GrainCorp feels heard on rail needs

23 Dec, 2014 01:00 AM
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13
 
GrainCorp CEO Mark Palmquist.
It was reasonable to expect government support for GrainCorp's initiative
GrainCorp CEO Mark Palmquist.

GRAINCORP bosses are surprisingly upbeat about the likelihood of getting government financial backing for rail infrastructure upgrades at key silo sites across its eastern Australian network.

Chairman Don Taylor told last week's annual general meeting there were positive signs governments would "find ways" to work with GrainCorp's infrastructure improvement agenda - the single largest investment in rail loading capability in the company's history.

New managing director Mark Palmquist also noted there seemed to be "pretty good confidence about the awareness that something has to be done" with the nation's dilapidated country rail network.

The big bulk handling and marketing business is midway through closing more than 100 sites in NSW, Victoria and Queensland and creating receival cluster areas based on key depots where it will spend $200 million in a three-year period to boost storage and rail logistics efficiencies.

GrainCorp expects to triple its rail loading rates to average more than 500 tonnes an hour, estimating the rail export efficiency lift could be worth an extra $5/t in returns to growers.

That would translate to about $90m for its farmer customers.

Its Project Regeneration improvements aimed to cut GrainCorp's road freight task by a million tonnes annually by diverting grain to railway lines, while also reducing the rural community's road maintenance costs and road safety concerns.

However, at more than half of the 60 key grain sites being upgraded, rail siding track extensions and improvements are badly needed so loading and unloading operations can accommodate today's longer grain trains.

"Government-owned rail sidings are a major source of inefficiency because they cannot currently hold a full unit train for loading," Mr Taylor said.

Benefits from the silo upgrades could not be delivered in full without governments chipping in $50m to $75m to improve the outdated rail network, particularly at country silo sites.

"We will continue to encourage governments to play their part in delivering for the industry and for out regional communities," he said.

Given the productivity benefits available, and that the public rail improvement spending required was considered by the freight industry as relatively reasonable, Mr Taylor believed it was reasonable to expect government support for GrainCorp's initiative.

Although he had not been offered "a bag of money yet" he felt there was serious government understanding about the need for a special funding commitment.

Challenging year ahead

Possibly a bigger challenge facing the company in the year ahead was its low grain intake after another drought-squeezed year and market competition which Mr Taylor said had never been more intense.

GrainCorp's core storage and logistics business earnings are highly

sensitive to grain receival trends, which last year fell 23pc to 8m tonnes, with exports down almost 50pc to 4.4m tonnes.

Current harvest receivals totalled 6.4m tonnes last week, with much of the winter harvest now finished and prospects for a summer crop intake looking limited.

"It will again be a challenging year in the next 12 months," Mr Taylor said.

Mr Palmquist confirmed there was "no question the 2014-15 year's receivals and exports will be down" and the company had to look at places where revenues could be grown to make up for the shortfall.

GrainCorp's recent diversification into edible oils had good potential to expand and its international malt division was "in pretty good shape" with disciplined savings and energy, water and labour efficiencies assisting its bottom line returns.

The malt business was also working hard to maintain its strong relationships in the niche craft beer and whisky distilling markets.

The company would also generally benefit from the lower the Australian dollar and potential growth in barley exports to China in the wake of free trade negotiations.

Increasing market competition in eastern Australia and drought contributed to GrainCorp's 64pc net profit slump $50.3m last year.

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FarmOnline
Andrew Marshall

Andrew Marshall

is the national agribusiness writer for Fairfax Agricultural Media
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READER COMMENTS

Jock Munro
23/12/2014 5:19:36 AM

How cute - Graincorp lobbied for years to get Government legislation that enhanced grower marketing removed but now they are putting out their hands for Government assistance to improve their bottom line. Graincorp also paid excessive dividends to shareholders instead of reinvesting in the storage and handling system at a satisfactory level.
mark2
23/12/2014 8:01:46 AM

I wonder if there are any growers that think that a $5/t saving on logistics will offset to any degree the extra costs of handling and freight to get grain to their "key" depots
boris
23/12/2014 9:58:37 AM

If true, this is another back-flip by the coalition. I don't blame GrainCorp for seeking government help after the ADM take over was blocked, which would have bought much needed infrastructure investment into the aging system. But I do blame the coalition for even considering this request when its own narrative is to end corporate welfare. As a tax payer i don't want one cent of my hard earned going into infrastructure when private enterprise was willing to fund it. Those farmers who opposed the takeover, when the company isn't theirs, should be hung out to dry...and Hockey should resign!
PT
23/12/2014 1:39:48 PM

I read this article and it seems that it was about upgrading railway not the graincorp system. As far as dividends go, I can assure you there is better companies than Graincorp to invest your money in, like the banks and retail. Or do we think it is GrainCorp's responsibility for the rail tracks as well storage and handling?
torobrook
23/12/2014 2:35:38 PM

The Liberal Party senior coalition partner should hang their head in shame for consistently caving in to the agrarian socialist Nats. It happens all the time in agriculture and results in craven hypocrisy and bad policy. No wonder some turned to Labor in 2006/2007 to advocate for and have implement reform in export wheat marketing and then in 2012 to have the process completed. The grain infrastructure needs of NSW were to be well on the way to being met by the ADM offer. But with the conspiracy theory laden lobbying by a bunch of fear mongering wheat growers and all go weak at the knees.
mark2
23/12/2014 3:12:14 PM

You are mistaken, Torobrook, if you think selling Graincorp to ADM was going to improve rail infrastructure or handling, for that matter. Graincorp has been a listed company for quite awhile now with a handy monopoly on access to export markets and has done absolutely nothing to improve anything. Recent moves to shrink the network would have been ADM's first move, logical really, just like Cargills takeover of the AWB sites, they just buy up assets and then go to Government to fund infrastructure, which is exactly what goes on in the US. Labor's move in 2006/7 was purely political.
Jock Munro
24/12/2014 4:39:53 AM

No Torobrook and Boris-many of us in the East are alarmed (but not surprised) at the transfer of ownership of our grain marketing and infrastructure into foreign hands. Keeping Graincorp in Australian hands was a must.
Deregul8
24/12/2014 5:47:06 AM

The decay to the s&h network began back when the domestic wheat market was deregulated in 1989. That allowed greedy agsoc farmers in NSW to cling to the Single desk when Australia had a big crop and export premiums out of WA drove pools higher, only to avoid the costly pools when drought struck and domestic premiums drove farmers to store on farm and sell to local markets.
Consolidated
24/12/2014 6:47:48 AM

Munro, if you seriously believe your own claptrap there was and still is no reason you couldn't KEEP Graincorp in Australian hands. All you need do is dip into your OWN pocket, a concept probably fairly uncomfortable for you, and BUY Graincorp shares. You too could SHARE in the super profits.
boris
24/12/2014 7:22:37 AM

At least you got your money, Jock. The equity growers could have in CBH is in terminal decline as multinationals offer a cheaper path to port. A fifty million dollar investment in WA will capture 10% of the company's value, never to return. The competition will keep lots on the land but the equity would have been the icing on the cake. Oh well!
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