9 OCTOBER 2019
Phoebe Sleet, Research Analyst,
Global Food and Water Crises Research Programme
Background
Ongoing drought in eastern Australia has left the country’s wheat industry in a difficult situation. Last year, Australia’s grain crop fell by 20 per cent, with wheat production at its lowest level in a decade. As a result, the value of wheat exports fell to $4.1 billion, a 33 per cent decrease from the previous year. Australia’s wheat exports have faced further setbacks due to increasing international competition. Wheat exports from the Black Sea region and from Argentina have become increasingly popular in markets, such as Indonesia, that were once dominated by Australian wheat. The drought has caused a spike in Australian wheat prices and, as a result, Australia’s wheat has become less competitive in these markets. Meanwhile, improved farming practices in countries such as Russia and Ukraine, have increased production in those countries.
Comment
Indonesia is Australia’s most important export market for wheat. In a normal year, Australia exports wheat worth $1.2 billion to Indonesia, most of which comes from Western Australia. Australian wheat has traditionally accounted for 40-60 per cent of Indonesian wheat imports and there are a number of reasons for that situation. Australian wheat has high flour extraction rates, a bright colour that appeals to consumers, low moisture and good levels of protein and starch. It is particularly well-suited to making noodles, which is the most common use of flour in Indonesia.
Indonesia is now the largest importer of wheat in the world and consumption has grown at an average annual rate of five per cent over the last decade. As incomes have risen and urbanisation has increased, there have been dietary shifts that favour the use of flour. Predictions indicate that this trend will continue. Noodles dominate Indonesian wheat consumption, but bread and biscuits are increasing as a share of the market and flour-based products are increasingly replacing rice as a breakfast option. Wheat is also a popular choice for livestock feed due to restrictions on the importation of corn, although this market is facing reduced demand, as importers are now subject to quotas. Additionally, Indonesia does not produce its own wheat and farmers tend to focus on crops that produce the biggest yields, especially rice, making the country a reliable wheat importer.
Although Indonesia’s growing consumption of wheat presents opportunities for Australian producers, there are growing challenges that have only been exacerbated by the effects of the drought. Russia, Ukraine and Kazakhstan have significantly increased grain production and now account for one-third of the global wheat trade. The quality of Black Sea wheat has also improved, making it more attractive in Indonesia, where good quality grain is preferred for noodle making. Argentina has also increased exports to Indonesia and the US and Canada have made significant efforts to market their wheat globally. Wheat from the latter two countries tends to be higher in protein than Australian wheat, making it more attractive for baking.
Indonesia is concerned about its reliance on Australian wheat, which is only one of the significant challenges for Australian wheat sales in Indonesia, but some positives remain. Australian wheat is still perceived as having greater value than cheaper alternatives, although millers are becoming increasingly familiar with Black Sea varieties. With the rise of alternative wheat sources, however, Indonesian concerns about an overreliance on Australian wheat should be reduced.
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9 OCTOBER 2019
Phoebe Sleet, Research Analyst,
Global Food and Water Crises Research Programme
Background
Ongoing drought in eastern Australia has left the country’s wheat industry in a difficult situation. Last year, Australia’s grain crop fell by 20 per cent, with wheat production at its lowest level in a decade. As a result, the value of wheat exports fell to $4.1 billion, a 33 per cent decrease from the previous year. Australia’s wheat exports have faced further setbacks due to increasing international competition. Wheat exports from the Black Sea region and from Argentina have become increasingly popular in markets, such as Indonesia, that were once dominated by Australian wheat. The drought has caused a spike in Australian wheat prices and, as a result, Australia’s wheat has become less competitive in these markets. Meanwhile, improved farming practices in countries such as Russia and Ukraine, have increased production in those countries.
Comment
Indonesia is Australia’s most important export market for wheat. In a normal year, Australia exports wheat worth $1.2 billion to Indonesia, most of which comes from Western Australia. Australian wheat has traditionally accounted for 40-60 per cent of Indonesian wheat imports and there are a number of reasons for that situation. Australian wheat has high flour extraction rates, a bright colour that appeals to consumers, low moisture and good levels of protein and starch. It is particularly well-suited to making noodles, which is the most common use of flour in Indonesia.
Indonesia is now the largest importer of wheat in the world and consumption has grown at an average annual rate of five per cent over the last decade. As incomes have risen and urbanisation has increased, there have been dietary shifts that favour the use of flour. Predictions indicate that this trend will continue. Noodles dominate Indonesian wheat consumption, but bread and biscuits are increasing as a share of the market and flour-based products are increasingly replacing rice as a breakfast option. Wheat is also a popular choice for livestock feed due to restrictions on the importation of corn, although this market is facing reduced demand, as importers are now subject to quotas. Additionally, Indonesia does not produce its own wheat and farmers tend to focus on crops that produce the biggest yields, especially rice, making the country a reliable wheat importer.
Although Indonesia’s growing consumption of wheat presents opportunities for Australian producers, there are growing challenges that have only been exacerbated by the effects of the drought. Russia, Ukraine and Kazakhstan have significantly increased grain production and now account for one-third of the global wheat trade. The quality of Black Sea wheat has also improved, making it more attractive in Indonesia, where good quality grain is preferred for noodle making. Argentina has also increased exports to Indonesia and the US and Canada have made significant efforts to market their wheat globally. Wheat from the latter two countries tends to be higher in protein than Australian wheat, making it more attractive for baking.
Indonesia is concerned about its reliance on Australian wheat, which is only one of the significant challenges for Australian wheat sales in Indonesia, but some positives remain. Australian wheat is still perceived as having greater value than cheaper alternatives, although millers are becoming increasingly familiar with Black Sea varieties. With the rise of alternative wheat sources, however, Indonesian concerns about an overreliance on Australian wheat should be reduced.
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