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Strategic Research & Development Plan 2012-17

Business environment

The following key trends, opportunities and threats will shape the Australian grains industry and the investment environment for the GRDC during the life of this strategic plan.

Global supply and demand

An overarching consideration for the development of the grains industry is the increasing global demand for food and feed grain. Demand is rapidly increasing because of population growth and changing consumption patterns, while supply is facing challenges due to climate change, the loss of productive land and reduced availability and quality of water.

Demand from China, India and the Middle East is likely to increase, in association with growing populations and an increase in the size and affluence of the middle classes. Wheat production in North America may plateau or even decline as land is diverted to producing alternative crops (primarily GM-enhanced corn and soybeans) or biofuels.

At the same time, however, the Australian grains industry will face increasing global competition—in terms of both quantity and quality of grain products—from countries in the Black Sea region (such as Ukraine) and, potentially, from South American countries.

National supply and demand

Nationally, wheat will remain the major grain crop by tonnage, followed by barley in the Southern and Western regions and sorghum in the north. Although cereals will continue to dominate grain production, an increased emphasis on broadleaf crops (pulses and canola) and their genetic improvement and incorporation into cropping systems will be needed to underpin the productivity of cereal crops.

A significant proportion of grain grown in South Australia and Western Australia will continue to be exported, while the northern, eastern and south-eastern grain areas will increasingly produce for domestic human consumption and animal feed markets. Second-generation biofuels may present opportunities for grain crops in specific, localised areas, based on feedstock availability and proximity to market.

Rationalisation of the supply chain

Internationalisation of the grains industry supply chain will continue, and will influence both the sale and marketing of grain and the availability and pricing of essential inputs. Overseas ownership and investment in the supply chain has increased, and continuing consolidation across the supply chain has led to a reduction in the number of large grain accumulators and traders. Vertical and horizontal integration has also increased within the industry, as grain marketers have enlarged their ownership of milling, malting and rural services operations, thus increasing their capacity to influence the entire supply chain.

Climate

Climate variability will continue to affect production, requiring innovation, resilience and risk management. Longer term climate change may increase pressure on production from marginal cropping areas, focusing attention on opportunities for diversification (including as part of the global carbon economy), and will increase the move to grain production in the higher rainfall areas.

Carbon pricing and emissions trading will create an incentive to use carbon-intensive inputs more efficiently, and to seek alternatives (such as pulses as a source of nitrogen). Robust emissions abatement methodologies will help the industry to contribute to the transition to a low carbon economy.

Input costs

Australian growers’ operating environment is one of constantly rising input costs being driven by increases in:

  • the cost of oil which affects the prices of energy costs and nitrogen fertiliser
  • weed resistance to key inexpensive chemical families, which require a shift to new, more expensive chemicals or fallow options.

In the short term, the high value of the Australian dollar will alleviate these effects.

Exchange rate

Despite continued volatility in financial markets, the value of the Australian dollar is expected to remain relatively high, supported by strong demand for Australian coal, oil, gas and mineral commodities. While the value of the dollar remains high, to remain competitive in international markets Australian growers will have to accept lower prices for their grain. Because grain prices in Australia are largely dictated by export prices, this will affect income across the grains industry. This disadvantage may be partly offset by reductions in costs arising from a related drop in the price of imports. The high volatility in the exchange rate is an added difficulty for grain growers undertaking long-term planning for their farm or enterprise.

GM technologies

Genetically modified (GM) technologies will be commercialised and accepted, offering potential to increase productivity and profitability. However, for cereals the timeframe is still uncertain and commercialisation is unlikely to occur within the next 10 years. Markets will increasingly demand traceability and quality assurance for grain and grain products incorporating GM technologies.

Growers

The number of grain farms is likely to continue to decline slowly, and the average farm size is likely to increase. Corporate involvement in farming is likely to continue and increase.

A younger generation of growers who embrace new technologies and have an increasingly sophisticated and business-based approach to grain farming is emerging. Post-deregulation, growers are getting more involved in grain marketing and embracing the use of price risk management tools and on-farm storage.

Declining rural populations will put pressure on the survival of rural communities and the social infrastructure that supports grain growers at present. In addition, declining populations are generating labour shortages and tightening of the labour market is expected to continue.

Farm advisers and consultants

Growers will continue to increasingly rely on advisers to provide agronomic, business, marketing, financial and price risk advice.

The GRDC Grower Survey conducted in November 2010 found that 62 percent of respondents had sought guidance from fee-for-service agronomists, farm advisors or consultants. This fee-for-service group was described as a major influence over grower decisions.

Governments

Governments will continue to have major influences on the Australian grains industry through policies and regulations, including in relation to food safety and environmental responsibilities, as well as their commitment to investments in rural RD&E.

The Australian Government and state governments continue to be significant funders of RD&E related to the grains industry and to agriculture more generally. However, this role is under constant scrutiny, particularly among state governments, and a decline in state government support of rural RD&E seems likely.

Both state governments and the Australian Government have sought to increase rural RD&E’s focus on:

  • impact assessment and cost–benefit analysis of investments
  • further collaboration across government R&D bodies
  • the harmonisation of policies and funding across state and federal agencies.

Partners

It is estimated that total expenditure on RD&E for the Australian grains industry exceeds $385 million per year. This total RD&E investment supports approximately 1,400 full-time equivalent staff (mainly scientists and technicians) located at a large number of research hubs spread across the three grain-growing regions.

Table 1 provides a breakdown of grains RD&E investment for 2007–08, showing the relative contributions of the major investors. It is probable that the proportions of investment contributed by the GRDC and the private business sector have increased since 2007–08.

Table 1 Australian grains RD&E investment during 2007–081

Organisation $ million percent
State departments 123 32
CSIRO 45 12
Universities 39 10
GRDC 882 23
Private investment (estimate)3 90 23
Total 385 100

1 Most recent data available to the Grains Industry National RD&E Strategy steering committee.

2 GRDC investments outside Primary Industries Standing Committee agencies (other rural R&D corporations, grower groups/farming systems groups, cooperative research centres, international collaboration and private industry) totalled about $30 million during 2007–08.

3 Estimated $45 million from private agrichemical, fertiliser and seed RD&E and $45 million from private consultant extension service provision.

Source: Grains Industry National Research, Development and Extension Strategy, 2011.

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