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Ukraine grain challenge a wakeup for Australian growers

- Tuesday, April 26, 2016
If ever there was a classic example of the challenge facing Australian agriculture - and the Australian grain sector in particular - it is the challenge that Ukraine is posing to Australian grain exporters in international markets. Despite the political uncertainty and economic turmoil that persists in the Ukraine, the nation is a growing competitor in international grain markets, and in particular in markets Australians might have previously considered 'ours' in Asia and the Middle East.

The extent of the threat posed by the Ukraine was detailed recently in a report produced by the Australian Export Grains Innovation Centre (AEGIC). While the grain sector there is obviously hampered by political instability, military conflict and a lack of infrastructure, the bottom line for farmers there is that they can produce a tonne of wheat for a little over half the average that it costs Australian farmers. This is largely due to the much more favourable climate and soils, meaning the average Ukrainian farmer achieves yields that are almost double the average yield achieved in Australia - as the figures in the following table highlight.

The challenge faced by Australian wheatgrowers is one that is faced more generally by Australian farmers, which is that while Australian agricultural production is extremely efficient (in terms of input use), the relative low yields and livestock growth rates achievable under Australian conditions means that Australian agricultural products cannot generally compete in international markets on price alone.

Consequently, issues such as quality, safety, consistency of supply and biosecurity status have become even more critical to the future success of Australian agriculture in global markets - upon which the sector relies as markets for approximately two thirds of what is produced. While Australian farmers might complain about having to tag all their livestock or to comply with grain quality assurance standards and paperwork, these are the factors that are keeping the sector competitive in global markets. 

Whether Australia's current efforts in relation to biosecurity are adequate to maintain this competitiveness into the future was the subject of a recent discussion paper the Australian Farm Institute prepared for the Plant Biosecurity Cooperative Research Centre (PBCRC). It concludes that the current arrangements - especially subsequent to the winding-up of the PBCRC in 2018 - are unlikely to be up to the task of maintaining Australia's current superior biosecurity status into the future, and that a more concerted and focused effort will be required.

Australian agriculture has little choice but to go down the quality path, and to make sure that systems are in place to support all aspects of product quality - even in the case of bulk commodities like grains. The alternative is to experience the sort of brutal adjustments that Australian mineral exporters are currently trying to manage.

Ross Kingwell commented on 26-Apr-2016 03:33 PM
Thanks Mick for highlighting our report on Ukraine. Your suggestion that "Australian agriculture has little choice but to go down the quality path" is mostly true, in my view. However, we still need to pursue the quantity path (e.g. higher yields, lower costs of our supply chains, scale economies, etc). Heading solely down the quality road is not without its own risks. We know, for example, that Black Sea wheat (Russian in particular) is improving in its quality and supply reliability, so Australia's comparative advantage in our quality credentials may not inevitably be a long-lasting advantage. However, it is a current advantage and we need to protect and grow that advantage while we can. As I've said before, just because Asia is on our doorstep does not mean that we will always be preferentially ushered in. We live in a competitive world and there are alternative suppliers of our main agricultural exports. Rgds Ross Kingwell

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