By Dr Richard Culas Senior Lecturer in Agribusiness in the Charles Sturt School of Agricultural, Environmental and Veterinary Sciences.

Quality wheat production and food safety issues are an advantage for Australian wheat exports, should it become more competitive in the world market.

Different countries have different product consumption patterns which require different qualities and it is therefore essential to understand the quality requirements for different market segments.

Australia should focus collectively on productivity increments, quality enhancements, and wheat crop product diversification through innovative ways of reducing costs and increasing yields to make Australian wheat more competitive.

The global context

Wheat is an important staple crop that is grown widely around the world, with global production in 2019–2020 was 762 million tonnes from 217 million hectares under cultivation.

Nearly US$50 billion worth of wheat is traded globally each year and it is consumed by 2.5 billion people in 89 countries.

There are about 167 wheat exporters in the world, with a few countries dominating the market. The countries that dominated in 2020 were the Russian Federation (17.6 per cent) followed by USA (14.1 per cent), Canada (14 per cent), France (10.1 per cent), Ukraine  (8 per cent) and Australia (6 per cent).

The share of the 10 major wheat exporters was more than 82 per cent in world wheat exports, with negligible exports by the rest of the world.

Similarly, Egypt, Indonesia, China, Italy, the Philippines, and Japan are the major wheat importing countries in 2020. Together they account for about 26 per cent of world wheat imports.

Among wheat importers, Indonesia was the second leading importing country (5.4 per cent of world wheat imports) during 2020, and the most significant importation was from Australia.

Though varied, Australian wheat production reached its maximum in 2016-17 and produced 31.8 million tonnes of wheat in 12.2 million hectares and exported 22.6 million tonnes.

In Australia, wheat export ranked tenth among total exportable commodities, second among agricultural products, and first among grains; it occupies 63 per cent of grains exports.

The quantity of wheat exported from Australia over the last 20 years (2000-01 to 2019-20) has been somewhat constant, however, there have been shifts in importing countries with fluctuations in quantity over time.

In recent years, countries like Indonesia, Vietnam, the Philippines, and China are becoming the primary destinations of Australian wheat, with Australian wheat facing competition primarily from the US, Canada, and the Black Sea countries (Russian Federation and Ukraine).

Implications of the Ukraine-Russia conflict

Given the above overview of wheat exporting and importing and Australia’s position in the world wheat trade, the current Ukraine-Russia conflict can be a cause for concern for Australia’s share of wheat exports (6 per cent) in the short-term if not otherwise, since the Russian Federation and Ukraine share 25 per cent of world wheat exports.

Due to the invasion of Ukraine by Russia, wheat growers in Australia could experience a lift in prices if supplies become unavailable from these countries.

For example, Australian wheat prices could rise from the current $367 a tonne to $425 a tonne in the near term as predicted by Rabobank.

Shipping blockages and the high cost or scarcity of insurance should halt the exports from the Black Sea countries and long-term structural changes to wheat flows could occur if sanctions are implemented on Russian wheat exports.

Ukrainian farmers are mostly family farmers like in Australia, but Australia does not have the opportunity to make sure those markets are still supplied with grain should the disruption caused by the Russian invasion continue.

The limiting factor for Australia can be its supply chain. Though Australia physically can have a good harvest of wheat to cover up the exports from the Black Sea region, logistics can be an issue since there are only so many trains and trucks to load to get grain to the ports.

This is because Australia’s exporting facilities already have constraints to exporting huge volumes, and this can imply that Australia’s wheat market looks unable to keep up with the huge rise that the global wheat market should experience.

… And elsewhere

Notably, the flow-on effects of the conflict in Ukraine will drive up grain prices in countries in the Middle East and Africa that are already experiencing rampant food inflation.

Since food prices are directly correlated with the price of wheat for these countries, it will be tough for these countries.

However, this impact on the grain market will depend on the length and severity of the Ukraine crisis.

It is also possible that the medium to long-term effect on global wheat markets will not be that significant if agricultural production continues despite the Russian invasion of Ukraine.

Other than this crisis, crop failures experienced recently by some other wheat exporting countries had a severe impact on the grain market and this had driven the wheat importing countries to find markets like Australia.

The loss of grains from the Black Sea countries, which normally account for about one-quarter of the world’s annual wheat trade, is an opportunity for Australian farmers to step up the supply chain issues.

However, on the production side, rising fertiliser prices and tougher growing conditions linked to climate change can challenge the Australian solution.

The outlook

The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) has forecast a wheat crop output of 34.4 million tonnes for 2021–2022, up from 32.6 million tonnes of its previous forecast (5 per cent more), possibly due to above average rainfall.

The Australian share of wheat exports is more than 6 per cent of the global wheat trade, and it is one of the major grain-producing nations unaffected by last year’s drought.

Other major wheat exporting countries, like the US, the world’s number two producer, expect a fall in yield by 10 per cent this year, according to Gro Intelligence.

Canada, the number three producer, has experienced a fall in yield of 39 per cent in 2021, according to Statistics Canada.

These shortfalls in global wheat production will make wheat prices hit a 14-year high.

The above trends can have significant impacts when the economic fallout of the pandemic has already affected many wheat importing countries.

Low-income net food-importing countries like Egypt and Lebanon buy 70 to 80 per cent of their imported wheat from Russia and Ukraine.

However, if the global price of wheat continues to rise, it will stimulate growers to sow more marginal lands and hopefully deliver a bigger crop.

When we consider the supply disturbances from Russia and Ukraine, it also provides opportunities for farmers in Australia or elsewhere to fill this gap, even with higher fertiliser and energy prices.