Competition challenge in grain exporting: ACCC

Industry stakeholders are concerned about the level of port market share held by grain handler CBH Group, while entry for new players like Bunge has been challenging, according to a new Australian Competition and Consumer Commission report.

The commission produces an annual 'Bulk wheat ports monitoring report' reviewing market power in that space, this year timed during a review of the bulk wheat port competition code by the Department of Agriculture and Water Resources.

Some providers, including CBH, are granted exemptions from certain requirements under the access code, but the ACCC was satisfied no exemptions would need to be reviewed because there were no significant changes in the market share of exempt port owners.

But the commission also called for the access code arrangements to be strengthened as part of the department's review.

The numbers for the 2017 financial year show CBH’s market share at each of the its four Western Australian export facilities has broadly fallen marginally in recent years.

That has come as grain production has dramatically increased, according to the ACCC.

One notable figure was the huge excess capacity at Bunge’s Bunbury port facility.

The terminal's problems stem from the fact it is not linked in to the state’s rail freight network.

The Bunbury facility has the lowest capacity utilisation in the state, with about 10 per cent of the facility’s 1 million tonnes capacity used in the most recent financial year.

“Bunge has found it challenging to pursue an accumulation strategy alongside CBH’s extensive upcountry network,” the commission said in the report.

“The terminal does not have rail access, which constrains the geographic region from which Bunge (the port’s primary exporter) can efficiently source grain.

“Given that Bunge’s arrangement with (port landholder WA Plantation Resources) was in its second year, capacity utilisation at the Bunbury terminal may be expected to increase in future years, especially considering production in that port zone was affected by frost and lower than average rainfall.”

CBH’s four terminals had varying amounts of excess capacity, with Esperance using more than 80 per cent of available while Albany was closer to 60 per cent.

“In markets where there is one operator but an oversupply of capacity, there is limited incentive for new entrants to invest in competing facilities and consequently competition is unlikely to emerge,” the ACCC said.

“However, while CBH remains the dominant (port operator) in WA, some stakeholders considered that as a cooperative CBH may have different incentives to other port operators.”

The commission said it had heard concerns that the WA and South Australian markets suffered from excessive market power.

“The commission has received numerous complaints over several years in relation to the difficulty exporters experience accessing bulk handling services both at port and along the related supply chain,” the report said.

“Parties continued to raise concerns during consultation on this report.

“Stakeholders expressed varied concerns including a lack of interest from (port operators) to negotiate fees or access terms, leading to uncertainty in relation to total shipping costs and a higher risk associated with shipping from those zones.

“Most stakeholders believe that the (port operator) related trading arms are favoured.”

But the figures also show that CBH operates at a much lower cost than any other integrated business in the country, at less than $20/t.

CBH Group chief executive Jimmy Wilson said the cooperative would review the report, which was released today.

“As a grower-owned cooperative, our focus has always been and continues to be on operating a low-cost and efficient supply chain for the benefit of Western Australian grain growers,” he said.

“We’re pleased the ACCC report recognises that CBH continues to have the lowest cost supply chain of the country’s bulk storage handlers.”

The report also showed market share data at the ports.

At Kwinana, CBH exported about 2.7mt out of a total of around 6mt transported through the facility, giving a market share of about 44 per cent.

The figure was down from around 50 per cent in the 2014 financial year.

Glencore ranked second at Kwinana, with roughly 1mt exported, while Plum Grove’s slice was just a bit less than 10 per cent.

At Albany, CBH shipped more than 50 per cent of 2.3mt moved, down from above 65 per cent in the 2014 financial year.

Graincorp, which was involved in a takeover bid for CBH last year, and Glencore ranked as the two next biggest exporters at Albany.

CBH’s share was also more than half of Esperance shipments, with about 2.7mt transported through the terminal in total.

Those numbers were not far off 2014 levels.