IMPROVEMENTS must be made to Australia’s supply chain if grain exporters are to remain competitive with Russia, Ukraine and Argentina, where major investment has driven down costs.
That was part of key preliminary findings from new research conducted by the Australian Export Grains Innovation Centre (AEGIC), which was presented at the Grains Research and Development Corporations (GRDC) Research Updates, Perth, last week.
According to AEGIC supply chain specialist Dr Peter White – who co-authored the report with AEGIC chief economist Ross Kingwell – while Australian costs had plateaued or slightly decreased over the past five years, more needed to be done to remain internationally competitive.
“The competitiveness of Black Sea grain is making life difficult for our traders and for our growers in world markets, but particularly South East Asia where it’s one of our prime markets,” Dr White said.
“Part of the reason is simply because we’re finding it more difficult to compete with the cost equation for some of the Black Sea grain.
“There are a number of things we can do for that, one of them is to make sure that our grain provides value to our customers, the other of course is trying to reduce our costs.”
According to the report, supply chain costs account for 30 to 35 per cent of total cost of production for Australian grain producers.
Dr White said several recent developments in the Australian supply chain meant costs had not increased significantly since 2014.
These changes included a reduction in the number of receival sites, further evolution of grain transport, changes to port regulation, and rainfall zones shifting closer to ports.
“What’s happened in terms of costs of grain receival over the past five years is that the real cost of receival has decreased by about eight per cent, but there is a fair bit of variation between your port service providers,” Dr White said.
“The number of receival sites has also decreased substantially, what’s happening is where most of the grain is actually received is concentrating into fewer and fewer sites.
“On-farm storage in Australia continues to increase and is increasing substantially in eastern Australia compared to WA.
“What you’re seeing in eastern Australia, the prices of those warehouse services certainly have remained flat or decreased more than what’s happened in South Australia and WA and that is because of the greater competition you’re seeing in the grain storage space.
“Rainfall zones are moving further south and west – this has important implications of where our wheat is grown, and also when you talk about supply chains.”
According to AEGIC, the way in which grain is moved in Australia is also changing.
The report found Australia ranked 35th in competitiveness of both road and rail infrastructure costs compared to global averages.
Dr White said road transport was becoming more competitive with rail in Australia, with improved roads, larger trucks, and reduced capacity of rolling stock.
“On the road side Australia performs better against many of our competitors in terms of your low cost competitors,” Dr White said.
“In Australia road is becoming more competitive with rail, as trucks are getting bigger, we’re getting better roads and we’re getting better regulations and you’ll see that road becomes even more competitive.”
Dr White said while supply chain costs in Australia were heading in a positive direction, costs in Russia, Ukraine and Argentina were likely to decrease further and at a faster rate than Australia, placing more pressure on grain growers.
However, he said there were several emerging opportunities to further lower the costliness of Australia’s grain supply chains.
“Costs of Ukraine, Russia and Argentina are likely to decrease faster than Australia and that’s because not only are they getting greater volumes, their yields are increasing at a faster rate than Australia, but there is a lot more international investment into those supply chains which will bring those costs down,” Dr White said.
“Some of the ways that we can reduce our costs – higher yields means more grains going through the system so the cost per tonne will be reduced.
“More investment into rail and better roads and better technology – most of the biggest costs for supply chain operators is labour and energy so investment there will reduce those.
“Regulation reform enabling supply chain operators to adapt more quickly to what’s going on and also greater intensity of cropping in some of those higher rainfall regions will mean that more grain is grown closer to the coast and also increase yields and enable greater economies of scale.”
The complete AEGIC report is scheduled for release next month.
