Viterra in critics train sights on grain logistics costs
South Australian probe also sees submissions raise transparency and infrastructure issues
The reduction of rail’s role in South Australian grain logistics has been highlighted in early submissions to the state government’s inquiry into costs and efficiency.
The Essential Services Commission of SA (ESCOSA) inquiry is backed by farmers and is seen by some in the state as a proxy for a probe into agribusiness and grain logistics giant Viterra’s cost structures.
Former Northern Territory Freight Services MD and grain industry executive John Hill is one who sees Viterra’s grain handling, as opposed to freight, costs – he put them at four times that of Western Australia’s CBH – as an outcome of The Glencore subsidiary’s monopoly status.
Hill is also critical of Viterra’s performance with rail to Port Adelaide and states that Victorian Mallee grain that is closer to that port than Victorian ports, was being lost due to high transport cost.
"It is very disappointing to note the major shift from rail to road transport of grain in the Port Adelaide catchment areas," he says.
"Only one or two silos in this part of the state are not rail served, Appamurra and Strathlbyn.
"From my observation there has been a massive increase in grain truck traffic down the SE Freeway en route to Port Adelaide, probably outer Harbour. This carries with it major additional road damage on both
"Commonwealth and State roads, additional city congestion and much higher levels of air pollution. The one report that I have sighted, provided to the Mallee councils left a lot to be desired.
"As one train load equates to 60 double truck loads or 80 single truck loads the impact of cessation of rail transport of grain is a major negative impact on road damage, safety and congestion.
"The competitive situation between road and rail is very much distorted by the rebate of the 40 cpl federal fuel tax.
"It appears, subject to any contradictory evidence, that Viterra, by its transport mode preferences, is imposing significant cost on the wider community.
"Given the scale of the grain transport task and its level of production increases this is a totally unacceptable situation."
The SA Freight Council’s (SAFC’s) submission points to an infrastructure issue at work with lower rail usage but agrees about the resultant road and safety impact.
"Investment in regional grain rail networks is a tough business proposition for any line owner," SAFC executive officer Evan Knapp writes, noting that SA grain does not have the support of mining in making rail line investment an easy option.
Where it can, such as on the Eyre Peninsula, it should be encouraged.
Citing Grain Producers SA’s analysis of comparisons with other states, it also cautions against simplistic approach, given the differentials involved.
For its part, Grain Producers SA (GPSA) sees increasing costs as an impediment to the sector’s profitability.
"A major impediment to industry growth are bulk grain supply chain costs and the lack of transparency to free on board (FOB) at port terminal, which effects income potential for all industry participants," it says.
It also complains of a lack of clarity from Viterra, on why there should be a difference of $16.34 per tonne in supply chain fees compared with CBH.
"There is a lack of transparency, as the reason for a difference in supply chain cost or unspecified net payment is unclear," GPSA says.
And the cost is rising.
"The benefit of economies of scale and lower average operating costs does not appear to have flowed through to lower charges for users of the bulk grain export supply chain," GPSA says.
It also takes Viterra to task on what it counts as a lack of pressure on port operator Flinders Ports for a better deal, given the increased traffic from growers.
SAFC member Viterra notes that it operates a large, distributed network of infrastructure servicing more ports than in other states.
"Our prices are reflective of the scale of our business, our investment in infrastructure and the quality of the services we provide to our customers," Viterra says.
"The cost to replace Viterra’s infrastructure would be several billion dollars."
It insists that there is competitive tension in the market.
"The establishment of alternate grain export supply chains in South Australia compete directly with Viterra’s storage and handling network," Viterra says.
"There are low barriers to entry in the grain supply chain.
"We compete with interstate ports.
"Supply and demand and supply chain pricing variations have the ability to amend drawing arcs. Viterra is competing with alternate supply chains in Victoria."
It notes innovations have been put in place such as upgraded drive over hoppers for bunker loading and fast rail outloaders and emphasises modal flexibility for customers’ transport preferences.
"This allows growers to deliver their production to their preferred sites while fully utilising road, rail, terminal and shipping assets," it says.
Full submissions so far can be found here.
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