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Bulk grain export supply chain costs draft report: South Australia

by Grain Central, 07 August 2018

A SOUTH Australian government review has conditionally given the thumbs up to existing cost structures in the state bulk grain export supply chain.

The review was commenced in March 2017 when Treasurer Tom Koutsantonis, gave terms of reference to the Essential Services Commission of South Australia (ESCOSA) to conduct an enquiry into bulk grain export supply chain costs in that state.

A draft review was released today and further submissions are sought from stakeholders by 17 September.

Here is an edited extract of some of the draft findings:

Overview of the supply chain

In its overview of the supply chain the commission referred to significant seasonal variability of grain production.  It concluded that high returns in good years may be necessary to offset poor returns from bad harvest years for participants to achieve a reasonable return on average. (Draft Finding 3.3)

There is already strong competition among exporters; 11 grain traders had booked shipping slot capacity with Viterra to export the 2016-17 grain harvest. (Draft Finding 3.4)

Viterra has a high market share of bulk grain storage in South Australia, operating 94 percent of commercial grain storage sites in South Australia, while total on-farm storage capacity, relatively small in South Australia, was static over time. (Draft Finding 3.5)

Whether the supply chain is efficient

The commission found that supply chain freight and port services fees were being set on a competitive basis. However a possible exception to competitive setting of fees was the fees for port receival and outturn from storage services. It noted Viterra’s upcountry storage and handling facilities were not covered by any industry-specific regulation.

While Viterra faces some competition (actual and potential), the extent to which competition places effective and credible discipline on Viterra’s behaviour is not clear. The global market may place more effective discipline on Viterra’s behaviour than any local competition could. (Draft Finding 4.2)

The commission found total upcountry-to-vessel loading fees were broadly stable in recent years, having moved at an average rate only slightly above inflation from 2013-14 to 2017-18.

It found no evidence that Viterra’s fees were excessive compared with the total fees charged by its eastern Australian counterparts. However Viterra was earning returns towards the upper level of what may be considered reasonable.

The Commission considered Viterra’s behaviour in relation to the remaining fees and practices investigated  such as Export Select, grower direct deliveries to port, capacity booking fee, lost capacity fee, shrinkage and dust rates, and the impact of vertical integration was not, on its own, detrimental to the efficiency of the supply chain.

Other issues

The commission said the  public release of more grain stock information had both strong industry advocates and opponents.

To the extent that the release of more stock information has net benefits, the grains industry should be able, by itself, to achieve the best outcome.

It found the freight cost component of the supply chain costs was efficient, within the current economy-wide framework for establishing road user charges and identifying road investment priorities, suggesting the competitive road freight industry underpinned efficient road and rail freight rates.

It was not clear to the commission that the practice of quality arbitrage was detrimental to the overall returns achieved by the grain industry.

The Commission would consider further the merits of the Grain Producers South Australia (GPSA) proposal for a state-wide transport access regime (including grain storage and handling) in the light of submissions.

It would also consider any position reached by the Department of Agriculture and Water Resources (DAWR) in its Port Terminal Access Code (PTAC) review final report.

Following further submissions, from stakeholders, to be received by 17 September the commission intends to provide its final report at the end of October.

Read the original document here

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