Getting to the bottom of transport costs

New Institute research shows that available statistics estimating that transport only represents 4% of total Australian agricultural output are a far cry from reality. The research finds that from farmgate to foreign customer, transport costs for Australian agricultural product represent between 4% and 48.5% of farmgate value, with averages of 8.75% for domestic delivery and 23.64% for international delivery (to the entry port of the foreign market).

These results will be published by the Institute in a new report completed by Garry Goucher & Associates, Transport costs for Australian agriculture. These costs have been obtained through 12 case studies including all transport costs incurred by stakeholders along the supply chain (road freight, storage, handling, wharf fees, etc).

While these results cannot be extrapolated to represent agricultural industries as a whole, they demonstrate that for many products, particularly beef cattle and grain, transport costs are a major component of the total cost of production and delivery to destination. As shown in the case studies, the price received by a producer is substantially determined by competition with other countries with individual producers having little or no control over the market prices received. Even in the domestic market, competition from imports is often a significant determinant of prices received. As a result, any reduction in transport costs would largely flow back to producers through higher prices from traders and marketers. This research also shows that for certain routes rail freight can constitute the highest share of the total transport costs.

A particular challenge in attempting to gain a better understanding of agricultural transport costs is that a single entity in the supply chain is rarely responsible for all transport costs. Commercial arrangements regarding transport costs are highly variable, with farmers, agents, buyers, processors, shippers or final purchasers responsible for some or all of the transport costs.

The great advantage of this research is that it constitutes a benchmark against which changes in transport costs can be assessed and compared over time. It is also hoped that the Australian agricultural transport costs identified, as part of this research, will be able to be compared with transport costs incurred by agricultural producers in other countries.

The report, Transport costs for Australian agriculture, will be released in February 2012, and will be available for purchase on the Institute website.