LIKE it or not, scale really matters in the global grain industry says GrainCorp chief, Mark Palmquist, who argues Australia must make huge supply chain improvements to compete against rival exporters who are getting bigger and better at taking our markets.
In a far-from-subtle reference to the reasons behind his company's $300 million investment in a bold proposal to privatise West Australian co-operative CBH, Mr Palmquist said the export grain sector must focus far more on transforming its traditional grain production, receival and port processes.
He told the Outlook 2016 conference the odds were fast stacking up against Australian graingrowers as low oil and shipping costs now made it possible to ship wheat from Russia to nearby Australian markets in Indonesia for less than it costs to take grain from GrainCorp's Swan Hill silos in northern Victoria to ships in port at Geelong or Melbourne.
While Mr Pamlquist insisted any decision on CBH's future was in WA growers' hands and would be accepted and respected by GrainCorp, there were many positive reasons to free up CBH's capital structure so growers had more cash to invest in farm productivity gains and the WA company could bring in extra outside funds to "do the things it does well on a grander, more competitive scale".
"Like it or not scale does matter if you are going to be relevant in the international market and reward growers back here," he said.
"Our international competitors and customers are consolidating and we as a country have to get more transformational about keeping Australian grain earnings competitive."
Investor sector speakers told the big agriculture industry forum they were closely watching the CBH plan unfold and saw it as an attractive capital investment option.
First State Super's head income and real assets, Damien Webb, said there was "a lot to like in agriculture", particularly as Australian farmers were good at what they did and very productive.
"It's an asset class we'd like more exposure to," he said, identifying First State's interest in making credit available to agribusiness investors, as well as land and water leaseback deals to corporate or family farmers.
But Mr Palmquist said while a window of opportunity for making grain industry gains was still open at the moment, the pace of change in the market meant it was only "a little window".
An 80 per cent drop in the Baltic Dry Index shipping freight cost in the past two years, partly due to an 70pc drop in oil costs and a shipping vessel surplus, meant farmers were paying a big price for uncompetitive infrastructure and labour costs as new players targeted our markets.
Freighting Ukrainian wheat to the Middle East now cost $35 a tonne less than shipping it from Australia.
"That's important," he said.
"The Middle East might not be as close as our Asian markets, but it traditionally has taken 35pc of Australian wheat exports."
Much-reduced exchange rates had helped make Russia, Ukraine and Argentina more profitable wheat producers with their currencies diving 19pc, 16pc and 43pc respectively against the US dollar in the past year, while the Australian dollar was down just 8pc.
Even Western Europe was a growing competitor, with its production up 8pc and exports up 80pc since 2012.
"Yes, it all sounds pretty negative for us. There are some pretty strong headwinds out there forcing our industry to be much more competitive," Mr Palmquist said.
"Our challenge is to look for ways to improve yields so we can get more sales into markets in Asia; look for ways to attract capital to fund efficiency and grain segregation improvements and improve our pricing tools without going head to head against our competitors on price."
Referring to some simple examples of GrainCorp's own transformation initiatives he pointed to the new Calleen receival site in Central West NSW which handled 115,000t of grain in the recent harvest employing just one full-time GrainCorp employee and seven casual staff.
Traditionally a GrainCorp silo taking 100,000t at harvest employed 20 to 25 workers.
Fewer, but bigger or more efficient receival sites in the grainbelt meant cheaper labour costs, while much needed strategic upgrades to eastern Australia's rail network would shave another $5 to $6/t from farmers' freight bills.
Identifying and servicing premium market opportunities, including specialist barley sales to Japan and highly refined canola oil for the booming infant formula market, were increasingly critical to lifting Australian grower profitability.