Australian global imports – factors impacting the domestic supply chain

Take home messages

• Many factors are at play in getting agricultural products to our farms in a timely manner.
• Being prepared and forecasting product requirements three to four months in advance reduces risk of shortfall in product supply.

Importation and the domestic supply chain

The perfect storm for grower supply shortages (2019 – 2020)

Demand stretches the supply elastic band beyond its limits:

• 2017 – 2018 - 2019 – Significant drought conditions experienced across many areas of Eastern Australia, with geographical climatic differences between and within Australian states.
• Little or no demand from growers to farm input providers in many areas.
• Little or no demand from farm input providers to suppliers/manufacturers.
• Devastating capital losses in all levels of the agricultural industry.
• Towards the end of 2019 – conservatism becomes the ‘new norm’ with little or no forecasting for inputs for 2020.
• Dec 2019 - COVID 19 is announced globally from Wuhan, China.
• It takes time to realise the seriousness of this situation, but by late January/early February 2020 the world is heading towards total shutdown in all facets of global manufacturing and supply chain.
• Good drought breaking rains occur in many regions during January 2020, spiking exponential input demand.
• International Freight Price Index increases 15.3% from Oct 2019 – April 2020 (Figure 1).
• Global freight movements drop 32% from Oct 2019 to Feb 2020 (Figure 1).
• Sharp imbalance in global shipping trade lanes and shipping container number equilibrium at all main ports
• Transhipping increases by 20 – 30%.



Figure 1. Global freight movements (import/export volumes) and international freight price index (%) from March 2019 to April 2020 (Source: Cedar Container Statistics).

Table 1 illustrates the importation process and timelines from start to end and the many factors that contribute to the timeliness of product supply on-farm.

Table 1. Diagrammatic representation of the domestic supply process via import, end to end.

Importation process and timeline start to end = 3 - 4 months on average, depending on port of origin overseas for dispatched goods
FARMER	FARM INPUT PROVIDER	SUPPLIER/MANUFACTURER	SUPPLIER/MANUFACTURER DOMESTIC GOODS ARRIVAL
Farm Plan?	Farmer customer orders inputs from Farm Input Provider	Forecasts from Farm Input Provider?	Vessel arrival
Input Needs Assessment?		Scheduling into manufacturing program	Vessel berth booking slot
		Are sufficient manufacturing incipients available?	Vessel customs clearance
FARM INPUTS	MINDSET & PROCESS	Country of origin - manufacture & logistics to port	Container unload from vessel at port
Seed	Planning?	Pelletising. Wrap/strap, containerisation	Customs inspections of contents
Crop Protection	Proactivity?	Booking transport container slots on sea vessels	Official quarantine clearing to exit port area
Plant Nutrition	Seasonality?	Cost of sea freight increases with high demand low supply?	Tailgate to container handler for unpack
Animal Health	Risk profile? Price & inventory loading?	Sailing Period?	Container unpack
General Merchandise	Working capital efficiency?	Transhipping? (container dropped enroute at a different port, to wait to be loaded onto another ship to finally end up at the desidred destination	Storage & handling at third party or owned storage site
Fuel/Lubricants	Back to back ordering across supply chain?		Dispatch to farm input providers store
Machiner	Storage space at port and up country?		Dispatch to farm
	Just in Time - Delivery mentality
High %'s are imported	Current volatility?	Current volatility?	Current volatility?
Do you provide a month goods needed forecast to your farm input provider 3-4 months in advance?	How does your farm input provider know how much of each article to produce for all of their customers x month?	How does the supplier/manufacturer know how much of each article to produce for each farm input provider x month?	Do the goods arrival domestically match the original forecasts, pricing and timing expectations for all parties?

In summary:

• Conservatism in forecasting or no forecasting at all combined with periods of low demand that are reversed quickly, whilst being connected to a ‘Just In Time’ domestic delivery mentality, do not work within the framework of an import (indent) market timeline!
• It becomes very understandable why significant shortages of all farming inputs occurred across the nation when you also add in the global impacts from COVID 19 on manufacturing, supply and logistics of products, including agricultural products.

Reducing the risk of being caught short on supply?

Break key inputs into (i) commodity use known (for example, glyphosate) versus (ii) specific use unknown (for example, post-emergent selective herbicides).

For commodity products which a grower will always use:

• Forecast well before the products are required (3 – 4 months prior).
• Take a conservative approach of 60 – 70% of prior year usage.
• Understand that having all or some of the key products on-farm well prior to the expected use period, will provide security on-farm and smooth out the logistics and supply chain.
• The same issues felt by farm input providers are also felt at the farm level around timing and decision making;
  • Who should own the risk on forecast, inventory, price, working capital efficiency and supply across the various segments of the supply chain within Australia?
  • Should there be a greater level of understanding between all parties domestically, in relation to shared risk, to avoid the 2020 shortages?

Contact details

Paul Lomax
plomax@agrichem.com.au