Two years ago, Australian farmers were receiving a premium price for their wheat on the world market.
But Canadian Wheat Board director Bill Nicholson says Australian wheat is now selling at a discount to U.S. wheat.
The difference maker, he said, was the deregulation of the country’s grain marketing system.
“There was clear evidence that Australian wheat was being discounted to the world market, and certainly discounted from their previous pricing practices,” Nicholson said during a March 16 CWB Farmer Forum meeting in his hometown of Shoal Lake, Man.
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The 1985 farm bill started a series of protectionist measures, such as domestic marketing allotments, import quotas and hightariffs on imports exceeding the quotas.
He used as an example an Australian wheat sale to Japan following AWB’s loss of its single desk in August 2008.
“Once their single desk was gone, they ended selling at a $26 a tonne discount to what American wheat was being sold into Japan,” he said.
Wheat board spokesperson John Lyons said 26 companies were granted licences to market Australian wheat after AWB lost its single desk. In a scramble to lock up export sales, those marketers drove prices into the ground, he added.
“There was an immediate impact as everyone in Australia started fighting for market share,” he said.
“Discounts were generally $50 to $60 (per tonne) below U.S. prices for the first six months to a year (after deregulation).”
In Nicholson’s example, an Australian marketer sold wheat to Japan in December 2008 at a $27.67 per tonne discount to equivalent U.S. wheat, Lyons said.
In contrast, the AWB sold Australian standard white wheat to Japan at a $99 per tonne premium to equivalent U.S. wheat in June 2008.
Nicholson said it’s logical that competition for export sales would reduce prices.
“Economic theory would say with multiple sellers, the prices would come down to … the lowest common denominator. And the opportunity to earn premiums isn’t there. And our information bears that out.”
As well, Nicholson said deregulation and lower prices didn’t help Australia garner a greater share of the world wheat market. In fact, the CWB benefited from the chaos following deregulation in Australia, he added.
“We’ve gained some African customers that depended exclusively (on) Australia for their supplies,” he said.
“(They were) concerned about shortfalls in quality and turned to the Canadian Wheat Board to replace those supplies.”
However, he said the downside is cheap Australian wheat is depressing prices for all exporting countries.
Alan Tracy, president of U.S. Wheat Associates, said he has also noticed the impact of Australian deregulation on the world market.
At a meeting in late February in Perth, Australia, Tracy told representatives of the country’s wheat industry that cheap Australian wheat is a concern.
“We don’t want to see it go into the marketplace too cheaply,” he was quoted as saying on the Australian Broadcasting Corporation’s website.
“That tends to drive price down for others as well.”
At a farmer forum in Lougheed, Alta., March 19, CWB chief executive officer Ian White said the changes have also meant the AWB’s branding program, which promoted its wheat as the best in the world, has fallen away.
“The Australian Wheat Board has become just another trader,” he said.
The board’s market share has dropped to 23 percent of the total wheat sold.
All traders are trying to squeeze into the premium Japanese market and the price dropped $40 a tonne because of the increased competition.
White said instead of competing against the new Australian marketers, the CWB moved more of its sales through the St. Lawrence Seaway to the east where Australia isn’t competing.
