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

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


Agribusiness
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.

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Ukraine represents the biggest threat to Australian grain exports in generations if our industry does not take preventative action quickly.

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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."

The story Don’t let Black Sea send Aussie grain into the red first appeared on Farm Online.

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