Key messages

• Investments in oat breeding, oat product innovation, new product commercialisation and market development are supporting a growing demand for raw and processed Australian oats.
• The health properties of oats underpin their sound growth prospects in many regions, especially in Asia.
• Oats are also a sound crop option in frost-prone regions.

Aims

Assess the likely future for oats for Western Australian grain farmers.

Introduction

The area sown to oats and oat production in Australia can vary widely from year to year and the current five-year average production is around 1.4mmt. Around 1–1.1mmt of oats are used annually within Australia for seed, food and feed purposes.

Australian milling of oats continues to grow. Oats milled in Australia are used to meet domestic consumption and export needs. In 2020 over 250,000 tonnes of oats were milled and this is expected to increase to more than 300,000 tonnes in 2022. The use of oats for milling in Australia is more stable than raw oat exports, particularly due to contracting arrangements by east coast millers with oat producers. Such arrangements are uncommon in Western Australia with its strong export market focus.

Oats can be retained on farm for animal feed or used in domestic production of compound animal feed. Oats are also grown to produce hay for domestic and export animal feed markets. This versatility in end use provides some growers with the opportunity to sell their crop into either or both markets. A particular attraction of oats is their greater frost tolerance, which greatly reduces revenue risk in frost-prone regions and in frost-prevalent parts of farm landscapes. Oats are approximately 2 oC more frost tolerant than Barely which is 2 oC more frost tolerant that wheat.  However, the main issue affecting growers’ commitment to oat production arises from their production volatility and resultant impact on oat pricing. The volatility in pricing affects farm-level returns but also affects Australia’s competitiveness in global markets (for both raw oat and processed oats).

In late 2021, AEGIC released a research report examining the strategic market outlook for oats (see AEGIC-Opportunities-and-risks-for-the-Australian-oat-industry-2021.pdf). Drawing on that report and other sources, this paper summarises the strategic outlook for Australian oats.

Results

Globally human consumption of oats is increasing, albeit modestly in most cases, and the global oats market is expected to grow annually by up to five percent over the next five years. Australia is regularly the second largest global exporter of oats (raw and processed), supplying about 10–15% of world trade, behind Canada (75% of world oat trade). However, over 80% of Canada’s exports of raw oats and oat products is sent solely to the USA. Moreover, oat production in the USA and Canada is continuing to be constrained by very strong demand for competing rotational crops, especially soybean and canola. The USA is the world’s largest importer of oats, followed by Germany and then China.

Australia is the fourth largest global exporter of processed oats and there appears substantial opportunities to grow this volume. Flaked oats continue to be Australia’s major oat export product accounting for 80% of oat product export sales. China is the fastest growing oat market globally and is rising in significance as a destination for Australian oats. In 2021 China was the main export destination for Australian oats, receiving almost 30% of Australia’s oat product exports. India’s tariffs on imported processed oats are set at 30%, which restricts their imports of processed oats (e.g., flaked oats) from Australia. Lowering that tariff would provide Australia with greater access to a currently modest yet potentially important export market and help further diversify Australia’s portfolio of export markets and make Australia less reliant on Chinese demand. India’s shifting diets are resulting in increased demand for oat foods and beverages, but their current imports of processed oats are very modest.

Recent gains in oat food and beverage consumption are expected to continue with the increasing global prevalence of “diseases of affluence”, such as diabetes, obesity and heart disease, driving consumers to seek the health benefits of oats as an alternative to staples such as rice. The ability to include oats in traditional foods (e.g., noodles) or to mimic traditional foods (e.g., oaten rice) suggests ongoing value-adding opportunities for oats. AEGIC has developed innovative oat products and has identified commercial partners to extend the local and international demand for oat-based food products, particularly those focusing on the emerging need for healthy grains in Asia and beyond. AEGIC’s adage is to move oats beyond breakfast as a food grain.

The preference for oats in foods, due to their perceived health advantages, is not limited to growth markets in Asia. Even in countries like the USA, the world’s largest importer of oats, the health characteristics of oats frequently feature in food advertising. By illustration, General Mills is the USA’s top cereal producer. In the 12-months to the end of October 2021 General Mills sold $2.85 billion worth of cereal in the USA and its Honey Nut Cheerios (Figure 1) remained the top-selling cereal in the USA.  Honey Nut Cheerios includes oat as its main ingredient.

Although the strategic market opportunities for oats, especially as a food grain, appear commercially attractive, an interim challenge remains. The challenge is to avoid under or over-supply of oats from Australia which then exposes farmers to their oats being either priced out of certain markets or being priced mostly for feed purposes.

A five-year $11.5 million investment in oat breeding, announced in 2021, will help generate higher-yielding, market-orientated varieties drawn from a wider gene pool and thereby help underpin the commercial attractiveness of oats to growers. New oat varieties with improved milling specifications and higher yields will lift the gross margin attractiveness of oats and facilitate their rapid adoption by farmers. For example, the hulling yield in oat milling ranges from 60–70%. Oat ‘husk’ is a by-product that comprises 30-40% of raw oat weight. Husks are sold domestically and the processed oat that is 60-70% of the raw oat weight is exported or sold domestically. Containerised exports of processed oats have a 30-40% weight saving versus exporting containerised raw oats.

Noting the marked increase in shipping container rates in 2021, any improvements in milling specifications will help prevent the erosion of profit margins on containerised exports of processed oats and thereby help serve the strategic interests of Australian oat producers and their overseas customers. Oat exports are especially important to Western Australian farmers. Western Australia dominates national exports of oats, accounting for 80% of total oat product exports, followed by Victoria at 14% and South Australia at 6%.

Improving the commercial attractiveness of oats to growers through breeding, product innovation, improved market access and market development will not only serve the interests of Australian growers but will have global ramifications. A key issue for the world’s major oat producers is the lack of stability in year-to-year supply due to seasonal factors. Seasonal imbalances in supply can have a major impact on the export availability and price of raw oats and oat products. As an example, drought in Chile in 2020 and 2021 resulted in that country shifting from being an oat exporter to an oat importer, creating export opportunities for Australian and other origin oats. If Western Australian oat producers can more reliably deliver consistent exportable surpluses, then oat purchasers increasingly will look to Australia as a reliable supplier.

Conclusion

Western Australia is geographically and climatically well-placed to be a reliable source of exportable surpluses of oats (raw and processed). In addition, oat producers in Australia, and Western Australia in particular, are well-supported by breeders, industry organisations and processors to help Australia to be a strategically preferred source of supply to growing markets in Asia and beyond. All these positives, however, need to be tempered by the fact that, as a minor grain with growth prospects in food and feed uses, oats are always subject to price risk downside if ever over-supply leads to their pricing being based principally on feed grain markets.

Contact details

Ross Kingwell
Australian Export Grains Innovation Centre
3 Baron-Hay Court, South Perth WA 6151
Phone: 86168 9920
Email: ross.kingwell@aegic.org.au