Australia is one of the world's largest grain producers and exporters. Wheat is by far the largest crop, contributing over 50 percent of Australian grain exports by value. However, continued multi-year drought and a devastating bushfire season in Australia has led to significant crop loss. Australia’s wheat harvest in MY 2019/20 is estimated to have been the smallest in over a decade, and about 40 percent below the 10-year average. As a result, wheat exports are expected to fall for the third straight year.
Australia is an island continent and the world's sixth-largest country. Lying between the Indian and Pacific oceans, the country is the only nation to govern an entire continent. Australia's population is roughly 23.6 million people. The population in Australia is focused in the southeast of the country. This region is the most economically stable, industrialized and ethnically diverse. 70 percent of the population lives in 27 percent of the land area, and 87 percent of the population lives in urban areas.
Australia is a stable, democratic and culturally diverse nation with a highly skilled workforce and one of the strongest performing economies in the world. The Australian economy experienced 26 years of uninterrupted economic growth. Holding one of the highest growth rates of the developed world, the country is the world’s 13th largest economy. The country benefits from large-scale exports of agricultural products and a vigorous financial sector. For 2020 and 2021, the IMF foresees a GDP growth of 2.3% and 2.6%, as it expects household consumption to rebound following a continued strengthening in the country’s labor market.
Australia’s agricultural industry is currently worth around 60 billion dollars to the Australian economy. Agriculture employs 2.5% of the workforce and contributes 2.5% to the GDP. However, the agricultural sector is one of the most important industries for exports: Australia is a vast agricultural country and one of the world's main exporters of wool, meat, wheat and cotton.
Australia is one of the world's largest grain producers and exporters. Australian grain – wheat, barley, canola, oats and lupins are exported across the world for a variety of food and livestock feed purposes. Wheat is by far the largest crop, contributing approximately 57 percent of Australian grain exports by value. Barley (10 percent), oilseeds (eight percent) and pulses (six percent) make up the majority of remaining production.
With good seasonal conditions, Australia can produce a grain crop of up to 40 million tonnes. However, the productivity, profitability and global competitiveness of Australian grain farms are affected by yields, production costs, commodity prices and fluctuations in the exchange rate.
Although Australia is a relatively small producer of wheat, accounting for only 3% of world output due to its low domestic population base, Australia accounts for between 15-18% of total world exports making it a major participant in the export market. The main wheat export markets are concentrated in Asia and the Middle East with Indonesia, Egypt, Iraq and Japan and in recent years the market to China has grown.
However, Australia needs to continue to reform its export grain supply chains to remain competitive in an increasingly challenging global grain market. A report from the Australian Export Grains Innovation Centre (AEGIC) released in November 2018, found that despite major investments to improve efficiency in Australian supply chains since 2014, costs to users have only slightly decreased or remained stable. AEGIC Chief Economist Professor Ross Kingwell said the costs of Australia’s supply chains and grain production were high in comparison to most competitors (except Canada, where costs were higher due to long transport distances).
“Supply chain costs are consistently 30-35% of the total cost of grain production in Australia and this percentage is similar across competitor countries,” he said. “Even so, these competitors – such as Ukraine, Russia and Argentina – are benefiting from lower labor costs and increased economies of scale due to large production increases. “In Australia, overall supply chain costs have either fallen slightly or stayed steady. Prof Kingwell said action should be taken to ensure Australian grain stays competitive. “Australian grain needs to remain attractive to international buyers, therefore it needs to remain affordable and be fit for purpose with the characteristics required or desired by end-users,” he said. “Australia’s grain industry will increasingly need to concentrate on exporting to premium-paying nearby markets and delivering high-quality wheat with characteristics not easily or cheaply replicated by competitors.”
Major trends within the grains industry specified by the Australian Export Grains Innovation Centre include:
• Consolidation across the grains industry supply chain leading to a reduction in the number of large grain accumulators/marketers
• Increased vertical and horizontal integration, for example CBH and GrainCorp have forward integration in flour milling; Viterra and GrainCorp in barley malting, and AWB Ltd into rural services through their Landmark business
• Increased overseas ownership/involvement in the grains industry supply chain with the recent examples of Viterra‘s acquisition of ABB
• Deregulation of the bulk wheat export market enabling the entry of international grain traders and expansion of local traders,
• Continued rationalisation of suppliers of the major grain production inputs - fertilisers and chemicals – and matching rationalisation in rural distribution,
• The emergence of the north-eastern and south-eastern regions as a predominantly domestic market with processing, human consumption and livestock feed markets growing rapidly.
SMALLEST WHEAT HARVEST IN OVER A DECADE
Australian wheat is highly valued for its excellent performance across a wide range of food products, especially noodles and breads. Australian wheat is in demand in international markets, especially in Asia and the Middle East. About 65-75% of Australia’s total wheat production is exported each year. More than 30% of Australia’s wheat exports are used to make Asian noodles.
Wheat is the largest enterprise in the Australia grain industry, grown throughout southern and eastern regions in the crescent known as the Australian grain belt. Australia produces about 25 million tonnes of wheat per year, accounting for 3.5 percent of annual global production. Western Australia and New South Wales are the largest production states.
A devastating bushfire season in Australia has led to significant crop loss. The fires affecting some of the most densely populated areas of the continent had a very negative effect on agriculture. Australia’s wheat harvest in 2019/20 season is estimated to have been the smallest in over a decade, and about 40 percent below the 10-year average. As a result, wheat exports are expected to fall for the third straight year. The United States Department of Agriculture (USDA) forecast for Australia’s wheat production in 2019/20 is revised down to 15.0 MMT (million metric tons), 2.3 MMT lower than the previous year’s poor crop.
The smaller crop was caused by several factors including:
• Continued multi-year drought in much of northern New South Wales and southern Queensland resulted in a second year of reduced wheat sown area. For wheat that was sown, poor yields were widespread, with some winter grain crops being cut for hay. Although wheat production is estimated to have increased somewhat in southern New South Wales due to more precipitation, overall production in New South Wales is estimated to be less than half of average levels. While traditionally New South Wales is the second largest wheat producing State in Australia (after Western Australia), in MY 2019/20 it is estimated to be only the fourth largest.
• Following a huge crop last year, Western Australia experienced dry conditions and frost events in some key wheat growing regions. As a result, wheat production fell by about half of last year’s level. In their December crop report, the Grains Industry of Western Australia estimates the MY 2019/20 crop at 5.38 MMT, compared to MY 2018/19 crop estimated by ABARES at 10.2 MMT.
Victoria was the one bright spot for wheat production in Australia, as much of the region there had plentiful rainfall during the growing season, resulting in a bumper harvest. While Victoria typically accounts for only about 13 percent of total wheat production, this year it is estimated to be as high as 25 percent.
GREATEST DECREASE IN WHEAT SHIPMENTS
Due to the estimated smaller harvest, USDA’s estimate for Australia’s wheat exports in MY 2019/20 is also revised down to only 8.0 MMT, 1 MMT lower than MY 2018/19. This is expected to be the third straight year of falling exports. While last year the vast majority of exports came from Western Australia (79 percent), this marketing year it is anticipated that there will be increased shipments from Victoria and South Australia.
Final MY 2018/19 wheat exports were 9.0 MMT, down nearly 5.0 MMT from the previous year. The market which saw the greatest decrease in Australian shipments was Indonesia, where exports fell by 62. percent compared to last year. This was the first time in over 15 years that Indonesia was not Australia’s largest wheat market. Also, Indonesia imported more from Ukraine, Canada, and Argentina than Australia.
DOMINANT PLAYER IN BARLEY MARKET
Australia is a dominant player in world barley export markets, representing 30-40 percent of the world’s malting barley trade and 20 percent of the feed barley trade. Approximately eight million metric tonnes of barley is produced in Australia each year; grown over nearly four million hectares across Australia. It is widely grown in rotation with wheat, canola, oats and pulses.
USDA’s forecast for Australia’s barley production in 2019/20 season is revised down to 8.2 MMT, only slightly less than last year’s crop, and seven percent below the 10-year average. And 2019/20 barley export estimate is 3.8 MMT, up slightly from last year’s level. Exportable supply is anticipated to be similar to last year, and domestic consumption is expected to have a small decline.
Sorghum production in Australia is also expected to drop this year as a result of a sharp reduction in area. Multi-year drought through the key sorghum area of northern New South Wales and southern Queensland resulted in exceptionally low soil moisture during much of the planting season (September-January), resulting in a sharp reduction in planted area.
RICE IMPORTS TO RISE TO RECORD LEVELS
Australia’s rice production is expected to remain very small for the second straight year as continued drought and skyrocketing water prices have kept sown area extremely low. Milled production is forecast at 36,000 MT, down only slightly from last year but 90 percent lower than the 10-year average. Although record prices were offered to farmers to return to planting rice, water costs made it not feasible for most farmers. Water prices have skyrocketed in the rice growing region, reaching A$770/ML in January 2020, compared to A$500/ML in January 2019, A$125/ML in January 2018, and only A$40/ML in January 2017. Because of the second straight year of low production, Australian rice exports in MY 2019/20 are forecast to be only 20,000 MT, the lowest in 10 years and less than one-tenth the level of MY 2017/18. While last year some carry-in domestic rice stocks allowed for exports despite the small harvest, this is not expected to be the case in MY 2019/20. In order to cover domestic needs, imports for MY 2019/20 are forecast to rise to record levels, with imports forecast at 300,000 MT. Thailand is typically the largest supplier to Australia, followed by India.
AN IMPORTANT PULSE EXPORTER
Australia’s diverse agro-climatic zones produce a wide array of high-quality pulse grains. Pulses are an important enterprise in the Australian grains industry. Australia produces an average of 2.2 million mmt of pulses from more than 1.8 million hectares. Research and development show there is potential to increase plantings to 4.2 million hectares. New South Wales, Western Australia, and South Australia regularly produce the largest quantity of pulses in Australia. A wide range of pulse crops are produced across Australia including dry field pea, dry faba bean, chickpea, lentil, lupin and mungbean. A large proportion of the Australian pulse crop is exported to international markets.
The pulse industry’s growth is one of the keys to the future sustainability of the whole Australian grains industry because of its importance in enhancing cereal cropping systems. Pulses provide a profitable cropping option as well as adding to the success of the whole farm enterprise as part of a longer-term cropping rotation.
AUSTRALIAN FLOUR MILLING INDUSTRY
Significant rationalization has occurred in Australian grain milling over past decades. In the 1870s there were more than 500 flour mills in Australia using steam, water or wind as the power source, with most large country towns having their own flour mill. With improved technology, larger mills, and less overseas demand for the milled product, the number of mills in Australia has now declined to the order of 28 spread across all States and situated in both metropolitan and country areas. This continuous trend of fewer but larger capacity mills with fewer employees is common to countries with highly mature milling industries. However, with the growth in Australia's population, demand for flour products at home has increased steadily.
Annual domestic human consumption of flour is about 1.5 million tonnes and a further 440 thousand tonnes of flour is used for industrial purposes such as starch and gluten. In addition, a variable tonnage of flour products is sold into export markets. Total production in the order of 2.1 million tones increase of 26% over a decade. Of the flour sold for human consumption, just over 60% is used by specialized commercial bread bakers.