SUBMISSION - Agricultural Competitiveness White Paper · Increased productivity of the rail freight network for grain will be ... (Burren Junction) to Japan. The total grain supply

GrainCorp Limited T: 02 9325 9100

Level 26, 175 Liverpool Street, F: 02 9325 9180

Sydney NSW 2000

ABN 52 003 875 401 graincorp.com.au

SUBMISSION Agricultural Competitiveness Green Paper

DECEMBER 2014

INTRODUCTION

GrainCorp welcomes the opportunity to provide comment on the Government’s Green Paper

on Agricultural Competitiveness.

In particular, we welcome the Green Paper’s discussion of infrastructure, and recognition of

private sector activity, including GrainCorp’s $200 million investment to improve rail

performance at its country grain receival sites.

The Green Paper has correctly highlighted the importance of efficient and cost-effective

transport infrastructure as vital to Australia’s agricultural competitiveness.

GrainCorp believes the upgrades to rail freight infrastructure must be treated as a matter of

priority in the forthcoming White Paper, given the importance of reducing freight costs and

delivering a more efficient rail network for eastern Australia’s export grains industry. The

White Paper should include firm commitments from the Commonwealth Government to work

with industry stakeholders to deliver tangible outcomes for the industry.

Specifically, GrainCorp recommends that in finalising the White Paper, the

Government make a clear commitment to providing the necessary funding in the

2015 Federal Budget to support the upgrading of country rail sidings to help

deliver improved returns for grain growers.

Our comments in this submission respond to the following extract within the Infrastructure

section of the Green Paper1:

Many stakeholders also pointed to specific investments that they

believed would build productivity in the agriculture sector as well

as benefit other industries or local communities. For example: ....

Further standardising rail gauges to enable flows within and

across State borders and improving railway lines to decrease

handling and travel time;

Upgrading and extending rail sidings to reduce the need to

break and shunt trains; ....

The Government is interested in stakeholder views on the

expected economic costs and benefits and possible funding

sources and funding models for such proposals, noting that

any decisions on specific investment projects would need to be

considered alongside overall national priorities and objectives.

There are three reasons justifying a serious and tangible response to rail freight issues in

the White Paper:

1. The increasingly high cost and poor performance of rail infrastructure is

adversely affecting farm gate returns and creating unnecessary barriers to

productivity and profitability. This is now endangering Australia’s ability to

capture the opportunity of growing global demand for grain and other agricultural

products.

1 Agricultural Competitiveness Green Paper, p.17

3 | GrainCorp – Response to Agricultural Competitiveness Green Paper

2. A substantial benefit at the farm gate is available in the short term, for a

relatively modest investment, if government is prepared to invest in rail

sidings in association GrainCorp’s investment. Further medium-term productivity

benefits are also available with investment in branch line infrastructure.

3. The economic benefits of targeted government investment in rail far

outweigh the costs and will stimulate regional economic growth through a

more efficient use of resources and enhanced trade opportunities.

These are addressed in more detail in the sections below.

1. HIGH COST OF POOR RAIL PERFORMANCE

GrainCorp’s original submission to the Taskforce (IP682) highlighted the importance of

improvements to rail infrastructure, and the risk that Australian grain growers would miss

out on the opportunity arising from the strong forecast growth in global demand for protein

due to inefficient and costly rail infrastructure.

In particular, our submission noted:

Increased productivity of the rail freight network for grain will be

the most important contributor to increasing farm gate returns

and the opportunity to respond to increased demand for

Australian grains.2

In 2011 the Australian Farm Institute (Transport Costs for Australian Agriculture, 2011)

examined the total grain supply chain cost for grain consigned from North West NSW

(Burren Junction) to Japan. The total grain supply chain cost was estimated to be $111 per

tonne, of which 71% was transport costs – mostly rail.

Over the past decade, the proportion of grain arriving at GrainCorp’s ports on a train has

dropped from 90% to 50%, representing a modal shift of approximately 2 million tonnes of

grain in eastern Australia from rail to road (see Figure 1 below).

Figure 1 Share of rail for bulk export grain

2 GrainCorp, Submission IP682, p.2


The poor performance of rail and the loss of grain freight to road is contributing to lower

grower returns and threatens to negate the relatively slim ocean freight advantage Australia

enjoys to certain destinations over our grain exporting competitors.

Rail rates in eastern Australia are estimated to be approximately $10 per tonne more

expensive than ‘best practice’, as outlined in Figure 2.

Figure 2: Rail cost curves

The increasing cost of transporting grain to port is borne directly by grain growers in the

form of lower bid prices for their grain. The additional $10 per tonne costs generated by rail

inefficiency translates to a total annual economic cost of $180 million when applied across

total production of 18 million tonnes, as export grain sets the “floor” price for all grain

purchased in eastern Australia.

Australia is well placed to meet rising demand for food products from growing markets.

However, if growers are unable to generate an adequate return from growing grain, then

they are unlikely to risk investing to produce more, as demand for grain escalates.


2. SUBSTANTIAL BENEFITS AVAILABLE IN SHORT AND MEDIUM TERMS

In June 2014 GrainCorp announced a significant investment of $200 million to improve the

rail interface of its country network (“Project Regeneration3”). Project Regeneration is

targeting:

A reduction in rail costs of $5 / tonne – the benefits of which will be passed on to

growers.

The return of 1 million tonnes of grain to rail.

The plan involves re-shaping our country storage network to around 180 sites to simplify

our operations and reduce operating costs. The investment will target improvements to rail

loading capacity at export-focused Primary sites, including high-speed elevators to

accelerate loading speeds, over-rail garner bins and other improvements.

Competition for grain in GrainCorp’s network will mean that the $5/tonne reduction in rail

costs will be passed back to growers in the form of improved bids for their grain (there are

more than 150 grain buyers in GrainCorp’s network including over 20 export customers).

“Quick wins”: immediate term priority

However, it will not be possible to deliver the benefits outlined above in the

absence of complementary government investment of approximately $50-75

million, to extend government-owned rail sidings at several export-focused sites.

Most country silo rail sidings are unable to accommodate a full unit train, requiring trains to

be shunted at a site or broken between two or more country silos, adding significant time

and costs.

Targeted government action to extend sidings, in association with private sector investment,

will enable export-focused sites to handle 40 wagon unit-trains and reduce the need to

break and shunt trains. This will substantially reduce train cycle times and enable the full

$5/tonne benefit to be delivered.

GrainCorp has already identified around 40 sites in Victoria, New South Wales and

Queensland where government investment of an estimated $50-75 million would allow

siding extensions that would deliver ‘quick wins’ for growers and grain buyers through

reduced costs and greater efficiency. GrainCorp has prepared a detailed analysis of the

upgrading works required at each of these locations.

Medium term priorities

Over the medium-longer term, further investment from Commonwealth and State

governments is required to increase track weight load limits and standardise rail gauges.

This investment would make further progress on the $10/tonne rail performance ‘deficit’

outlined in Figure 2 earlier in this document. However, the scope of investment required

would be more substantial.

3 Additional information on Project Regeneration is attached with this submission.


A $10/tonne reduction in supply chain costs through this additional investment would deliver

an annual economic benefit (through improved grain prices) of $180 million, again passed

back to growers in the form of improved bids for their grain.

These benefits could be unlocked through:

1. Increasing payload weights on grain branch lines: Around 60% of grain is

moved on track that is limited to 76 tonne (gross) or less per wagon. Best practice

is 82-92 tonnes per wagon. A program to increase track weight limits, which

involves upgrading bridges, would:

• Enable train providers to invest in new low tare and high payload wagons.

• Deliver in excess of 20% improvement in payload productivity.

Priority, high-volume lines include the Coonamble branch, Temora - Lake Cargelligo,

Tottenham branch and Walgett branch.

2. Reinstating missing rail links:

• Queensland: The short line to Moura to reinstate the Moura silo to Gladstone.

• Queensland: The short line at Capella to provide a direct route to reinstate

direct access to the closer Mackay port.

• Victoria: The short Dookie line to reinstate the Dookie silo to Geelong.

3. Completing the inland rail route to Brisbane: Export grain into Brisbane by

rail is constrained by track capacity over the Toowoomba range. The proposed new

inland standard gauge railway from Moree to Brisbane via Goondiwindi (with the

connecting Thallon line standardised) would:

Increase rail capacity into Brisbane.

Provide growers in Northern NSW an alternative supply chain for their grain.

4. Victorian track gauge standardisation: Victoria is serviced by two different rail

gauges. Ongoing standardisation of the track in Victoria would provide an

integrated rail network in NSW and Victoria and:

Reduce rail costs through greater integration.

Increase rail capacity by enabling trains to be moved between NSW and

Victoria.

Reduce congestion on the Sunraysia Highway and Western Region arterials that

support the key growing regions of the Mallee and Wimmera.

3. COST-BENEFIT ANALYSIS

GrainCorp’s preparedness to invest its own funds in upgrades to its country storage and

handling network demonstrate the commercial validity of this proposal.

The extension of sidings is a practical plan that is quickly actionable and will deliver

substantial ongoing economic benefits within three years, far beyond the

relatively modest investment required from the Commonwealth.


Economic benefits of well in excess of $90 million per annum would be delivered within

three years, for a relatively modest cost of $50-75 million to the Commonwealth

Government, plus GrainCorp’s $200 million investment.

Estimated benefits of approximately $500 million per annum could be delivered in 10 years.

These benefits comprise:

The $5/tonne reduction in rail costs, which translates to an additional $90 million

per annum passed back to grain growers in the form of improved bids for their

grain. Much of this money will then be invested in the regional communities in

which these growers live.

Annual savings to governments of a conservatively estimated $2.3 million4, due

to a reduction in roads maintenance costs, thanks to the return of 1 million tonnes

of grain to rail (25,000 truck movements).

An improvement to the balance of trade of approximately $500 million per annum

within 10 years, based on the assumption that grain production and grain exports

continue to increase in line with the historical yield trend. (Grain production is

unlikely to continue increasing if increasing transport costs prevent growers from

generating an adequate return).

Additional indirect benefits:

o Improvements to road safety, particularly in regional areas.

o A 75% reduction in carbon emissions due to the modal shift from road to

rail5.

o Generation of approximately 2,200 construction jobs6 in association with

GrainCorp’s investment, coupled with complementary government

investment to improve sidings.

Additional farm gate benefits would also be attainable if there were additional investment to

increase rail axle weights to improve the productivity of branch lines – this would more

closely align rail performance in eastern Australia with best practice as outlined in Figure 2.

Based on the modest scope of investment required from government, coupled with the

significant economic benefits and rapid return on investment, GrainCorp recommends that

rail sidings extensions could be funded through the usual budgetary process.

4 Based on a 700km round trip to port, average load of approximately 40 tonnes, 5 Energy Efficiency Exchange – Rail Freight Transport. Available at: http://eex.gov.au/industry-

sectors/transport/rail-freight-transport/ [accessed 9/12/2014] 6 Based on 8 positions per $1 million construction spend.

http://eex.gov.au/industry-sectors/transport/rail-freight-transport/

http://eex.gov.au/industry-sectors/transport/rail-freight-transport/


CONCLUSION

GrainCorp’s plan can be quickly actioned in conjunction with the company’s own investment

to deliver real and immediate benefits for the competitiveness of eastern Australia grain

growers and the industry.

The capital investment and employment activity associated with the proposed rail upgrades

will make a significant contribution to regional economies. Removing grain freight from

road back to rail will also reduce road maintenance costs for local and state governments,

improve road safety, and contribute to the amenity for local communities through reduced

heavy vehicle traffic and noise levels.

It is also important to note that improving the performance of rail freight is broadly

supported across the grains industry, including by grower representatives who have raised

the issue in their own submissions and representations to Government.

Furthermore, the plan is in strong alignment with the long-term freight strategies

announced by the Queensland, NSW and Victorian State Governments, which have each

identified improving access to and the efficiency of rail freight haulage for agricultural

products as key priorities to meet the rapid expansion in freight task expected over the next

10 years.

Improving the performance of our rail freight networks is not a company-specific issue; it

effects the productivity and profitability of the entire Australian export grains industry and

has flow on affects across all freight movement industries.

With this in mind, GrainCorp recommends that in finalising the White Paper, the

Government make a clear commitment to providing the necessary funding in the

2015 Federal Budget to support the upgrading of country rail sidings to help

deliver improved returns for grain growers.

The White Paper should also identify opportunities to improve rail productivity

further by increasing axle weights on grain branch lines in the medium term.

For further information on this submission, contact:

Angus Trigg

Director, Government & Media Relations

(02) 9325 9132

[email protected]

mailto:[email protected]

Creating a more efficient and reliable network for all customersIn 2014, GrainCorp begins a $200 million transformation of its storage and logistics network. Representing the single largest capital investment in rail loading capability in the company’s history, Project Regeneration will deliver a more efficient and reliable network for all customers, unlocking lower transport rates and higher grain prices for growers across the network.

Project Regeneration

Project Regeneration is focused on investment and transformation in four key areas:

1. Re-shaping the country network2. Localised cluster operations3. End-to-end export logistics4. Rail loading improvements

1. Re-shaping the country networkWe are re-shaping our network to around 180 sites to simplify our operations and reduce operating costs. This consolidation will allow us to concentrate our investment at sites where it will have the broadest benefit. It will reduce complexity, operating costs and enable greater focus on local operations and service.

2. Localised cluster operationsAround 180 sites will be grouped into 34 geographical clusters, reducing management duplication and giving greater local autonomy.

Export and domestic grain can be purchased from all sites but will be executed from the most suitable site.

remains double our average intake – meaning plenty of room for your grain, including 8 million tonnes of permanent silo and shed storage

The core 180 sites already receive 90% of all

delivered grain

Primary sites Export focused, providing fast cycling rail services to ports and terminals with point-to-point unit trains (40+ wagons)

Major sites Domestic focused, with road freight and point-to-point domestic and export shuttle trains (NSW only)

Flex sites Special purpose sites, supporting the network by providing extra capacity where required (road only)

20 million tonnesstorage capacity90%


Labour and mobile equipment concentrated to areas of peak demand

Domesticcustomers

Domesticcustomers

PrimarySite

Rail to portPoint-to-point unit trains

Flex

Major

Domesticcustomers

Port

Major

Major

Flex

3. End-to-end export logistics

ExportDirectTransmits the benefit of GrainCorp’s investment throughout all sites, by ensuring buyers compete for export or domestic grain at any site, but always executing out of the most suitable site

4. Rail loading improvementsGrainCorp is committing $200 million to upgrade rail loading capacity to handle faster cycling point-to-point trains from our 68 Primary sites, including 3 new built-for-purpose sites. These improvements will:

• re-positiongrainwithtriplingofloadingrates• accommodateaunittrainatasite• reducetransportcostsandimprovereliabilityforcustomers.

In order to unlock the full potential uplift from our investment, government investment in government owned sidings and rail track will also be necessary.

Tripling rail loading rates to over 500 tonnes per hour Installation or upgrade of single load points with over-rail garner bins, high speed elevators with pre-positioning bins with fumigation and blending capabilitiesx3

Potential to return up to 1 million tonnes to rail Removing up to 25,000 heavy vehicle movements each year, improving road safety and reducing road maintenance, emissions and heavy vehicle noise

Unlocking substantial freight savings for growers and grain buyers alike Delivered through faster and more reliable train cycle times

RAIL

$5per tonne

+

GrainCorp will offer bundled transport and handling of export grain under a simplified operating model known as ExportDirect. ExportDirect further simplifies the export logistics task by allowing GrainCorp to move grain from the most cost-effective site. Importantly this model:

a) Maximises the volume of export rail from upgraded primary sites

b) Allows the benefit of investment in Primary sites to be transmitted across all sites by allowing GrainCorp to offer competitive transport rates across the network.

Rail

Road

Road

Grower Delivery

Grower Delivery

Grower Delivery

PrimarySite

Stock swap

Major

Major

Port

Stock swap


Your questions answeredWhen will changes take effect?Network and operating model changes will largely be in place for the 2014 winter harvest, while capital works associated with rail loading improvements will take place over the next 3 years, subject to planning approvals and government co-investment in government owned rail sidings.

Why rail?Modernised rail capability and simplified rail operations will deliver a faster, more efficient and reliable service for export grain. A consolidated and restructured site cluster model will allow for improved resource management. The streamlined rail operating model will support point-to-point trains and improve the cost effectiveness and capacity for export grain.

How many sites will be closed?We are moving to a core of around 180 sites. The network has varied in size over the years, depending on the crop size. Last harvest we operated 252 sites. In other years it has been more or less depending on the circumstances in that year. Focusing on the core 180 sites that already receive 90% of all grain allows us to concentrate investment in those parts of the network that really need it.

Will I have to travel further to deliver grain?We expect any impact from an individual site closure will be offset by higher prices bid for growers’ grain as a result of a more efficient and reliable network following investment. In the final consolidated network, the average distance between our sites will be 30 kilometres.

Will there be job losses?It is anticipated that there will be a reduction of around 80 full time roles across the network of both support and operating staff. We will seek to redeploy affected people within GrainCorp and provide assistance in finding new employment, along with full entitlements when this is not possible.

Will fewer sites increase turnaround times at sites?One of the benefits of a consolidated network is allowing equipment resources and labour to be focused to areas of peak demand, when it is most needed. Waiting times under a consolidated network should generally be shorter compared to when resources are spread thinly across a less efficient network.

What will GrainCorp do with closed sites?GrainCorp is considering its options and may also engage with growers and other interested parties, subject to conditions, to lease or buy closed sites.

Visit graincorp.com.au/regenerationFind further details about Project Regeneration including site locations on our website.


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SUBMISSION - Agricultural Competitiveness White Paper · Increased productivity of the rail freight network for grain will be ... (Burren Junction) to Japan. The total grain supply