Grain Growers Limited 17 June 2020 Mr George Christensen MP Chair
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17 June 2020 Mr George Christensen MP Chair Joint Standing Committee on Trade and Investment Growth PO Box 6021 Parliament House Canberra, ACT 2600 Dear Mr Christensen Re: Submission to the Joint Standing Committee on Trade and Investment Growth (JSCTIG) inquiry into Diversifying Australia's Trade and Investment Profile GrainGrowers welcomes the opportunity to make a submission to the JSCTIG Inquiry into Diversifying Australia's Trade and Investment Profile. GrainGrowers is a leading voice for Australian grain farmers, representing their interests at a national and international level. Our vision is a more efficient, sustainable and profitable grains industry for all Australian grain farmers. Working with the grains sector and broader agricultural community, GrainGrowers aims to set a progressive agenda to drive positive change for Australian grain farmers across the national and global landscape. This submission addresses the Terms of Reference relating to trade with specific reference to Australian grain, pulse and oilseeds exports. While the submission focuses on Australia’s key export markets, it is also important to recognise the significant diversification opportunities that exist within the Australian domestic market in food, feed and energy markets. Key Recommendations GrainGrowers recommends the Government: 1. Recognise that building new markets for grain exports requires considerable lead-times and major investments in marketing and technical support. Coupled with planting decisions that may need to occur up to 18 months before harvest, pivoting to new export markets is costly and resource intensive. 2. Increase government research agency (such as ABARES) funding and ensure their work supports industry efforts analysing future grain, pulse and oilseeds demand in export markets. Grain Growers Limited ABN 25000245269 Level 19, 1 Market Street, Sydney NSW 2000 Australia | PO Box Q1355, Queen Victoria Building NSW 1230 Australia Tel +61 2 9286 2000 | Freecall 1800 620 519 | Email [email protected] | www.graingrowers.com.au 2 3. Provide financial and agency (such as enhanced Austrade services) support to grain industry efforts in market research, market development and in-market technical support to assist Australian grains exporters to establish new, and consolidate on existing, commercial relationships. 4. Increase efforts, and explore new and innovate partnership mechanisms, to conclude an ambitious trade agreement with India. 5. Task the Department of Agriculture, Water and the Environment and the Department of Foreign Affairs and Trade with developing a strategic, targeted, and well-resourced, long-term approach to addressing persistent non-tariff barriers restricting grains exports, including Minimum Residue Levels. 6. Increase Government ministerial support and participation in industry-led initiatives aimed at improving market access outcomes such as the Indonesia- Australia Strategic Grains Partnership. 7. Implement recommendation 14 of the House of Representatives Trade and Investment Growth Committee report: Trade Transformation: Supporting Australia’s export and investment opportunities. Reliance on individual markets for exports – Advantages and Disadvantages The grains industry is a significant contributor to the Australian economy and is particularly export focussed, with exports accounting for approximately 70% of total production annually. Our export volumes are globally significant, exporting on average 29 MMT of grains each year, with an average export value in excess of $11 billion. Wheat is Australia’s major grain export with canola, barley and pulses other major exports. In determining the grains sector’s relative reliance on individual export markets, it is important to recognise the relative volumes of exports that go to any one market, but also the relative value of these exports. For example, while barley exports are almost three times the volume of pulses, the value of pulse exports is greater (table 1). Table 1: Relative value and volume of key grain exports Volume Value Wheat 65.47% 59.13% Canola 9.47% 16.42% Barley 16.50% 11.20% Pulses 6.20% 13.26% Source: 5-year average 2013-2017 derived from ABS. It is also important to note that shifts in supply, demand and price have long impacted on export volumes, values and destination markets. Drought, for example, halved Australia’s wheat production between 2005-06 and 2006-07 and is forecast to halve again between 2016-17 and 2019-20 (chart 1). Similarly, changes in China’s demand for barley saw the value of Australian barley exports to China increase from $2m in 1996-97 to $1,464m in 2013-14 (chart 2). GrainGrowers www.graingrowers.com.au 3 Chart 1: Australian wheat production, stocks and domestic use. ABARES: Wheat March Quarter 2020 (https://www.agriculture.gov.au/abares/research-topics/agricultural-outlook/wheat) Chart 2: Australian barley exports to China 1988-89 to 2018-19 1,800 1,600 1,400 1,200 1,000 $m 800 600 400 200 0 Between 2014/5 and 2018, one market dominated our exports of each of Australia’s four major grains commodities. These were Indonesia for wheat (21% of all wheat exports1), EU for canola (71%2), China for barley (72%3) and India for pulses (38%3). In all instances the next largest single destination was less than half of these four largest markets by both volume and value. Between 2018 and 2020, the industry saw a significant shift away from key markets for wheat, barley and pulses due to a range of market shocks, major changes in trade conditions, and drought impacts. 1 Five-year average between 2014-18. 2 Four-year average between 2015-18. 3 Four-year average between 2015-18. GrainGrowers www.graingrowers.com.au 4 Table 2: Major Export Markets for Australian Wheat (average 2014-18) Rank Market Volume Value Percent by value 1 Indonesia 3.8mmt $1.1b 20.8 2 Vietnam 1.4mmt $435m 8.2 3 China 1.3mmt $373m 7.0 4 Philippines 1.3mmt $358m 6.8 5 Korea 1.1mmt $337m 6.4 6 Japan 0.9mmt $316m 6.0 7 Malaysia 0.9mmt $254m 4.8 8 Yemen 0.8mmt $245m 4.6 9 India 0.8mmt $227m 4.3 10 New Zealand 0.5mmt $159m 3.0 Table 3: Major Export Markets for Australian Canola (average 2015-18) Rank Market Volume Value Percent by value 1 European Union 2mmt $1.1b 70.5 2 Japan 177,000t $106m 6.8 3 China 137,000t $80m 5.1 4 United Arab Emirates 85,000t $49m 3.1 5 Pakistan 66,000t $39m 2.5 6 Nepal 33,000t $20m 1.3 7 Malaysia 26,000t $14m 0.9 Table 4: Major Export Markets for Australian Barley (average 2015-18) Rank Market Volume Value Percent by value 1 China 4.6mmt $1.3b 72.2 2 Japan 777,000t $217m 12.1 3 Saudi Arabia 408,000t $98m 5.4 4 United Arab Emirates 210,000t $55m 3.1 5 Kuwait 168,000t $39m 2.2 6 Vietnam 74,000 $22m 1.2 7 Thailand 68,000 $22m 1.2 8 Korea 43,000t $14m 0.8 9 Taiwan 39,000t $10m 0.6 Table 5: Major Export Markets for Australian Pulses4 (average 2015-18) Rank Market Volume Value Percent by value 1 India 864,000t $769m 38.6 2 Bangladesh 389,000t $305m 15.3 3 Pakistan 235,000t $207m 10.4 4 Egypt 285,000t $139m 7.0 5 United Arab Emirates 105,000t $86m 4.3 6 Sri Lanka 101,000t $80m 4.0 7 Netherlands 141,000t $55m 2.8 8 Korea 119,000t $43m 2.2 9 Vietnam 34,000t $40m 2.0 10 Saudi Arabia 41,000t $25m 1.3 Source: Australian Export Grains Innovation Centre 4 Combined average of exports of chickpeas, lentils, field beans, field peas and lupins for 2015-18. GrainGrowers www.graingrowers.com.au 5 For some categories within these commodities, individual markets are more concentrated. The market for particular grades of wheat suitable for the production of udon noodles, for example, is dominated by Japan. These key markets have been developed over time through major investments in market intelligence, product promotion and in building commercial relationships. Since de-regulation of the Australian wheat export market in 2008, multiple export marketing, technical and other supply chain service providers have stepped into direct Australian product to the most profitable markets. Australian grain farmers remain, however, more exposed to shifts in international markets given their international competitors are often heavily subsidised and operating with a lower cost-base. The OECD has calculated the high levels of support provided by governments to grain producers in competitor countries. An overview of the OECD’s Agriculture Producer Support Estimates (PSE) is provided below. Between 2000-2018, Australian farmers received an average of 3% of their gross farm income as support while Canadian farmers averaged 15%, US farmers 12%, Chinese farmers 11% and farmers in the European Union 25%5. Of this support, wheat (6th), oilseeds (11th) and barley (12th) were in the top 12 commodities for which support was provided6. These policies place Australian grain producers at a significant competitive disadvantage and highlights the importance of ongoing work to reduce market distortions and further build the competitiveness of the Australian grains industry. Chart 3: Government (Producer Support Estimate) to major grain producing nations Source: OECD 2016 There are advantages and disadvantages to market concentration. A key advantage in predominately supplying a single market is a greater ability to communicate Australia’s value proposition. With relatively few major destinations, the value proposition for Australian grain can be communicated and reinforced, allowing deep market penetration. Australia has built a reputation for the quality and functionality of our grain and the hygiene and safety of our export supply chains. This approach does not work when markets become more price sensitive as Australia remains a high cost producer of grain in 5 Australian Farm Institute and GrainGrowers (2020) AFI Briefing Paper: Transparency in Trade and Farm Support (https://www.graingrowers.com.au/australian-farm-institute-briefing-paper-australian-farm- supports/).