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Drought and ethanol top list of concerns in Australia

March 6, 2008

CANBERRA, AUSTRALIA –The 2008 U.S. Grains Council Officer’s Mission kicked off this week in Canberra, Australia where Council leadership met with officials from Australia’s Department of Agriculture, Fisheries and Forestry. Joel Freemen, policy and technical officer with the Australia Quarantine Inspection Service, said Australian farmers are currently facing the worst drought in 80 to 100 years.

"The drought in the early 1990s, as you may recall, was severe but this is much deeper. Many farmers are going out of business," said Freemen. "Suicide rates in rural areas are astronomical and are directly associated with the drought." Freemen added that although many farmers in drought stricken areas are remaining optimistic, he anticipates the current situation to result in increasing consolidation of farming operations.

"Those family farms that are hanging in there will be waiting at least 5 years just to reach break-even levels," he said.

Areas that are accumulating any significant rainfall are not regions where the bulk of agricultural production occurs. Although Freemen said planting expectations for wheat will not be known until April or May, the sorghum crop that will soon be harvested will be "substantial" and will serve as a major feed ingredient in lieu of the shortage of other primary feed ingredients.

Dale Artho, USGC chairman, said Australia is not a major importer of feed grains and despite the drought does not expect that to change anytime soon.

"Biotechnology continues to be a trade barrier for U.S. feed grains entering into the Australian marketplace. There is a lot of misinformation on the safety of genetically enhanced grains, especially among consumers and policy makers," said Artho, adding that there is substantial hope for distiller’s dried grains with solubles. "We will be meeting with end-users in the coming days to assess the logistics of exporting the ethanol co-product (DDGS)."

The Grains Council leadership also met with individuals from the Manildra Group, Australia’s leading ethanol producer, and Renewable Fuels Australia during the Council’s 2008 Officer’s Mission. Manildra, which was started in the 1950s and also has two facilities in the United States, accounts for roughly 80 percent of Australia’s ethanol production. Manildra hopes to increase from producing 26 million gallons of ethanol to 79 million gallons by the end of the year, which is minor compared to the 5 billion gallons of petroleum used in Australia.

"The ethanol industry in Australia is moving at a dramatically slower pace than the industry in the United States for several reasons," said Brian Hanley, general manager of Manildra Group. "We are having a hard time getting ethanol in the marketplace and petroleum companies are coming up with several reasons for consumers to stay away from ethanol, which is unfortunate. Sitting in their seat, I guess you can understand why they wouldn’t want ethanol to be a player in the energy market."

The demand for renewable fuels in Australia is not driven by government policy to the degree that it is in the United States. At most, some regions require a 3-5 percent blend.

Ken Hobbie, USGC president and CEO, said the group met with the company to better understand the demand picture for grains in Australia.

"We need to understand their long-term demand for grains in order to assess their ability to compete with us in international markets with barley, sorghum and feed wheat," said Hobbie. "We now know they have a small industry but are only beginning to put mandates for use of biofuels in legislation, most of which is happening at the state level and not as national policy."