Your reading list

Growing pains

 Western Producer reporter Brian Cross is in Australia to meet  grain industry experts and talk to farmers in the post Australian Wheat Board era. He will explore how the grain handling industry has fared since it completed its transition from a single desk to an open market in 2008, and whether it holds any lessons for Canadians.

Australia’s farmers are feeling their way forward in the new world of marketing freedom.

But those seeking a black and white answer on whether the country’s grain industry is better off today than it was a decade ago are not likely to find it among the nation’s farmers.

Australian producers, depending on the size of their farms, their proximity to markets and their personal philosophies, remain largely split on whether the elimination of single desk marketing has been positive or negative.

Some say selling wheat in a deregulated market has led to better prices, albeit in a market that is more prone to short-term volatility.

Others insist that Australia has given up a system that marketed farmers’ grain efficiently and inexpensively, managed the country’s grain inventory well and minimized grower risk by offering guaranteed minimum pricing.

But whether they support or oppose single desk marketing, most agree that the Australian grain industry is experiencing growing pains, said fifth generation grain grower Stewart Gall.

“There’s lots of things that we’ve learned over the last three or four years, and I think we’ve probably got another three or four to go before we figure things out,” said Gall, who grows grain and pulses on 15,000 acres near Moree, New South Wales.

“We have a deregulated market, we just don’t have a mature deregulated market yet,” added Wayne Newton, a producer from Dalby, Queensland.

“It will develop but it’s going to take time … because people still have to get used to doing business in a new way.”

When Australia was in the process of deregulating, much of the debate between single desk supporters and open market advocates was focused on farmgate wheat prices, Gall said.

But in retrospect, many producers acknowledge that the farmgate price of wheat was just one consideration in a complex equation.

Today, the industry is still dealing with a multitude of issues closely related to deregulation, he said.

They include changing demands on the country’s grain handling infrastructure, concerns over delivery bottlenecks, ongoing questions surrounding port access, lingering rumours about the declining quality of Australian grain exports and perceived gaps in services that benefit the entire industry, such as market discovery and overseas customer support.

There are also concerns about industry consolidation, the lack of regional competition and the commercial relationship between large bulk handling companies that own country handling facilities and smaller grain exporters that don’t own their own facilities.

“A lot of people thought that when we lost our single desk, that the price of wheat was going to go down, but in reality, the price of wheat on Chicago was not going to change regardless of whether Australia had a single desk or not,” Gall said.

“In my experience, the single desk did not govern the world price of wheat, but its elimination did affect how our grain moves to market and it did have an impact on supply chain costs.”

Gall said one of the most immediate consequences of deregulation — at least in Australia’s eastern states — was its impact on grain movement and logistics.

Australia, like Canada, faces challenges in moving grain to export position. Limited rail capacity is one of them.

When it held an export monopoly, the Australian Wheat Board became adept at maximizing supply chain efficiencies, minimizing delivery bottlenecks and timing the movement of wheat from country collection sites to port terminals.

But Gall said demands on the country’s grain handling infrastructure changed when new export companies entered the market.

“Under deregulation, all of these new exporters wanted to export all of this crop in a three-month window because in some cases, they didn’t have the (financial) capacity to carry it,” he said.

“They had to finance that grain … so obviously they wanted to move it to market as quickly as possible. I think that was one of our first real concerns after de-regulation was that we seemed to be having a lot of (delivery) bottlenecks … and a lot of issues with foreign buyers not getting their grain on time.”

Concerns over the quality of wheat exports were not far behind.

With few exceptions, stakeholders in the Australian grain industry say the country’s reputation for delivering top quality wheat has eroded since deregulation, or at least foreign buyers suggest that.

But pinpointing reasons for that erosion has been difficult.

Some critics point to blending practices at bulk grain handling sites and suggest that the industry has failed to adequately identify and segregate different classes of wheat.

Others suggest that overall wheat quality, particularly during Australia’s record 2011-12 harvest, was well below average.

Still others blame the proliferation of containerized wheat shipments, which they say are scrutinized less thoroughly than bulk shipments.

Containerized wheat shipments have grown rapidly since deregulation as new export companies seek to serve small overseas customers that require small quantities of grain for milling and processing purposes.

Non-bulk wheat exports, primarily containerized grain, accounted for more than 30 percent of Australia’s total wheat exports in the five months that ended March 1.

Alison Watkins, chief executive officer of GrainCorp, one of the country’s largest exporters and bulk handling companies, said there is a perception that the quality of Australia’s grain exports has diminished.

However, she suggested that the quality meets export specifications in the majority of cases, whereas previously the AWB may have consistently exceeded requirements.

“They (the AWB) ensured that (premium) customers got more than what they were asking for and I think, understandably, those customers got quite (accustomed) to that.”

Watkins said exporters in the new system are attempting to extract the maximum value out of shipments and importers of Australian wheat are adjusting their expectations.

She said it will take time for the Australian wheat industry to “recalibrate customers’ expectations.”

It will also take time for marketers to re-establish some of the value-added services that the AWB traditionally provided, such as technical advise and customer follow-up.

“One of the challenges in a deregulated environment is finding a neutral party to lead some of those industry good activities,” she said.

Watkins added that many recent quality challenges were a function of the unusually large harvest rather than deregulation.

As for the movement of grain from country to port, she suggested that larger grain volumes and more marketing choices have added complexity to the system.

“What we used to see was that most grains went into a pool and were marketed that way, so … the AWB was really in the driver’s seat as far as marketing went.”

Today, growers can choose who they want to market with and when they want to sell their grain.

Andrew Weidemann, president of the Victoria Farmers’ Federation’s grains group, agreed the industry continues to evolve.

“There is life after the single desk; it’s just how you manage it,” said Weidemann, a self-professed supporter of single desk marketing.

Weidemann, who farms 8,000 acres near Rupanyup, Victoria, said critical issues must be resolved.

For starters, the industry must ensure efficient transportation to export position.

Investment in better rail systems is a key consideration, as is regulated access at the country’s port facilities.

In the absence of single desk marketing, wheat growers and other stakeholders must also figure out who will deliver “industry good” services that benefit the entire industry.

“That was a failure here in Australia. We didn’t have a stabilization package that was offered to the industry, probably because we were too busy fighting tooth and nail to retain the single desk and we never really stopped to realize all the industry-good functions that the AWB was serving until after it had basically been wound up.

“If I had one message to growers in Canada that would probably be it. Make sure you get something from government to stabilize the industry after deregulation.”

About the author



Stories from our other publications