Black Sea Region challenges Australian wheat exports – and it’s “no short-term phenomenon”, says industry report

The Black Sea Region will continue to transform the global wheat market, creating long-term challenges for Australia’s market share, particularly in South-East Asia, warns a just-released industry report.

The report, The Brass Tacks of the Black Sea Wheat Challenge, by agribusiness banking specialist Rabobank, says the sustained presence of Black Sea Region (BSR) wheat in South-East Asia (SEA) – and indeed all markets – “is not a short-term phenomenon”, and urges Australian wheat suppliers to “rise to the challenge” by focusing on their value proposition.

Report author, Rabobank senior grains and oilseeds analyst Cheryl Kalisch Gordon says while wheat from the BSR (incorporating Russia, Ukraine, Kazakhstan and the Danube River countries) has been increasing its presence in export markets for some time, it is timely to assess if this is “a blip or the basis for long-term battles”.

“Our research found that while some of the drivers behind the growing dominance of BSR wheat in markets will wax and wane, others are set to persist, especially in light of growing investment in the region,” she says. “And it is the volume and price of Black Sea-origin wheat in Australia’s traditional and major markets in SEA that is cause for concern.”

Dr Kalisch Gordon says Australia has already lost market share, from supplying almost 60 per cent of SEA’s wheat requirements in 2011/12 to less than 40 per cent in 2016/17. With Canada, the US and Argentina also not immune to market share loss.

“While Australia is well placed to share markets and maintain its growth path in global trade, much will hinge on how the industry responds by proactively assessing and improving its position in the new world wheat order,” she says.

What's behind the challenge?

The report says over recent years, the BSR has been a significant contributor to the “world being awash with wheat”, with Black Sea-origin wheat having grown from comprising less than 10 per cent of global grains markets in the early 2000s to 25 per cent today.

“This growth in supply – together with the competitive price at which the BSR is able to reach world markets – has protracted the glut, as even at the current low prices, Black Sea Region wheat production is still profitable,” Dr Kalisch Gordon says.

The Rabobank report says that notwithstanding year-to-year seasonal variability, the BSR’s underlying capacity to maintain and increase supply is substantial, due to a number of factors.

“Firstly, Russia and Ukraine have achieved significant wheat yield gains in recent years, with compounded average growth rates of 3.2 per cent and 4.7 per cent respectively since the early 2000s,” Dr Kalisch Gordon says. “This compares with growth rates of 2.5 per cent in Australia and 1.4 per cent globally over the same time period.”

Dr Kalisch Gordon says the higher yield growth, together with lower labour costs, has helped deliver significantly lower on-farm costs of grain production, estimated by the Australian Export Grains Innovation Centre at around AUD121/tonne in Russia and AUD133/tonne in Ukraine – compared with AUD216/tonne in Australia.

“While there is no substitute for a run of favourable seasons – and the BSR has enjoyed good conditions for five consecutive years – adoption of improved agronomy, soil management and strategic chemical application have also provided significant upside to wheat production, especially in Ukraine, with average yields already over four tonnes per hectare,” she says.

“Other significant factors delivering a competitive advantage in the region are the depreciation of the Russian rouble and Ukrainian hryvnia, as well as low freight rates.”

While the relative currency differentials and freight rates are expected to move in favour of Australian wheat exports, Dr Kalisch Gordon says these projected shifts are not enough to significantly change the competitive positioning of BSR wheat.

“This is due to these forecast shifts in currency and freight being small relative to the price difference between BSR and Australian wheat,” she says, “underpinned by growing investment in the region, with the presence of international players in the region’s supply chain, including increasing cooperation with vertically integrated agro-holdings.”

Dr Kalisch Gordon says in light of these factors, Rabobank forecasts total Black Sea wheat exports to increase by a further 18 per cent to 45 per cent by 2030/31.

Rising to the challenge

The report says Australian suppliers need to recognise the BSR will present a “sustained test of their positioning over the mid to long-term”.

“This is despite the positive demand side of the equation, with SEA demand growth for wheat expected to grow by a compound annual growth rate of six per cent out to 2025,” Dr Kalisch Gordon says.

“So while we are fortunate that the demand fundamentals are strong, and this should ensure there is a ‘position for us all’, Australia can’t win as a low-cost supplier to the SEA.

“As such, there needs to be a focus on capturing the value of Australian grains, by delivering a product that is superior in terms of milling, baking, and manufacturing, but also customer service.”

Dr Kalisch Gordon says sensor technology, digital recording and blockchain technologies will also play a growing role, as consumers increasingly demand safety and sustainability.

“While consumers currently have low, to no visibility, in terms of the provenance of their wheat, over time they will be increasingly concerned by where their flour comes from, and Australian suppliers need to ensure their product is positioned as high quality, reliable and safe,” she says.


Rabobank Australia & New Zealand is a part of the global Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has nearly 120 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 40 countries, servicing the needs of approximately 8.6 million clients worldwide through a network of more than 1000 offices and branches. Rabobank Australia & New Zealand is one of Australasia’s leading agricultural lenders and a significant provider of business and corporate banking and financial services to the region’s food and agribusiness sector. The bank has 94 branches throughout Australia and New Zealand.

Media contacts:

Denise Shaw
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Rabobank Australia & New Zealand 
Phone: 02 8115 2744 or 0439 603 525 

Skye Ward
Media Relations Manager
Rabobank Australia
Phone: 02 4855 1111 or 0418 216 103