Chapter 5
Supply chain issues
5.1
This chapter briefly considers a variety of supply chain issues that
affect the viability of agricultural production and the affordability of food
for consumers. These include:
- rising input costs;
- the availability of water for food production;
- deteriorating transport infrastructure;
- food waste along the supply chain; and
- retail issues.
Input costs
5.2
Input costs for producers are an important determinant of whether it is
viable for farmers to continue taking financial risks to produce food, as well
as influencing the price of food for consumers where these costs are able to be
passed along the supply chain.
5.3
Red meat representative organisations highlighted steeply rising prices
for fertiliser, labour and fuel as making it difficult for Australian farmers to
compete globally.[1]
5.4
Growcom raised labour shortages as being of critical importance:
Horticulture producers continue to face labour and skills
shortages that threaten their future viability. Access to sufficient labour is
essential as labour is the most critical factor in ensuring the smooth running
of field preparation, planting, maintenance, harvesting and packing activities.
It follows that human resources are growers’ most valuable resource. The future
viability of the industry is heavily reliant on securing and retaining
sufficient human resources. The trial of a seasonal labour scheme may be a
positive forward in achieving this goal, however will not solve the issue.[2]
5.5
The Victorian Farmers Federation told the committee that drought and
opportunities in other industries had caused a loss of labour that would be
hard to replace when full agricultural production is re-established.[3]
5.6
Fertiliser costs were discussed at length during the committee's hearing
in Canberra on 30 April 2010. This issue was also examined extensively during
the committee's previous inquiry into pricing and supply arrangements in the
Australian and global fertiliser market, which was tabled in August 2009.
5.7
The committee raised the issue of using grain for biofuels in its
discussion about land use in Chapter 2. Concerns about the effect of biofuel
demand on input costs for livestock producers were raised by both the
Australian Lot Feeders Association and Australian Pork Limited.[4]
5.8
A number of submitters also warned of the effect of input cost increases
associated with an emissions trading scheme. [5]
Water availability
5.9
Another critical input for food producers is water, which has been
increasingly scarce for many Australian farmers over most of the past decade. Reductions
in rainfall or water available for irrigation inevitably affect the level of
agricultural production.
5.10
According to the Department of Agriculture, Fisheries and Forestry
(DAFF), 65 per cent of the water used in Australia is used for agriculture,
which means that any decline in the availability of water affects food
production more than any other commercial activity.
5.11
Evidence to the committee related to the questions of the likely future
scarcity of water and the most effective way to ensure the water that is
available is allocated as productively as possible, within the constraints
imposed by human and environmental needs.
5.12
DAFF suggested that climate change is likely to reduce water
availability and, consequently, agricultural output.[6]
The Commonwealth Scientific and Industrial Research Organisation (CSIRO) stated
that environmental change, including variability of rainfall, will require
significant changes to agricultural systems in Australia, highlighting the need
to improve agricultural water-use efficiency as requiring particular attention.[7]
5.13
Currently, the Commonwealth Government has committed funds to assist
farmers to use water more efficiently and to purchase water entitlements from willing
irrigators for environmental flows.[8]
5.14
The NSW Irrigators' Council emphasised that the price of water for
producers directly affects the cost of food for consumers, and this fact needs
to be considered when assessing how water is to be allocated among multiple
users.[9]
The council indicated that while government purchases of water for the
environment would increase the cost of food, it supported this market
mechanism. However, it did not support compulsory acquisitions.[10]
5.15
The Victorian Farmers Federation was strongly critical of agricultural
water in the north of that state being diverted for metropolitan water
supplies, arguing that alternative sources for urban water use should be found,
instead of reducing water used to produce food. They referred to recycled water
and stormwater capture as two possible options.[11]
Infrastructure
5.16
One of the key aspects of the supply chain is transport infrastructure
that allows food to be transported from producers to processors to consumers in
an efficient, timely and economical way.
5.17
Agforce told the committee that infrastructure bottlenecks are affecting
competitiveness:
One key element which is sadly lacking is the infrastructure
to be able to transport the food to market domestically and for export. Rail is
a key area of limitation and one which demonstrates a quantifiable impact -
$20/t less for grain in QLD than NSW due to transport issues. Market forces
cannot dictate our competitiveness as long as infrastructure bottlenecks
prevent the movement of products. These bottlenecks also serve to limit the
availability of input supplies at competitive rates...[12]
5.18
Agforce emphasised that rail and road transport integration is a significant
problem in Queensland:
The rail network in Queensland is currently unable to cope
with the transport needs of both the agricultural and resources sectors with
increasing volumes being pushed onto the road network. This has resulted in
increased pressures on major feeder roads such as the Warrego Highway and
bottlenecks accessing the Port of Brisbane by road, particularly from
Toowoomba.[13]
5.19
In Victoria, the VFF commented that the 'rail network in Victoria has
become increasingly inefficient due to significant underinvestment in the
network', as well as arguing for standardisation of gauges across the rail
network to ensure 'the long term sustainability of efficient and competitive
rail freight'.[14]
With regard to roads, the VFF stated that the poor condition of local roads in
their state adds costs to the supply chain that are ultimately passed on to
consumers.[15]
5.20
Red meat representative organisations also noted problems with
integrating different transport modes:
Governments have been slow to upgrade land transport
infrastructure to keep pace with improvements in sea transport. In particular
road transport infrastructure has not been upgraded to accommodate the change
from 20 foot to 40 foot containers that has been implemented by the globalised
shipping industry.[16]
Waste
5.21
The committee also heard about supply chain inefficiencies that are
caused by waste. Food Chain Intelligence claimed that:
Food waste in Australia is estimated to be 3.3 million tonnes
annually, worth about AUD $5.3 billion. The reasons for food waste are numerous
and encompass all food chain players, from producers to consumers.[17]
5.22
Professor Julian Cribb suggested that addressing food waste was a
critical part of feeding the entire human population:
...we are wasting half the world’s food at the moment. We
actually waste enough food to feed three billion people worldwide at the
moment. There are one billion starving people in the world at the moment. So
technically this is an issue that can be solved. We have seen a lot of focus on
this in Britain in the last year or so—the waste of food and ways to curb it.
But it seems to me that if we want to save our water and save our land, we have
to save the food. That is the most economical way to do it.[18]
5.23
Professor Cribb cited the conflict between strict health regulation and
food waste as being an important aspect of the problem, in addition to food
that has been disposed of not being recycled in order to close the nutrient
loop.[19]
5.24
Population Health Queensland noted the wastage that occurs before food
reaches consumers:
During production and processing there is often significant
wastage of food. For example, over-supply of processed lettuce into convenience
packs can result in greater wastage than transporting and selling the lettuce
unprocessed. Processing and transportation of surplus produce incurs costs that
may make it more economically to simply dump the extra produce rather than
distribute it – to food banks for instance. This practice could have an
increasing negative impact on national food security and population nutrition
in the future.[20]
5.25
Interestingly, FoodLegal suggested that supply chain efficiencies and associated
minimal inventories could lead to food shortages in the event of a major crisis.[21]
Retail issues
5.26
Finally, the interaction between food retailers, consumers and those
further up the supply chain has a major effect on returns to growers and the
retail price of food for consumers.
5.27
Growcom told the committee that a concentration in the retail market had
negative consequences for farm viability:
There is a concentration of the domestic fresh food market
within the two major retailers, with serious concerns being raised about their
increasing market power and opportunities for unconscionable conduct. The clear
trend of these retailers is to use their market power to push costs, risks and
responsibilities back down the supply chain. Anecdotally, ten years ago growers
worked on a rule of thumb of farm gate return being around 50% of the retail
price. Today, this margin is generally less than 20%. Growers’ profit margins
continue to decrease, while the profit margins of the major retailers remain at
record highs.[22]
5.28
DAFF informed the committee that:
In 2007-08, supermarkets accounted for around 61 per cent of
sales in the retail sector. The large supermarket chains are increasingly
contracting some of their requirements for fresh horticulture directly from
larger growers and meat from feedlots with integrated processing facilities.
However, packaged products such as cereal foods and frozen foods and
pre-prepared meals are typically sourced from processor intermediaries.[23]
5.29
DAFF indicated that food retailing in Australia is 'highly competitive'
although 'the value of raw commodities has tended to represent a declining
proportion of the final sale price of food products'. The submission stated
that this was attributable to the following:
The growing gap between farm-gate and retail prices is mainly
a reflection of the rising cost of services (including transport, storage,
handling, distribution and retailing) and the incorporation of additional
attributes (packaging, presentation and qualities) in the final product in
response to consumer demands.[24]
5.30
DAFF also commented that prices for consumers had not been found to have
risen because of concentration in the retail sector:
The ACCC found that the grocery retailing market in Australia
is workably competitive with the rising global price of food, increases in
costs of production and domestic weather conditions largely responsible for the
21 per cent rise in Australian food prices over the past five years. Less than
five per cent of the increase in food prices over this time was estimated to be
directly attributable to increased supermarket margins. The ACCC found little
evidence to support the proposition that retail prices have risen while
farm-gate prices have stagnated or declined, contrary to the claims of some
rural lobby groups that made representations to the inquiry. In general, the
ACCC found that movements in shelf prices broadly reflect changes in wholesale
prices over time.[25]
5.31
The Tasmanian Institute of Agricultural Research suggested that
retailers are often reluctant to adopt strategies that would maximise value for
producers:
A critical issue here is the ability to embody...value in the
product and thus create consumer awareness of the value. For example via
provenance labelling, "buy Australian", "buy local",
"buy Low input production", "buy ethical production". These
require regulation at point of sale and accurate labelling. As many impose
imposts on retailers and the value chain and create educated consumers, they
are often unpopular in concentrated marketing systems (such as the food retail
system in Australia) or in global systems where buyers want undifferentiated
products to allow substitution. Potentially they also require recognition by
the elements of the chain of the value proposition and creation of methods to
retain the value. [26]
5.32
The submission from the University of Sydney's Urban Research Centre
stated that alternative sources of food distribution are necessary for
producers to gain a greater share of consumer spending and for consumers to get
more affordable and better quality food.[27]
Committee view
5.33
The committee considers that the supply constraints identified in this
report need to be considered as part of a broad strategic food plan for
Australia, as discussed at the conclusion of Chapter 1.
5.34
The committee notes that it would have liked to examine a number of
issues relating to food production in more depth. However, the intervention of
the 2010 federal election has prevented this from occurring. It is therefore
the intention of the committee chair to seek from the Senate the
re-establishment of this committee in the new parliament, in order to pursue
these matters further. This would include any proposed emissions trading scheme
and its implications for food production in Australia.
Recommendation 4
5.35
The committee recommends that the Senate re-establish the Select
Committee on Agriculture and Related Industries in the new parliament to
further examine issues relating to food production, including the implications
of any proposed emissions trading scheme for affordable, sustainable food
production and viable farmers.
Senator the Hon. Bill Heffernan
Chair
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