Supply chain a key to unlock Asia

Investment in South-East Asia’s grain supply chain will be one way for Western Australian growers to avoid losing market share amid growing demand for wheat in the region, according to the head of a major Indonesian importer.

Franciscus Welirang is chief executive of PT Bogasari Flour Mills, Indonesia’s biggest importer of Australian grain and part of the Indofood group, known for producing Indomie instant noodles.

Speaking at a recent Grain Industry Association of Western Australia forum, Mr Welirang suggested building a terminal in Indonesia could help lower handling costs, and would be strategically invaluable.

Local millers might co-invest or build operations near the terminal, he said.

“Bring your product as near as possible to the market, that is the message,” Mr Welirang told the forum.

Grain handling cooperative CBH Group, which is eighth on the BNiQ Search Engine list of Biggest Exporters, already has a presence in SE Asia through a share of processor Interflour.

That business owns an existing terminal in Vietnam.

Mr Welirang said WA (and Australian) grain earned a premium from foreign buyers because of its high quality and consistency, which can reduce milling costs.

Indonesia is the top destination for WA grain, consuming almost $1 billion of wheat in the 2015 financial year of the state’s total wheat exports of $3 billion, according to the Department of Agriculture and Food.

The state had $1 billion of barley exports and $1.2 billion of oilseeds and pulses.

WA farmers are among Australia’s most efficient and productive, but industry expects improvements will be needed to satisfy demand from Asia – either by lifting the number of hectares devoted to cropping, or improving productivity.

CBH Group general manager of marketing and trading, Jason Craig, said demand growth would be about 5 per cent annually.

With current productivity growth of 1.5 per cent, he said the industry would need investment in the supply chain and into research and development.

“Today you’re talking 21 million tonnes of wheat demand in South-East Asia, and by 2025 people are anticipating anywhere between 25mt and 38mt,” Mr Craig said.

“CBH (recently) announced $750 million of investment into the network, so we see those opportunities.

“It wasn’t that long ago an 8mt-10mt crop in WA was a big crop, now we talk 15mt-17mt; we probably need to go to 20mt or 25mt over the next eight to 10 years, so that needs significant investment.”

CBH also provides grower freight rebates, about $4.20 per tonne in 2016, to lower costs.

Commonwealth Bank of Australia director of agri strategy, Tobin Gorey, said Australia could not by itself become the food bowl of the region because of the scale of production required, with the entire national annual output of wheat feeding China for just three months.

However WA could help meet demand as a reliable and competitive farming location, although a greater focus on innovation and infrastructure was required to achieve this aim, Mr Gorey said.

Beefing up

Australia’s top cattle exporter, Wellard Group, had sales of $483 million in the 2016 financial year, according to its annual report, including exports from Far North Queensland and the Northern Territory.

That was down around $20 million on the previous corresponding period thanks to unusually wet conditions in Northern Australia.

Gina Rinehart recently revealed she would join with Chinese company Shanghai Cred in a $365 million bid for the S. Kidman & Co cattle empire, including the 9,500 square kilometre Ruby Plains station in the Kimberley.

Another mining magnate to take an interest in agriculture is Andrew Forrest, who last year purchased two cattle stations through the Minderoo Group – Brickhouse and Minilya – after acquiring Harvey Beef.

Alternate uses

The forum heard that increased demand for agricultural products would have an effect on property values, as productive land remained limited and land-use competition intensified.

However, the Commonwealth Bank’s Mr Gorey said it was unlikely significant competition would develop between land for grain growing and that for cattle, as they had different rainfall needs.

It was a different story for cropping and sheep, however, with increased use of land for grain in recent years having led to a reduction in the sheep flock – to about 14 million last year from 15.5 million in 2013, according to figures from the Department of Agriculture and Food.

“We’ve got multiple sources of demand for this land in a way there wasn’t before … now days there’s more options with pulses… also feed demand for grain as well,” Mr Gorey said.

“That has sort of permanently raised the price tension between the different choices.”