Wheat, meat under threat - Agribusiness - Cars could star after war - Australia looking to protect possible Iraq market for exports

Business Asia, April, 2003

If by the time this article hits the streets the war in Iraq is over, then Australia's farm exporters can breathe a sigh of relief.

If the conflict is still raging, then it means bad news for a sector already hit hard by drought and the rising Australian dollar. Australia's farm exports need the war to end quickly, and to be contained within Iraq only, to minimise the damage being felt.

Wheat is the export most seemingly at threat. In the past few years, Australia's wheat exports to Iraq have averaged at around two million tonnes, or $800 million, a year. That amount made Iraq Australia's biggest wheat customer and Australia Iraq's biggest wheat supplier. Wheat has already suffered. Iraq has contracted to buy one million tonnes of Australian wheat in 2003, halving last year's purchases because of Australian support for the present US-led strike.

Australia also faces the possibility of losing its big wheat market in Iraq to the United States through a post-war US administration of the Gulf country. AWB, Australia's national wheat exporter, has already made moves to head off this development.

Concern is also high that existing Australian contracts for the sale of one million tonnes of wheat to Iraq in 2003 might not be honoured and efforts were underway to ensure the sales went through, David Johnson, national pool manager for exporter AWB Ltd said earlier this month. "We are working very closely with the Australian Government, the Department of Foreign Affairs, and also the United Nations to ensure that Australia's place in that (Iraq) market is protected," he said of the prospect of post-war losses to the United States.

"But there are no guarantees," he said.

Australia and the United States, allies in the present military invasion of Iraq, are fierce competitors for wheat sales on international markets, with Australia one of the world's top three wheat exporters.

There is some cause for optimism, however. AWB's Johnson raised the possibility of a new regime in Iraq increasing the country's imports beyond the three million tonnes a year ordered by the government of Saddam Hussein in hand-to-mouth oil-for-food purchases.

"The potential is there for a bigger market," he said, mentioning growth to a possible four or five million tonnes a year.

The spreading of hostilities to other parts of the Middle East could also spell trouble for Australian exports.

Australia has a strong exposure to Middle East countries. Other farm exports that could be disrupted include up to two million tonnes of wheat sent to Iran every year, as much as a million tonnes of barley to Saudi Arabia, and large quantities of wheat and barley to other Arab countries. Australia also sends more than 6.5 million sheep and almost 320,000 live cattle to the region. The live sheep trade to the Middle East is worth $350 million a year, the live cattle $230 million and wheat at least $1.5 billion.

Meat and Livestock Australia's general manager of policy, planning and public affairs Peter Barnard said the impact on the meat trade would depend on the extent and duration of the conflict.

"There is already some effect in that insurance costs have increased, which has seen freight costs increase by about $100 per container. That's relatively small compared with the total cost of the container (about $25,000) and relatively small compared to the change in mutton prices here in Australia over the past couple of months," he said.

"Based on the 1991 (Gulf war) experience, if any conflict is confined to Iraq, then we wouldn't anticipate enormous implications for the industry. We don't do any business to Iraq itself anyway and so you're looking at possible flow-on effects to other Middle Eastern countries.

"If any conflict is confined to Iraq then we would imagine there wouldn't be significant flow-on effects to other Middle Eastern countries. Clearly if any conflict extended beyond Iraq, then it may have some implications."

Iraq's principal export
destinations, 2001:

1 United States    60.6%

2 France           8.5%

3 Netherlands      7.4%

4 Italy            5.8%

5 Canada           5.5%

23 Australia       0.0%

Iraq's principal import
sources, 2001:

1 France           19.4%

2 Australia        14.4%

3 Italy            10.7%

4 Germany          9.9%

5 China            6.4%

Source: DFAT

RELATED ARTICLE: Cars could star after war.

Gulf war jitters, while hurting many manufacturers, are helping Australia's car makers, whose exports go to Middle Eastern oil producing countries that are thriving on war-stoked oil prices, the chief economist of General Motors Corp said last month.

"Despite all the uncertainty, the high oil prices are in fact creating windfall revenue for most of the Gulf countries," GM chief economist Mustafa Mohatarem said at a business forum in Melbourne.

"So in the near term you will see pretty strong export demand from that region."

Longer term, if a war in Iraq did not result in damage to Kuwait's oilfields and Iraq's economy opened up, Australian exporters could benefit from new demand for cars in Iraq, he said.