Shutting silos: what cost?

04 Dec, 2013 04:40 AM
There's a lot of people upset about how run down the infrastructure is

FARMER lobby groups are calling on GrainCorp to share the benefits of shutting various grain silos with ­growers, amid concerns the closures will drive up farmers' freight costs and pressure marginal growing regions.

After Treasurer Joe Hockey's shock decision to block US giant Archer ­Daniels Midland's (ADM) $3 billion takeover bid for GrainCorp, chairman Don ­Taylor has said the company's storage and logistics network needs upgrading and would require rationalisation.

Farmer groups, which lobbied ­intensively against the takeover deal, said the move to close some silos is not surprising but could have significant consequences for growers.

AgForce grains president Wayne Newton, who represents Queensland's grain farmers, said some marginal grain-growing parts of the state may become uneconomic if they lose access to nearby silos.

"It's a real balancing act in some areas. Growers are already questioning whether they will stay in grain in some areas where the combination of freight and handling costs are so high," he said.

"There's a lot of people upset about how run down the infrastructure is. There are plenty of stories of big lumps of concrete falling off silos and the ­general state of repair has been poor."

One of the nation's biggest growers, Ron Greentree, says as many as 150 of GrainCorp's 280-odd east coast storage sites could be closed.

Many of those sites are closed depending on seasonal conditions in any given year. About 80 per cent of GrainCorp's annual receivals go through 100 sites and the company spends between $40 million and $60 million every year on repairs and maintenance for its storage network.

In some areas, dilapidated country branch lines make rail impractical because of weight and speed restrictions. Closing marginal silos in those regions would allow costs to be recouped and reinvested in the core storage sites.

NSW Farmers grains committee chairman Dan Cooper said no one expected GrainCorp to keep investing in 280 different sites but added the ­company needed to work with growers during the rationalisation process.

"Rationalisations are fine as long as they reinvest in key areas. We have to make sure growers don't lose efficiency, otherwise it would push grain out of the system," he said.

"ADM was going to do it so I don't see it as new. The big problem is if people cart grain further, there needs to be a cost benefit to do it. Some of the efficiencies GrainCorp picks up need to be passed back along the system."

Victorian Farmers Federation grains president Brett Hosking said rationalisation "will mean higher freight cost and more trucks on the road".

Michael Riley, who conducts business advisory services for Riland and is a former director of venture capital for Lend Lease, said a way to resolve the monopoly and foreign-ownership ­concerns could have been to split GrainCorp's infrastructure from its grain trading and processing business.

"Separation would remove a vested interest further along the value chain, facilitating more open access and competition among grain traders, with grain producers benefiting from that price competition," he said.

An Australian wholesale fund could be established to house GrainCorp's infrastructure assets, with a potential role for investors like the Future Fund, he said.

Analysts say there are several options for ADM in relation to GrainCorp, including a marketing alliance, returning with another takeover bid in the future or buying some GrainCorp assets.

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4/12/2013 5:26:23 AM

Graincorps storage assets were designed for the single desk not for the current shambles. For graincorp to close state of the art storage facilities to remain competitive is to throw away its assets, which cant be sold to their competition to use against them so they will simply sit and decay once closed. The government created this farce by ending the single desk, they frankly should resolve it by buying graincorp and selling off all its assets piecemeal to as many different buyers as possible creating real competition and ending the spectre of one big fat pig holding the circus to ransom
4/12/2013 6:54:15 AM

Pucker up boys! Higher costs coming your way. Ignorance it seems finally has a price and all East Coast growers will pay for Hockey's decision. Graincorp's balance sheet will be very shaky after this drought so expect a theme of underinvestment in the logistics network into perpetuity or until you finally accept foreign funds are needed to reinvigorate infrastructure. In other words, higher costs, more hold ups at harvest and a lower level of service. Congratulations boys, a real win for farmers!
Graincorp Shareholder
4/12/2013 7:02:13 AM

You blokes are unreal. You want to dictate how an ASX listed company invests whilst not one of you is on the share registry. If you are so passionate about the future of Graincorp, why did you sell it in the first place? Mob of absolute hypocrits. Nationalise the farms I say. Why should 10,000 ignorants get rich on exploding food prices? They farm the people's land!
4/12/2013 7:16:35 AM

Mind your blood pressure graincorp shareholder. The mythical exploding food prices you speak of are usually spoken for by the parties down stream from the farm gate. Farm gate prices for produce are only a tiny fraction of what the consumer pays. For example, the wheat farmer gets just 10-12 cents out of the loaf of bread you pay between $2-4 for. The dairy farmer gets between 30-40 cents for the bottle of milk consumers pay $2-4 for. Meat and other farm produce is a similar story. Please also note that the Govt sold the silos after farmers had already paid for them once at least.
4/12/2013 7:23:11 AM

Benefits will go to Shareholders folks, not farmers - to think otherwise is naive in the utmost, and if the Directors act otherwise they will be negligent in their duties to shareholders - and thus open for challenge. Would love for someone to explain to me where the domestic investment is going to come from, because as an International investor the sector has just become rather unattractive
4/12/2013 7:54:15 AM

I can not believe what I am reading here. Non-shareholders scuttle a significant investment and business improvement opportunity and then put the hand out. The industry that time forgot!
4/12/2013 8:26:27 AM

All of the comments above have an element of truth to them. The graincorp storage and handling business model needs to be reassessed. Buyers of the farmers grain are finding it too difficult to access their grain due to very poor service levels and an equally poor coordinating process. This results in more competition for on farm grain than warehoused grain.
Radish Free
4/12/2013 9:50:07 AM

Ummmmm, Deregul8, there are many many other options of handling grain than using Graincorp facilities. If you ever got out from behind your computer and had a look in the real world you would see that.
4/12/2013 10:48:45 AM

Well Radish- if that is the case, then why was it in the national interest to disallow the sale? And where were all of these agrarian socialists when ABB was sold to Viterra?
4/12/2013 1:38:10 PM

Dingdang8, graincorp has been closing silos and reducing its services even before the single desk ended, what's news, the process was only going to accelerate under ADM as their record shows they were never an egalitarian mob, they are gougers.
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