In all of the commentary around Australia’s economic performance there is always plenty of discussion about major indices associated with agriculture, resources etc, but rural trucking costs are a major factor in productivity. Deloitte were commissioned by AgriFutures Australia to put together a report entitled ‘The Impact of Freight Costs on Australian Farms’. This report confirms agriculture is vitally important to the strength of the economy with over 66 per cent of annual agricultural production exported overseas.
“A key determinant in ensuring that Australian agriculture can reach its full export potential is maintaining efficient and competitive transport of food and fibre from paddock to port,” concludes the Farm Freight Costs Report. “At present, this cost is one of the largest single cost items in the production of many agricultural commodities, and it has the potential to impact the global competitiveness of Australian agriculture and its export performance into the future.
“The impact of this transport cost on the viability of producers is further accentuated with the slowing of on-farm productivity across most sectors. Aside from specific and limited case studies, there is very little information about the precise magnitude of this transport cost and its drivers.
“In Australia, freight costs are relatively highest for grains and fruit/vegetables, which represent 27.5 per cent and 21 per cent of gross value of production (GVAP), respectively. By comparison, poultry, which has more localised supply chains, has the lowest relative farm freight costs, totalling 1.0 per cent of GVAP.”
Production of most major agricultural commodities are predicted to rise over time, resulting in an increased freight task for road transport. At the moment there are an estimated 3.3 million vehicle movements per year, as well as just under 400,000 rail wagons being used.
The report identifies infrastructure bottlenecks as having the potential to increase the cost of transporting agricultural products and reduce their global competitiveness. Road building and projects like the Inland Rail should improve the situation, but Federal vs State squabbles and budget cuts can limit or delay projects.
Different rural sectors have varying levels of freight cost involved in getting the products to buyers. The grain sector is the one with freight costs making up the highest proportion at 27.5 per cent GVAP. This is followed by fruit and vegetables at 21 per cent and rice at 11.6 per cent. At the lower end of the scale, where freight costs are relatively low is the chicken meat business, sugar, pigs and cotton.
Clearly, costs are therefore an important part of the productivity measure within agriculture. This is especially true when talking about the beef industry, our biggest individual sector, in which freight costs are 6.4 per cent of GVAP. The second biggest sector is grain, which it’s about 35 per cent smaller but it does have free costs at 27.5 per cent GOP.
These two sectors represent quite a large proportion of the agricultural industry as a whole and also depend to a very large extent on road transport. For the beef industry transport is almost exclusively by road, whereas for the grain sector there are some areas where rail does carry a proportion of the load.
“Freight costs vary significantly with each agricultural commodity, reflecting the role of factors such as perishability weight, volume, labour intensiveness and geographic distribution play in contributing their overall cost of delivery,” says the Farm Freights Costs Report.
“Our analysis of farm freight costs has demonstrated the proportion of cost attributable to freight for each major commodity within the sector. In Australia, freight costs are relatively highest for grains and fruit/vegetables, reflecting the significant travel distance and bulky nature of those products. By comparison, industries with localised supply chains, such as poultry, have the lowest relative farm freight costs.”