WITH Australia facing increased grain production and competition from the Black Sea in Indonesia, along with the impact of the east coast drought, skewed higher domestic grain prices, and a tough production season in WA, Australia is projected to export less than one million tonnes of food wheat to Indonesia in 2019.
Australia's market share is projected to fall below 15 per cent against a projected market share of 43pc of Black Sea and Argentinian wheat.
This compares to 2017, when Australia had about 5mt of exports into Indonesia.
Last week the Grain Industry Association of Western Australia (GIWA) held a forum to discuss the food and feed opportunities for Australia's grains in Indonesia.
The audience heard from Indonesian flour millers APTINDO representative, Erwin Sudharma and Indonesian feed millers GPMT chairman, Desianto Budi Utomo, Richard Simonaitis, Australian Export Grains Innovation Centre (AEGIC) chief executive officer and Jason Craig, CBH Group general manager marketing and trading, who led a panel discussion on the challenges and shared strategic issues facing Australia's grain industry.
With the Indonesian Australia Comprehensive Economic Partnership (IA-CEPA) agreement created in March this year for 500,000t of duty-free imports of feed wheat, barley or sorghum into Indonesia yet to be ratified, Mr Sudharma and Dr Utomo agreed it would take about six months for the agreement to go through Indonesia's parliament.
Dr Utomo said the stability and availability of Australia's grain production was important to get our market share back in Indonesia.
"The production is not so promising in Australia this year, but if the production increases and is more stable, and the price is comparable to US and Canada, that's when the level of exports into Indonesia will improve," Dr Utomo said.
Mr Simonaitis said to hold onto, or regain market share, there were only three ways to compete - price, quality and service.
"At the moment price is not working, we have a drought on the east coast and we've priced ourselves out of the market," Mr Simonaitis said.
"A constant, between the breeders, growers, State departments and the Grains Research and Development Corporation is we are constantly trying to innovate, to increase yield and make sure quality is suitable for the market.
"But at a time like this, it's really AEGIC's job to step forward and ramp up the service model.
"So, we've increased our investment into Indonesia, from about $700,000 a year to over $1 million this year so that we can be out there flying the flag and demonstrating the functional value of Australian wheat in that market - here's how you use it to be more profitable, here's the value proposition so that when supply comes back on and the price corrects hopefully we can come back to the table and transact again and the trade can monetize the value of all that work that's happened in the soft supply chain before that transaction."
With Dr Utomo predicting the Indonesian feed market, which was dominated by the poultry supply chain, to grow from 25mt to 40mt by 2030, he said there was room for low protein wheat as well as GM or genetically edited grains in Indonesia's feed industry.
He said wheat was also preferable, not only because of its high energy values but its binding qualities.
"Wheat increases the throughput in the feedmill per hour," Dr Utomo said.
"Before using wheat, we were only producing about 14t per hour but now we're using wheat we can increase up to 17-17.5tph."
Mr Craig said because of this there would be an inelastic demand for wheat of close to 2mt just for pellet properties.
"If you think about a market that needs 40mt, and you need 20mt of energy, wheat is going to be mainly 8-10pc to give the stickiness to form a good quality pellet," Mr Craig said.
"When we get to that point, Indonesia's population is going to be well over 300m, and there won't be the land to produce 20mt, so it will create an opportunity for wheat to stay in the mix."
Although there is a significant difference when comparing Indonesia's feed capacity to the country's flour industry today, which sits at 11mt, Mr Simonaitis said it was important for WA to maintain both a food and feed grains industry, although the growth trajectory was stronger for feed in Indonesia.
"I think it's really important that we don't head down the path that it is one or the other," Mr Simonaitis said.
"You're playing at the most cost-sensitive end, where we are least competitive as an industry, so there's a whole bunch of decisions that we need to make about where do we play and how does that shape the crop around Australia?
"There's no doubt there's opportunities to participate in both, and as freight rates increase and those sorts of things we will become more competitive in certain areas."
With Indonesia's 153 million millennial consumers purchasing power increasing, Mr Sudharma said it was important to understand the middle-class' food trends and preferences.
"Our millennials are creating a new market for Indonesia and are idealistic with their purchasing choices," Mr Sudharma said.
"They want their personalities to be represented in the products they purchase and are looking for nutritious, sustainable, food products."
Mr Simonaitis said with GM products already in the supply chain, Indonesia was going to be a cost-driven market until the country's millennials brought affluence through and started making more discerning consumption decisions.
