The Australian grains industry is in the midst of a “capital shift” as players increasingly invest outside their traditional bulk-handling delivery networks in their pursuit of global competitiveness.
An industry report on grain’s “de-bulking” trend, by agribusiness banker Rabobank, has explored the shift from a bulk grain handling network to a more disaggregated and flexible delivery system.
It highlights changes on farms where more storage is being built and also at port – including the rise of loading direct from bulk road transporters, containerised grain exports and newer bulk terminal export capacity.
Report author and Rabobank senior grains and oilseeds analyst, Cheryl Kalisch Gordon, noted greater bulk handling network rationalisation would tend to drive more farmers and other grain sector players to work outside of the bulk-handling network.
End-users’ requirements for grain functionality provenance and more opportunities for segregation are at odds with a trend towards rationalisation of bulk supply chains
- Cheryl Kalisch Gordon, Rabobank
Her report cited the Canadian grain-handling system, where all grain is held on farm and moved to port as required, was an example of what could be ahead.
Dr Kalisch Gordon said the shift to investing in new grain storage and handling alternatives was being accelerated by bulk handling network rationalisation.
However, while rationalisation – including closure of up-country receival sites, replacement of multiple smaller or dated silos with single larger silos, and expansion of centralised sites – delivered efficiency gains with greater capacity utilisation, it could reduce the ability of the bulk-handling system to segregate grain.
“In a global market where end-users’ requirements for grain functionality provenance are increasingly important, more, rather than fewer opportunities for segregation, are presented,” said Dr Kalisch Gordon.
“This is at odds with a trend towards rationalisation of bulk supply chains.”
Subsequently, grain farming businesses were faced with important decisions, particularly those affected by increased grain delivery costs from closure of receival sites.
“On the one hand, there is the option for farm businesses to avoid bulk facilities by investing in their own farm storage to respond to higher-value end markets,” she said.
“Or, they can invest in efficiency gains to deliver into the high-volume, low-margin international grains market via the bulk-handling network.”
“Either way, both of these alternatives require on-farm investment.
“But there is real opportunity for grain marketers and bulk handlers to work with grain farmers and be part of the new innovative solutions.”
More on-farm storage
The report said structural changes on-farm and at export ports were also resulting in the movement of some grain supply out of bulk-handling networks.
“On-farm capacity, in sealed storage, is currently sitting around 17 million tonnes to 18m tonnes, or the equivalent to 37 per cent of the total Australian winter and summer crop,” Dr Kalisch Gordon said.
“With more farmers anticipated to engage in their own, longer marketing programs, the blending of grain, and with the interest in pulses and speciality crops continuing to grow, we forecast as much as 20m tonnes of on-farm storage will be in use by 2025.”
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She said the drought on the east coast had also highlighted the mitigation strategy of storing grain.
The recently-announced federal government drought policy providing immediate tax deductibility on the cost of fodder storage assets such as silos and hay sheds.
Down at port
Options at the port were also growing.
The report noted a range of port developments reflecting an increasingly diverse capital structure in the Australian grains sector.
“There is growing investment in port-terminal capacity by non-traditional players,” Dr Kalisch Gordon said.
“Lucky Bay in South Australia’s Eyre Peninsula is one such example, with the port – currently under construction – receiving initial capital injections from private equity and ultimately farmers, and expected to deliver supply-chain cost savings of around $15/t from the closer port-delivery option for farmers in the region.
“These fixed-capital structure approaches to additional export capacity have also been joined by direct truck-to-bulk vessel handling,” she says.
“At a lower fixed cost of export capacity, these elevators allow the movement of grain from up country, including from farm storages, direct to ship.”
Already tried and tested in Western Australia, Victoria and more recently SA, these elevators were expected to be used more widely.
Dr Kalisch Gordon said the method had been proven to deliver additional, potentially lower-cost export capacity that could be redeployed throughout the year, to different uses and locations.
Box trade growing, too
She said “containerisation” of grain for exports – using container vessels for transport rather than dry bulk cargo ships – had also increased and was providing another dynamic in the movement of capital investment in the Australian grains industry.
“To date, growth has been largely in the eastern states with segregation opportunities for high-protein wheat in northern NSW and Queensland, and a relatively more mature pulse-boxing supply chain in Victoria.”
Traditionally, the box trade was to get supply to markets that couldn’t accept bulk shipments, such as Pacific Island territories and some Asian nations.
Now it had grown to accommodate niche supply chains in countries such as China, South Korea and Japan.
“Boxed exports are one way of guaranteeing provenance and also product assurance,” Dr Kalisch Gordon said.
“Demand for guaranteed origin, varietal integrity, assured production, environmental credentials, as well as secure GMO status, is increasing and this trend shows no signs of abating.”
While bulk-handler operators together with marketers can (and already do), capitalise on this demand and facilitate containerised grain exports, she said, the rise of on-farm storage would provide increased capacity for grain farmers to bypass bulk networks.
“The more rationalisation we see of bulk networks, the more we will see Australian grain- sector players work outside of the bulk-handling network, particularly if the subsequent efficiencies of rationalisation are not sufficiently shared with grain framers through lower costs, higher prices, or other benefits such as rebates,” she said.
“The extent to which these disaggregation and capital shifts occur would also depend on the development of new and innovative storage and supply chain relationships between growers, marketers and bulk handlers.”
Referring to Canada’s grain handling system, she said it was an example of bulk handlers leveraging on the co-ordinated network of on-farm storage and a delivery to port as a required system.
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