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1301.0 - Year Book Australia, 2006  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 20/01/2006   
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THE AUSTRALIAN WHEAT INDUSTRY

Wheat is the staple food of almost half the world's population and is one of the most important commodities produced by the Australian agriculture industry. In 2003-04, almost 30,000 farmers in Australia grew wheat, using half of the agricultural land dedicated to cropping. Along with harvest contractors, transport operators, storage handlers, marketers, millers, etc., these people were responsible for the production, sale and distribution of Australia's largest and most valuable crop.

The gross value of production of wheat in 2003-04 was $5.6 billion (b) which represented 15% of the total value of farm production. With overseas sales in 2003-04 of over $3.4b, wheat is one of Australia's most valuable exports, making it a significant player in the world wheat market.

This article traces the development of the wheat industry in Australia since European settlement. It looks at the industry structure; supporting industries, such as storage and milling; and marketing arrangements.

THE BEGINNING

The industry had its beginnings over 200 years ago when Governor Phillip, realising the need to make the colony self sufficient in food, instigated farming operations on nine acres of land at Farm Cove. However, it very soon became apparent that the land at this site was too sandy to support crops so in November 1788 he established a 40 acre government farm at Parramatta. Governor Phillip also enabled ex-convicts to own their own farms. With his farm at Parramatta, called 'Experiment Farm', James Ruse was the first and best known of these ex-convict farmers.

By the end of 1790, 200 bushels (approximately 5.4 tonnes) of wheat had been harvested, all of which was saved for seed. With the opening up of Liberty Plains (now two of Sydney's western suburbs, Homebush and Strathfield) by free settlers, the colony had 6,000 acres under wheat by 1799.

However, there were many obstacles to preparing the land and achieving acceptable yields. Problems farmers faced included inappropriate wheat varieties, labour shortages, lack of appropriate tools and agricultural knowledge, infertile soil, poor rainfall, and plant diseases.

GROWTH OF THE WHEAT INDUSTRY

With the settlement of Victoria, South Australia and Western Australia during the 1830s and 1840s, cultivation of wheat expanded rapidly. For example, in South Australia, the area cultivated for wheat grew from eight hectares in 1838 to 7,592 hectares in 1844.

Assisting the expansion of the wheat industry into large scale operations were the inventions of the scrub roller, the 'stump jump' plough and the header harvester. Between them, these machines allowed for the clearing and preparation of large tracts of land and harvesting of the bigger crop. The opening up of the inland country railway network in the 1880s greatly improved the efficiency of crop transportation.

Complementing these mechanical advancements was research into new wheat varieties more suitable to the Australian environment and mechanical harvesting, and more resistant to disease. One of the pioneers in this field was William Farrer who, in the late-1800s, bred a number of new wheat varieties. The most notable of these was an early-maturing wheat strain named 'Federation' which was drought and disease resistant.

In later stages, growth of the Australian wheat industry was supported by changes in many farm management activities, including the introduction of mixed farming, crop rotation, application of fertilisers, improvements in cultivation techniques, and, since the 1940s, the use of tractors. The improvement of bulk grain handling systems, development of chemicals to combat diseases, pests and weeds, and the further development of higher yielding disease resistant wheat strains are some of the off-farm activities that continue to make important contributions to the industry.

S14.1 WHEAT, Distribution - 2000-01(a)
Map S14.1: WHEAT, Distribution - 2000-01(a)

(a) This map has been generated using Agricultural Census data at the Statistical Local Area level for 2000-01.

Source: AgStats on GSP (7117.0.30.001) CD-ROM product 1996-97 to 2000-01.



WHEAT BREEDING

Wheat breeding, as described above, has been a major contributor to establishing a viable wheat industry in Australia. Research has mainly been undertaken through public sector programs and has been instrumental in developing varieties suited to Australia's dry environment.

A major objective of these programs was to develop a variety which would be resistant to stem rust and leaf rust, both of which prevailed at epidemic levels in the early 20th-century. Research in this area prevented the ruin of the wheat industry in Australia.

Another important aim of these programs was to breed white grained, medium to high protein wheat varieties suitable for the Australian climate. Recent water efficient varieties use less water at the growing stage leaving more water in the ground for use later at the grain forming stage. These new breeds have not only reduced water usage but have also achieved major improvements to yields by diverting water usage from vegetation growth to ear production and grain filling.

Since the loss of the United Kingdom market in the 1960s, researchers have sought to create wheat varieties which meet the end-use requirements of Middle Eastern and Asian customers. Australian wheat enjoys an excellent reputation for quality in international markets and the hard white varieties are particularly suited to the production of food products in East Asia, such as instant and fresh noodles.

While tailoring these products for the Australian and international end-markets, researchers had to also ensure that the wheat was high yielding and suitable for the differing environmental conditions experienced across the wheat belt from Queensland to Western Australia.

Initially, wheat breeding and research was limited by the available genetic material. However, from the early-1970s to mid-1980s there was a rapid increase in the availability of new, high yielding varieties to Australian growers. This increase is largely credited to the availability, for Australian researchers, of genetic material collected by international research organisations (particularly Centro Internationale de Mejoramiento de Maiz y Trigo) around 1960.

Australian wheat breeders now use overseas data including weather, soil and geographical data to determine how wheat with particular traits are likely to perform in locations across Australia, prior to importing the grains for trials.

Today, much of Australia’s wheat and other grain variety breeding is managed by the Grains Research and Development Corporation (GRDC), which is a statutory authority funded by a levy on grain growers and contributions from the Australian Government.

CHARACTERISTICS OF THE WHEAT INDUSTRY

Wheat growing areas are determined by soil type, soil fertility, topography and rainfall. Rain should predominantly fall during the winter and spring months and needs to be of an annual average between 400 and 600 millimetres per year at a minimum. Suitable conditions prevail on mainland Australia in an area west of the Great Dividing Range known as the wheat belt which stretches from Central Queensland through New South Wales and Victoria and on to South Australia in the form of a narrow crescent, continuing into the south west of Western Australia. In addition, a small area of land in Tasmania is used for growing wheat (see map S14.1).

S14.2 WHEAT PRODUCTION - 2003-04

Number of farms reporting wheat
Area
under wheat
Share of total
area under wheat
Average farm
area under wheat
Total production
Share of
total crop
Yield
no.
'000 ha
%
ha
'000 tonnes
%
tonnes/ha

NSW
10,859
3,983
30
367
7,288
28
1.8
Vic
5,743
1,409
11
245
3,145
12
2.2
Qld
2,035
790
6
388
1,110
4
1.4
SA
5,542
1,960
15
354
3,490
13
1.8
WA
5,053
4,917
38
973
11,070
42
2.3
Tas
289
8
-
27
26
-
3.4
Aust.(a)
29,524
13,067
100
443
26,132
100
2.0

(a) Includes ACT.

Source: Agricultural Commodities, Australia, 2003-04. (7121.0).


In 2003-04, Western Australia had the most area under wheat and the biggest crop (table S14.2). Yield rates vary from state to state, mainly due to varying soil fertility and rainfall conditions in different regions rather than due to farming practices.


Since the beginning of the 20th century, wheat yields have steadily been improving. In the early-1940s, average yield broke through the 1 tonne per hectare (tonne/ha) barrier. This was due to the introduction of new varieties better suited to the Australian environment and improved farming practices. In the 1950s, average yield generally remained above the 1 tonne/ha level and 1.5 tonnes/ha was achieved for the first time in 1979 (with 1.77 tonnes/ha). Since 1989, yield has remained consistently above 1.5 tonnes/ha except in a few years of adverse weather conditions. The record national average yield of 2.11 tonnes/ha was set in 2002.

Graph S14.3: WHEAT YIELDS


Over the last century, major fluctuations in the price of wheat have been caused by wars, the Depression, unreliable climate and volatile market forces. However the long-term trend for price levels is downwards, driven mainly by supply and demand factors with the end result being a fall over time in the unit value (price) of wheat expressed in prices prevailing in 2004 (graph S14.4). In this period, while production costs have also declined due to increasing efficiency and adoption of technology, this has not been enough to prevent a decline in net returns (or 'profits') to wheat farmers over time.

Graph S14.4: WHEAT: UNIT VALUE AT 2004 PRICES


In most cases, wheat farms are family businesses owned by either a sole proprietor or family partnership. The growing of wheat is usually combined with other farming activities such as raising sheep, beef cattle or growing other crops.


This combination with other crops is a significant feature in Australian agriculture. Continued growing of one crop type on land leads to deterioration in soil conditions and to rising pest and disease cycles. Crop rotation can help overcome these problems.

Since the 1970s, crops such as lupins, rapeseed/canola and field peas have been used in rotations by wheat farmers. Where the farmer runs livestock, wheat also has to compete with pasture rotations. The length of all these rotations is determined by the relative prices of livestock and grains, together with climatic conditions.

In Australia, most wheat is planted during April, May and June as the seed requires the colder weather to germinate. This allows harvesting before the onset of harsh summer weather conditions. The harvest begins in Queensland during September and October and ends in Western Australia during January. Much of the harvest is undertaken by specialist contractors who commence harvesting in Queensland and follow the ripening grain crops down to Victoria.

Australia predominantly grows the white grained wheat varieties which have a higher rate of flour extraction, and generally does not grow the red grained wheats produced, for example, in North America.

Two important species of wheat grown in Australia are Triticum aestivum and Triticum durum. The former is known as common milling wheat and the latter is known as durum wheat. The products produced from milling wheat, such as bread and noodles require a wheat variety with hard grain (important in the milling process) and with a high level of good quality protein for better volume, softer crumb and better keeping qualities. Durum is noted for its extreme hardness and is used mainly for making pasta and couscous. Durum production is only suited to certain areas of Australia (northern New South Wales and eastern South Australia) and accounts for less than 3% of the total Australian wheat crop.

WHEAT STORAGE AND HANDLING

Initially, storage and handling of wheat relied on the humble sack - millions of them! This style of operation was first phased out in New South Wales during the 1920-21 season in favour of a bulk handling system which meant wheat grain was no longer required to be bagged before transport and storage. It took until 1952, however, before all mainland states had implemented their own version of bulk handling.

Bulk handling led to considerable saving of time and money. Further benefits were gained from reduction in the deterioration of long-standing stacks of bagged wheat and from the protection of wheat from mice, weevils, climatic conditions and leakage. However, the New South Wales and Victoria systems, which generally employ vertical concrete and steel silos, had high initial capital costs. These facilities were unable to handle the entire stock in 'bumper' years and also had high operating costs in lean years. The Western Australian system, using a horizontal shed, minimised these costs by being flexible with lower capital cost.

The high capital costs associated with supply chain infrastructure meant that, historically, state governments have been heavily involved in this sector of the industry, through both regulation and the provision of capital. Today, handling and storage of over 80% of Australia's grain crop is managed by three major bulk handlers – GrainCorp in New South Wales, Queensland and Victoria; ABB Grain in South Australia; and Co-operative Bulk Handling in Western Australia. Smaller commercial and on-farm facilities account for the remainder.

The large bulk handling companies provide a network of storage facilities which connect by road and rail to seaboard grain export terminals which they also own. In many regions these companies are the sole providers of storage and handling services to wheat growers. These storage facilities take on several different forms, especially between states, but are typically constructed of steel or reinforced concrete. The four most common types used are:
    • the horizontal shed with storage capacity ranging from 10,000 to 40,000 tonnes
    • the squat bin with storage capacity between 5,000 to 15,000 tonnes
    • vertical storages consisting of individual cells with capacity ranging from 1,500 to 4,000 tonnes
    • temporary bunker storages with capacity from 10,000 to 100,000 tonnes to handle overflow during 'bumper' seasons.

DOMESTIC CONSUMPTION OF WHEAT

Australia consumes around 5 million tonnes of wheat annually, with the remainder of production being exported. Approximately 2.5 million tonnes are used annually in the production of flour, whole grain products, beer etc., for human consumption, and in the production of gluten and starch etc., for industrial uses. A further 2 to 2.5 million tonnes is used annually as stock feed. While this sector of the market is very sensitive to price movements, it is a rapidly growing market in response to an expanding intensive livestock feeding industry.

In addition, around 500,000 tonnes of wheat is used for seed each year.

FLOUR MILLING INDUSTRY IN AUSTRALIA

In the 1870s there were more than 500 flour mills in Australia using steam, water or wind as the power source, with most large country towns having their own flour mill. With improved technology, larger mills, and less overseas demand for the milled product (as developing countries established their own facilities), the number of mills in Australia has now declined to less than 40. However, with the growth in Australia's population, demand for flour products at home has increased steadily. Currently, annual domestic human consumption of flour (table S14.5) is about 1.5 million tonnes and a further 440 thousand tonnes of flour is used for industrial purposes such as starch and gluten. Of the flour sold for human consumption, just over 60% is used by specialised commercial bread bakers.

S14.5 SALES OF WHEAT FLOUR, Within Australia(a)(b)

For human consumption in

For
industrial
use(e)
Total
domestic
use
Bread
Pastry(c)
Biscuits
Packet flour
and mixes
Pasta
Other(d)
Total
'000 tonnes
'000 tonnes
'000 tonnes
'000 tonnes
'000 tonnes
'000 tonnes
'000 tonnes
'000 tonnes
'000 tonnes

1999-2000
789
71
96
107
97
127
1,287
504
1,791
2000-01
829
64
89
98
96
127
1,303
533
1,836
2001-02
859
71
104
67
87
147
1,334
538
1,872
2002-03
927
66
106
120
89
146
1,453
428
1,881
2003-04
994
73
110
128
88
119
1,512
440
1,952

(a) By flour millers.
(b) Comprises all products derived from grinding wheat, including durum.
(c) Factories and shops whose main line of production is cakes, pastries, pies, muffins etc.
(d) Includes flour sold to be part processed into frozen dough; sales to fish shops, butchers and similar users.
(e) Starch and gluten manufacturers and other industrial users.

Source: ABS data available on request; Manufacturing Production Survey.


GOVERNMENT INVOLVEMENT IN THE WHEAT INDUSTRY

In the past, Commonwealth and state governments provided the wheat industry with financial assistance (in the form of guaranteed minimum prices to growers and investment in storage and handling) and regulatory control (in the form of restrictions on the sale of wheat). They still have a regulatory role in the marketing of export wheat, but no longer provide subsidies to growers and have divested their involvement in the storage, handling and transport of wheat. Governments at both levels have also contributed significantly to agricultural research through state-based government research organisations, universities, and through the GRDC and the Commonwealth Scientific and Industrial Research Organisation.

WHEAT MARKETING

In 1915 the Commonwealth Government set up a wheat pooling scheme to assist wheat growers and to ensure appropriate management of this vital foodstuff during World War I. It was administered by an Australian Wheat Board, comprising the Prime Minister and a Minister from each wheat growing state. Under the scheme, returns from each season's wheat crop were pooled (over time and across markets) and shared fairly among all growers for the duration of the World War I.

After the first Australian Wheat Board ceased operations in 1921, regional wheat pools continued, often managed by farmer cooperatives.

At the beginning of World War II, the Australian Wheat Board was established as a statutory authority under National Security (Wheat Acquisition) Regulations to handle all matters connected with wheat disposal during World War II. Following the war, legislation was passed to establish the peacetime Wheat Board in 1948. The purpose of the board was to ensure that the wheat industry operated in an environment of price stability and orderly marketing and was responsible for the receival and sale of virtually all wheat produced in Australia. The passing of subsequent Acts saw the life of the board extended five years at a time until 1999.

In 1984 the domestic feed market for wheat was effectively deregulated and growers could sell, under a permit system, to anyone they chose. This was the first step in the deregulation of the Australian domestic wheat market and was designed to benefit the industry by injecting greater flexibility and competition.

In 1989, the domestic wheat market was completely deregulated and since that time has operated without any specific government regulation. At the same time, the Commonwealth government established the Wheat Industry Fund, a compulsory levy on wheat sales, to create a sufficient capital base for the privatisation of the Australian Wheat Board.

In July 1999, the Wheat Board ceased to operate as a government controlled statutory authority and became AWB Limited, a grower-owned and controlled corporation with a dual-class share structure. At this time, all government financial assistance for the Wheat Board, such as underwriting its borrowings, ended. AWB Limited became a public company in 2001, when B-class shares (issued to holders of the units in the Wheat Industry Fund) were listed on the Australian Stock Exchange and today it is one of Australia’s top-100 largest public companies.

Through a subsidiary company, AWB (International) Limited, AWB Limited continues to be the sole exporter of bulk wheat from Australia (under the Single Desk system). Using the Single Desk system - established under the Wheat Marketing Act 1989 (Cwlth) - AWB Limited has a formal obligation to maximise returns to wheat growers from the national pool through being the only exporter of Australian wheat. The Single Desk system aims to capture value through price premiums, reducing supply chain costs, risk management and giving growers access to buyers in over 40 countries.

A government regulator, the Wheat Export Authority, has been established by the Commonwealth Government to monitor and report on AWB (International) Limited and to manage the system that allows exports of wheat in containers and bags outside the Single Desk.

Commodity boards and single desks exist domestically and internationally for other agricultural products. For example, in Australia there are state-based single desks for sugar, rice and barley.

The Single Desk for wheat exports has at times been criticised in international trade negotiations, especially by Australia’s largest international competitor, the United States of America. However, to date, the Australian Government has been able to maintain Single Desk arrangements as part of all trade agreements, such as the World Trade Organisation and the recently completed Free Trade Agreement with the United States of America, on the grounds that it is a non-trade distorting, transparent, commercial operation. However, it should be noted that neither the former Wheat Board nor the current AWB Limited has ever exported wheat to the United States of America.

GLOBAL CONTEXT

In 2003-04, 102 million tonnes of wheat were traded on the international market. The United States of America exported the most wheat, while Canada and Australia each sold about the same amount to overseas buyers (table S14.6). The European Union (which includes the major wheat producing countries of France and Germany) collectively was the biggest producer (106 million tonnes) but ranked only fourth as an exporter with 10 million tonnes. China, India and Russia are also major producers but are relatively minor players in the export business.

While Australia produces only about 3% of the world's wheat output, it exports to more than 40 countries. Australia's total wheat exports represent around 15% of the world wheat trade annually.

S14.6 WHEAT PRODUCTION AND EXPORTS(a) - Major producers

2001-02
2002-03
2003-04
mill. tonnes
mill. tonnes
mill. tonnes

European Union(b)
-
-
-
Production
90.5
103.2
106.1
Exports(c)
11.5
15.5
10.0
China (excl. SARS and Taiwan Prov.)
-
-
-
Production
93.9
90.3
86.5
Exports
1.3
1.4
1.0
India
-
-
-
Production
69.7
71.8
65.1
Exports
3.1
5.4
1.0
United States of America
-
-
-
Production
53.0
43.7
63.8
Exports
26.2
23.1
31.6
Russian Federation
-
-
-
Production
46.9
50.6
34.0
Exports
4.6
13.0
3.2
Australia
-
-
-
Production
24.3
10.1
26.1
Exports
16.5
10.9
15.2
Canada
-
-
-
Production
20.6
16.2
23.6
Exports
16.3
9.4
15.8
Argentina
-
-
-
Production
15.3
12.3
14.5
Exports
10.1
6.8
8.0
Ukraine
-
-
-
Production
21.0
20.0
3.6
Exports
5.5
6.7
3.0

(a) Exports include wheat equivalent of flour and other wheat products.
(b) Regarded as 25 countries from 2003-04 including major producers, France and Germany.
(c) Intra-EU trade excluded from exports.

Source: Australian Bureau of Agricultural and Resource Economics; Agricultural Commodities, Australia (7121.0).


Australia's main wheat export markets are concentrated in Asia and the Middle East with Indonesia, Egypt, Iraq and Japan leading the importers over the past three years. In recent years the market for Australian wheat exports to China has grown strongly.

S14.7 AUSTRALIAN WHEAT EXPORTS - Major destinations(a)

2002-03
2003-04
2004-05
'000 tonnes
'000 tonnes
'000 tonnes

Iran
1,064
-
-
Egypt
602
2,534
752
Japan
1,123
1,239
1,171
Korea, Republic of (South)
1,014
1,065
1,208
Iraq
1,037
1,111
1,550
China
38
750
1,883
Indonesia
1,578
2,492
2,501
Other
4,145
5,394
6,191
Total
10,601
14,585
15,256

(a) Exports of wheat and meslin only.

Source: ABS data available on request, International Trade.


THE FUTURE OF THE WHEAT INDUSTRY

The successful long-term future of the Australian wheat industry will be subject to many challenges, including resource sustainability and infrastructure development, climate change, international price distortion and disease risks. Based on previous performance, the wheat industry should be able to overcome these challenges and continue to make an important contribution to the Australian economy and world food markets.

There are also some bright lights on the horizon for wheat producers, such as the expanding intensive livestock feeding industry and the possibility of increasing use being made of grain-based fuel in Australian vehicles.

REFERENCES

ABARE (Australian Bureau of Agricultural and Resource Economics), Australian Commodity Statistics, 2004

ABS (Australian Bureau of Statistics)
    AgStats on GSP,(7117.0.30.001)

    Agricultural Commodities, Australia, (7121.0)
    Manufacturing Production, Australia, (8301.0.55.001)
    Value of Agricultural Commodities Produced, Australia, (7503.0)
    Year Book Australia (1301.0)

AWB (Australian Wheat Board Limited), last viewed 25 August 2005 <www.awb.com.au>

BRI Australia Limited, The Milling of Flour, last viewed 25 August 2005 <http://www.bri.com.au>

Bromby, R The Farming of Australia, Doubleday Australia Pty Ltd, 1986

Hamblin, A & Kyneur, G Trends in wheat yields and soil fertility in Australia, Department of Primary Industries and Energy, Bureau of Rural Sciences, Australian Government Publishing Service, Canberra, 1993

Industries Assistance Commission, The Wheat Industry, Report No. 411, Australian Government Publishing Service, Canberra, 25 February 1988

Prattley, C (editor), Australian Food - The complete reference to the Australian Food Industry, Morescope Publishing Pty Ltd, PO Box 93, Camberwell, Victoria 3124

Reid, R L The Manual of Australian Agriculture, edited for The Australian Institute of Agricultural Sciences, Buttersworth, Sydney, 1990

Watson, A S Grain marketing and national competition policy: reform or reaction?,The Australian Journal of Agricultural and Resource Economics Volume 43, Issue 4, December 1999


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