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Australian grain industry must improve supply chain efficiencies to stay competitive in export markets

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article image Graydon Chong

The latest report by agribusiness banking specialist Rabobank explains the need for the Australian grains industry to improve efficiencies along the supply chain to maintain competitiveness in global markets.

The report, Australian Grains – Competitive Strains identifies a number of improvements that can be made to minimise supply chain losses and improve efficiencies including increasing yields, improving road and rail logistics and creating economies of scale.

Report author Rabobank senior analyst Graydon Chong warns that if no action is taken to identify and address the inefficiencies in the grains supply chain, Australia’s export competitiveness will be eroded.

While Australia currently holds an advantage into the key Asian market because of its favourable sea freight costs, this position is threatened by increasing volumes coming out of low-cost producing nations such as in the Black Sea region. Mr Chong explains that this advantage can be retained only if the industry develops a unified strategy that addresses productivity along every stage of the supply chain.

At the farm gate 

Mr Chong says while Australian producers have been embracing technologies to lower their cost of production, their input and labour costs are amongst the highest in the world. On a per tonne basis, the variable cost of producing a tonne of wheat in Australia is about USD 6 per tonne more than wheat grown in the US without taking into consideration any subsidies. Costs in countries such as the Ukraine and Argentina, which are emerging competitors for Australia, are substantially lower. 

Mr Chong says the high quality of Australian grain does, however, provide a source of competitive advantage. Australia’s ability to consistently supply high-quality grain has proved to be a significant point of difference, particularly the ability to segregate based on the specifications of end users. 

Mr Chong says Australian grain producers will need to maintain these high quality standards while continuing to adopt best-practice to minimise costs of production if they are to remain competitive in the global market.

Storage, handling and logistics 

Mr Chong says the competitiveness of Australian grain is not only an issue at the farm gate; improved efficiencies are required right across the supply chain, from domestic storage, handling and logistics right through to the export logistics, sea freight and asset utilisation. 

Given the vast distance that grain travels to port, there is much that can be done in the more immediate term to reduce ‘slippages’, which are the inefficiencies stemming from sub-optimal operations such as, weight and speed restrictions on poorly maintained rail infrastructures or unnecessary multiple port loadings for bulk export cargoes. Australia’s sea freight advantage into Asia can be lost if there are additional supply chain costs. 

The future 

The Rabobank report expects competition in the global grains market to intensify, particularly out of low-cost producing nations such as those in the Black Sea region. 

According to Mr Chong, the dramatic increase in exports from the Black Sea region is changing global trade dynamics. While it has displaced Australian wheat in markets throughout the Middle East and North Africa, it also has the potential to take market share in Asia. 

With 70 per cent of Australian wheat exports currently destined for the Asian market, Mr Chong says, remaining cost competitive will be critical to maintaining market share. 

Building strategic alliances with end users and reinforcing the quality and reliability of Australian wheat exports will be important, but most important will be the reduction of costs throughout the supply chain. If managed correctly, this has the potential to increase returns to participants along all parts of the supply chain and strengthen Australia’s position as a key supplier of wheat into Asia and other key markets.

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