Farmgate profits run off the rails

10 Nov, 2014 01:00 AM
Comments
26
 
We need to replicate the bulk systems of the mining industry

OUTDATED railways are strangling farmgate profits for east coast growers, and action is needed now to lower supply chain costs.

While most people agree increased investment in rail is the best bet, significant improvement appears a long way off yet.

Hume MP Angus Taylor co-authored a report for the ANZ Bank called Greener Pastures: The Global Soft Commodity Opportunity in 2012, before entering parliament.

Mr Taylor said east coast growers "should aspire to knock about 40 per cent" off the current supply chain cost for grain.

"We need to replicate the bulk systems of the mining industry," he said.

"Of course grain is different because it is a seasonal commodity, but we can learn a lot from those systems."

Ignoring the middle

Exporters have pumped cash into grain supply chains since market de-regulation - but their investments have focused on the extremities of the system, resulting in both new and improved ports and some up-country infrastructure.

The rail lines left in the middle are old, slow and expensive.

GrainCorp's estimated "broad average" supply chain cost is about $85 a tonne and rail can comprise up to half of that cost.

NSW's branch line system, which receives grain from up-country facilities, has improved little since Federation.

The Australian Export Grains Innovation Centre 2014 supply chain report found a "high percentage of the Australian grain rail freight moves on lower-efficiency lines with 16-tonne to 19t axle-load capacities, compared with Canadian and US loads of more than 23t.

Higher axle loads mean heavier wagons on a rail line.

Heavier wagons move more grain, which boosts efficiency and lowers supply chain costs.

"From a farmer's perspective, it is embarrassing that we have a Third World supply chain in the year 2014," NSW Farmers grains committee chairman Dan Cooper said.

Potential limited

Canadian grain travels $23/t cheaper than on Australia's east cost network. GrainCorp, which is limited by the rail network's capacity, has 15 train sets each with 40 wagons delivering a total potential rail haul of 4 million tonnes.

GrainCorp spokesman Angus Trigg said most trains carried 20 per cent less than their potential maximum when travelling on poor quality branch lines.

The federal government has promised an inland rail line to finally link Brisbane and Melbourne ports, and Mr Taylor said the scheme was a good starting point.

"It would create new options for growers, but the (project's viability) won't just depend on grain - but it will be a useful part of it," he said.

However, NSW Farmers said the inland rail would be a long way off, and the State government needed to "step up and invest" in branch lines now.

"Lower farmgate prices will occur only if government invests to improve branch lines," Mr Cooper said.

"The status quo is unsustainable. On average, a third of the value of wheat is spent on supply chain costs, and half (of that) goes to rail."

A user-pays model

GrainCorp was investing to increase the efficiency of its up-country storage through its $200 million Project Regeneration, but the benefit to farmers would be limited unless rail was beefed up as well.

"Grain trains that travel at 30 kilometres an hour, half loaded, down a branch line are not tenable," he said.

"Rail is key. You need to haul large tonnages to port. The only way to move that quantity efficiently is by rail."

Mr Trigg said immediate efficiency gains could be had if the NSW government invested in up-country loading sites.

"A lot of rail sidings were built a long time ago and are too short, which means modern trains have to be broken up and shunted off to other sites down the track to be loaded, which costs time and money," he said.

"Sidings need to reflect the length of a 40-wagon train so we can have better loading rates.

"That could deliver some real efficiencies quite ­quickly."

The NSW government Freight and Port Strategy released late last year predicted the State's freight volumes would double by 2031 and all key corridors would struggle to meet demand "unless action is taken".

Road carries two-thirds of the 400 million tonne freight load, and rail could be a key to spread the burden and boost efficiency.

Agricultural produce makes up 20pc of total freight movement.

Mr Cooper said a user-pays model would "incentivise private enterprise to co-invest with government in the rail network, which would help get it up to the level it should be".

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TheLand
Mike Foley

Mike Foley

is a senior journalist for The Land
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READER COMMENTS

wtf
10/11/2014 2:00:01 AM

Funny how there has been a strategic assault on the controlling interest of graincorp and now we are hearing the cry for the need to improve rail efficiency. Are we expected to believe farmers will be the benefactors of this? Try the new shareholders of graincorp using the public purse. This is just nonsense and graingrowers have been used.
Jock Munro
10/11/2014 2:33:21 AM

Angus Taylor should speak to his Liberal colleagues that sat with Rudd Labor in parliament and abolished the single desk. Since we growers lost the legislated national pooling arrangement, our supply chain costs have increased by almost 40%. Growers have no way of leveraging the service providers.
GFA
10/11/2014 7:46:23 AM

Australia has the most inflated regulated industrial award and environmental systems in the world. These two systems, which are charged out to all businesses in Australia, are grossly under estimated in the level of damage they are doing to local business, (like farming), They raise all costs in all inputs and supply chains and in infrastructure upgrades. This is inequitable and unsustainable for Australia competing in unregulated global markets. We are giving away our assets by trying to survive on unregulated global incomes while paying inflated regulated costs which our competitors don't.
LTF
10/11/2014 7:54:24 AM

A big reason why our rail infrastructure has not been upgraded since Federation and is at worlds highest cost, is that we have the highest cost and most restrictive regulations in the world. Countries like China have been building many new rail lines and trains over the last 20 years. They do not constrain themselves with the high cost regulations we do. They now have rail transport that is as quick and efficient if not more so than air transport. So long as we oppose reform in our regulations like labour and environment we will continue to hand over our country's assets to foreigners. WAKE UP
Inverell
10/11/2014 8:33:40 AM

We had a better rail system 80 years ago than we do now. What will it take for our ignorant politicians to look around and see what has become of this country. Rural AU continues to decline because of; See GFA's comment. I may be wrong but didn't the US remove or water down Workcover. This is another area where we are at a disadvantage. I think they understood it was holding their country back as it is here. Wages are too high, all of our rail was built in a time when our pop and wages were low. Now they cannot even maintain the small portion they still use. Wake up!
Bushie Bill
10/11/2014 11:57:27 AM

Get yourself a fettler's job, Invy.
Deregul8
10/11/2014 12:35:49 PM

Yes Jock but average wheat prices especially in WA and SA have moved significantly higher, more than amply covering for rising costs. Of course, most farmers now understand that as investment in the supply chain begins in earnest, those who have had a short term opportunity to 'profiteer' from any legacy issues, will now have their margins trimmed by competition and farmers will be the big winners.
JT
10/11/2014 2:28:25 PM

Deregul8, show us where there has been any new investment in grain rail infrastructure, or where any is planned as a result of deregulation.
Jacky
10/11/2014 3:41:32 PM

Not sure why people on here are often advocating low wages - why do you live in a first world country and expect your contrymen to accept third world wages?
John
10/11/2014 3:43:37 PM

The U.S and Canada have private railway companies that own the track and the trains, if hauling grain is such a good idea then why don't the transport companies invest in the upgrade and reap the reward. Oh that's right it won't return enough to cover the cost of investment. We killed the car industry because of subsidies so why should farmers get it because thats what you are wanting.
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