Australia’s freight infrastructure – incorporating road, rail, ports and air requires investment to support Australia’s goal of doubling agricultural production and subsequently enable the agricultural sector to participate in global opportunities for soft commodities.
This was the initial message from participants at the Agricultural Infrastructure & Logistics Forum jointly held by the National Farmers’ Federation and the Australian Railway Association in Canberra on Monday 18 August 2014. The forum was well attended with representatives from a variety of primary production, transport, investment and government sectors.
So how can we solve this problem and equip the agricultural sector with the transport infrastructure it needs?
First we need to understand the problem. The core issues are:
- Rail pricing is based on an uncompetitive pricing model and is considered costly when compared with road transport pricing. This has led to increasing road freight utilization for long hauls, when logically this would be better handled by rail.
- Bottlenecks in road systems can be caused by several factors such as seasonal constraints, lack of capacity, deterioration and policy (such as transport restrictions). Interestingly, CSIRO and ABARES have developed detailed models that enable the impact on freight costs to be determined for segments of routes, thus enabling more efficient allocation of funding.
- Investment in infrastructure has been fragmented and is focused on smaller regional areas rather than a whole of industry approach. This has often resulted in an inequitable allocation of investment allocation.
- Institutional investment is difficult to attract for a range of reasons, such as reporting requirements to show regular growth, risk/reward profile and increasing requirements to maintain liquidity. Innovative investment models need to be considered including the potential for public – private partnerships.
- Based on the previous point, government is the main investor in infrastructure. As such, a coordinated and collaborative approach from the agricultural sector is required to persuade government to spend the money required and also encourage investment from the private sector.
In order for Australian agriculture to prosper and capture global opportunities in soft commodities, it is clear a 3-pronged approach is needed:
- Develop a national, whole of sector plan for infrastructure development for the benefit of all participants along the supply chain. This will consider a rethink of current transport costing models and examination of freight patterns. Most importantly this will require industry-wide collaboration with the objective of providing least cost freight to market by most efficient means of transport. Critically the industry needs to look beyond the immediate needs, and assess what will be required ten or twenty years from now.
- Investigate alternative funding/investment structures that would suit the risk appetite of domestic and foreign institutions and investors. With increasing demand for investments that comprise an entire supply chain, opportunities for value creation exist. The agricultural sector needs to be smarter in how deals are presented to potential investors, combining forces to improve the risk/return profile. AMC is experienced in structuring such deals for optimal return with tolerable risk.
- Given the long-term nature of infrastructure planning, government support is essential, and it is crucial that the commitment is made that enables development to continue regardless of party leadership. It is imperative that the agricultural sector present a united front in its petitions to government for infrastructure funding. The National Farmers’ Federation has pledged to provide leadership and advocacy in this regard.
It’s always useful to see what is happening in the rest of the world. As part of the Obama Administration’s new “Made in Rural America” export and investment initiative, the Rural Business Investment Company will now allow USDA to facilitate private equity investments in agriculture-related businesses. Currently, USDA programs exist to help provide loans or loan guarantees to help rural businesses grow, but many small cutting-edge businesses also need equity support in addition to or instead of borrowed funds. Advantage Capital Partners, which will manage the new fund, and their partners from eight Farm Credit institutions have pledged to invest nearly US$150 million into the new effort.
The White House Rural Council recently announced the creation of the new U.S. Rural Infrastructure Opportunity Fund through which private entities can invest in job-creating rural infrastructure projects across the U.S. An initial US$10 billion has been committed by CoBank, a national cooperative bank serving rural America, to the fund with greater investment expected to follow. Target investments will include hospitals, schools and other educational facilities, rural water and wastewater systems, energy projects, broadband expansion, local and regional food systems, and other rural infrastructure.
Both of these programs seek to encourage substantial private investment in projects that grow the economy and improve quality of life for millions of Americans. Shouldn’t we be considering the same in Australia?
AMC is passionate about the development and positioning of Australian agriculture during the opportunities and challenges that lie ahead, and is committed to assisting the industry realise its potential. We pride ourselves on providing a different perspective and drawing on international experience to better agricultural investment strategies for our clients.
Contact AMC on +61733079555 or email (email@example.com) to see how we can help.