Sunday 28th Feb, 2021

Australian grains industry facing ‘capital shift’

Cheryl Kalisch Gordon. Photo: Rabobank

Grain sector players in Australia are increasingly investing in options outside the bulk-handling delivery network in pursuit of global competitiveness, a recently-released industry report has found.

The Rabobank report, Australian Grains – De-bulking in the pursuit of global competitiveness, by the agribusiness banking specialist, says this shift from a traditional bulk grain handling network to a more disaggregated and flexible delivery system, is taking place on the farm. With increased on-farm storage and also at port, with direct loading, containerised grain exports and newer bulk terminal export capacity.

Describing it as ‘de-bulking’, Rabobank senior grains and oilseeds analyst Cheryl Kalisch Gordon says the shift to investing in storage and handling alternatives is already well underway, with the process accelerated by rationalisation in the bulk grain-handling network.

While this rationalisation – including closure of up-country receival sites, replacement of multiple smaller or dated silos with single larger silos, and the upgrade and expansion of centralised sites – delivers efficiency gains with greater capacity utilisation, Dr Kalisch Gordon says it can reduce the ability of the bulk-handling system to segregate grain.

“In a global market where the end-users’ requirements for grain functionality provenance are increasingly important, more rather than fewer opportunities for segregation are presented,” she says, “and this is at odds with a trend towards rationalisation of bulk supply chains”.

This is seeing grain-farming businesses faced with a decision, she says, particularly those affected by increased grain delivery costs from closure of receival sites.

“On the one hand, there is the option for farm businesses to ‘avoid bulk’ by investing in on-farm storage to respond to higher-value end markets,” she says, “or, they can invest in efficiency gains to deliver into the high-volume, low-margin international grains market via the bulk-handling network.”

Either way, both of these alternatives require on-farm investment, she says. “But there is real opportunity for grain marketers and bulk handlers to work with grain farmers and be part of the new innovative solutions.”

More on-farm storage

The report says structural changes on-farm and at export ports are also resulting in the movement of some grain supply out of bulk-handling networks.

“On-farm capacity, in sealed storage, is currently sitting around 17 to 18 million tonnes, or the equivalent to 37 per cent of the total Australian winter and summer crop,” Dr Kalisch Gordon says.

“With more farmers anticipated to engage in their own, longer marketing programs, the blending of grain, and with the interest in pulses and speciality crops continuing to grow, we forecast as much as 20 million tonnes of on-farm storage will be in use by 2025.”

Dr Kalisch Gordon says the drought on the east coast is also highlighting the mitigation strategy of storing grain, with the recently announced Federal Government drought policy providing immediate tax deductibility on the cost of fodder storage assets such as silos and hay sheds.

Down at port

Options at the port are also growing, the report says, with a range of port developments reflecting an increasingly diverse capital structure in the industry.

“There is growing investment in port-terminal capacity by non-traditional players,” Dr Kalisch Gordon says. “Lucky Bay in South Australia’s Eyre Peninsula is one such example, with the port – currently under construction – receiving initial capital injections from private equity and ultimately farmers, and expected to deliver supply-chain cost savings of around A$15/tonne from the closer port-delivery option for farmers in
the region.

“These fixed-capital structure approaches to additional export capacity have also been joined by direct truck-to-bulk vessel handling,” she says.

“At a lower fixed cost of export capacity, these elevators allow the movement of grain from up country, including from farm storage, direct to ship.”

Already tried and tested in Western Australia, Victoria and more recently South Australia, these elevators are expected to be used more widely, Dr Kalisch Gordon says, now the method has been proven to deliver additional, potentially lower-cost export capacity that can be redeployed throughout the year, to different uses and locations.

Box trade growing too

Dr Kalisch Gordon says the ‘containerisation’ of grain for exports – using container vessels for transport rather than dry bulk cargo ships – had also increased and was providing another dynamic in the movement of capital investment in the Australian grains industry.

“To date, growth has been largely in the eastern states,” she says, “with segregation opportunities for high-protein wheat in northern New SouthWales and Queensland, and a relatively more mature pulse-boxing supply chain in Victoria.”

Dr Kalisch Gordon says, the rise of on-farm storage will provide increased capacity for grain farmers to bypass bulk networks.

“The more rationalisation we see of bulk networks, the more we will see Australian grain- sector players work outside of the bulk-handling network, particularly if the subsequent efficiencies of rationalisation are not sufficiently shared with grain framers through lower costs, higher prices, or other benefits such as rebates,” she says.

“The extent to which these disaggregation and capital shifts occur will also depend on the development of new and innovative storage and supply chain relationships between growers, marketers and bulk handlers.”

The report cites the Canadian grain-handling system as an example, where all grain is held on farm and moved to port as required.

“This is an example of bulk handlers leveraging on the coordinated network of on-farm storage and a delivery to port as a required system,” Dr Kalisch Gordon said.