STATE OF THE AUSTRALIAN GRAINS INDUSTRY 2016 About GrainGrowers
GrainGrowers is an independent and technically resourced, grain grower representative organisation with 17,500 members across Australia. GrainGrowers’ goal is a more efficient, sustainable and profitable grain production sector that benefits all Australia grain growers and the wider grains industry. GrainGrowers has three divisions which work cooperatively to achieve improved grain industry outcomes: 1) National Policy & Innovation, 2) National Capability Development and 3) Industry Services.
About the State of the Australian Grains Industry report
The State of the Australian Grains Industry 2016 report was first published by GrainGrowers in 2011. The purpose of the Report was to review the industry post the deregulation of wheat export marketing and to outline the priority actions required to advance the interests of growers in an internationally competitive market. The report also successfully established a basis for evaluating the industry and opportunities in future reports. Five years on, the 2016 edition builds on the original report by reflecting on progress towards capturing the opportunities outlined in 2011 and identifying the challenges faced by Australia’s contemporary grains industry. Although developed by GrainGrowers, it is intended that the report be used industry wide, as a useful ready-reckoner to our great grains industry.
Acknowledgments Lead author: Dr Cheryl Kalisch Gordon Contributing writers: GrainGrowers policy staff: David McKeon, Carmen Whiteley, Dr Michael Southan and Christopher Price, Emeritus Professor Dr Gordon MacAulay Editor: Catriona Nicholls Graphic design: Megan Hele
Cover image courtesy Rural Photos
Disclaimer The professional analysis and advice in this report has been prepared by GrainGrowers for the exclusive use of the party or parties to whom it is addressed (the addressee) and for the purposes specified in it. This report is supplied in good faith and reflects the knowledge, expertise and experience of the consultants involved. The report must not be published, quoted or disseminated to any other party without GrainGrowers’ prior written consent. GrainGrowers accepts no responsibility whatsoever for any loss occasioned by any person acting or refraining from action as a result of reliance on the report, other than the addressee. In conducting the analysis in this report GrainGrowers has endeavoured to use what it considers is the best information available at the date of publication, including information supplied by the addressee. Unless stated otherwise, GrainGrowers does not warrant the accuracy of any forecast or prediction in the report. Although GrainGrowers exercises reasonable care when making forecasts or predictions, factors in the process, such as future market behaviour, are inherently uncertain and cannot be forecast or predicted reliably. GrainGrowers shall not be liable in respect of any claim arising out of the failure of a client investment to perform to the advantage of the client or to the advantage of the client to the degree suggested or assumed in any advice or forecast given by GrainGrowers.
SYDNEY LEAD AUTHOR Level 19, 1 Market Street Sydney, 2000 Dr Cheryl Kalisch Gordon P.O Box Q1355, Queen Victoria Building, NSW, 1230 Senior Economist and Manager Trade & Market Access — GrainGrowers T: (02) 9286 2000 E: [email protected] T: (02) 6173 6400 CANBERRA Level 2, 53 Blackall Street, Barton, ACT, 2600 MEDIA CONTACT T: (02) 6173 6400 Laureta Wallace W: www.graingrowers.com.au Public Affairs Manager — GrainGrowers [email protected] Twitter: @GrainGrowersLtd E: (02) 6173 6415 Facebook: @GrainGrowers T: M: 0457 589 703
GRAIN GROWERS LIMITED STATE OF THE AUSTRALIAN GRAIN INDUSTRY 2016 FOREWORD
Agriculture is at the heart of the Australian economy and underpins the social fabric of our nation. Agriculture directly contributes to Australia’s social, economic and environmental sustainability, especially across our rural heartland. Australian broadacre cropping directly contributed $13.9 billion to the national economy (2014-15), and that’s just the value at the farm gate. With such as strong production base of wheat, barley, canola, oats, sorghum and pulses; the grains sector continues to be one of the most important agricultural contributors to the Australian economy. Beyond the farm gate, grain production also underpins other important agricultural sectors, including the livestock, domestic milling, baking and malting. Grain ultimately delivers something on our plates at every meal and the beer at the end of the day. Australian grain farmers are among world leaders in productivity. We produce an average of 45 million tonnes of grain per annum. This is enough to not only satisfy Australia’s domestic needs but also to make us a significant grain exporting nation in the world. About 65% of our grain is exported (including up to 90% in Western Australia and South Australia). Australia’s grains sector has undergone significant change during the past decade. In 2008, the wheat export system was deregulated through the abolition of the single trading desk. In terms of production and exports, wheat is our most significant grain so it is important to keep track of how the industry has adjusted and progressed since deregulation. In the deregulated environment, the grains industry is responsible for driving its own future. This report is an important step forward in this regard. It provides a comprehensive environmental scan of the changing world that the Australian grains sector operates in. The State of Australian Grains Industry Report explores existing and emerging opportunities and challenges, such as the need to increase digital agriculture capacity and increasing competitiveness in the international market place. Through the development of this report, GrainGrowers has laid the groundwork for inclusive, industry-wide discussion and direction setting to progress the Australian grains sector. I encourage participants from across the entire grain supply chain to take this opportunity to work together to ensure the grains sector continues to grow and remain profitable into the future.
Hon Barnaby Joyce MP DEPUTY PRIME MINISTER MINISTER FOR AGRICULTURE AND WATER RESOURCES
Image courtesy Ben White
GRAIN GROWERS LIMITED STATE OF THE AUSTRALIAN GRAIN INDUSTRY 2016 III ACRONYMS
ABARES: Australian Bureau of FAO: United Nations Food and NFF: National Farmers Federation Agricultural and Resource Economics Agriculture Organisation NWPGP: National Working Party on and Sciences FAS: USDA Foreign Agriculture Service Grain Protection ACCC: Australian Competition and FIRB: Foreign Investment Review Board NBN: National Broadband Network Consumer Commission FMD: Farm Management Deposits NRS: National Residue Survey AEGIC: Australian Export Grains Innovation Centre FOB: Free on Board OECD: Organisation for Economic Co-operation and Development AFIA: Australian Fodder Industry DAWR: Australian Government Association Department of Agriculture and Water OGTR: Office of the Gene Technology Resources Regulator AGEA: Australian Grain Exporters Association DAFWA: Department of Agriculture and OOQ: Out of quota Food, Western Australia AGIC: Australian Grains Industry PA: Pulse Australia Conference GCC: Gulf Cooperation Council PGA: Pastoralists and Graziers AGIDG: Australian Grains Industry GDP: Gross domestic product Association of Western Australia Discussion Group GFC: Global financial crisis PHA: Plant Health Australia AMA: Australian Mungbean Association GFR: Gross farm receipts PIRD Act: Primary Industries Research ANIC: Australian Nut Industry Council GIMAF: Grains Industry Market Access and Development Act 1989 ANZFTA: Australia-New Zealand Free Forum PSE: Producer support estimate Trade Agreement GIWA: Grain Industry Association of R&D: Research and development AOF: Australian Oilseeds Federation Western Australia RCEP: Regional Comprehensive Economic APVMA: Australian Pesticide and GLNC: Grains and Legumes Nutrition Partnership Veterinary Medicines Authority Council RD&E: Research, development and ASEAN: Association of South East Asian GM: Genetically modified extension Nations GPA: Grain Producers Australia RDC: Research and Development ASF: Australian Seed Federation GPPEICC: Grain and Plant Product Export Corporation ASX: Australian stock exchange Industry Consultative Committee RGA: Ricegrowers’ Association of Australia AWB: Australian Wheat Board GPS: Global positioning system SFO: State farming organisation BA: Barley Australia GPSA: Grain Producers South Australia TFP: Total factor productivity BoM: Bureau of Meteorology GrainGrowers: Grain Growers Limited TPP: Trans Pacific Partnership BRI: Bread Research Institute GRDC: Grains Research and Development Corporation UAE: United Arab Emirates CAGR: Compound average growth rate GSR: Growing season rainfall UN: United Nations CER: Clean Energy Regulator GTA: Grain Trade Australia US: United States CFI: Carbon Farming Initiative GVP: Gross value of production USDA: United States Department of ChAFTA: China Australia Free Trade Agriculture Agreement IA-CEPA: Indonesia-Australia Comprehensive Economic Partnership VFF: Victorian Farmers Federation CIGI: Canadian International Grains Agreement Institute WAFarmers: Western Australia Farmers IOC: Industry owned company Federation CIS: Commonwealth of Independent States IQ: In quota WEA: Wheat Exports Australia CSG: Coal seam gas JAPEA: Japanese Australia Economic WIAT: Wheat Industry Advisory Taskforce Partnership Agreement CSIRO: Commonwealth Scientific and WIS Account: Wheat Industry Special Industrial Research Organisation KAFTA: Korea Australia Free Trade Account Agreement EPPR: Emergency Plant Pest Response WQA: Wheat Quality Australia MAA: Maize Association of Australia ERF: Emissions Reduction Fund WTO: World Trade Organisation MCPI: Multi-peril crop insurance EU: European Union WUE: Water use efficiency MENA: Middle East and North Africa
Image courtesy Ben White
IV GRAIN GROWERS LIMITED STATE OF THE AUSTRALIAN GRAIN INDUSTRY 2016 1. T//////
CONTENTS
1. A new global era for 5. Getting grain to market...... 41 Australia’s grains industry...... 1 Australia’s grain freight network...... 41 Beyond deregulation...... 1 Grain storage patterns...... 42 An important and growing sector...... 2 Rail versus road...... 44 Shaping the future ...... 4 Port terminals and competition...... 44 Grain shipping...... 46 2. Grains grown across Efficiency key to competitiveness...... 46 the nation...... 5 6. Government and grains ...... 49 The grains in the mix...... 5 Post deregulation policy ...... 49 A national industry...... 5 The issues...... 50 Wheat...... 10 Partnerships the key to an Coarse grains...... 12 international future ...... 54 Pulses...... 15 Oilseeds...... 16 7. Grains industry Genetically modified grains ...... 17 coordination...... 55 The future of the grains mix...... 20 The post-deregulation horizon...... 55 3. The businesses of Closer collaboration required...... 57 growing grain...... 21 Missing link in competitiveness ...... 57 Consolidation continues...... 21 8. Going forward...... 61 Mostly positive returns...... 21 The strengths ...... 61 A family affair...... 22 The challenges ...... 61 Costs continue to increase...... 23 The opportunities ...... 62 Prices in a global market...... 25 Government support...... 26 Managing water and climate...... 28 Appendices ...... 64 Future grain farm fortunes ...... 30 Appendix 1: Wheat Quality Australia 4. Where Australian — classes ...... 64 grain goes...... 31 Appendix 2: Trade agreement status update for grains ...... 66 Exports are critical...... 31 Australians using grain...... 31 Appendix 3: Glossary of entities and International markets...... 35 acronyms ...... 70 Market maintenance and growth...... 40 Appendix 4: Wheat Industry Advisory Taskforce...... 73 Appendix 5: References...... 76
GRAIN GROWERS LIMITED STATE OF THE AUSTRALIAN GRAIN INDUSTRY 2016 V 1. A NEW GLOBAL ERA FOR AUSTRALIA’S GRAINS INDUSTRY
Image courtesy CBH Group
In 2016, the Australian grains industry finds itself in a vastly different landscape than pre-2008, and even 2011 when the State of the Australian Grains industry was last assessed. The deregulation of the single desk for wheat exports during 2008 was the final chapter in a long process of deregulation that prompted a changed, and truly internationalised, landscape for the Australian grains industry.
Beyond deregulation commodity marketers with overseas and domestic origins have played an increasingly active role in The removal of the single desk for wheat during the accumulation, movement and marketing of 2008 was a significant structural change following Australian wheat for export. The market for wheat a long period of deregulation for the Australian exports from Australia is now well advanced as a grains sector (Figure 1.1). In this process of multi participant, oligopolistic structure. deregulation a significant milestone, and arguably In 2016, the Australian grains industry finds for many the most significant, was the 1988 McColl itself completely immersed in the vagaries Royal Commission into Grain Storage, Handling and and opportunities of the international market. Transport. The McColl Royal Commission triggered, Competitive forces are characteristic of the supply among other adjustments, the deregulation of the chain, from on-farm production, which long ago domestic marketing of most Australian grain. The came out from the shelter of price supports, subsidies 2008 removal of the single desk for wheat was the and tariffs, through to contestable domestic grain logical final step in the list of changes prompted by trading and international exports. the McColl Royal Commission and was significant in that it thrust the Australian grains industry into a During December 2015, World Trade Organisation global open market environment. (WTO) members agreed in Nairobi to increased scrutiny on state export trading enterprises. If the The cornerstone of Australia’s single desk for vested export powers of the Australian Wheat Board wheat exports was the Commonwealth Wheat (AWB) remained, it would now be facing increased Marketing Act (1989) which vested monopoly scrutiny on activities, likely increased pressure on its wheat export rights with AWB International single desk export marketing and an uncertain time (AWBI), and the Australian Wheat Board (AWB) ahead. Instead, the Australian grains industry has before that. Since the repeal of this act in 2008 moved beyond deregulation and the uncertainty the and the subsequent removal of export rights for pre-deregulation environment held. wheat from AWB International, a number of major
1 GRAIN GROWERS LIMITED STATE OF THE AUSTRALIAN GRAIN INDUSTRY 2016 1. T//////THE AUSTRALIAN GRAINS INDUSTRY
FIGURE 1.1 Deregulation of the Australian grains industry
Export wheat market Transition arrangements and deregulated: then repeal of state marketing Wheat Export Domestic wheat restrictions for barley, sorghum, Marketing Act, Royal Commission market deregulated oilseed, pulses etc, state by state* 2008 into Grain Storage, Handling and Transport Consolidation and transition of State based storage (McColl) and handling entities to Commercial entities
1988 1989 1990s – mid 2000s 2008
2016 2015 2014 2013 2012
Mandatory Port Access Code Wheat Industry Wheat Export of Conduct for Grain Export Advisory Marketing Act, Terminals Taskforce est. 2012
Productivity Commission Transition recommendations in place
* With the exception of the South Australian Barley Exporting Act which was allowed to expire in 2010 and rice exporting which still operates with vesting under the NSW Rice Marketing Act 1983.
The changes in marketing arrangements and policy sustainably grow Australia’s grain ‘pie’, a collaborative settings over time have been coupled with growth approach is required. The industry as a whole in demand for grain in Australia’s export markets, needs to work on the elements will underpin long increasingly global technologies for production, term prosperity — quality, reliability, a clean green handling, storage and shipment and more mobile reputation and stability — these are industry and international capital. While the 2008 deregulation has public goods that no-single party can manage in been cited as the catalyst for moving the Australian isolation. grains industry into an open market future, the reality is it is the culmination of many factors, which An important and growing sector means the industry is now truly integrated into the international market. As an internationalised industry, the output and The process of deregulation was not perfect and there value of Australia’s grain production have continued remain issues and industry functions that have not to increase. Annual grain production (wheat, coarse been resolved or could be improved upon, and new grains, pulses and oilseeds) averaged more than challenges have arisen. This is not a unique position 45 million tonnes (mt) during the period 2010–15, for the grains industry among industries that undergo up 21% on the 2000–05 annual five-year average significant change. Despite room for improvement, volume of production, and 33% on the 2005–10 the headline figures for industry performance show average annual production. The value of the industry’s an industry travelling positively in the early post- production has also increased with the average annual deregulation era. value for the five years to 2015, $13.5 billion, being up more than 50% on the 2005 and 2010 comparable The competitive forces that are now throughout the averages. Exports also have risen alongside production Australian supply chain, drive individual players in the (Figure 1.2). The average export volume for the five supply chain to seek innovative and more-efficient years to 2015 was 32.7mt, returning an average export delivery of goods and services. While efficiency is value of $11.4bn (FOB). critical to underpin international competiveness, to
GRAIN GROWERS LIMITED STATE OF THE AUSTRALIAN GRAIN INDUSTRY 2016 2 FIGURE 1.2 Australian grain production and exports (five-year average volumes and values)