FUNDAMENTALS: VALUE BEGINS WITH GROWING THE BEST GRAINS
FOR THE MAINSTREAM wheat industry, the greatest scope for higher returns for growers from value chain initiatives still rests on the timeless fundamental - improving overall grain quality for processors and consumers.
Value chain investments or partnerships must be based on improving industry efficiencies with the expressed goal of increasing profitability and consumer satisfaction, according to a report by economic analysts, the BDA Group in Melbourne.
In its value chain report for the GRDC, the BDA Group noted that in a commodity market such as wheat, competitiveness is largely achieved by lowering pipeline costs.
This contrasts with product markets where higher pipeline costs can be justified when increased product specification earns higher prices.
In this situation, the emphasis is on delivering quality attributes demanded by processors, manufacturers or consumers rather than lowering costs.
BDA Group director Dave Collins says a key message from the report is that growers should look at making gains inside the farm gate before they look at other value chain initiatives.
"Once you move beyond the farm gate the level of risk and complexity of potential investments to get benefits increases significantly," he says.
The report also emphasises the opportunity to work within the single desk system to achieve cost savings. "Growers should try to build on the strengths they have, and one of those is through the single desk for wheat," says Collins. "The single desk environment is the only means by which all of the off-farm activity of blending and taking decisions in the market can actually come back to wheatgrowers."
This has been echoed by the AWB's general manager of grain technology, Andrew McConville, who says it is why the wheat industry must not limit its thinking about value chains to niche products. "Niche products are almost the test model before you move to broader scale agriculture where you run these value chain concepts," says McConville.
"Customers worldwide are getting more specific in their requests for quality, and unless we can manage quality across commodities and not just niche products then we run the risk of being overtaken by our competitors."
Australia's natural advantages, in terms of climate, a white wheat, good storage and handling and a centralised marketing system, enable the industry to shape the overall quality of the national crop better than some of its competitors.
"However, our competitors are all spending large amounts of money improving the quality of their own products and focusing on delivering a very specific product to market," says McConville.
"So, in terms of the value chain, if we don't think more broadly than niche markets, then we risk being surpassed by our competition who are thinking about it in very broad terms."
McConville believes that while it is still early days, there is no doubt value chain initiatives will improve Australia's overall competitiveness.
He points to the AWB's joint venture with Syngenta to create LongReach Plant Breeders as an example of the importance which the AWB sees in managing right across value chains.
"Plant breeding and trying to develop systems for the control of the supply chain don't happen overnight.
"It is going to take time but it will deliver significant benefits to farmers and to customers as well. At the end of the day that's where all the dollars flow from so we have to be out there satisfying their needs and we have to get a lot smarter about how we manage quality in order to do that.
"Value chain management is simply recognising all those bits and pieces and initiatives that are happening and pulling it all together.
"We all have to share in the vision of value chains and the importance of value chain management."