Light at the end of the tunnel: 6 ways Aussie agriculture is escaping the global supply chain crisis

After drought, bushfire, labour shortages and a pandemic, Australia’s farmers are finally prepared for some good news; on track for a record-breaking season. With a good run of weather, insatiable demand, and poor seasons from global competitors, a record $54.7 billion[1] worth of Australian food and fibre exports are poised for delivery to high value markets worldwide.

However, has the best season come at the worst time?

A stubborn shipping crisis stands in the way of the timely delivery of Australian exports. Supply chains are being disrupted by a persistent shortage of refrigerated containers, relentless bottlenecks at major ports, ongoing COVID-19 shutdowns, extreme weather, and record-high shipping prices. Industry is struggling to simply deliver goods from Point A to Point B.

Throw in geopolitical tensions, industrial action at ports, labour shortages, panic buying, and energy crises, and Australian exporters are faced with a truly perfect storm.

Australian supply chains have long been faced with structural inefficiencies that exacerbate these issues. The Australian market isn’t of a scale to significantly influence the business decisions of global shipping lines – creating the potential for Australian ports to be circumvented for more lucrative Asian, American and European routes. When capacity is available, it is accessed less efficiently than at other destinations. The median in-port time for container ships visiting Australia has been around three times longer than in Japan, twice as long as in China and 50 percent longer than in Singapore or New Zealand, during the pandemic[2].

The pandemic has exposed the vulnerability in the finite, ‘just-in-time’ supply chain model on which exporters rely, and the ability of one shock to turn a meticulously optimised supply chain completely upside down. In the case of perishable agriculture produce, this has critical impacts on food safety and product quality; the pillars around which the Australian export value proposition relies. Time and time again, these circumstances beg the question whether this volatility is choking exporters’ relationships with key customers and Australia’s reputation in global agricultural trade.

So how will industry navigate these disjointed supply chains to maximise such a bumper season? Six short- and long-term strategies are being adopted.

Short-term strategies

  1. Exporters are collaborating to gain scale and bargaining power with shipping companies

The larger the order, the more leverage an exporter has over freight availability and price. Traditionally, agriculture producers have been slow to collaborate – yet the current crisis presents ready commercial benefits for those who are willing. Consolidation at a commodity or even whole-of-agriculture level may drive improved freight access, similar to that which occurs in markets such as Chile, where horticulture exporters charter entire vessels to reach the Chinese market at a lower cost than Australian exporters, despite vastly longer lead times.

  1. Australian agriculture may have to look inwards to domestic demand to recover some costs

As Australian economies continue to thrive in a post-lockdown consumption frenzy, any agricultural products at risk of not making it to shelves overseas before their prime will have to be diverted to the strong demand in the domestic market. While this short-term solution is only an option for some products and will not typically elicit the same price premiums as those found in export markets, the domestic market does offer an opportunity for cost recovery in the instance that unexpectedly extended lead times prevent products from reaching overseas customers in time.

This shift feeds into a larger conversation around whether looking inward will start to become more regular for Australian agriculture, with declining reliance on complex supply chains to reach overseas customers. KPMG’s 2021 CEO Outlook pulse found that 46 percent of supply chain leaders anticipate a decline in globalisation over the next 5 years.[3] Given recent volatile geopolitical shifts creating trade uncertainty for many agricultural sectors, this might not seem like such a terrible idea.

  1. Air freight will become a more feasible alternative for some products

Before the pandemic, the average price of global air cargo space was around 12 times that of sea freight. This year, however, air freight has dropped to around six times the cost of sea freight, according to the International Air Transport Association (IATA).2 Air freight will continue to be a saving grace for agricultural exports such as horticulture and seafood, which are faced with some of the toughest limitations around shelf life and product integrity.

While air freight will always have significant limitations due to cost and accessibility, as it becomes more cost competitive it may become a more viable pathway for a wider scope of commodities. For products typically reliant on exporting via sea, where the majority of supply chain disruptions are currently being felt, an increasing supply of flights and investments in freight infrastructure may make this distribution pathway more compelling.

Long-term strategies  

  1. Ports are committing to long-term infrastructure investment

Many key Australian ports have announced plans for significant investments in infrastructure development over the next 5-10 years, such as new container facilities in Melbourne, expanded capacity of Port Kembla in Wollongong, and automation technologies for freight processing at Port Botany. On a global scale, many major shipping companies have announced plans to widen their fleets, with around 619 new ships on order around the world.[4]  Exporters will need to ensure they can capitalise on new freight space, shipping availability, and enabling port infrastructure to shorten lead times and securely deliver goods to market.

  1. Supply chains are seeking to diversify their markets, pathways and partners

The pandemic has exposed the risk in concentrated supply chains for certain goods or services. Between 2004-2014, almost 45 percent of growth in agriculture and food exports has been concentrated in just six countries, a dependency from which many exporters have already faced tangible consequences.[5]  Diversifying supply chains to include multiple options for touchpoints and customers on both a domestic and global scale will allow for risk mitigation and continuity of supply, as well as an increase in competitiveness and export performance.

Significant investment has gone into supporting agricultural sectors in widening their export customer base to decrease risk in an uncertain geopolitical trade environment. 2021 has seen for instance the first barley shipment to Mexico, new market access arrangements for beef and lamb into Saudi Arabia and citrus into the USA, and enhanced chickpea access into India. The importance of exploring new export pathways and building new trade relationships will persist far beyond the alleviation of the global shipping crisis and may support Australian agriculture producers in ensuring the availability of overseas customers to accommodate a good season.

  1. Shipping companies are being more tightly regulated  

The Productivity Commission’s inquiry into Vulnerable Supply Chains earlier this year called for the creation of a National Trade Regulator to safeguard the interests of Australia’s traders and provide protection from the emergence of ‘unreasonable pricing practices.’[6] Fulfilment of the Inquiry’s recommendations will set a new precedent for Australian exports in the medium-long term, reducing pressure on industries such as agriculture who depend on a highly time-sensitive distribution model.

Other regulatory changes in discussion, such as the Security Legislation Amendment (Critical Infrastructure) Bill 2020 or a new legislative framework for agricultural exports all stand to provide additional relief for exporters facing disproportionately challenging trade conditions. These changes will seek to increase transparency between value chain stakeholders and shipping companies, through means such as mandated notification periods on price increases or more clear protocols on export and import product requirements.

Looking ahead

Supply chain vulnerabilities have been brutally exposed during the pandemic. Coupled with additional challenges in geopolitics, labour, and extreme weather events, Australian agriculture is at risk of missing out on major export potential, in this bumper year and in seasons to come.

Short- and longer-term strategies will be important to stabilise and then grow sustainable and resilient export supply chains. As they are continually implemented successfully, these strategies will enable Australia’s vibrant agriculture industry to protect and maintain its leading position on the global export stage.

[1] ABC News, 2021. Australia’s farmers on track for record-breaking season easily surpassing $70bn worth of produce.
[2] Australian Competition and Consumer Commission, 2021. Container stevedoring monitoring report 2020-21.
[3] Gartner Future of Supply Chain 2021, KPMG 2021 CEO Outlook Pulse
[4] ABC News, 2021. Sea freight costs may have peaked, but more ships are needed to bring them down.
[5] ABARES Department of Agriculture, Water and the Environment. 2021. Australian agricultural trade and the COVID-19 pandemic.
[6] Australian Logistics, 2021. Industry calls for full consultation on the development of new critical infrastructure rules.
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