Public – I2 – A2
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Public – I2 – A2 The Essential Services Commission invites written submissions on this paper by Monday, 17 September 2018. It is the Commission’s policy to make all submissions publicly available via its website (www.escosa.sa.gov.au), except where a submission either wholly or partly contains confidential or commercially sensitive information provided on a confidential basis and appropriate prior notice has been given. The Commission may also exercise its discretion not to publish any submission based on length or content (for example containing material that is defamatory, offensive or in breach of any law). Responses to this paper should be directed to: Inquiry into the South Australian bulk grain export supply chain costs. It is preferred that submissions are sent electronically to: [email protected]. Alternatively, submissions can be sent to: Essential Services Commission GPO Box 2605 Adelaide SA 5001 Telephone: (08) 8463 4444 Freecall: 1800 633 592 (SA and mobiles only) E-mail: [email protected] Web: www.escosa.sa.gov.au The Essential Services Commission is an independent statutory authority with functions in a range of essential Publicservice—I2s— includingA2 Inquiry water, into sewerage,the South Australianelectricity, gas,bulk rail grain and export maritime supply services, chain andcosts also has a general advisory2 function on economic matters. For more information, please visit www.escosa.sa.gov.au. Glossary of terms ......................................................................................................................................................... ii 1 Overview .................................................................................................................................................................1 1.1 Context .........................................................................................................................................................2 1.2 Draft findings ...............................................................................................................................................2 1.3 Purpose of the inquiry and this Draft Report ........................................................................................5 1.4 Report contents and structure.................................................................................................................6 1.5 Next steps ....................................................................................................................................................6 2 The approach to the Inquiry ...............................................................................................................................7 2.1 About the inquiry ........................................................................................................................................7 2.2 How the Commission assesses supply chain efficiency ...................................................................8 2.3 Inquiry process......................................................................................................................................... 12 3 Overview of the supply chain .......................................................................................................................... 14 3.1 South Australia’s place in the bulk grain export market .................................................................. 14 3.2 South Australian harvest trends ........................................................................................................... 16 3.3 South Australia’s bulk grain export supply chain .............................................................................. 18 3.4 Conclusion ................................................................................................................................................ 28 4 Whether the supply chain is efficient ............................................................................................................ 29 4.1 Segments of the supply chain .............................................................................................................. 30 4.2 Segments of the supply chain that warrant review .......................................................................... 30 4.3 Market structure for services that Viterra provides .......................................................................... 36 4.4 Investigating Viterra’s market behaviour ............................................................................................ 40 4.5 Conclusion ................................................................................................................................................ 72 5 Other issues ........................................................................................................................................................ 74 5.1 Grain pooling ............................................................................................................................................ 74 5.2 Grain stock information.......................................................................................................................... 75 5.3 The basis of road and rail cost recovery ............................................................................................. 77 5.4 Quality arbitrage ...................................................................................................................................... 78 5.5 Statewide transport access regime covering grain storage and handling .................................. 80 5.6 20-foot containers ................................................................................................................................... 81 6 Next steps ........................................................................................................................................................... 82 Appendix A—Terms of reference ............................................................................................................................ 83 Appendix B—Evidence to assess the efficiency of the supply chain ............................................................... 88 Appendix C—Data verification process ............................................................................................................... 106 Appendix D—Financial analysis ............................................................................................................................ 108 Appendix E—Breakdown of grain pathway fees ................................................................................................ 111 Appendix F—Market power analysis .................................................................................................................... 115 Public—I2—A2 Inquiry into the South Australian bulk grain export supply chain costs i ABB Grain Australian Barley Board (the bulk handler in South Australia before Viterra acquired it in 2009) ACCC Australian Competition and Consumer Commission AEGIC Australian Export Grains Innovation Centre ARTC Australian Rail Track Corporation Berth 29 A shipping berth within the Inner Harbour – Port Adelaide precinct, set up for the bulk loading of vessels CAPM Capital asset pricing model Cargill Cargill Australia Ltd (a grain handler and trader, and a subsidiary of multinational agribusiness Cargill Inc.) CBH CBH Ltd, based in Western Australia COAG Council of Australian Governments Commission Essential Services Commission, established under the Essential Services Commission Act 2002 (SA) CPI Australian Bureau of Statistics’ consumer price index DAWR Department of Agriculture and Water Resources (Australian Government) DPTI Department of Planning, Transport and Infrastructure, South Australia DTF Department of Treasury and Finance, South Australia EBIT Earnings before interest and tax EP Eyre Peninsula ESC Act Essential Services Commission Act 2002 (SA) eastern South Australia The portion of the South Australian land mass east of the Spencer Gulf economies of scale When cost per unit of output declines with increasing scale. Economies of scale are usually associated with a cost structure that has high fixed costs relative to variable costs. Flinders Ports The owner and operator of prescribed ports, currently supplying services for all bulk grain exported through South Australia Glencore Glencore Agriculture (affiliated company of Viterra) GPSA Grain Producers South Australia GWA Genesee and Wyoming Australia Pty Ltd Public—I2—A2 Inquiry into the South Australian bulk grain export supply chain costs ii market power A firm’s ability to raise price persistently above efficient cost, to exclude competitors or, more generally, to act in an unconstrained manner MSA Act Maritime Services (Access) Act 2000 (SA) NOPAT Net operating profit after tax NTC National Transport Commission on-farm storage Grain storage capacity on the farm operating surplus Operating revenue less operating expense PIRSA Department of Primary Industries and Regions, South Australia port access regime A regime established under the MSA Act, allowing third party access to port facilities in South Australia port terminal services Bulk loading facilities PTAC Port Terminal Access (Bulk Wheat) Code of Conduct, designed to regulate the conduct of bulk wheat port terminal operators, and administered by the ACCC rail access regime A regime established under the ROA Act, allowing third party access