FUNDAMENTAL changes in global markets are pitching Western Australia's grains industry against predicted continued growth in Ukraine and southern Russia Black Sea production and emerging wheat producers in eastern Russia and Argentina.
As well, the future growth export battle ground has switched from traditional milling and malting wheat and barley, with price premiums for quality, to the ultra-competitive and price sensitive feed wheat and barley markets of Asia.
That was the grains markets snapshot that CBH Group's general manager marketing and trading Jason Craig put to an Agribusiness Australia networking breakfast hosted by accountants BDO Perth on Friday.
"The rise of population and wealth in Asia is changing the demand fundamentals (for grains)," Mr Craig said.
"The grain market in Asia is not necessarily being driven by the traditional food industry as we know it, but by the meat industry in a lot of these areas,"
"What are we seeing with global urbanisation, is the urban population continuing to grow in areas close to us - our major markets.
"It's not just about China, but also other very large countries such as Indonesia.
"We are not seeing them (urban populations) consume more grain directly, we are seeing them consume more meat.
"That's quite important because traditionally we have grown grain to go into the food industry, for example into the flour milling industry.
"That is where we thought the growth was, in milling wheat and malting barley, but actually the bulk of growth is in the feed market.
"We have to compete very aggressively in this market because feed wheat can be substituted with many other things, particularly corn and feed barley.
"So there is a fundamental change."
Mr Craig said the fact the main growth market for WA wheat was as bulk stockfeed had important implications that the Australian grains industry had to recognise, but it was particularly important in WA where about 90 per cent of the wheat grown went to export.
Maintaining investment across the entire supply chain to lower costs was imperative if WA, in particular, and Australia was to continue to be competitive against Russia, Ukraine and Argentina, which had increased expenditure on their grains infrastructure and had substantially lower "paddock costs" in their supply chains than WA.
"We calculate about $5.5 billion, some of it private, some of it government, has been invested (in the Black Sea grains area) on infrastructure," Mr Craig said.
"CBH has committed $750m in WA but that is not enough.
"We need to optimise our network to ensure that this is the most competitive it can be.
"We cannot be moving 2500 tonnes on a grain train at 46 kilometres and hour when our friends in Russia are doing a 10,000t train at 80km/h.
"The economics of that just do not work," he said.
Mr Craig said additional grains export competitors such as the United States and Canada had not improved supply chain efficiency - both have substantially higher supply chain and paddock costs per tonne than WA - and now were considered "uncompetitive" on global markets.
He pointed out that with US wheat plantings the lowest in 100 years last year, it was "reasonable" to question whether the Chicago Board Of Trade price remained relevant as the standard for a world wheat price.
"We've almost forgotten about the US (as a wheat market competitor)," Mr Craig said.
"Our competition is not necessarily what is happening on the east coast (of Australia), our competition is the Black Sea (Russia and Ukraine) and obviously Argentina."
Mr Craig described Argentina as the "interesting" new competitor and eastern Russia as a potential emerging threat to some of Australia's Asian markets.
"Far-east Russia is their new emerging growing area and it's very close to our customers in China, Japan and Korea - it's on their doorstep.
"Black Sea production is also likely to keep increasing - they'll have drought, a bad year here and there but, in the longer term, their production will keep going up.
"We face a lot of competition.
"In the late 1980s and '90s Russia used to be the biggest wheat importer in the world.
"They've switched that around and their production continues to improve - we're talking an 80-85mt crop this year and they're probably looking at 35-40mt of export this year.
Mr Craig said the Indonesian wheat market was an example of the tightening competition WA growers faced with the rapid and fundamental changes in demand.
'The Indo premium that our customers were prepared to pay used to be $25 a tonne in 2010, (but) today we're talking between $5 and $10 - that is, they are prepared to pay between $5 and $10 more for Australian wheat than for Black Sea wheat and it is predominantly a moisture differential nowadays, only a little bit (extra) for quality," he said.
"Their wheat used to be rubbish so customers were prepared to pay $25 more for ours, but that's changed fundamentally."
Mr Craig said barley into Indonesia was another example.
"Australia has been the mainstay of the Indonesian barley industry of around 8mt (a year), one of the largest barley markets in the world, and we used to get roughly half, about 3-4mt of that.
"But this year with the (Eastern States') drought and our pricing, we'll be lucky to get 1mt and delivery is just up the road.
"It does show how competitive the market is."
Apart from fundamental changes, some day-to-day issues were also causing headwinds for WA's grains industry at present, he said.
An outbreak of African swine flu in China, affecting millions of pigs, had potential to squash feed barley demand, with China our biggest market with a lot of Australian barley going to pigs, Mr Craig pointed out.
The Chinese government accusing Australia of breaching World Trade Organisation anti-dumping rules with barley exports also was a potential problem, he said.
"We've been fighting it quite hard as a company and also with the Australian government, but at the time China was taking more than $1b of Australian barley.
"Over the past 30 years we have built a barley industry around China and overnight that has changed significantly.
"CBH had a couple of hundred million dollars on the water at the time when there was probably $350m on the water impacted by this," Mr Craig said.
CBH is one of 10 Australian barley producers and exporters identified by the China Chamber of International Commerce in its claim of dumping.
China is investigating and has the option of reinstating tariffs, removed with the China Free Trade Agreement (FTA), as an interim ant-dumping measure while it investigates.
But there was also some good news for WA grain growers with an FTA with Indonesian due to be ratified over the next few months.
"We will be allowed to put 500,000t of tariff-free feed grains into Indonesia," Mr Craig said.
