SYDNEY, AUSTRALIA — The decision to pursue improved profitability via higher-value grain sales or via increased yields and higher volumes is a constant concern facing the Australian grain industry as it looks to achieve efficiencies and preserve the competitiveness of Australian grain in global markets, according to a new report from Rabobank.

Regardless of the alternative that the industry chooses, Rabobank noted that investment will be required to either expand or upgrade farming operations to be profitable in a high-volume, low-margin international grain market, or to increase on-farm storage and value-adding capability in the development of grain supply chains that respond to higher-value end markets.

In the report, Rabobank said that the Australia has rationalized bulk handling to remain competitive on a global scale.

“Bulk grain handling in Australia has supported delivery of consistent-quality wheat and other grains to local and world markets,” Rabobank said. “In the pursuit of global competitiveness, companies involved have focused their cost-reduction efforts in recent years on domestic bulk handling and logistics.”

Rabobank said rationalization in Australian bulk handling networks has included the closing of up-country receival locations and reduced harvest opening periods, replacement of multiple smaller or dated silos with single larger silos, and the upgrade and expansion of centralized sites.

Where rationalization has occurred, the Australian grain industry has experienced lower storage and handling fees and increased rebates.

While rationalization delivers efficiency gains, Rabobank said it also has an impact throughout the entire supply chain.

“In a global market in which the end user’s grain functionality requirements and provenance are increasingly important, more rather than fewer opportunities for segregation are presented,” Rabobank said. “This is at odds with a trend toward rationalization of bulk supply chains. To meet the growing segregation opportunities and maintain profitability, Australian grain sector players have begun to, and will increasingly need to, work outside of the bulk handling network.”

Rabobank said it foresees a time in the future when farmers will store more grain on-farm. According to the agency, the proportion of Australian farms storing grain on-farm grew to 90% in 2017 from 81% in 2013, while average storage capacity per farm increased to 1,760 tonnes from 1,626 tonnes. Rabobank said nearly 60% of all grain farmers claim to have the capacity to engage in a longer and more strategic grain marketing program as a primary reason for storing grain on-farm.

“By 2025, we forecast as much as 20 million tonnes of on-farm storage will be in use (up 14% from 2017-18), or between 40% and 45% of Australia’s average summer and winter crop production *up from around 37% in 2017-18),” Rabobank noted. “This higher capital cost structure will require farmers to actively manage and price sales to cover the opportunity cost of storing grain, but it will also further spread farm cash flow throughout the year, and between financial years.”

Away from the farm and down at the port, options are growing, Rabobank said. The agency said the Australian grains sector is seeing investments by non-traditional players and into direct truck-to-bulk vessel handling.

As an example, Rabobank noted the recent addition of port terminal capacity at Port Kembla and Newcastle in New South Wales and Bunbury in Western Australia. The agency said the additions have boosted Australia’s total grain-port terminal capacity to close to 50 million tonnes.

“Each of these have been added by companies or consortiums without existing grain-export capacity in the grain catchment,” Rabobank said.

In the case of direct-to-vessel bulk handing, which employs trucks to mobile vessel elevators, Australia has seen this approach adopted in Western Australia and Victoria beginning in 2016-17 and more recently in South Australia.

“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,” Rabobank said. “Concern regarding the maintenance of export standards has prompted greater export authority scrutiny of consignments and ship loading — and ship loading can take ten times longer than a fixed bulk elevator.”