Australia Could Regain Some of its Lost Wheat Market Share in Indonesia

24 March 2021 Mervyn Piesse, Research Manager, Global Food and Water Crises Research Programme

Due to increased competition from the Black Sea region, Australian wheat lost some of its market share in Indonesia. Russian export duties and a decline in Ukrainian wheat production could see Australia regain some of that share, at least in the short term.

Background

Russia, which is the largest exporter of wheat, imposed fixed export duties on the grain in 2021 and plans to convert them to floating duties in June, ahead of the next harvest. Egypt, which is the largest wheat importer and has historically been the second-largest buyer of Russian wheat, cancelled a tender in January and bought from the European Union and Ukraine instead. It also bought 360,000 tonnes of the grain from Romania earlier in March, possibly due to the higher prices imposed by Russia. Ukraine, which is the fourth-largest grain exporter, does not plan to impose export duties on any crops. Its wheat production is lower this year, however, mainly as a result of drier growing conditions.

Comment

Global food prices, which are at six-year highs, have continued to rise as a result of increased global demand for agricultural goods and the imposition of export duties in key markets. Demand for Black Sea wheat is expected to remain strong, as importers continue to stockpile the grain. The supply of that wheat is likely to be lower this year, however, due to lower Ukrainian production and the imposition of Russian export duties. The global wheat supply is expected to reach a record high in 2020/21, mainly due to the anticipated record production in Australia.

Wheat exporters have faced increased competition from Black Sea producers in recent years, particularly in parts of the Middle East and South-East Asia. Ukraine plans to further increase sales of grain and oilseeds to China, the Middle East and South-East Asia. Competition is expected to be particularly fierce for access to the Indonesian wheat market. Australia could be in a more favourable position than Argentina and Black Sea exporters due to the smaller harvest in Ukraine (caused by drought) and the trade agreement signed by Jakarta and Canberra.

While Indonesia does not charge tariffs on imported wheat for human consumption, it has imposed duties on feed grain. The Indonesia-Australia Comprehensive Economic Partnership Agreement, however, provides duty free access for 500,000 tonnes of Australian feed grain. That could place Australian wheat exporters in a more favourable position than some of their international counterparts.

While Australia was historically the main wheat exporter to Indonesia, it lost market share to cheaper imports from the Black Sea region in recent years. The Russian export duties and lower Ukrainian production this year, however, could see Australia regain at least some of that lost share. Argentinian wheat exports, which have also become more competitive in South-East Asia in recent years, are also expected to decline this year due to lower supplies.

Canada, which sells about ten per cent of its annual wheat exports to Indonesia, is also seeking to negotiate a trade agreement with the South-East Asian country. It hopes to increase the amount of wheat that it can export through a trade mechanism that is similar to Australia’s. If it is successful in negotiating a trade agreement with Indonesia, it could pose a competitive threat to Australia in the long term.

It is possible that Australia will regain some of the Indonesian wheat market that it recently lost to Black Sea exporters. If growing conditions improve in Ukraine, and Russia rescinds its export duties, it is likely that the Black Sea region will regain its competitive edge. The introduction of a Canada-Indonesia economic partnership could also increase competition in the Indonesian wheat export market. As Indonesian demand for wheat continues to increase year-to-year, however, it is likely to remain a major market for Australian wheat exporters.

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