Black Sea wheat a threat to Australia’s key Asian markets

30.11.2017

THE US Wheat Associates will close its office in Cairo on Friday because US wheat is no longer competitively priced in Egypt.

The USWA has had an office in Cairo for decades.

Egypt, the world’s largest wheat buyer, bought 145,000 tonnes of Australian wheat last year.

That’s the smallest purchase of Australian wheat in more than 20 years.

Egypt was once a nation that took wheat from most of the world’s major exporting countries, including Australia and the US.

But those traditional suppliers have been muscled out of the market by Russia, which now supplies 75 per cent of Egypt’s annual wheat needs of 10 million tonnes.

The seismic shift in Egyptian wheat buying is indicative of the new world order in the global grain trade.

In 2000, Australia’s top 20 wheat customers were dominated by Middle Eastern and African nations, with some Asian countries also ranking highly.

But last season, its top eight buyers were all from Asia and the Indian subcontinent.

Australian Export Grains Innovation Centre chief economist Ross Kingwell said the global wheat market was now driven by a number of factors, the key of which included the farm cost of production in major exporting nations, the cost and efficiency of the supply chain and the distance grain has to be shipped.

“The international wheat market has now become dominated by the lower cost countries: Russia, Kazakhstan, Ukraine and Romania,” Professor Kingwell said.

“Now, Argentina will come on stream because its government has removed the 20 per cent tax on wheat exports.”

Professor Kingwell said the devaluation of the Russian rouble after the fall in oil prices and the decline in the Ukrainian hryvnia against the US dollar due to poor economic activity in recent years had made Black Sea wheat more competitive compared to grain from Australia and North America.

GrainCorp’s new general manager of trading for Australia and Asia Don Campbell said another factor in the surge in Black Sea countries’ marketing had been their rapid rise in grain productive capacity during the past decade.

Mr Campbell said, 10 years ago, Russia produced about 67 million tonnes of wheat, corn and barley and the Ukraine, 32 million tonnes.

He said now they were harvesting 105 million tonnes and 65 million tonnes, respectively.

“Growth in their productive capacity meant they had to find a home for that grain,” he said.

“In the mid to late 2000s, they concentrated on that North African and Middle East region.

“Now they are reaching into the (Indian) subcontinent and Asia.”

India has been a traditional, if somewhat sporadic, buyer of Australian wheat.

Mr Campbell said India imported 6.25 million tonnes of wheat last year.

“Two million tonnes came from Australia and four million tonnes from the Ukraine,” he said.

Prof Kingwell said Russia and the Ukraine had invested in improving infrastructure at their Black Sea ports, boosting their respective abilities to efficiently load grain on to ships.

With the Middle East and Africa virtually at their doorsteps, it was inevitable long-time exporters such as Australia and the US would be pushed out of those markets.

Australia is now more focused on Asian markets with its relative freight advantage, but it cannot take the region for granted.

Mr Campbell said Russia would harvest an 83 million tonne wheat crop this season.

The saving grace for Australia was that it only had capacity to export 31-33 million tonnes of that grain through its Black Sea port of Novorossiysk.

He said that was because it only had a single rail line through the mountains plus a narrow truck route to the port.

“Where it could become a real threat is if it spent money on those logistics to increase the country to port pipeline,” he said.

Prof Kingwell said Indonesia was the second largest wheat importer in the world but would overtake Egypt within the decade.

In 2016-17, Australia shipped 5.3 million tonnes of wheat to Indonesia — one million tonnes more than its previous record set in 2011-12.

It has been Australia’s No. 1 wheat buyer for the past 15 years in a row.

“Australia produces a wheat of a type favoured by Indonesia,” Prof Kingwell said.

“It is also transforming a lot of wheat into value-added flour-based products and exporting them.

“Although not providing the cheapest wheat going into Indonesia, we are a reliable supplier of a quality of wheat suitable across a broad range of uses.

“As that market grows, our market share is likely to be eroded because price-conscious Indonesian millers will look to other wheat suppliers to blend grain.”

Mr Campbell said Asian millers had become more adept during the past 10 years in blending high quality wheat from Australia with lower grade grain from low-cost suppliers to get the flour they require.

But he said they were also blending flour from different sources for their desired food products.

This had opened the door for Black Sea wheat.

Mr Campbell said, while a lot of Black Sea wheat was making its way into Asian markets, a lot of it went into the feed industry.

He said 60-65 per cent of Ukrainian wheat was feed grade and was ending up in markets such as the Philippines, South Korea and Indonesia to be fed to livestock.

He said the key to protecting Australia’s markets was to look after its customers’ needs.

“It’s the feedback from customers which gives us the edge,” he said.


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