In a repeat of a scenario that has played out in Middle Eastern markets, Australian wheat growers are losing market share in Indonesia - Australia’s biggest wheat buyer and the second biggest wheat importer in the world - as Black Sea competitors are leveraging lower transportation costs and a bumper harvest to undercut Australian prices.
In 2014/15, Australia accounted for 60% of Indonesia’s wheat imports based on its reliable quality, supply, and low freight costs. However, Ukraine and Russia produce three times more wheat that Australia, and have been aggressively marketing its crop, making note of Australia’s ageing infrastructure system and higher production costs. Indeed, a 2014 report issued by Rabobank named wheat production in Australia as the most expensive in the world at approximately $150 per ton.
"It is now cheaper to ship a ton of wheat from Odessa into Indonesia than it for us to send a shipment from just west of Swan Hill to our facility in Geelong," said Mark Palmquist, managing director and chief executive of grain handler GrainCorp Ltd.
Black Sea wheat is currently being sold at $210 per ton – a price advantage of $30 per ton over Australia due to a 13% increase in production in Russia and Ukraine to 84 million tons, according to the U.S. Department of Agriculture (USDA), while Australia’s price advantage margin is being narrowed by a drop in global freight rates and an influx of foreign investment into infrastructure upgrades and expansion in the Black Sea resulting in reduced transportation costs.
Lynda Kiernan is Editor with HighQuest Group Media and of the Oilseed & Grain News. If you would like to submit a contribution for consideration, please contact Ms. Kiernan at firstname.lastname@example.org.