The signing of the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) on Monday in Jakarta is likely to consolidate Australia\u2019s position as a principle grains supplier to one of the most populous nations on earth.<\/p>\n\n\n\n
The deal was signed by Australia\u2019s trade minister, Simon Birmingham, and his Indonesian opposite, Enggartiasto Lukita, and now heads back to the respective parliaments for final approval.<\/p>\n\n\n\n
It comes after a drawn out negotiating process stretching back to 2010.<\/p>\n\n\n\n
Indonesia is the second largest wheat importer in the world, and Australia\u2019s biggest wheat customer, according to a report from Rabobank. Indonesia takes 20% of Australia\u2019s exports with the free trade deal coming as trade relations between the government in Canberra and their counterparts in Beijing have deteriorated in recent months.<\/p>\n\n\n\n
\u201cAmidst global trade tensions and uncertainty regarding Australia\u2019s barley trade with China, the signing of the\u2026 agreement in Jakarta yesterday is great news for Australian grains,\u201d said Rabobank\u2019s senior grains and oilseeds analyst Cheryl Kalisch Gordon.<\/p>\n\n\n\n
The IA-CEPA agreement includes a 500,000 mt feed grain export quota for Australian feed wheat, barley and sorghum, which has the provision to grow unfettered by 5% per year and could prove to be valuable according to market sources.<\/p>\n\n\n\n
\u201cThere won\u2019t be a significant improvement (from the current arrangement), but if the Indonesian government moves to restrict feed wheat, then the allocation will be very valuable,\u201d one Australia-based market source said.<\/p>\n\n\n\n
Indonesia recently imposed a stringent phytosanitary regime on Ukrainian feed wheat imports, while Russian wheat has also fallen foul of the country\u2019s standards.<\/p>\n\n\n\n
But at the same time Indonesia has increased the wheat import from Argentina from 620,000 mt last year to 1.6 million mt this season, becoming the second biggest importer for that origin after Brazil, making harder competition for Australia.<\/p>\n\n\n\n
Australia already has the option to export milling wheat into Indonesia at a zero duty rate, versus 5% imposed on other exporters, but Indonesia typically bans the import of barley, wheat and sorghum for feed purposes.<\/p>\n\n\n\n
The agreement also makes provision for a joint grains market development initiative intended to develop the Indonesia-Australia supply route.<\/p>\n\n\n\n
\u201cThese provisions offer important avenues to\u2026 compete more strongly with cheaper Black Sea or Argentinian origin wheat, which may have been used for feed (even though imported as milling),\u201d Gordon said in an emailed statement.<\/p>\n\n\n\n
While Indonesia hasn\u2019t typically used sorghum or barley \u2013 the subject of China\u2019s ire in its Australian anti-dumping investigation \u2013 in its feed mix, the agreement may encourage some outlet, according to the market source.<\/p>\n\n\n\n
\u201cMaybe it opens up Australia barley and sorghum into Indonesia when it prices competitively versus wheat into the feed ration,\u201d the source said.<\/p>\n\n\n\n
Finally, the agreement also includes eliminating tariffs on frozen beef, potentially boosting domestic Australian feed\u00a0demand.\u00a0<\/p>\n\n\n\n
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