Australia's comparatively low grain prices are causing concern among grain producer groups, who say that while values are at historic highs, crop inputs have also risen so any potential lost income is damaging for the industry.
ACM's national grains industry reporter Gregor Heard caught up with Grain Producers Australia chief executive Colin Bettles and chairman Barry Large to discuss the issue.
GH: Pricing has been in the headlines in recent months, is the grower community as a whole conscious of the fact prices are well below world parity?
BL: Yes, growers are fully aware of this fact because they are the ones experiencing the lost opportunity and potential value and income.
Along with record high prices for fertiliser, fuel and chemical, this is a significant issue that's front of mind for growers right now - especially in making critical decisions on their cropping plans for 2022.
This pricing disparity was the number one issue raised by GPA's State Members and Grains Presidents at our harvest review meeting in January.
GPA State leaders and grower representatives have also received regular calls directly from growers throughout Australia about this continuing shortfall between global and local prices.
CB: Angst over this pricing disparity is also continuing to escalate in relation to the disconnect in pricing increases we've seen since the outbreak of conflict in the Black Sea region.
There has been particular frustrations with canola being priced $300 per tonne below world parity for Australian growers.
On the latest numbers we estimate with about 2 million tonnes unsold this represents a $600 million loss, but the volume could be as high as 2.5 million tonnes.
This pricing shortfall has also been the subject of ongoing media reports and debate - demonstrating a clear and overwhelming need for urgent and appropriate action.
This question was also asked in GPA's 2022 Federal Election Priorities Survey, with respondents saying they did not believe the federal government was doing enough to optimise competition in the Australian grains market and improve supply chain transparency for growers.
Feedback also indicated a critical need for independent, expert analysis to protect growers from lack of transparency and misuse of market power, by regional bulk grain handling monopolies.
BL: This issue and the increasing concern and impact on growers clearly supports GPA' long-standing policy - shared with GrainGrowers - calling for the Federal Government to approve an ACCC inquiry of the Australian grains market, to analyse these issues and deliver reforms to optimise competition.
This type of rigorous, independent analysis hasn't been done since the industry was deregulated in 2008 and is long overdue.
This work can address these core competition and transparency issues, with a proactive 'health check' of the grain market, using the ACCC's special investigative powers.
This would provide proper, independent scrutiny of the root causes for these problems and deliver proactive recommendations on appropriate reforms.
CB: Last year, in responding to the federal minister for agriculture's request to delay a scheduled review of the Wheat Port Code by two years, GPA again put these concerns to the government seeking their support to approve this ACCC study.
In responding to GPA's request, the Minister said evidence was needed to justify such a study, or evidence of the need for it.
GPA implemented a project during harvest and in early 2022, interviewing a comprehensive range of industry participants and stakeholders.
This evidence and analysis has now been presented to the minister's office, for the government's consideration.
Among a range of serious issues, GPA's report found that about 25 million tonnes of grain is expected to be exported from the last harvest at a $50 per tonne discount, which equates to a $1.25 billion loss to growers.
This lost income reduces profitability, and weakens drought resilience, for producers, rural communities and economies.
We need to know why this shortfall is happening with an in-depth analysis by the ACCC being the best way to provide these answers and solutions.
This is one of the key requests of government in GPA's 2022 Federal Election Policy Priorities that we will be advocating for over coming weeks.
GH Is the low pricing on offer at present impacting grower selling patterns?
BL: Growers are holding some grain but they are also selling to cover planting and machinery payments at the moment.
GH: The trade has talked a lot about the supply chain constraints that are the reason behind the below parity prices as they can't physically sell more grain through the ports - obviously this is a factor but does it explain the entire differential?
CB: GPA is continuing to hear this response more and more, as a justification for this ongoing disparity between local and international prices but this doesn't resolve our immediate concerns. The bottom line is, we need fresh, expert, independent analysis, to properly analyse the problems and solve the underling market issues. While concerned about market transparency and competition, GPA also believes it's beneficial for grain producers, industry and government to conduct a proactive 'health check' of the system.
The timing of this high-level analysis is also critical, given the supply chain's operations and capacity are being severely tested by the record 2021 winter harvest estimated at more than 62 million tonnes, with concerns about capacity and large carry-over stocks. This now provides the federal government with an ideal opportunity to make proactive changes that can improve market functionality and operations, and optimise competition.
This analysis should also be embraced and welcomed by other participants in the supply chain to help deliver reforms which will also improve their operations and deliver positive outcomes.
GH: Is the current situation representative of market failure and if so what can be done to rectify this?
BL: The ACCC's agriculture unit was designed and implemented to perform the core function of analysing specific competition issues in agricultural supply chains with a greater level of expertise and resources, to protect growers.
Growers are price takers and therefore vulnerable supply chain participants who are forced to wear the costs of inefficient supply chains and anti-competitive behaviour by other participants.
Grains is Australia's second biggest agricultural sector, and ABARES has forecast the total value for Australian grains, oilseeds and pulses for 2021-22 at $25.8 billion.
Rather than implementing such an inquiry as a politically expedient reaction when things turn bad, as we've seen with other farm commodities, the government has an opportunity to be proactive right now, by looking at the root causes and delivering solutions.
CB: There's an ideal opportunity to engage resources that are at the government's disposal, such as the ACCC.
This way we can get ahead of these issues, to safeguard growers and optimise competition in the Australian grain market.
Other areas of the ACCC with the necessary independence, depth of knowledge and expertise, gained by monitoring the Wheat Code since its inception, can also be applied to this investigative process, to enhance the intended outcomes and be proactive.
GH: Supporters of the single desk say that their system helped smooth out the current peaks and troughs - is there any real support to reinstate some sort of regulation within the industry or are there any points of the former single desk system that could be utilised?
CB: GPA is calling for the ACCC to use its special investigative powers to analyse existing problems and deliver solutions that will help optimise competition in the Australian grains market for the future. Given the wheat market was deregulated in 2008, we believe a proper analysis of the whole market is long overdue and needed.
We want reforms delivered that are proactive, and build on advances made in the deregulated market, to improve transparency and bottom line returns to growers.
This includes things like appropriate level of stocks information needed for the market to function effectively, and the independence and timing of reporting that information to the market.
We need to fine-tune and follow through with deregulation.
Looking backwards to resurrect a failed, government-controlled monopoly system is not the way forward and not a policy that's in any way supported by GPA.
GH: Listed grains industry businesses have doubled their profits without having doubled receivals - is this a sign they are excessively cashing in on elevation margins?
Nobody begrudges the right to profits on investment but do you feel there is overkill at present because of a lack of policing?
BL: The level of market power held by major bulk grain handlers who also sell and market grain - and the influence of this market power over other participants such as second and third-tier bulk handlers, is another issue that's also causing ongoing concern.
That's why GPA is calling for this ACCC market study to properly analyse such matters using the Commission's special investigative powers and deliver solutions.
This independent analysis can then make recommendations to ultimately deliver the reforms needed to resolve these lingering question marks and optimise competition for all market participants.
GH: What can be done in regards to the issue of port capacity - in years like the last two we have needed significantly more but in the previous five it has been a an asset sitting around doing nothing - how can you create flexibility in what is intrinsically a fixed hard asset?
CB: ABARES most recent forecast is for a record 62 million tonne Australian crop from last harvest, valued at about $26 billion. This is a record crop and it was produced despite grain producers experiencing serious production challenges during the season including frost, mouse plagues, and severe storms during harvest. These events reduced the overall crop volume, quality and value in various grain producing regions, so this would suggest there's still good opportunity to produce more Australian grain in future and improve returns to growers.
The underlying question of whether we've reached our peak exporting capacity is a timely one and one we need to seriously consider strategically for the future and take appropriate action. Currently, the major supply chain constraint, as we understand it, is about getting the harvested grain to ports in order to actually export the crop, not at the port terminals.
With local supply chains being tested by a record 62 million tonne crop like never before, so too is our international competitiveness and ability to reliably and efficiently supply our grain-buying customers and export markets.
BL: GPA's federal election survey asked growers what they wanted prioritised by the Federal Government, to support the productivity and profitability of their grain farming business with 44.4pc nominating transportation infrastructure/freight costs as one of their top five policy issues.
High-level future-proofing investment from government in this area remains an urgent policy priority for all of our state members.
That's why GPA is calling for a comprehensive strategic analysis of the national grains supply chain and associated infrastructure costs such as road quality, rail connectivity and port access, to inform national decision-making on future investments.
The flow of grain from country storage to port must work to minimise cost and avoid inefficient use of resource and double handling.
We need this high-level analysis to identify investment opportunities - public and private - to ensure the Australian grains supply chain is fit for purpose, and designed to meet projected growth targets for not only grain growing regions, but supply to key customers such as grain exporters, millers and livestock feeding agents.
This project, called for as part of GPA's 2022 Federal Election Priorities, will also be driven by a key imperative to ensure Australian producers can access a supply chain that; is the least-cost pathway to market; optimises international competitiveness; and offers flow-on efficiencies for logistics to help reduce input costs.
It should make strategic recommendations on national grain investment priorities between various levels of government and private sector partners.
GH: Can derivatives and other non-physical products play an increased role in helping growers get the best returns possible?
BL: We believe these types of grain marketing products and services can be improved with better quality, independent market information and transparency; especially the timing and reporting of stocks information.
That's why we need the ACCC analysis, to properly analyse such issues and make subsequent recommendations for reforms to improve market functionality and safeguard growers.
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