Australia’s prized wheat trade with Indonesia has fallen off a cliff, just as Canberra closes in on the ratification of a long-awaited trade agreement.
This year exports to Indonesia, traditionally the biggest buyer of Australian wheat, are expected to fall by 75 per cent thanks to a double whammy of drought and strengthened international competition.
Ken Seymour, a fourth generation grain farmer, on his property "Meridale" south of Miling in Western Australia's wheatbelt. Trevor Collens
The fall has stung commodity traders and is awkward timing for trade and business groups keen to fire up interest in the Indonesia Australia Comprehensive Economic Partnership that's expected to get the legislative green light – in Canberra at least – by the end of the year.
The trade between Australian wheat growers and Indonesian flour mills that produce instant noodles for domestic and international markets has been a "defining relationship for industryâ€, said Ross Taylor, president of the Perth-based Indonesia Institute. “The only problem is that it is no longer true.â€
From 2013 to 2018, annual wheat exports to Indonesia averaged 4.2 million tonnes. This year, it could fall below 1 million tonnes – a "sobering statistic", noted the Grain Industry Association of WA in a submission to the Joint Standing Committee on Treaties which is reviewing the IA-CEPA.
It is a statistic driven by the lack of rain on the east coast, which raised the price for wheat grown in the West. At the same time, Black Sea grain growers have lifted their game, delivering a higher quality product that is attracting Indonesian buyers.
Farmer Ken Seymour isn’t surprised wheat exports to Indonesia have plummeted given the impact of the prolonged drought, which has distorted the wheat market by creating a domestic price premium.
“As growers we would always love to get $400 a tonne for our wheat but we are more than aware that other countries are going to have trouble paying that much,†he said.
“They will soon look around the world for cheaper stuff.â€
Increased competition
Mr Seymour, a fourth-generation farmer in WA's wheat belt, said the Black Sea was an obvious source after rising to a position of dominance in the global grain trade over the past decade, while Argentina was another competitor that had got its act together on growing, storing and shipping wheat.
Wheat from Russia and the Ukraine is rapidly displacing Australian product in South-East Asian markets.
Australian wheat exports near a 50-year low
A leading grain trader, who didn’t want to be named, said the industry in Australia had been burned after paying farmers high premiums on the incorrect assumption there was a level of inelastic demand in export markets like Indonesia.
GrainCorp has forecast a loss of $60 million to $70 million on trading while there is speculation CBH, the nation’s biggest wheat exporter and controlled by thousands of farmers, has suffered a marketing and trading loss of more than $100 million.
The WA-based co-operative declined to comment on the performance of marketing and trading and is not due to release its annual results until December.
CBH marketing and trading general manager Jason Craig said forecasts for grain production across Australia were only slightly up on last year’s very low levels, which meant fundamental drought-related changes would continue in the marketplace into 2020.
“Grain needs to move from west and south to east and therefore you get a domestic premium that is above the international market,†he said.
Mr Craig said CBH was in close contact with long-standing customers in Indonesia and they understood that droughts happened and affected export competitiveness.
“Their feedback has been that Australia hasn’t been as competitive this year as a result of drought and therefore they have had to acquire wheat from other markets, predominantly the Black Sea,†he said.
The GIWA has been keen to emphasise the depth of growers' links with Indonesia.
"The intergenerational value of farm businesses and the social capital of Western Australia's wheat-belt farming communities owe a great deal to our Indonesian friends," noted GIWA chief executive Larissa Taylor.
Those same Indonesian friends have big ambitions to build on the noodle-export business.
The flour mills want to be the largest exporter of wheat flour-based products in the world in the next five years, drawing on the changing dynamics of the domestic economy and Indonesia's proximity to Vietnam, China, Saudi Arabia, South Korea, Thailand, Philippines and Japan.
More beef and sheep will be exported to Indonesia under the new deal.
Why this Indonesian trade deal should not be understated
WA grain growers are well aware this presents both a challenge and an opportunity, Ms Taylor said.
"The threat for us is whether or not we will be sufficiently price-competitive to jump back into the traditional Indonesian instant noodle market when market conditions allow."
This year exports to Indonesia, traditionally the biggest buyer of Australian wheat, are expected to fall by 75 per cent thanks to a double whammy of drought and strengthened international competition.
Ken Seymour, a fourth generation grain farmer, on his property "Meridale" south of Miling in Western Australia's wheatbelt. Trevor Collens
The fall has stung commodity traders and is awkward timing for trade and business groups keen to fire up interest in the Indonesia Australia Comprehensive Economic Partnership that's expected to get the legislative green light – in Canberra at least – by the end of the year.
The trade between Australian wheat growers and Indonesian flour mills that produce instant noodles for domestic and international markets has been a "defining relationship for industryâ€, said Ross Taylor, president of the Perth-based Indonesia Institute. “The only problem is that it is no longer true.â€
From 2013 to 2018, annual wheat exports to Indonesia averaged 4.2 million tonnes. This year, it could fall below 1 million tonnes – a "sobering statistic", noted the Grain Industry Association of WA in a submission to the Joint Standing Committee on Treaties which is reviewing the IA-CEPA.
It is a statistic driven by the lack of rain on the east coast, which raised the price for wheat grown in the West. At the same time, Black Sea grain growers have lifted their game, delivering a higher quality product that is attracting Indonesian buyers.
Farmer Ken Seymour isn’t surprised wheat exports to Indonesia have plummeted given the impact of the prolonged drought, which has distorted the wheat market by creating a domestic price premium.
“As growers we would always love to get $400 a tonne for our wheat but we are more than aware that other countries are going to have trouble paying that much,†he said.
“They will soon look around the world for cheaper stuff.â€
Increased competition
Mr Seymour, a fourth-generation farmer in WA's wheat belt, said the Black Sea was an obvious source after rising to a position of dominance in the global grain trade over the past decade, while Argentina was another competitor that had got its act together on growing, storing and shipping wheat.
Wheat from Russia and the Ukraine is rapidly displacing Australian product in South-East Asian markets.
Australian wheat exports near a 50-year low
A leading grain trader, who didn’t want to be named, said the industry in Australia had been burned after paying farmers high premiums on the incorrect assumption there was a level of inelastic demand in export markets like Indonesia.
GrainCorp has forecast a loss of $60 million to $70 million on trading while there is speculation CBH, the nation’s biggest wheat exporter and controlled by thousands of farmers, has suffered a marketing and trading loss of more than $100 million.
The WA-based co-operative declined to comment on the performance of marketing and trading and is not due to release its annual results until December.
CBH marketing and trading general manager Jason Craig said forecasts for grain production across Australia were only slightly up on last year’s very low levels, which meant fundamental drought-related changes would continue in the marketplace into 2020.
“Grain needs to move from west and south to east and therefore you get a domestic premium that is above the international market,†he said.
Mr Craig said CBH was in close contact with long-standing customers in Indonesia and they understood that droughts happened and affected export competitiveness.
“Their feedback has been that Australia hasn’t been as competitive this year as a result of drought and therefore they have had to acquire wheat from other markets, predominantly the Black Sea,†he said.
The GIWA has been keen to emphasise the depth of growers' links with Indonesia.
"The intergenerational value of farm businesses and the social capital of Western Australia's wheat-belt farming communities owe a great deal to our Indonesian friends," noted GIWA chief executive Larissa Taylor.
Those same Indonesian friends have big ambitions to build on the noodle-export business.
The flour mills want to be the largest exporter of wheat flour-based products in the world in the next five years, drawing on the changing dynamics of the domestic economy and Indonesia's proximity to Vietnam, China, Saudi Arabia, South Korea, Thailand, Philippines and Japan.
More beef and sheep will be exported to Indonesia under the new deal.
Why this Indonesian trade deal should not be understated
WA grain growers are well aware this presents both a challenge and an opportunity, Ms Taylor said.
"The threat for us is whether or not we will be sufficiently price-competitive to jump back into the traditional Indonesian instant noodle market when market conditions allow."
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