Viterra backs most costs inquiry draft report findings

By: Rob McKay


ESCOSA finds areas of concern but serious supply chain issues are scarce

Viterra backs most costs inquiry draft report findings
South Australian grain supply chain costs appear in reasonable shape

 

Agribusiness Viterra has accentuated the positives in a draft Essential Services Commission (ESCOSA) report on South Australian grain supply chain costs.

Viterra has a strategically strong position in SA grain logistics and has been the target of criticism from farmers and other observers.

"ESCOSA has recognised the role of high quality, sustainable and clean South Australian grain in the global market and the significant competition our industry faces from low cost producers in other regions," the company points out to ATN.


 Read what Viterra’s critics have said to the inquiry


Viterra says the report focuses on the role the company plays in managing the grain supply chain and finds that it:  

  • appears to be operating as a cost effective bulk grain accumulator that can meet peak harvest demand and compete in the global context
  • seeks to measure our performance in meeting the customer service needs of growers, and do so in a robust manner and that our actions are consistent with a firm seeking to meet customer needs
  • has extracted efficiencies from our supply chain and ensured that South Australia’s grain growers’ product has remained competitive on the world stage
  • does not generate unreasonable financial returns
  • appears to have focused on extracting supply chain efficiencies, rather than protecting and preserving unduly high returns
  • has kept total upcountry-to-vessel loading fees broadly stable in recent years and these are not excessive compared with the total fees charged by our eastern Australian counterparts.

"The report acknowledges that responding to the variability of harvests is an important aspect of the supply chain and that participants need to be able to manage costs in poor harvest years, while still having the capacity and capability to manage large harvests," Viterra says.

"The report also finds that the grain trading market in South Australia appears to be competitive, with 11 grain traders having booked shipping slot capacity with Viterra to export the 2016-17 grain harvest."

For ESCOSA’s part, it does raise concerns in other areas.

"A possible exception are the fees for port receival and outturn from storage services. In addition, Viterra’s upcountry storage and handling facilities are not covered by any industry-specific regulation," the draft states.

"Consequently, it is important that the performance and behaviour of Viterra be assessed by the Commission, given its position of strength within the supply chain (upcountry storage and handling services, and port handling and loading services).

"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."

It finds Viterra’s earnings on the high side of reasonable but with risks attached.

"Future concerns may arise if the trend in Viterra’s operating surpluses continues to the point at which returns exceed a reasonable level," the draft says.

"This point may occur if Viterra continues to find efficiencies to reduce costs, without sharing the benefits with industry through lower fees."

ESCOSA says it found evidence that the market is not sufficiently informed, in the case of both growers and traders, and potential competitors.

On the freight side, the commission seems fairly content before it goes to stakeholders for their responses to the draft.

"The freight cost component of the supply chain costs is efficient, within the current economy-wide framework for establishing road user charges and identifying road investment priorities," it says.

"The competitive road freight industry underpins efficient road and rail freight rates.

"This competition is complemented by regulatory oversight through the rail access regime."

 

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