THE Australian grains industry is in the midst of a capital shift as grain-sector players increasingly invest in options outside the bulk-handling delivery network in pursuit of global competitiveness, according to a Rabobank report.
The report, Australian Grains – De-bulking in the pursuit of global competitiveness, says the shift is taking place on the farm with increased on-farm storage, and also at port, with direct loading, containerised grain exports and newer bulk-terminal export capacity.
Describing it as “de-bulking”, Rabobank senior grains and oilseeds analyst Cheryl Kalisch Gordon said the shift to investing in storage and handling alternatives was already well under way, accelerated by rationalisation in the bulk grain-handling network.
This rationalisation has included closure of up-country receival sites, replacement of multiple smaller or dated silos with single larger silos, and the upgrade and expansion of centralised sites.
Dr Kalisch Gordon said while rationalisation can deliver efficiency gains with greater capacity utilisation, it can also reduce the ability of the bulk-handling system to segregate grain.
“In a global market where the end-users’ requirements for grain functionality provenance are increasingly important, more rather than fewer opportunities for segregation are presented, and this is at odds with a trend towards rationalisation of bulk supply chains.”
Dr Kalisch Gordon said this impacted on grain growers, particularly those affected by increased grain delivery costs caused by closure of nearby receival sites.
“On the one hand, there is the option for farm businesses to avoid bulk by investing in on-farm storage to respond to higher-value end markets, or they can invest in efficiency gains to deliver into the high-volume, low-margin international grains market via the bulk-handling network.”
While both alternatives require on-farm investment, Dr Kalisch Gordon said there was real opportunity for grain marketers and bulk handlers to work with growers to become part of innovative solutions.
More on-farm storage
The report says structural changes on-farm and at export ports are also resulting in the movement of some grain supply out of bulk-handling networks.
“On-farm capacity in sealed storage is currently sitting around 17-18 million tonnes (Mt), or the equivalent to 37 per cent of the total Australian winter and summer crop.”
“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 20Mt of on-farm storage will be in use by 2025.”
Dr Kalisch Gordon said the drought on the east coast is also highlighting the mitigation strategy of storing grain, with 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
The report said options at port, such as the Lucky Bay development on South Australia’s Eyre Peninsula, were also growing to reflect an increasingly diverse capital structure in the Australian grains sector.
“There is growing investment in port-terminal capacity by non-traditional players.
Lucky Bay is now under construction using capital from private equity, and Ms Kalisch Gordon said the development was expected to deliver supply-chain cost savings of around A$15/tonne from the closer port-delivery option for growers in the region.
“These fixed-capital structure approaches to additional export capacity have also been joined by direct truck-to-bulk vessel handling.
“At a lower fixed cost of export capacity, these elevators allow the movement of grain from up country, including from farm storage, direct to ship.”
Already used in Western Australia, Victoria, and South Australia, Dr Kalisch Gordon said greater use of these elevators was expected now the system has been proven to deliver more potentially lower-cost export capacity which can be redeployed throughout the year for different uses and locations.
Boxed trade growing
Dr Kalisch Gordon says the containerisation of grain for exports 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 New South Wales and Queensland, and a relatively more mature pulse-boxing supply chain in Victoria.”
Traditionally, Dr Kalisch Gordon says, the boxed trade was to get supply to markets like Pacific islands and some Asian nations that could not accept bulk shipments, but has now 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.
“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-handlers and marketers already capitalise on demand by exporting containerised grain, Dr Kalisch Gordon says the rise of on-farm storage will 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 farmers through lower costs, higher prices, or other benefits such as rebates.”
“The extent to which these disaggregation and capital shifts occur will also depend on the development of new and innovative storage and supply chain relationships between growers, marketers and bulk handlers.”
The report cites the Canadian grain-handling system as an example, where all grain is held on farm and moved to port as required.
“This is an example of bulk handlers leveraging on the coordinated network of on-farm storage and a delivery to port as a required system.”