Recent blogs (#5) (#7) have extolled the virtues of wheat breeding in Australia and the general improvement in agricultural productivity. Australian farmers can rightly crow that they have some great technologies and wheat varieties that yield remarkably well in the sometimes harsh and variable environment that typifies the grain-growing regions of Australia. These farmers might have great wheat plants; but have they also great wheat pathways? That is, can they easily and cheaply move grain off their paddocks and on to a waiting ship? In some cases, the answer is “yes”; but in many other cases the more likely answer is probably “no”.
In spite of Australian grain farmers being renowned for the efficiency and effectiveness of their farm operations, the same can’t generally be said about the state of grain supply chain infrastructure and pathways in many parts of Australia.
Supply chain costs for wheat in Australia, travelling 200 km from farm to port, often start around $60-$70 per tonne.
These supply chain costs are generally the single largest cost item for a grain farmer in a typical year. Some of these costs are not easily reduced. For example, the climate and soils in our grain-growing regions, combined with our livestock-crop farming systems causes a low spatial density of grain. This low density (i.e. tonnes per hectare of farmland) increases Australia’s supply chain costs relative to equivalents in other wheat exporting nations that enjoy more favourable climates and soils and crop-only farming systems. These other grain exporting nations produce more tonnes of grain per hectare of farmland which lowers their transport costs.
Often it’s not easy or economically sensible to switch into a crop-only farming system and changing the nature of soils is often a long-term endeavour. And as for climate, and Australia’s changing climate, that is beyond any one farmer’s control. So there are some cost components of Australia’s wheat supply chains that are not going to quickly change. But there are other components that while expensive, could be altered, contingent on attracting investment.
Take railways; as pointed out by AEGIC (2014) “when railway construction began in Australia in the 1850s, the engineers often favoured the gauge system of their homeland. Hence, from England and mainland Europe came the standard gauge (rails 1,425 millimetres apart) whilst from Ireland came the broad gauge (rails 1,590 millimetres apart). Moreover a third system of a narrow gauge (rails 1,050mm apart) was chosen for Queensland, Tasmania and Western Australia.
This narrow gauge system was also used in the other states for industries such as timber cutting and mining. This narrow gauge had advantages when working in hilly country as less earth or rock needed to be removed (or added) in constructing these lines.
The unfortunate consequence of these disparate and different investment choices was that Australia’s rail system comprised three different gauges: standard, broad and narrow (see Figure 1). The resulting lack of uniformity has imposed additional costs on grain supply chains. By illustration, in eastern Australia grain wagons cannot be better utilised either by being moved away from a drought-affected region to another region with favourable production, nor can they follow the southwards movement of the grain harvest in eastern Australia. Queensland, New South Wales and Victoria each have different gauges, preventing the flow of grain wagons across state borders.”
Figure 1: Australia’s rail system by gauge (BITRE, 2012)
Many of the rail lines that carry grain were constructed many decades ago and some lines continue to be poorly maintained, leading to restrictions on the tonnages and speeds of trains on those lines. Such restrictions increase the costs of moving grain harvests down to ports.
Contrast the state of our rail systems and rail access to ports with that available at and planned for the Port of Vancouver in Canada; Canada being one of Australia’s wheat export competitors. By illustration; the G3 Global Grain Group, a joint venture between Bunge Canada and the Saudi Arabian company, SALIC Canada, are planning a new rail and grain terminal facility in the Port of Vancouver, due to open in late 2019. They will construct 180,000 tonnes of port storage and a rail loop that uses unit trains of 130 wagons (i.e. 13,000 tonnes per train). By contrast, due to the age and poor quality of our rail infrastructure, unit trains to Australian grain port terminals are often less than 5,000 tonnes. This Canadian investment has a potential export of 6MMT each year, adding competitive pressure on Australia’s wheat export supply chains. There are similar investments underway in the Black Sea region.
So, although we may rightly praise Australian wheat breeders and farmers, nonetheless storm clouds gather over the relative competitive strength of our supply chains. To-date the Australian grain export supply chains have not attracted the same magnitude of investment as is underway in some of our competitor nations.
Without well targeted additional investment in transport and handling infrastructure, Australian grain growers will increasingly be affected by the emergence of export competitors with a low cost of production and low cost of transportation. So, although Australia’s wheat breeding industry may deliver superior varieties, improvement in off-farm infrastructure is also a requirement for success.
We are currently in the process of updating our 2014 report, ‘The cost of Australia’s bulk grain export supply chains – An information paper‘ and if you would like to get in contact regarding this update, please drop us an email.
