GRDC Research, Development and Extension Plan 2018-23

Industry profile

Australian grain production is characterised by the predominance of winter cereals, produced across a wide area in a number of distinct agroecological zones with differing climate, soil characteristics and farming systems. Recently, strong export market demand together with access to improved varieties and farming systems has driven the expansion of pulse production, particularly chickpeas in northern Australia and lentils in southern Australia.

Gross value of production

Agriculture has a minor but important impact on Australian gross domestic product (GDP). Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) statistics show that agriculture contributed 2.2% of total GDP in 2016–17. Within the agriculture sector, livestock (for slaughter) and grains production contribute the most in terms of GVP (Figure 3). In 2016–17, the GVP of grains was $18.1 billion and constituted 28% of the total gross value of agricultural production.

Figure 3: Gross value of production of major agricultural commodities

Source: Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), Agricultural Commodities, December 2017 Value of key commodities

Wheat still dominates Australian grains production, followed by barley, canola, sorghum and pulses (figures 4 and 5). More recently, greater demand and improved prices, as well as price stability, have driven greater production and gross returns for pulses (mostly chickpeas and lentils). This change in focus of production brings many opportunities for diversification of farm businesses but is also accompanied by the challenges of adjusting farming systems.

Figure 4: Gross value of production of major grain crops

Source: ABARES, Agricultural Commodities, December 2017

Figure 5: Gross volume of production of major grain crops

Source: ABARES, Agricultural Commodities, December 2017

Location

Australian grains production occurs across three regions—comprising 13 different agroecological zones—with distinct climate, cropping and market characteristics, as described in Figure 6.

Figure 6: Grain-growing regions

Northern Region Southern Region Western Region
Soil fertility is generally high, although there is increasing evidence that this has been run down over time. The region has relatively high seasonal rainfall and production variability compared with the other two regions. Yield depends, to a significant degree, on conservation of soil moisture from summer rainfall. The region has the highest diversity of crop production, including maize, sorghum and tropical pulses as well as wheat, barley, winter-growing pulses and oilseeds. It is the largest source of Australia’s premium hard high-protein wheat. Demand for feed grains from the region’s livestock industries is a key driver of production. The region has a diverse suite of soils with generally low fertility and many subsoil constraints, such as salinity, sodicity and toxic levels of some elements. However, some areas have very productive soils. Yield potential depends on seasonal rainfall, especially in autumn and spring, and is less dependent on stored soil moisture than in the Northern Region. Crop production systems are varied and include many mixed farming enterprises with significant livestock and cropping activities. Soil fertility is generally low to very low, and yield depends on winter and spring rainfall. In many areas, low yields are compensated for by the large scale and degree of mechanisation of cropping enterprises. Long-term variability in seasonal rainfall and production is lower in the coastal areas than in the Northern and Southern regions. Wheat, barley, canola and lupins are the dominant crops. Mixed farming systems with livestock are generally less important. The region has a relatively small domestic market and exports more than 85 percent of its grain production.
Key characteristics:
  • high proportion of vertosol clay soils
  • tropical, sub-tropical and temperate environments
  • summer dominant cropping in Queensland, winter dominant cropping in New South Wales
  • high proportion of mixed farming, including sugarcane, cotton and pastures
  • large and diverse domestic and export markets.
Key characteristics:
  • relatively infertile soils
  • temperate climate
  • yield depends on reliable spring rainfall
  • smaller enterprise size and diverse production patterns and opportunities
  • innovative phase farming with perennials
  • shift toward intensive livestock production and demand for feed grains
  • large and diverse domestic market.
Key characteristics:
  • low soil fertility
  • Mediterranean climate
  • dependence on winter rainfall as spring rainfall is unreliable
  • large enterprise size
  • leading grain storage practices
  • narrow range of crop options
  • dominant export market, and transport advantage to South-East Asia.

Major markets

Although Australia is a relatively small producer of grains in a global context, Australia exports a significant volume of grains each year, as shown in tables 1 and 2. Demand from new and existing markets is increasing.

Table 1: Top grain export commodities by volume (tonnes)
  2013 2014 2015 2016 2017 5-year average
Wheat 17,761,439 18,015,586 16,936,210 15,939,870 20,205,690 17,771,759
Canola 3,070,253 2,447,050 1,965,788 3,599,318 172,024 2,250,887
Barley 3,759,375 3,614,328 3,212,395 4,624,085 5,826,475 4,207,332
Sorghum 1,216,126 367,123 1,659,034 883,718 325,905 890,381
Chickpeas 541,897 595,305 1,253,046 1,236,929 1,734,273 1,072,290
Lentils 315,339 286,460 229,051 274,645 795,977 380,294
Lupins 162,820 338,276 209,884 276,988 181,230 233,840

Source: Australian Bureau of Statistics

Table 2: Top grain export commodities by value ($m)
  2013 2014 2015 2016 2017 5-year average
Wheat 6,285,527,448 6,129,142,999 6,062,395,808 5,092,176,308 5,790,802,208 5,872,008,954
Canola 2,332,760,196 1,465,203,944 1,523,239,764 1,281,285,290 1,548,789,515 1,630,255,742
Barley 1,065,508,861 991,363,541 1,019,455,241 1,157,579,783 1,325,065,584 1,111,794,602
Sorghum 394,867,525 124,914,437 587,255,194 234,811,484 90,921,190 286,553,966
Chickpeas 303,466,434 324,651,838 1,002,431,862 1,209,483,296 1,683,235,256 904,653,737
Lentils 205,686,723 216,847,953 244,338,351 289,624,487 620,047,903 315,309,083
Lupins 76,112,172 137,923,170 99,249,717 106,646,823 65,224,570 97,031,290

Wheat

ABARES statistics show that, from 2013–14 to 2017–18, an average of 12.3 million hectares of wheat was planted per annum, resulting in average annual production of 25.3 million tonnes with a value of $7.1 billion. Exports over the same period averaged 17.9 million tonnes and $5.6 billion. South-East Asia and the Middle East are the major markets for Australian wheat (Figure 7). In international markets, the main uses of Australian wheat are:

  • Asian noodles, including udon, ramen and instant noodles
  • Asian steamed products
  • bread products (Asian, Western, Middle Eastern and Indian styles)
  • pasta
  • sweet cakes, pastries and confectionary.

Figure 7: Five year average value and volume of Australian wheat exports

Source: Australian Bureau of Statistics

Barley and other course grains

Barley
From 2013–14 to 2017–18, an average of 3.9 million hectares of barley was planted per annum, resulting in average annual production of 9.6 million tonnes with a gross value of $2.3 billion. Exports over the same period averaged 6.7 million tonnes with a value of $2 billion. Figure 8 highlights the strong demand for barley from North Asia, led by China and Japan. Other major markets for barley include the Middle East, led by Saudi Arabia. In addition to the use of barley in stock feed, Australian barley is used in many malt products, including:

  • beer
  • distilled spirits
  • malt extract
  • confectionary
  • flavoured drinks
  • breakfast cereals.

Sorghum
From 2013–14 to 2017–18, an average of 0.66 million hectares of sorghum was planted per annum, resulting in average annual production of 1.66 million tonnes with a value of $445 million. Exports over the same period averaged 0.9 million tonnes and $300 million. Sorghum’s main use has been as a stock feed. Recent growth in demand, however, has been driven by sorghum’s use in producing biofuel and the Chinese spirit baijiu.

Figure 8: Five year average value and volume of Australian barley exports

Source: Australian Bureau of Statistics

Note: values do not include malt barley

Canola

From 2013–14 to 2017–18, an average of 2.5 million hectares of canola was planted per annum, resulting in annual average production of 3.4 million tonnes with a value of $1.68 billion. Exports over the same period averaged 2.6 million tonnes and $1.5 billion. Europe has emerged as a major importer of Australian canola, with demand driven particularly by biofuel production (Figure 9). The main uses of Australian canola are:

  • food-grade oil
  • biofuel
  • stock feed, including protein meals.

Figure 9: Five year average value and volume of Australian canola exports

Source: Australian Bureau of Statistics

Pulses

From 2013–14 to 2017–18, an average 1.9 million hectares of pulse crops were planted per annum, resulting in annual average production of 2.8 million tonnes with a value of $1.77 billion. Key pulses grown in Australia are lupins (30%–40% of total pulse production), chickpeas (20%–35%), lentils (10%–15%), field peas (10%–15%), and faba beans and broad beans (10%–15%). India is the major market for Australia’s key pulse exports, lupins, chickpeas and lentils (Figure 10). Australian pulses are varied and have specific uses, but are mainly used for:

  • foods for human consumption
  • stock feed.

Figure 10: Five year average value and volume of Australian pulses exports

Source: Australian Bureau of Statistics

Strong export market demand together with access to improved varieties and farming systems has driven the expansion of pulse production.

Global trends - supply and demand

The GRDC has undertaken several global grain supply and demand studies to inform strategy and investment decisions.4 Those studies provided valuable context for the development of this RD&E plan.5

Cereals

For almost a decade, extending from 2005 to 2015, there was a strong relationship between the prices of cereals (predominately wheat) and the demand for ethanol for fuel. While the demand for ethanol was largely met by maize production, the diversion of maize for ethanol production had the effect of increasing demand for wheat to fill the production gap. More recently, the demand for maize for ethanol has slowed. In response, wheat demand has contracted, and prices have declined. Overall real wheat prices have largely been declining since 1960 and the recovery driven by ethanol during the mid-2000s appears to have ended (Figure 11).

Figure 11: Long-term trend in real wheat prices

Source: LMC Ltd, 2017

The other main driver of grain demand and price is food consumption. The recent trend of higher incomes driving greater consumer demand for meat, particularly in developing countries, remains strong. The impact of this is unsurprisingly an increasing demand for feed grains. However, while the initial growth in demand for meat was primarily for red meat, recent demand has focused more on chicken meat, pork and fish. Chickens, pigs and fish have very different nutrient responses to those of red meat animals, including different feed conversion ratios and, most notably, a requirement for a higher ratio of protein to carbohydrate. The implications of this shift include reduced demand for high-carbohydrate grains such as wheat and greater demand for high-protein grains (or meals) such as pulses and oilseeds.

This may seem to portray a gloomy outlook for wheat, Australia’s most important crop. There are many positive trends, however, regarding wheat demand and prices. Firstly, in regions with rapid income growth consumers are switching from traditional sources of carbohydrate, such as rice, to more differentiated products, such as noodles and bread, contributing to an ongoing increase in demand for wheat in those regions.

Another notable trend is the continuing growth in demand for wheat from India and South-East Asia, where income growth is driving a shift away from rice to wheat products. India and South-East Asia are markets that Australia has historically supplied, in which Australian grain has a good reputation for cleanliness and functionality and Australia enjoys a freight advantage. Maintaining and growing these markets in the face of increasing competition from emerging exporters will require ongoing efforts to ensure that specific customer demands are met.

In addition, it is anticipated that growth in beer consumption in several developing countries will continue to drive an increase in demand for malt barley. The increased demand for malt barley is, however, expected to be relatively small and to be comfortably met by current growth in yield from existing areas of production.

Another important global trend is the increasing importance, in many demographics, of using diet to prevent health issues. Oats, which are high in beta glucans, are an important health ingredient in Western diets and are increasingly being favoured in many Eastern diets. There is potential for Australia to become an important supplier of premium quality and/or further differentiated oats in global markets.

Oilseeds

Global demand for oilseeds is expected to continue to increase. Soybeans will continue to be the preferred oilseed, supporting vegetable oil consumption as well as providing high-protein animal feed.

However, the growing global demand for protein meal and vegetable oil will also support increasing demand for canola. The potential for expansion of canola production in North America remains relatively low and presents an opportunity for Australia to capture a greater share of any growth in canola demand. Ongoing demand for canola, particularly in Europe, will require greater demonstration of production sustainability and provenance as the continent moves away from palm oil. These requirements are likely to feature heavily in customer demand in the future.

Pulses

The increasing trend in demand for cool season pulses (chickpeas, lentils and field peas) from the Indian subcontinent appears unlikely to diminish in the near term, although short-term shocks, such as the recent application of tariffs by the Indian Government, are likely to remain a feature of this market. Vegetarians comprise a large proportion of the population in India and much of the subcontinent. While in many other countries the greater demand for protein will be met by meat, in nations with a high proportion of vegetarians the increasing demand for protein will be largely met by pulses.

Another trend likely to impact on the demand for pulses is an increase in health concerns associated with red meat consumption, particularly in developed countries. A counter to this trend is the fact that the preparation of most pulse dishes is relatively time-consuming, which could limit the desirability of pulses in some countries. Further development of easy-to-prepare pulse dishes and snack foods will be a significant factor in determining future demand for pulses. Further demand for niche products arising from pulse processing (e.g. protein fractionation) is also likely to result in increasing demand for pulses.

Global trends — other drivers of change

An assessment of the potential future operating environment reveals widespread agreement on at least some significant drivers of change. Potential future environmental impacts can be classified as political, economic, social and technological, although there is considerable overlap between these classes.

Political

  • Global instability will continue with a likely power shift from West to East.
  • Grain importers will continue to use trade barriers to protect domestic industries.
  • Public sector investment in RD&E is likely to decline.
  • Regulation of new crop protection chemistries and gene technologies is likely to become increasingly proscriptive, particularly in Europe, with flow-on effects on market access constraints and higher costs.
  • Water scarcity is likely to lead to further regulation and monitoring. Declining access to clean water for irrigation in many countries, including China and India, is likely to impact on the global crop supply and demand.
  • The future for managing health will focus more on prevention than cure, and diet will continue to be an important part of prevention measures.

Economic

  • Continuing economic development in Asia will drive further demand for higher value grains as well as feed grains.
  • Food standards and safety will continue to grow in importance, with concomitant requirements for traceability of production and identity preservation.
  • Closed-loop marketing will be adopted more often to meet growing consumer demand for traceability and food safety.
  • Farm consolidation will continue to be a driver of ongoing economies of scale and profitability.
  • Renewables will drive disruption in energy markets, with implications for rural energy supply.

Social

  • Declining rural populations will impact on social cohesion and are likely to drive higher labour costs.
  • Growing environmental demands of predominately urban voters will drive the push for ‘a licence to farm’. Carbon dioxide emissions from farming and agriculture’s carbon footprint will become increasingly important.
  • Social debate will be heavily influenced by pseudoscience and ‘alternative facts’ that support preconceived beliefs.
  • Ethical preferences (e.g. local, organic, non-GM or non-meat) will have a greater impact on global food consumption trends.

Technological

  • Large data sets will require ongoing management and curation to support ongoing analysis.
  • Data analysis will be driven by improvements in artificial intelligence, modelling and forecasting.
  • Greater use of data in decision-making will drive required improvements in connectivity and a change in grower education.
  • Labour shortages will drive automation of farm practices.
  • Demonstrated intellectual property management will drive the exchange of knowledge.
  • Australian scientific expertise will continue to leak overseas as international institutions provide greater stability and pay.
  • Existing supply chains and incumbent business models will be disrupted by digital innovations, including applications of artificial intelligence, machine learning, blockchain and ‘the internet of things’.

Australian grains industry SWOT analysis

The following Australian grains industry SWOT analysis (Figure 12) has been developed considering the likely global supply and demand trends presented above, other drivers of change, and current knowledge of Australian grain production and transport logistics. The analysis is an important contribution to the GRDC’s investment priorities and portfolio balance.

Figure 12: Grains industry SWOT analysis

Please note: GRDC assessed the Australian grains industry landscape and sought feedback from stakeholders to inform the development of the 2018-23 RD&E Plan. Figures and assumptions used in the plan were the best available data in 2018.

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