Ground Cover West : Ground Cover 049 April-May 2004 - West
COVER STORY 6 APRIL 2004 The Australian grains industry is at one of its most signifcant crossroads since William Farrer’s ‘Federation’ wheat pushed production into the vast areas of low rainfall country and launched Australia as a grain export nation more than a century ago. In that time the industry’s bulk commodity orientation has suited both producers and the trade, but the world’s grain trade is now changing. From Australia, the demand chain has been like a big pipeline, aspiring to deliver high-quality but otherwise generic products to millers and brewers around the world. Today, however, that pipeline has become more like a fbre optic cable. The demand is for numerous streams of varieties and grades for a widening array of end-uses. The consequences of globalisation, biotechnology, macro and micro environmental pressures, and massive shifts in circumstances for large population groups such as central and south-east Asia is redefning grain markets. The coming 20 years will not only herald technological step-changes in production and new grain-based products, but will also see demand for these new specialty grains far outstrip Australia’s current production capability. This projected reality, and a recognition that the industry may have to overhaul many of its long- established structures and practices is behind the Australian Grains Industry Strategy 2005-2025. GRDC chairman Terry Enright says the Strategy is more comprehensive and wide-ranging than any previous attempt to chart the industry’s future: “It is putting to us all the key issues that have to be faced, in a world context”. “Importantly, the process has been interactive with the whole industry and from a grower point of view there has been comprehensive input,” he says. “The Strategy was initiated by the GCA, but the Grain Growers Association has also been involved, running grower workshops.” The Strategy has emerged from a recognition that to remain competitive in a fast-changing and increasingly demanding market, every sector – research, production, handling, trading, processing – needs to be reassessed and pulled into a more cohesive Australian grains value chain. And all this has to be built on a robust production base that is able to develop management and technological answers to critical environmental issues. Non-food uses, for example, are expected to signifcantly increase pressure for far more agricultural production than is considered environmentally sustainable under existing production regimes. The changing dynamics of grain demand occupies much of the Strategy, refecting the realisation that market pull is rapidly overpowering production push. Because of this, the Strategy’s authors have identifed an increasing need, in all production stages, for access to market intelligence. This is regarded as vital not only for transparent price signals, but for improving the lead times for foundation science and for ensuring demand- responsive behaviour among growers. Some of the key changes affecting demand are the emergence of biotechnologies that will broaden end uses for grains, with particular emphasis on pharmaceuticals and bio-fuels. In fact the demand for traditional uses – food – is not expected to increase that much at all because of an expected slow-down in population growth. By contrast, the international community has set a target of 19 billion litres of renewable fuels by 2012. This will either cut into existing grain production at the expense of current end- uses, or require increased production. Signifcantly, many of the large multinational companies already planning to extend the use of grains to products such as lubricants, starch for pharmaceuticals, and other such industrial purposes, are also planning to base the manufacturer close to the source of the raw material – in Australia. Given they will want to source as much grain as possible from local supplies, this is expected to put even more pressure on Australian production. It will shift a signifcant proportion of the industry away from the production of a generic commodity to a producer of value-added products. The links between manufacturer and producer will also become far more direct. Because this will impact on the physical grain being exported, it has obvious ramifcations for organisations like AWB and ABB. One example of the effect of multinationals looking to pre-process grain here lies in the outlook for malting barley. Forecasts for Australian consumption are “stagnant to declining”. However the brewer Lion Nathan has revealed plans to centralise its global buying in Australia, and export its malt. While this is expected to add about one million tonnes to barley demand in the short term, similar expansion plans by the giant brewers Kirin and San Miguel are expected to add a further fve million tonnes to demand by 2020. Overriding all these prospects is the issue of traceability and segregation. Every single food, beverage and pharmaceutical manufacturer said it would be a mandatory requirement for Australia to develop reliable Quality Assurance and Identity Preservation systems. Because of pressure from insurers and consumers, one manufacturer said it was already buying a lower-quality grain from Canada and Europe purely because of the QA, traceability and segregation systems in place there. These were the qualities for which it was now paying premiums. The increasing automation of manufacturing processes also requires a far higher level of quality control, and the Australian practice of ‘averaging’ was no longer tolerable. For the foreseeable future – the next 10 to 15 years – some contracts may require a demonstrable absence of GM grains, further highlighting the need for reliable segregation. Other areas of challenge and opportunity include the anticipated growth in meat and poultry exports, which by 2020 are expected to require a doubling of feed grain production. In fact by 2020, feed grains could represent between one-third and one- half of Australia’s total production. Another trend, also close to home for Australian grain producers, is the developing Asian market for grain- based diets and for livestock feed. While these scenarios raise the prospect of a vibrant future, the Strategy pulls no punches in highlighting the hurdles that producers and others in the industry will need to jump if these opportunities are to be realised. The workshops, surveys, and interviews that were conducted have thrown into stark relief the issues of organisational fragmentation, obstructive agripolitics, inadequate or non-existent lines of communication in the value chain, neglected transport infrastructures, a weakening social framework in rural areas, and ongoing landscape and environmental pressures. These issues have already led to some early starting points for industry debate, such as how to: n move to a true value chain orientation with much more information sharing; n improve the delivery of market signals to growers; n change the industry focus from costs and prices to value and quality; from commodities to differentiated products; to swing the marketing pendulum from supply push to demand pull; n restructure from a large set of independent bodies, to a collection of interdependent bodies; and n change the philosophy from self- interest to whole-of-value chain optimisation. The Australian Grains Industry Strategy unveiled at Grains Week is the culmination of 22 grower workshops, 135 interviews, six focus group discussions, a Futures Forum by industry leaders, and interviews with grains industry leaders in the USA, Europe and Asia. The strategy was commissioned by the Grains Council of Australia, funded by the GRDC, and undertaken by Pocknee & Associates Consulting. In their fnal report, the consultants report a widespread support for the general direction that has been identifed as a basis for the industry’s continued growth, but they have also highlighted frustration among growers and others with the high level of agripolitics that obstructs open dialogue. The report consequently emphasises the need for decision-making from here on to embrace the entire value chain, from growers to end users. It states the need for a diversity of opinion to be aired – encapsulated in the Strategy’s underlying theme, ‘single vision, many voices’. It urges a structural change from the existing large set of independent bodies, to a more cohesive group of interdependent bodies – and a philosophical change from self- interest to more awareness of others in the value chain. It says the 130 organisations that make their living off graingrowers will need to be consolidated if the industry is to be organised well enough to be a part of the growth that has been anticipated for the volume and variety of grain-based products used around the world. One of the Strategy’s recurring themes is the need for the Australian industry to invest whatever it takes to establish a leadership position internationally, in production and new grains applications. The Strategy is intended to be the basis for an open dialogue on the development of the Australian grains industry between 2005 and 2025. Identifying consensus between growers and other industry participants on the need for a ‘single vision’ for the next two decades, the Strategy envisages a series of staged developments that will deliver an internationally competitive Australian grains industry. Those stages are: n build a platform for leadership; n consolidate grower representation and other industry associations; n develop industry-wide policies and initiatives for sustainable prosperity; n identify emerging sources of demand; n establish international strategic alliances for supply and R&D relationships; n integrate the demand, supply and other value chains; n build a communications infrastructure to confrm market expectations (technological and regional); n offer opportunities for investment and grower equity in emerging markets; and n extend grower investment in off-shore production and equity in international supply chain management. The earlier of these paths are felt to be needed to realise the opportunities that emerge in the future. The Strategy’s authors believe that the frst three or four of these paths must be satisfed before the balance of identifed opportunities can be developed and realised. They point out that time, also, is already a factor. The structure of the global and local grains industries is already moving from traditional government bases to those of the market, from a market economy to a global, corporate economy. THE AUSTRALIAN GRAINS INDUSTRY STRATEGY 2005-2025 Meeting the challenge BRAD COLLIS REPORTS ON A BLUEPRINT FOR CHANGE The future in growers’ hands: The high rainfall zone ‘winter wheats’ bred by Dr Jim Davidson exemplify the industry’s new, widening, horizons.
Ground Cover 048 February-March 2004 - West
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