Shifting towards a more collaborative grains supply chain will be a “winning strategy” needed to help address the overcapacity that currently exists in Australia’s grain storage network, according to a recently-released industry report.
The report, Australian Grains – The Next Hunger Games, by agribusiness banking specialist Rabobank, says the creation of partnerships (through ‘shared value agreements’) along the supply chain will determine the relative winners and losers in an increasingly competitive grains industry.
Report author, Rabobank senior grains and oilseeds analyst Graydon Chong expects it to “play out as a war of attrition”, with those grains industry players who actively seek to “create shared value” better placed to gain long-lasting benefits arising from the changes to the industry.
“We have seen small infrastructure owners or new entrants successfully adopt this strategy (forming partnerships along the supply chain) to compete in the potentially overcapitalised supply chain, but we expect to increasingly see growers, traders, end users, storage and logistic providers form partnerships,” he said.
Mr Chong said the move towards a more collaborative supply chain is likely to involve value-for-volume partnerships, including initiatives such as multi-seasonal volume commitments by growers in exchange for price premiums or storage, or fee discounts for end users and grain storage owners.
“This should augur well for growers, as bulk operators have to increasingly compete for grain through offering more attractive propositions,” he said, “and this is likely to see the traditional service provider and customer model replaced by one that is much more focussed on business partnerships.”
The report highlights the “exponential increase” in Australia’s on-farm storage facilities, with on-farm capacity estimated to sit around 15 million tonnes, and further growth pegged in coming years.
“This trend has been sparked by the marked decline in centralised commercial storage facilities and has seen us enter a cycle of asset underutilisation – not only in regards to on-farm storage, but also off-farm infrastructure – as an increasing number of storage facilities compete for volume,” Mr Chong said.
In light of this increased competition, the report says owners of grain storage infrastructure who are able to secure long-term certainty of grain throughput will be best placed.
“This may mean partnering with grain marketers, end users or supply chain operators in a volume-for-value partnership, or for growers there may be opportunities to partner with other producers to build scale and market power by attracting volume benefits and storage fee discounts,” he said.
Mr Chong said with storage facilities shifting on-farm, the risk dynamics involved in the grain supply chain are also transferring to growers.
“When storing grain on-farm, farmers are responsible for maintaining grain quality as well as, managing risks associated with pests and OH&S,” he said.
“So these risks need to be carefully weighed up when investing in on-farm storage.”
The report says the formation of partnerships in the grain bulk handling network will also be key to avoiding duplicated grain storage and handling infrastructure and ensuring the best use of existing assets.
“For example, we are starting to see increased co-investment in grain port infrastructure, which are some of the first horizontal partnerships in the bulk-handling part of the supply chain we have seen since deregulation,” Mr Chong said.
Rabobank expects these partnerships to have an increasing influence on the flow of grain through the supply chain, as they maximise asset utilisation, provide long-term accumulation certainty and help minimise price volatility.
