AMID global trade tensions and, in particular, uncertainty regarding Australia’s barley trade with China, signing of the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) in Jakarta last week is great news for Australian grains.
Indonesia is Australia’s largest wheat market – accounting for more than 20 per cent of exports annually.
It is the largest economy in South-East Asia, a region which is forecast to become the fourth-largest global economy after the US, China and the EU by 2030.
With rapid urbanisation, household consumer expenditure forecast to grow by five to six per cent per annum during the next decade and 50 per cent of the population aged 29 and below, Indonesia holds strong growth prospects for wheat products, other non-rice grains and animal protein.
Under a previous trade agreement between the ASEAN group of nations – which includes Indonesia, Australia and New Zealand – (ASEAN-ANZFTA), Australian milling wheat has been imported duty free to Indonesia since 2013. This compares to the five per cent duty applied to wheat imports from other origins.
To date however, restrictions on feed grain imports have limited Australia’s capacity to capture livestock feed opportunities in Indonesia. IA-CEPA delivers a duty-free 500,000 tonne annual feed-grains quota for Australian feed wheat, barley and sorghum that will grow at five per cent per annum, uncapped.
IA-CEPA also includes an agreement for a grains cooperation initiative, the Australia-Indonesia Grains Partnership, aimed at developing the Australian grains–Indonesian food processing supply chain.
The commitment to this initiative from both sides will be important to ensuring the value of Australian grains in Indonesia is appreciated and capitalised on by local users and, in turn, keeps demand strong in the face of increasing competition from lower-cost origins.
Collectively, these measures will help the Australian grains industry further capture the rapidly-growing Indonesian feed grain market.
In particular it will help distinguish Australian quality milling wheat from feed wheat in the market and also support a stronger competitive position with alternative-origin wheat.
Indonesia does not have a history of using barley and sorghum for livestock feed so that does not present an immediate opportunity, but rather something to build on. This joint grains market development initiative offers the platform for this.
More broadly, this new trade agreement with Indonesia is important because it puts the value of the trading relationship ahead of other political differences between the two nations, which come up from time to time.
Now we just need to have a season with ample enough export surplus so we can take advantage of IA-CEPA once it’s ratified by parliament.