The Changing Trade Landscape in Asian Grain Markets: An Australian Perspective

Asia is a globally important source of grain supply and demand, and its demand for grain is continuing to grow. Ensuring that Asian food producers have access to sufficient quantities and qualities of local and imported grains at affordable prices is a major challenge for many Asian governments. To underpin food security, many Asian countries engage in grain trade. The principal grain grown in Australia is wheat, and the majority of Australian wheat is exported to Asia. Two-row spring-type barley is another main grain produced in Australia and is also sold principally in Asia. China is the single most important export market for Australian malting barley. Unfortunately, in May 2020 China announced the introduction of an effective 80% tariff on all Australian barley imported into China, which has halted the barley trade between Australia and China. Australian malting barley is flowing to other Asian markets but will need to enter large feed barley markets such as Saudi Arabia to remain sustainable. Because farmers will receive lower prices for feed barley, the future of barley production in Australia is uncertain, as barley farmers are likely to switch to other more profitable crops, such as wheat and canola. Asia is a globally important source of grain supply and demand, and its demand for grain continues to grow for two key reasons. First, the region’s population continues to increase. Second, Asia’s per capita wealth continues to rise, causing an increase in direct and indirect consumption of grains. Few Asian countries export much grain (Fig. 1). The exceptions are Thailand and Vietnam, which are major exporters of rice. Most Asian countries need to satisfy their domestic demand for grain via local production and some combination of a drawdown of local stocks and importation of grain (8). China is unique in producing huge volumes of grains (corn, rice, wheat, and soybeans), while also maintaining large stocks of several grains: wheat and corn and, to a lesser extent, soybeans. China also imports large volumes of feed grains, principally soybeans and some coarse grains (corn and barley). Most other Asian countries produce relatively small volumes of grain, apart from rice and corn, maintain modest reserves of grain, and principally rely on grain imports, especially feed grains. As Asians become wealthier, their indirect consumption of grains is increasing as their diets contain more meat and dairy products (1,7), the production of which often depends on local and imported feed grains. In addition, direct consumption of grains is increasing as millions are lifted out of poverty and inadequate nutrition, while others are shifting away from almost exclusively rice-centric diets to diets that include wheatbased noodles, breads, and biscuits (cookies) and cakes (2,4) or who drink malt-based beers and, therefore, indirectly consume barley (5). Ensuring that Asian food producers have access to sufficient quantities and qualities of local and imported grains at affordable prices is a major challenge for many Asian governments. Food security and affordability are principal concerns for many governments, as food purchases remain a major proportion of household expenditures. For example, in Laos and Vietnam close to half of all household expenditures are allocated to the purchase of food (6). To underpin food security, many Asian countries engage in grain trade. Hence, grain trade policies are important economic and political issues. Yet, these trade policies are often politically sensitive issues as they need to be formed against the backdrop of rural populations in Asia, which are an important proportion of each country’s population, and Asian grain farmers who are often small-scale operators in need of government support. An additional overlay for China is the use of its market size to further its geopolitical role. Australia’s Grain Trade Landscape in Asia The principal grain grown in Australia is wheat. Australia produces, on average, about 25 Mt of wheat each year, accounting for 3.5% of annual global production. The Australian wheat industry is export oriented, shipping about 65–75% of the nation’s total production to more than 50 countries. However, the majority of Australian wheat is exported to Asia, which accounts for 70–80% of Australia’s exports. The main Asian export markets for Australian wheat are Indonesia, the Philippines, Vietnam, China, South Korea, and Japan (Table I). Over much of the last decade Indonesia was a dominant export market for Australian wheat (3). For example, in 2017, 5.2 Mt of wheat was exported from Australia to Indonesia. However, in 2018, as drought gripped eastern Australia, only 2.2 Mt was exported to Indonesia, and as the drought continued into 2019, even less wheat was exported to Indonesia. Australia’s share of the Indonesian wheat market fell from 70% to less than 10%. As Australian wheat became scarcer and more expensive, Indonesian flour millers turned to other cheaper sources, such as Ukraine and Argentina. Australian wheat that ordinarily would have shipped to Indonesia instead fueled Australia’s domestic food and feed wheat markets, such that Australia’s market share in Indonesia collapsed. From July 2019 to January 2020, Australia’s market share of wheat imports in Indonesia was only 8%. Indonesian flour millers and noodle manufacturers learned how to produce instant noodles with higher proportions of wheat from cheaper sources, thereby reducing their dependence on Australian wheat. Russia and Ukraine are now major exporters to Indonesia, which is the world’s second largest importer of wheat. The Changing Trade Landscape in Asian Grain Markets: An Australian Perspective Ross Kingwell1 University of Western Australia and Australian Export Grains Innovation Centre, Perth, WA, Australia 1 E-mail: ross.kingwell@aegic.org.au https://doi.org/10.1094/CFW-65-5-0051 © 2020 Cereals & Grains Association CEREAL FOODS WORLD, SEPTEMBER-OCTOBER 2020, VOL. 65, NO. 5 / DOI: https://doi.org/10.1094/CFW-65-5-0051 CEREAL FOODS WORLD, SEPTEMBER-OCTOBER 2020, VOL. 65, NO. 5 / DOI: https://doi.org/10.1094/CFW-65-5-0051 The other main grain produced in Australia that also is principally sold in Asia is two-row spring-type barley. Australia’s annual average production of barley is about 7.5 Mt. Australia produces around 2.5 Mt of malting barley and 4.5 Mt of feed barley. Globally, Australia is a major exporter of barley, representing more than 40% of the world’s malting barley trade and 20% of the feed barley trade. China is the single most important export market for Australian barley. From 2014 to 2017 China imported an average of 4.3 Mt per annum from Australia, or around 70% of all Australian barley exports. A minor grain exported to Asia from Australia is oats. About 20% of Australia’s annual production (~1.5 Mt) of oats is exported to international markets, principally China and Japan. In Asia there is increasing consumer interest in the beneficial health properties of oats and its food products, such as oat noodles, oat milk, and oat rice. Australia’s Asian Trade Agreements The following are Australia’s free trade agreements with Asian countries (listed with the entry-into-force date): • Singapore-Australia (SAFTA) – July 28, 2003 • Thailand-Australia (TAFTA) – January 1, 2005 • ASEAN (Association of Southeast Asian Nations)Australia-New Zealand (AANZFTA) – January 1, 2010 for eight countries: Australia, New Zealand, Brunei, Myanmar (Burma), Malaysia, the Philippines, Singapore, and Vietnam. For Thailand: March 12, 2010. For Laos: January 1, 2011. For Cambodia: January 4, 2011. For Indonesia: January 10, 2012 • Malaysia-Australia (MAFTA) – January 1, 2013 • Korea-Australia (KAFTA) – December 12, 2014 • Japan-Australia (JAEPA) – January 15, 2015 • China-Australia (ChAFTA) – December 20, 2015 • Comprehensive and Progressive Agreement for TransPacific Partnership (CPTPP) – December 30, 2018 • Australia-Hong Kong (A-HKFTA) – January 17, 2020 • Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) – February 10, 2020 The most recently ratified agreement, IA-CEPA, has several potential benefits for Australia’s grains industry. In 2018–2019, the total two-way trade in goods and services between Australia and Indonesia was worth A$17.8 billion, making Indonesia Fig. 1. Export and import of principal grains by Asian countries (average 2017/2018 to 2019/2020). Source: USDA data (8). Note, rice data for Southeast (SE) Asia only includes Indonesia, the Philippines, Vietnam, Thailand, and Myanmar (Burma).