Global oversupply impacts Tasmanian poppy industry

The Agribusiness Bulletin

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Global oversupply impacts Tasmanian poppy industry - industry coming down from a high 

Tasmania is a global leader in poppy farming, supplying half of the global supply of licit raw material for pharmaceutical processing. The industry has traditionally been a major part of the Tasmanian agricultural sector, with an estimated farm gate value of approximately $100 million. With around 850 growers and 1,200 fulltime equivalent associated jobs at its peak, the overall value to the economy of Tasmania was estimated to be between $300 million and $400 million¹. In 2013, 28,000 hectares of land was under cultivation for the purpose of growing poppies².

However, recent global oversupply and structural changes to the industry nation-wide have meant that the boom times for local poppy growers appear to be over in the short and medium term. Both growers and processors are feeling the pressure to downsize operations or to consider exiting the industry.

Following changes to US prescription policies in 2013 which have driven down demand, more reductions in demand for opiates will be forthcoming. The DEA, in its October 2016 Final Order, stated that as well as a focus on reducing sales of medications, restrictions will also be put on the amount of medicines that may be manufactured in the United States by up to 25 percent³. The end result is a significant reduction in demand for raw opiate materials.

The impact of these factors is that the world is awash with opiates. The current global supply of opiate material is currently 17 months, which is 142 percent of the United Nations preferred 12 month supply⁴. This in spite of a recent Downy Mildew outbreak that destroyed up to 20 percent of the 2015 poppy crop in some areas of Tasmania⁵.

Compounding the issue for Tasmanian growers, is the passage of legislation in New South Wales and South Australia to legalise the growing of poppies in both those states⁶. This will further increase competition in Australia, after the establishment of poppy crops in Victoria and the Northern Territory already having occurred in recent years⁷. One of Tasmania’s largest processors, TPI Enterprises, is now sourcing more than half of its poppy resource from the mainland, and has moved production to Port Fairy, Victoria.

The oversupply of material is affecting growers through large decreases in volume on supply contracts. The two largest processors, Tasmanian Alkaloids and Sun Pharmaceuticals have reduced their poppy orders². In 2017, about 7,500 hectares of poppies will be harvested, just over one quarter of the peak harvest of 2013⁸.

In the fall out, both of these processors have changed ownership; SK Capital purchasing Tasmanian Alkaloids from Johnson & Johnson and Sun Pharmaceuticals acquiring the alkaloid producing business of GlaxoSmithKline⁹. Tasmanian Alkaloids announced a reduction in its casual labour hours in November 2016¹⁰. The pressure on growers has already driven some to leave the sector, with 550 poppy-growing licenses being held in Tasmania, down from 850. Farm gate income from poppies is expected to reduce by $30 million for the 2017 harvest¹¹.

The reality of the poppy industry is that is it completely at the mercy of global markets and competition. The factors which currently afflict it show no signs of abating.

The impact of the global poppy over-supply not only affects growers and processors within Tasmania, it also affects agricultural supply companies, transporters and other businesses through the value chain.

Work is currently being done with growers and other affected business across various industries in looking for ways to ensure sustainability through challenging times.

Authors

Travis Anderson

Shelley Brooks

Richard Beaumont

Sources

1. http://poppygrowers.com.au/?page_id=2
2. http://www.abc.net.au/news/2016-05-09/tasmanian-poppy-pain/7396334
3. https://www.dea.gov/divisions/hq/2016/hq100416.shtml
4. http://www.themercury.com.au/news/tasmania/tasmanian-pharmaceutical-poppy-industry-in-oversupply-crisis-that-could-5 slash-production-in-half/news-story/cbf6f8697d728cbd2a6ffadf91096732
5. http://www.abc.net.au/news/2015-03-10/poppy-mildew-risk-tasmania-processor/6295372
6. http://www.abc.net.au/news/2016-10-31/opium-poppies-grown-nsw/7979882
7. http://www.abc.net.au/news/2016-03-07/mainland-poppies-increasing-yields/7225410
8. http://www.theadvocate.com.au/story/4382141/poppies-almost-ready-for-january-harvest/
9. http://www.abc.net.au/news/2016-03-10/sk-capital-looks-set-to-buy-tasmanias-largest-poppy-processor/7237040
10. http://www.examiner.com.au/story/4269517/tas-alkaloids-to-reduce-staff-in-2017/ 
11. http://www.abc.net.au/news/2016-05-06/demand-for-tasmania-poppies-drops/7390824