With a handful of organic grain that is worth up to twice that of a handful of conventional grain, Kialla Pure Foods managing director Quentin Kennedy says demand for organic grain has outstripped its supply and provided lucrative marketing opportunities for organic grain growers.
PHOTO: Rebecca Jennings
Organic grain production faces a catch-22 scenario: lack of supply is driving up farmgate prices, in turn making retail prices for organic products more expensive and shaking supply chain confidence.
This makes conventional growers reluctant to make the switch that might otherwise help balance the supply-demand conundrum.
High demand and limited supply has created a bull market for organic grain with contrasting consequences along the industry’s market supply chain.
For example, the national shortage has seen organic wheat growers achieve a $500 per tonne price premium over Australian Premium White wheat following the 2015 harvest.
From growers to processors to consumers, this figure is up on the average price premium for organic wheat over the past nine years. The organic grains industry in Australia is today worth an estimated $1.72 billion annually.
Managing director of organic grain-milling company Kialla Pure Foods, Quentin Kennedy estimates that domestic demand for Australian organic grain, particularly in feed markets, outstrips supply by up to 40 per cent, or about 40,000t.
Mr Kennedy says Kialla Pure Foods has absorbed about 10 per cent of the price rise in the past two years, decreasing profit margins for his organic grain-processing business at Greenmount, Queensland.
“The shortage has become critical in the past year, and we’re not going to be able to absorb much more of it,” Mr Kennedy says.
He predicts that the higher grain prices will eventually be passed onto consumers, pushing up the price of organic food products.
“Consumers are likely to see organic food prices rise between 10 and 20 per cent in the next 12 months,” he says. “Grain-fed food products, such as chicken, eggs and dairy are the most likely to become more expensive.”
He says another consequence of the tight supply is that some organic products might disappear from supermarket shelves, which could affect confidence in the industry’s competitiveness.
In 2014, for example, the grain shortfall saw organic popcorn disappear from retail outlets. Australian processors were unable to cover the shortage with organic maize sourced from international markets due to biosecurity protocols that block chemically untreated whole grain imports, Mr Kennedy says. For certified organic growers, however, the higher commodity prices have lifted farm business gross margins.
“The limited supply is great news for existing organic growers who have certification and crops in the ground.”
Lucrative organic grain markets have allowed organic growers to avoid price fluctuations typical in the commodity cycle for conventional crops, and gain access to markets where organic grain is in short supply.
These market incentives have also cast organic cropping as a profitable proposition for conventional grain growers, Mr Kennedy says.
“The shortage also presents an opportunity for conventional growers to get into a niche market as part of an industry that is growing worldwide.”
Highlighting the potential for industry expansion, Australian market research company IBISWorld shows that the organic food market accounts for less than five per cent of Australia’s total food production.
This is said to be because the retail market for organic produce in Australia is dominated by the large supermarket corporations.
Also, Mr Kennedy says that despite the lure of rising price premiums in secure markets, not enough Australian growers have been taking up organic cropping to meet the rising demand.
IBISWorld has forecast a 1.7 per cent increase in the number of organic grain enterprises in the next five years. However, the report also forecasts that growth, overall, in the organic crop area over this period will be lower than the previous five years.
Mr Kennedy cites the three-year certification period needed to convert to organic cropping as “a major roadblock” for conventional growers thinking of making the switch to organic cropping.
During this conversion period, growers bear the higher cost of organic cropping inputs, such as organic fertiliser, but are unable to attract price premiums for uncertified organic grain.
To help overcome this barrier to conversion, Mr Kennedy made a submission to the body that sets standards for organic food in Australia, the Organic Industry Standards and Certification Council, for the development of an ‘in-conversion grain market’.
This new market has allowed some of the grain used in feed for organic chickens and dairy cows to be sourced from farm businesses that are transitioning to organic certification.
The in-conversion phase occurs in the second year of the certification process, in which growers pass an audit and demonstrate they can grow crops using organic standards.
Kialla Pure Foods
0418 742 009,
07 4697 0300
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