Weighty grain supply chain costs mapped

Path to export weighs heavily on grain producers, AEGIC report shows

Weighty grain supply chain costs mapped
Production volatility affects logistics costs

The farm export supply chain takes up nearly one-third of costs to Australian grain producers and is a burden on their value to the nation, according to the Australian Export Grains Innovation Centre (AEGIC).

The industry body founded in 2012 has release a report that states export logistics, between farm gate and port, are equivalent to 30 per cent of the production costs.

"The magnitude of supply chain costs is influenced by Australia’s volatile grain production," its researchers found.

This leads to building excess capacity within the chain to handle the large harvests. Logistics also are made more expensive, mostly due to production volatility and uncertainties.

"Volatile production also poses problems for exporters keen to affordably lock-in freight and shipping requirements in advance of harvest," the report says.

"As a result, freight companies charge higher rates to accommodate the increased cost of excess capacity and short lead times.

"By comparison, mining companies through their infrastructure investments and control of volumes from mine sites, can better control the timing of shipments, which leads to increased efficiency and much lower freight and logistic costs.

"Mining port and freight costs can be as low as a quarter of the cost of grain port and logistic costs."

The research looks at Australia’s bulk grain export supply chain and outlines the costs for producers when exporting through a bulk handler.

Report co-author AEGIC Economist Chris Carter said high logistic costs were threatening to diminish Australian grain’s international competitiveness.

"Supply chain costs, from receival site to port, for a wheat producer 200 km from port in western or eastern Australia start at about $60 per tonne," Dr Carter says.

"This equates to about 20-25 per cent of the price of wheat or for a crop yielding two tonne per hectare is equivalent to $120-$145 per hectare."

"Bulk handling charges, including receival charges, freight and port fees, make up the vast majority of this cost at $52-$65 a tonne and are generally a grain producer’s largest single cost item.

"End-point royalties and levies make up the remainder."

As a net exporter of grain, Australia’s costs of production need to remain internationally competitive for the industry as a whole to be profitable. 

"With the supply chain costs equivalent to about 25-30% of the cost of grain production, it is imperative the industry strives to lower this cost in an ever-increasingly competitive global market," Dr Carter says.

Western Australia has the cheapest supply-chain costs at just less than $60 a tonne, with other states sitting either side of the $70 mark.

The report can be found here.

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