There is a growing concern among grain companies on the storage and transportation of huge harvests of grains. Australia, Canada, Ukraine, Russia, the United States, and Argentina are being very competitive in the grains market right now.
Oversupply tends to tighten the margins which reduce grain prices. It is a challenge for grain companies to cost-effectively store and move grains. You must maximize throughput at grain terminals which helps you to stay competitive in the global market. But there could be 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 must 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 that can further choke the supply chain. For example, extended disputes between train drivers and their employers, disrupting supply chains in many countries.
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 must 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 an 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 plowing 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 cut transportation costs for producers in the hopes of securing higher grain prices in the long run.
Steps to mitigate challenging times
In summary, it is 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 should enable real-time visibility and help grain companies check the health of their supply chain in real-time, adjust/regrade stock levels as needed, optimize equipment paths within grain terminals, and increase efficiency and throughput.
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