Will inland rail stimulate business opportunities for regional Australia?

     

Jaimie Lovell,
Policy Director,
NSW Farmers’ Association

    
Roger Fletcher,
Director,
Fletcher International Exports

Q1.  The Australian Rail Track Corporation claims that inland rail will be a ‘catalyst for complementary private sector investments’. New regional terminals and freight precincts could become hubs for regional manufacturing and commerce. What new business opportunities for agriculture would be stimulated by inland rail development and how much a flow on effect would this have for regional population and employment?

Jaimie Lovell, NSW Farmers’ Association
There is no doubt that the inland rail project, delivered right, will stimulate new opportunities for regional businesses. Access to an upgraded, quicker track with efficient and reliable delivery of goods to key eastern ports will certainly create manufacturing and commercial opportunities along the route. The efficiency of the system will come from the ability to run longer, heavier trains with good access to key ports – driving competition between both ports and service providers located at the same port, lowering supply chain costs of Australian agricultural exports.

In NSW, the Australian Rail Track Corporation (ARTC) identifies potential new locations for intermodal hubs at Moree (1) (a grain basin), Narrabri (coal and agricultural products) and Cootamundra and the ability to enhance service offerings at existing hubs like Parkes (2). Whilst only a small portion of the goods carried on the network is projected to be agricultural – this is a significant portion of NSW’s existing agricultural freight task which can be delivered more competitively, putting more dollars in farmers’ pockets (see below Q3).

Across Australia the food and grocery sector employs 1.1 million people directly and indirectly and around a third of these are in regional Australia. As of July 2015, there were close to 100,000 people employed in the food and grocery processing sector in NSW, generating almost $4,758 million in food and grocery exports over 2014/15. Unsurprisingly, the LGAs with the largest percentage of employees from the food and grocery industry are regional LGAs. As we shift into ‘the dining boom’, it is vital that we build more opportunities to develop the food and grocery sector and, logistically, inland rail would play a vital role.

Roger Fletcher, Fletcher International Exports
We struggle to see where any new business or opportunities would be created especially in NSW due to the inland railway. It is arguable that freight costs may be even higher to export through Queensland and Victoria. Farmers and rural businesses in NSW already have very efficient supply chains set up direct to the nearest ports, located in NSW. In turn, I do not think any additional stimulation of business development or growth would be attributed to the inland railway due to a higher logistics cost structure.


Q2.  As well as the direct financial benefits that inland rail might deliver, there are many intangible benefits that would also be delivered. Is business confidence an undervalued aspect of inland rail expansion? How important is a large government investment such as inland rail for signalling to farmers and other stakeholders that there is long-term support for agriculture, and rural and regional Australia?

Jaimie Lovell, NSW Farmers’ Association

The key to catalysing private investment in regional hubs will be lowering the risk of investment for private enterprise. This requires government to back the proposal with significant upfront funding.

To date both sides of politics have committed almost $900 million towards developing the business case for the line, to acquire the necessary land corridor, and to continue pre-construction works and undertake due diligence activities.

However pleasing a bipartisan commitment to the idea of the project is, the total cost will be an estimated $10 billion over 10 years; with current pledges falling short of actually laying any new track.

How (and when) the government chooses to fund the balance of the $10 billion is the key question. The budget announcement included $3.8 million for market testing for private sector funding, which suggests that the government is still hoping for a sugar daddy in the context of the overall Federal Budget outlook. However, Public Private Partnerships tend to drive quite tight bargains – and if the private sector bought in too early, the government might well end up wearing all the risk and paying quite a high price. With interest rates so low at the moment, it is almost criminal for the government not to be borrowing and paying much of the upfront costs themselves.

Private investors are much more likely to come on board on more favourable terms once the risk of investment is lowered. The intermodal hubs would be one such private sector investment which would flow from a government-funded build. Other, related industries will also invest in complimentary ventures to take advantage of new infrastructure.

Roger Fletcher, Fletcher International Exports

It is important that government does send the right signals to farmers showing support. The inland railway in my mind does not support farmers. It supports domestic freight moving between Brisbane and Melbourne, but even this freight task it will poorly cater for, as most of this freight is overnight just in time point to point freight, where trucks are more effective in meeting customer needs. The inland railway in my opinion will only support heavy non-time-sensitive freight. There is already a rail line linking Brisbane and Melbourne, so this style of containerised freight is already moving by rail through Sydney. To attract more freight onto rail and redirect it internally is seems ludicrous.


Q3.  One argument used by advocates for an expanded inland rail is that it will open up new market opportunities and supply chains and bring farmers closer to consumers. Do you believe that inland rail will be any better than the current transport options for facilitating new markets and supply chains?

Jaimie Lovell, NSW Farmers’ Association

The government has chosen to back the ARTC’s proposal of a mix of upgraded track (brownfield infrastructure) and new sections of track (greenfield infrastructure). With the aim of getting the travel distance between Brisbane and Melbourne down to under 24 hours and, with the capacity to double stack (within 10 years), the project represents a significant upgrade on the current network. However, the patchwork nature of the project will create some challenges, as will a project that stretches through three states.

The benefit, however, is that connections to the existing country rail network will be able to be maintained and, in fact, enhanced. This would create more efficiency and competitive tension along the whole network. Currently, Western and Central New South Wales, Riverina and Southern New South Wales transport up to 3 million tonnes of grain to Port Kembla (with up to 2.9 million tonnes on rail). Western and Central New South Wales and New England transport up to 1.8 million tonnes to the Port of Newcastle (with approximately 1.2 million tonnes on rail).

However, there is more than grain that could use rail and more grain that could travel on rail. New England, Darling Downs and Toowoomba transport up to 2.1 million tonnes of grain to the Port of Brisbane (with approximately 0.4 million tonnes on rail). This last example shows that there is real opportunity for port competition from certain sectors of the network.

The current inland rail project proposal is designed to be ‘road competitive’, aiming to be able to match or better the 24 hour delivery time between Melbourne and Brisbane currently delivered by the road transport sector. The projected 22 hour delivery for inland rail is designed to get more freight onto rail and pick up business from the supermarket sector as well. If inland rail is delivered before the trucking industry invests in new infrastructure, like driverless trucks, then they will become co-investors in the project.

Build it (soon), and they will come.

Roger Fletcher, Fletcher International Exports
No, I do not believe any new opportunities will be created for farmers out of this project. I fear this will be a serious waste of tax-payers’ money and in fact only draw away from NSW economic development. Already significant investment has been put forward on a needs basis to improve access to export markets from regional centres over the shortest possible distance. To think in NSW that our agricultural products can be more efficiently exported through Brisbane or Melbourne cannot be serious. 


1. ARTC expects that grain growers to the north of the Moree region will take advantage of a standard gauge connection to the Port of Brisbane, diverting approximately 500,000 tonnes from road and road-narrow gauge rail alternatives.
Australian Rail Track Corporation Limited (2015), Melbourne to Brisbane Inland Rail 2015, Attachment A: Inland Rail Programme Business Case, p. 119.

2. ibid, p. 107.