Supply Chain Pressures in Grain Markets

EKA > Supply Chain Pressures in Grain Markets
Jun 30, 2017

Supply Chain Pressures in Grain Markets

June 30, 2017

 

 

Now that almost all grain-growing regions have experienced high production, grain companies are naturally thinking about how to store and transport this huge harvest of grains. The grains market is very competitive, with countries such as Australia, Canada, Ukraine, Russia, the United States, and Argentina all vying for a piece of the pie.

 

However, grain prices have dropped and margins have tightened as a result of oversupply. In this scenario, grain companies are naturally thinking of storing and moving grains in the most cost-effective way. This enables them to stay competitive in the global market by maximising throughput at their grain terminals. It’s easier said than done – especially because of regional factors that affect the cost of grain production and logistics.

 

For instance, grain companies in Western Australia have traditionally suffered higher costs of grain production, as they have to rely on imports of farm inputs and machinery. Similarly, companies in South Australia are also grappling with high (and often non-transparent) grain supply chain costs, which has prompted the local government to intervene and investigate. In fact, the Australian Export Grain Innovation Center estimates that supply chain costs make up almost 30% of the cost of grain production, storage, and transportation. These regional factors are not exclusive to Australia. In Western Canada, for instance, bottlenecks in railway networks often delay grain deliveries by several months and here too, the government has intervened with policy changes. In Ukraine, grain logistics costs are 40% to 50% higher as compared to other major grain-producing countries. Adding to the woes of grain handling companies are unforeseen events which can further choke the supply chain. For example, there has been an extended dispute between train drivers and their employers, disrupting supply chains in Australia.

 

Grain marketing companies have responded to these challenges by consolidating grain receival sites and trying to push more grain through a limited number of larger terminals. This helps them cut costs as they now have to support fewer silos. However, costs saved here have not vanished from the supply chain. The cost pressures have merely shifted upstream as grain producers are now forced to transport stock over longer distances to reach those terminals and/or invest in on-farm storage. In fact, on-farm storage has increased steadily over the last few years in regions such as the USA, Australia, and Canada. Investments in on-farm storage are enabling producers to hold on to their stocks instead of selling at lower prices in a oversupplied environment, thus shifting cost pressures right back down the supply chain towards the grain marketers. Some grain marketers are trying to break out of this vicious cycle by ploughing back some of the money saved from consolidating grain terminals. For instance, GrainCorp started an initiative called “Project Regeneration” where they invested AUD 200mn into the grain supply chain to cuttransportation costs for producers in the hopes of securing higher grain prices in the long run.

 

In summary, it’s evident that grain companies are staring at challenging times ahead, with regional factors outside their control expected to create more pressure in an already tough environment of low grain prices. Grain companies need to be ready to tackle these challenges and remove inefficiencies in their supply chains. However, the first step towards removing inefficiencies is to find potential areas of bottlenecks, and for that one must have real-time visibility over grain supply chains.

 

Grain companies need to have software solutions that can record the origin of grains, store information about contracts, and track grain shipments – including quality parameters as the grain moves across the supply chain. Software such as Eka’s InSight platform, which is being used by 3 of the 4 largest agriculture companies in the world, enables real-time visibility and helps grain companies check the health of their supply chain in real-time, adjust/regrade stock levels as needed, optimise equipment paths within grain terminals, and increase efficiency and throughput.