that increasing the promotion investment has the potential for even greater returns to wheat farmers, the wheat supply chain and the US economy.”

Australia produces about 23 million tonnes of wheat per year with about 19mt exported to leading markets like Indonesia, Vietnam and Korea.

However, the Australian Export Grains Innovation Centre (AEGIC) has previously warned Australia’s reputation for producing clean and green product won’t be enough to guarantee market share will be maintained and grown, in future.

Former AEGIC CEO David Fienberg told the ABARES conference in March this year that Australia’s value in export markets like Indonesia - worth about $1.8 billion per year – was being eroded by traditional competitors that employ full-time agencies like the USW, which perform pre-competitive marketing functions, with significant budgets.

He also told the conference, markets like the Philippines had the capacity to import 2.2mt of milling wheat per annum but Australia’s portion was only 15,000mt or less in 2013, while the US were “entrenched” in selling 1.8mt, due to the USW’s presence.

Within 10 to 15 years, Russia is forecast to increase its wheat production by as much as 30mmt and the Black Sea countries, located close to Asia, also had capacity to produce soft white wheats, like Australia, he said.

Mr Fienberg said Australia’s traditional competitors were way out in front in terms of customer relationship management and support and “we are in real danger of eating their dust”.

He said the USW had 17 world-wide offices covering 184 countries and 82 employees, including 61 overseas personnel and worked to move wheat buyers to the “value end of the purchase spectrum” by paying premiums for wheat that meets specific needs.

An online report on the USW’s activities for 2013-14 said the US led the world wheat trade with total export sales exceeding 27.4mt with Japan, Mexico and Nigeria its top three customers and sales to Korea and the Philippines remaining strong.

The report said the USW received more than US$11.7m in cost-share funding from the FAS which added US$2.30 for every US$1 contributed by farmers.

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Colin Bettles

Colin Bettles

is the national political writer for Fairfax Agricultural Media
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READER COMMENTS

Jock Munro
17/11/2015 3:57:34 AM

The urban political elite under Rudd and Brendan Nelson abolish the iconic single desk; a cost effective marketing system that placed Australia in a envious position as a global wheat marketer. Growers are now being asked to fund a marketing system that will fail because we will not be able to guarantee the quality that we deliver and because it will be impossible to defeat the US in a spending competition.
boris
17/11/2015 6:55:09 AM

Jock, surely you couldn't still be in business? If you are all your comments can only be seen as hyperbolic. Every end user of wheat on the planet knows the quality of Australian wheat. The last think we need is a marketing bureaucracy, feeding off producers, telling the world what it already knows.
Jock Munro
17/11/2015 7:51:59 AM

Boris, Perhaps if you have all of the answers you should tell us who you are and what you do for a living! You are correct though-we do not need a bureaucracy that wont work and that will be an impost on growers. The world knows that our quality is in decline since we had our iconic arrangements abolished but it is a whole lot worse than that-no customer service and on it goes.
Philip Downie
17/11/2015 9:05:15 AM

This is the model that Australia threw out that cost much less money and delivered much more. Anyway not possible anymore when you have no control over the product its just talk and you can get burnt very quickly promising things you can't deliver.
Mark Hoskinson
17/11/2015 11:55:05 AM

The closest thing we have in Australia like this is Grower owned CBH in WA who deliver for it's members. I dream of the day when we could have an East Coast grower Coop that could deliver markets and promote all of the grain we grow not just wheat. The East coast has been divided and conquered and it would be a real struggle to get enough determined growers together to further develop the Coop but it's far from impossible. Forget about US wheat associates and focus on a grower coop like CBH.
Deregul8
17/11/2015 1:32:29 PM

CBH delivers? What planet are you on? They recorded a $10 mill loss on their trading desk last year with inside information on stocks. Lupin Foods rumoured to have lost a similar amount. Who knows what the Newscastle investmnet has cost us but yet another drought in that catchment. Their 2015 malt forward contracting is likely to cost them a motsa as everyone has delivered feed. They're reducing charges in the Bunbury catchment and funding it with increases in other catchments to deal with competition. Wheat and barley growers cover the delivery charges of oat growers. CBH is a mess!
Jock Munro
17/11/2015 5:04:33 PM

No deregular the East is a mess- we would love a CBH. Are you a merchant ?
Mug
18/11/2015 7:09:45 AM

You are bound to fail Jock. Why ? You talk common sense. Something sadly lacking in todays divisive climate. The wimps haven't got the intestinal fortitude to follow your lead.
Interested Party
18/11/2015 7:37:21 AM

Deregul8 what planet are you on? Name one trader that didn't loose much more than that? My intel from the West tells me they are running way too many receival sites just to appease growers. They have growers on their board you why don't you put up or shut up and get yourself on their board. It you think they are a mess you should look around and have a chat to growers using some of the other systems over here it might just open your and some of the other sheep's eyes!
Genex
18/11/2015 11:52:49 AM

Interested Party that market is so different east compared to west thats its like comparing apples with pears, both fruits. Exception is you had a value attached to your shareholding.
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