Australian supply chain costs in perspective

MEDIA RELEASE by the Australian Export Grains Innovation Centre

WEDNESDAY 04 JUNE 2014

By historical comparison Australia’s supply chain costs, in percentage terms, have actually declined during the past three decades according to a new AEGIC report.

The report is a postscript to AEGIC’s The Cost of Australia’s Bulk Grain Export Supply Chain publication released late last year.

AEGIC Chief Economist and report co-author, Professor Ross Kingwell said grain growers may be surprised by the findings.

“We found across Australia’s wheat growing regions during 2013-2014 wheat supply chain costs ranged from 18 per cent -23% of the wheat free on board (FOB) price while by contrast, during 1986 and 1987 the supply chain costs were 33% and 31% of the wheat FOB price, respectively,” Prof Kingwell said.

“Export grain supply chain costs are currently a lesser proportion of the wheat FOB price than was the case during the late 1980s.”

While Prof Kingwell said the diminution of cost was an encouraging trend the more important trend to consider was how Australian supply chain costs compared to its international competitors, a study which is currently being undertaken by AEGIC.

“By understanding supply chain costs in Australia in comparison to other parts of the world we can begin to identify potential efficiencies that can be introduced locally that will ultimately reduce costs,” he said.

In the meantime, the postscript report highlights some of the factors liable to make parts of the supply chain relatively more expensive including the impact of Australia’s comparative low density of grain production and volatility of grain production.

Another factor found to be impacting on supply chain costs, relative to other parts of the world, was Australia’s path dependency resulting from a reliance on expensive, long-lived investments in rail lines, permanent bulk grain storage and port infrastructure.

The report also looks at recent infrastructure investments including the export terminal at Port Kembla (NSW), which will be known as Quattro Grain, the Bunge export grain terminal at the port of Bunbury (WA) and gives an update on interest in the Albany port (WA).