Indonesia continues to buy more Russian wheat, Australian producers concerned

Sea freight prices have increased in the past year but it is still economical to bring wheat from the Black Sea to Indonesia.

Australia’s largest wheat market, Indonesia, continues its newly formed love affair with Russian wheat, purchasing a whopping 1.14 million tonnes from Russia from July last year to the end of March according to official Russian reports.

While it is still dwarfed by Australian wheat exports to the archipelago nation, which Grain Growers data shows have averaged around 3.7m tonnes annually over the five years to 2015-16, the Russian sales represent a threefold year on year increase with three months of the marketing year still to go.

Ross Kingwell, economics and business analysis manager with the Australian Export Grain Innovation Centre (AEGIC) said he expected the trend to continue.

“Flour makers and wheat-based food processors are experimenting with increased proportions of Russian wheat and are finding the end-product quality is not greatly impaired,” Prof Kingwell said.

“Black Sea wheat continues to be available and is so attractively priced that it will increasingly be considered in many flour blends.”

Western Australian farmer Ray Marshall, Pingelly, said the news our most reliable buyer was increasingly looking further afield was a concern, but was not a surprise.

“It’s a worry, but it is hardly surprising,” Mr Marshall said.

“We’ve known for some time that the Black Sea region was producing more wheat and with sea freight prices so cheap it can be landed in Indonesia as cheaply as Australian wheat, despite Western Australia being a stone’s throw away from Indonesia in relative terms.”

Prof Kingwell said from being a net importer less than 30 years ago Russia was now regarded as a reliable supplier due to its consistent increased production.

He said Australia’s much-vaunted high quality wheat was still an advantage, but said millers were now comfortable using higher proportions of Russian wheat.

“Our quality still gives us an edge, particularly in noodle consumption, but flour makers and wheat-based food processors are experimenting with increased proportions of Russian wheat and are finding the end-product quality is not greatly impaired.”

Mr Marshall said Australia could not afford to rest on its laurels in terms of a perceived quality advantage.

“I’ve heard the millers in Indonesia are quite happy with the Russian wheat, it has good protein levels, so this idea they will just loyally stick with Aussie wheat at any price is probably not right.”

Prof Kingwell said Russian and Ukrainian yields had improved massively and were now approaching par with US yields due to improved agronomic practices.

Cheap freight has been another factor in Black Sea origin grain hitting Indonesian shores economically.

Prof Kingwell said while sea freight rates had risen off the lows of 2015 the sheer volume of Black Sea exports meant they still could attract very competitive rates.

And even though sea freight rates have kicked up modestly over the past 12 months in particular they are still far lower than in the period from 2010 to 2014 Prof Kingwell said.

It is not just cheap sea freight that is bringing down the cost of getting Black Sea grain into south-east Asia.

Prof Kingwell said there had been significant investment in Russia’s domestic supply chain to allow grain to move to port much cheaper.

Moving forward, he said Australia would have to be proactive on a number of fronts.

“We can increase yields via plant breeding and technology investment and we can also co-ordinate investment into our supply chains,” he said.

“By doing this we can lower our unit costs of production.”

However, he acknowledged that given the strength of the Australian dollar and the expense of labour costs here it was unlikely Australia will be a cheap source of wheat.

“Our strategic advantage is to develop types of wheat that focus on end use functionality so that buyers and end-users have a strong preference for Australian wheat as they acknowledge it is fit-for-purpose,” he said.

“Buyers prepared to pay a premium for that functionality and ease-of-use are the likely future customers of Australian wheat.”