A NEW player to the WA grain market believes changes to CBH's Port Access Undertaking could put new industry entrants looking to grow their WA footprint at a disadvantage by limiting their ability to grow market share.
Earlier this year the Australian Competition and Consumer Commission (ACCC) released its draft decision to accept CBH's proposal to replace its existing Port Access Undertaking, which included the option for CBH to enter into Longer Term Agreements (LTAs) with exporters who use its port services.
Essentially, if introduced, the potentially new legislative framework would allow CBH to offer port access to its export customers that are willing to book a minimum of 600,000 tonnes of capacity per year for three years, rather than a on 12-month basis.
In the previous system, the port allocation auction system was a pure market instrument used to allocate CBH's port capacity, but shipping slots could only purchased on a year-by-year basis.
At the time, industry feedback supported CBH's goal to provide more certainty and long-term supply security for international grain buyers by using LTAs in a bid to establish markets, compete with forward pricing mechanisms and carry out longer-term contracts with growers, all with the knowledge that there would be guaranteed access to port capacity at the end of the day.
While the LTA process was still in its draft stages, it also only had the potential to be applicable to 66 per cent of a port's capacity, it was believed the system would leave sufficient room in the auction system for new entrants or for companies to expand over time alongside the issue of seasonal variability.
But according to CHS, a US based, farmer-owned co-operative which recently acquired a 50pc stake in Agfarm, the LTAs allowed those companies that were allocated a larger proportion of the shipping stem majority access for three years, limiting new entrants' ability to increase market share.
"For a company like CHS that has just entered the market it is going to be very difficult for us in the next three years to try and increase our market share because we are going to be restricted by logistics," CHS trading manager Chris Brown said.
Mr Brown said that in certain seasons, the previous auction system led to a distorted interior price and put significant risk onto the trade, which led CBH to consider the LTA system.
"The objective of the new system is to give everyone a core component of the capacity, then they have an auction to distribute the remaining 30pc in September," Mr Brown said.
"I think everyone was comfortable with the way the process was explained because if it couldn't be resolved in LTA negotiations then it reverted to an auction, from the point of view you couldn't get a more equitable process.
"But what has actually happened is that there has been so much demand to go into these LTAs because they are so low risk and there is a lot of demand to come to WA to export grain, they were so heavily oversubscribed that CBH couldn't resolve it."
Mr Brown said applicants were given the opportunity to revise their applications.
"It remained heavily oversubscribed and the tonnage that came out was quite insignificant," Mr Brown said.
"CBH then took the initiative to use full discretion and make offers of LTA capacity to all the applicants."
Mr Brown said CBH's method behind its allocation of LTA slots was unknown.
"Some members of the trade have received a share of 10pc but some members of the trade have received up to 70pc of what they applied for," Mr Brown said.
"Sixty per cent of the shipping capacity will be allocated under LTAs but you can still go into an auction in September and there will be another 30pc of the annual volume available there. "You can go and get the rest of your requirements in the auction but given the risk, what you are going to have is companies will have a larger proportion of their shipping capacity as LTAs, with a known risk."
Mr Brown said the LTA system was inequitable because it favoured existing companies that had a history of export volumes out of WA and made it impossible for a new entrant to gain and equitable share of capacity.
"With the LTAs you only have to write out a cheque for a booking fee of $4, if you don't use it, it's another $6, but if the auction premiums go to $30-40 that is your risk on the table," he said.
"Picture a company that has 70pc of their requirements, and the risk on that is capped at $10 and they go into the auction to pick up the remaining 30pc, and let's assume the risk on that is $30.
"Now think of a company on the other way round that has 30pc weighted at $10 and 70pc weighted at $30 clearly two buyers are acting on two different cost structures and risk profiles. "That is the inequitable part of it."
Mr Brown said WA growers wanted greater competition every year, but the new LTAs reduced competition over the life of the three-year agreements.
"If we want to have sufficient competition at the farmgate you have to have an ability to come into the market each year you can be frozen out for three years," he said.
CBH general manager of operations David Capper said demand from companies seeking access to LTAs well and truly outstripped supply.
"We went back and forth, and informed players what they were requesting was far more than we can provide and so we couldn't make it settle," Mr Capper said.
"We had strong feedback from the majority of customers who said they didn't want to go back to the full auction, they wanted CBH to try make the LTA process work.
"We went to customers and said for this to work your request would have to look like this for the capacity to come in line and for us to be able to accept the LTA.
"We based that off what people had asked for, and where we could fit them in."
Mr Capper said 80pc of companies accepted their offers straight away equating to 93pc of exporters who particpated in the market throughout the last three years.
"The process has worked very well and has actually brought three new customers into the market, that have neve exported out of WA before. That is really positive," he said.
"Based on the offer we have put out there would still be 6mt available in the annual auction."
Mr Capper said overcapacity occured in certain months, with the most highly prized slots in the Kwinana and Albany zones between February and April.
"If all you asked for was those slots in those ports in those months then you probably didn't get much of what you asked for, but if you were seeking capacity in Esperance and Geraldton in the back-end of the year you could've got up to 100pc of those slots because they weren't in demand," he said.
"Yes the percentage of what companies receieved varied but that was mainly due to what they asked for, everybody is in the same position when applying for those slots."
Mr Capper said three new customers that had been unsuccessful in gaining access under the former system have been able to obtain capacity through the process.
"Overall if we are able to allocate 8mt through the LTAs and 6mt in the auction there is going to be a lot more port space sold than there is grain to buy," he said.
"We don't think we are blocking new entrants, in fact we think this process has brought new entrants in, they have been offered it but whether they accept it is a different story."
CBH is still waiting on ACCC to sign off on the undertaking, and expect few changes to the final proposal.
It expects a decision on the ACCC ruling within two weeks.