From the outside, Australia has a desolate climate with more killer animals than anywhere else in the world. It is, however, a place of stupendous agricultural production, from wines to wool to wheat.

Agriculture has been a significant part of the national psyche since the first colonists from Europe arrived. It plays such a symbolic role that our national anthem is centred around the wealth of our land. 

Australians all let us rejoice,
For we are young and free;
We've golden soil and wealth for toil;
(Australian National Anthem)

This year Australia is back in action after a series of terrible droughts. So it is a good time to provide a country profile on this continent nation on the periphery of the world. 

This profile will cover the following:

• Australian food security

• The distinct nature of the two sides of Australia

• How the fall of sheep have helped grain production

• The recovery from drought, and our consumption and exports

• The opportunity with our neighbours in Indonesia

A VERY WHEAT SECURE NATION 

Australia is a unique country in many ways, particularly from an agricultural viewpoint, with vast grain-growing plains and a relatively small population around the coastal perimeter. The nation is roughly the same size as the United States of America. However, it has a population thirteen times smaller at 25m versus 329m.

Chart 1

On a per-capita basis, Australia has produced 915kg wheat per person on average over the past five years. The nearest comparison is Canada, with 797kg per person. This places Australia firmly in a position as a nation that is heavily food secure. On the other end of the scale, countries like Egypt, the world’s largest importer of wheat, only produce around 85kg per person. 

A country like Australia will not be able to consume the quantity of wheat we produce before we include our other grains. We are, therefore, in an enviable position as a nation that generally holds a large export surplus. 

A TALE OF TWO SIDES

Australia is one country, but it should be thought of (at least) two growing areas, the east and the west.  The majority of the Australian population is in the Eastern states, in the major cities (Melbourne & Sydney). In Western Australia, a much smaller population is present, only 2.6m out of the 25m.

Chart 2

Due to the differences in population, different trade flows emerge. The Eastern states have a significant domestic focus, whereas Western Australia is far more focused on exports. 

Western Australia has increasingly grown in importance over the years. During the recent drought in 2018, Western Australia produced more than half of the nation's wheat – only the first time that more than half of production had been focused in the West. Chart 2 shows the growth of Western Australia as a percentage of the overall Australian production of wheat. 

For those importing wheat, potentially from Australia, the Western part of the nation is the area of the most focus. Even in years of drought in Western Australia, the majority will be exported due to the lack of a sizable local population. 

The eastern states will generally export, but during times of drought, the grain will flow inland to head to both the feed and flour industries. It is important not to confuse Australia as one homogenous nation; it has many different factors influencing trade flows. 

THE FALL OF SHEEP, THE RISE OF WHEAT

Australia has also been a nation of two major farming enterprises, wheat and sheep. While Australia now supports a heavily diversified economy, that was not always the case. For much of modern Australia's existence, the country 'rode on the sheeps back'.

Chart 3

This was a popular expression, as much of the wealth of the nation was centred by our sheep and wool industry. The sheep and wool industry has been in decline since the 1990s, with numbers of sheep and wool production falling. 

The fall of sheep has coincided with an increase in the area of land dedicated to cropping. Due to productivity and technological advances, land which was previously unsuitable for cropping has become viable.  In recent years sheep operations have become more profitable; however, there is limited movement from cropping back into sheep operations. 

A POST-DROUGHT RECOVERY

While Australia is a nation of two sides, Australia has suffered through drought during the 2018 and 2019 seasons. The 2019 season saw production fall to 14.5mmt, the lowest since 2007. These drought events lead to the requirement of transhipments from Western Australia to the eastern states in large quantities.  Additionally, the rare import of whole wheat from Canada commenced; this is exceptionally rare and expensive due to the rigorous biosecurity protocols. 

Chart 4

The subsequent season's post-drought, has seen the tables flip. The 2020 and the current season have seen beneficial rains, which have been conducive to strong yields. 2020 was record large, and 2021 is likely to be the second-largest crop on record. 

This has allowed the nation's grain growers to recover from the financial losses experienced in the previous two years. As important as the financial stability of farmers, it has also opened up inflows of capital and allowed the supply chain to return to normal levels of operation.  In 2021, Australia will continue to export large volumes of wheat into the global market and return to some of our typical customers throughout Asia. 

A LARGE EXPORT TASK

Australia has had big crops before (2016/17), and we will have big crops again. It is quite rare to have such huge crops two years in a row. Let's look at the export program. Chart 5 shows the seasonality of wheat exports, with 2021 and also 2017 overlaid. As we can see, these are both two years with large export programs.

Chart 5

Since the start of the export season (December), we have so far exported 21.7mmt, and in the 2017 season, we exported 22.2mmt. We easily have the capacity to export the volumes that are required of a large export program.

Chart 6 shows the cumulative exports for 2017 and 2019. The USDA export forecast is included in the dotted line. There are still a number of months to go, allowing us to reach record export levels easily.As we move into next year, with stock levels that are lower than average, we will easily be up to the task. We will see huge export programs of wheat in the first half of 2022, as we aim to cement the premiums in the market ahead of the next northern hemisphere harvest.

GROWING LOCAL CONSUMPTION

In Australia, we have seen consumption of grains increase in the past twenty years, from approximately 5mmt to an average of 8.2mmt in recent years. 

Chart 6

There is a tendency for grain consumption to increase during times of drought. In the chart below we can see this during the 2006 to 2008 period, and recently in 2018. The reason for increased consumption during times of lower supply is due to the impact of drier climates on pasture. 

A large proportion of Australian cattle and sheep are fed in pasture-based systems (or grass-fed); during a time of drought, this impacts pasture growth. The result is that supplementary feeding of animals is required, therefore leading to increased demand that would not usually be present in an average production year. 

The growth of milling domestically within Australia has been slow, with very little increase over the past twenty years. Future domestic demand for wheat (and other grains) is likely more likely to be focused on feeding livestock instead of increased milling capacity.

OUR FUTURE LIES IN INDONESIA

The world’s largest importer of wheat for a long time has been Egypt. Egypt has been a big buyer due to the diet supported by heavily subsidised bread. The majority of the country is able to buy bread at subsidised rates.

Chart 7

The country also has an insufficient production capacity to meet the requirements of 100 million people. The place of Egypt at the top of the wheat export tree might be in contention in the coming years, with our most populous neighbour, Indonesia, a potentially viable contender.

Chart 8

The population is forecast at approximately 274m people, more than ten times the population of Australia at 25.6m. It is expected that the population will grow to 330m by 2050. That is a huge number of mouths to feed, and it's perfectly situated for Australian exports. 

Chart 9

The growing population and the lack of local production have resulted in ever-growing imports. During the last half of the 2000s, Indonesia imported on average 5.6mmt. During the past five years, this has jumped to 10.5mmt. This volume will continue rising for both food and for feed.

Chart 10

The rise has been dramatic and has seen Indonesian imports of wheat rise to an average of 85% of the volume which Egypt imports. Whilst Egypt is important, and their tenders are closely watched to drive global directions, Indonesia is a quiet performer.

Chart 11

This places a neighbouring nation as a customer with the potential to soak up a large chunk of our exportable surplus. Chart 11 shows the theoretical % of our exports, which Indonesia could meet (our total exports vs their total imports).

Interestingly during the recent droughts, our total exports were lower than their total imports. This resulted in Indonesia importing larger volumes from our rivals. Australia is lucky to be positioned so close to such a significant trading partner who will not have the capacity to grow its local production.