Article: National affairs reforms must run faster

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Article: National affairs reforms must run faster
The Weekend Australian
February 11-12, 2012  pp15-16
by Paul Cleary

Check out the freight rail comparisons.
Freight rates for road haulage can be up to twice the cost of rail, and have increased twice as fast since 2001, according to the Bureau of Infrastructure, Transport and Regional Economics.

Filed here under Sunshine Coast for reference purposes.

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National Affairs Reforms must run faster
by: Paul Cleary
From: The Australian February 11, 2012 12:00AM

Half of all domestic freight is still moved on roads, among the most important of which is the Stuart Highway, above, linking the Northern Territory and South Australia. Picture: Aaron Francis Source: The Australian

WHEN it comes to giving us our daily bread, the single biggest cost is not the ingredients, nor even the manufacturing process that includes labour and power. For one of Australia's biggest food manufacturers, Goodman Fielder, distribution accounts for almost half the delivered cost of the loaves it bakes every day of the week and then trucks to 20,000 retail outlets.
Even though the company has a decentralised network of 19 industrial bakeries stretching along the east coast from Hobart to Cairns, and then across to Darwin, Alice Springs, Adelaide and Perth, delivery costs account for 43 per cent of each loaf, well ahead of raw materials at 30 per cent, and manufacturing at 27 per cent. From these bakeries the company ships bread to 80 distribution points, and then it is trucked via 500 delivery runs to retail outlets.

Given that this is the cost facing a relatively decentralised operation, freight must be an even bigger cost on companies that have consolidated their operations to achieve economies of scale. In the era of high protection, Holden had plants in several states; but it has now consolidated its vehicle manufacturing into one plant at Elizabeth, in Adelaide's northern suburbs.

...Numerous other businesses have done the same, but this drive for greater efficiency extends the distance from the factory to retail outlets. When faced with the high cost of domestic freight, local manufacturing is put at an even greater disadvantage by importers who can ship their goods by sea direct to regional markets on the coast.

Australia's geography makes freight a huge and rising cost for industry at a time of high oil prices. Freight rates for road haulage can be up to twice the cost of rail, and have increased twice as fast since 2001, according to the Bureau of Infrastructure, Transport and Regional Economics.

Yet half of all domestic freight is still moved by road. Holden ships its vehicles by rail to Western Australia and Queensland, but these account for a quarter of its sales; the rest go by road.

Despite the enormous savings to be gained from more efficient transportation, this is not an issue that Prime Minister Julia Gillard or Opposition Leader Tony Abbott are raising as a reform priority, as they grapple with policies to maintain a diversified economy in the face of a soaring currency propelled by the mining sector. Neither has the business community made this a burning issue, with lobby groups and big companies still focused on the predictable issues of industrial relations, taxation and business regulation.

The Australian dollar's relentless rise exposes our economy to greater competition because it makes imports cheaper at a time when the cost of doing business in this country is rising inexorably. Electricity charges have risen by 35 per cent over the past three years, and are forecast by the federal government to double in the next five to seven years as a result of the huge investment needed in the power grid. Gas prices are also likely to double in coming years as a result of coal seam gas exports from Queensland, as these will have the effect of linking domestic supply with lucrative export markets.

These forces should be a catalyst for government and business to redouble their efforts to boost Australia's competitiveness, but some fear that the mining boom is making Australians even more complacent. Greg Evans, chief executive of the Australian Chamber of Commerce and Industry, says reform has slowed because Australia has developed "a lot of economic complacency", leading to a stalling in productivity growth. The ACCI argues the gradual abolition of payroll tax should be a top reform priority that could be paid for by adjusting either the base or the rate of the goods and services tax.

This should be a compelling reform because the businesses being squeezed by the high dollar are in labour-intensive areas such as manufacturing, tourism and retail. Indeed, as the capital-intensive mining industry soaks up more than half of all investment, the labour-intensive economy is not only being smashed by the high dollar, it is also starved of capital and is shedding jobs.

While the government is focused on the iconic car industry and big operations such as Alcoa's Geelong plant, the high dollar is proving a challenge for smaller manufacturers that have a low public profile but employ many more people.

Australia's food industry employs about 300,000 people and accounts for one in three manufacturing jobs, yet it barely rates a mention when politicians talk about what needs to be done to maintain a viable and diverse manufacturing base.

When primary producers are included, the industry is facing a triple whammy of competition from powerful retailers, increased food imports and higher transport costs as the mining boom pushes farmers off the rail lines.

Imports account for about 10 per cent of the food consumed in Australia, but that share is rising sharply as home-brand products rolled out by supermarket chains source cheap supplies from Asia.

This month Heinz closed its tomato processing factory in northern Victoria, while it has scaled back other factories in Brisbane and Wagga Wagga, slashing 344 jobs. Late last year Coca-Cola Amatil shut its SPC Ardmona fruit processing factory with the loss of 150 jobs in regional Victoria. CCA said the rising dollar had made the plant less competitive while home brands had switched to imported products.

These closures have proved devastating for regional centres because the plant was often one of the biggest employers, if not the biggest; but they also affect related industries. Anthony Pratt, chairman of packaging giant Visy Industries, points out that 70 per cent of his company's customers are in the food and beverage industry. The loss of food manufacturers will have a bigger effect over time than the closure of a car plant, he says.

While the industry is calling for handouts in the form of accelerated depreciation, the simple and inexpensive reforms such as better food labelling would go a long way to protecting local jobs. The Australian Food and Grocery Council argues in a white paper on food labelling that companies could claim "Made in Australia" when a significant portion of the food may be imported.

The current competition rules allow for as little as 50 per cent Australian cost component to qualify for use of this description, and costs that are "incidental" to the manufacturing, such as shipping costs, can be included. Labelling is just one of many examples of how reforms that might be simple, inexpensive and even dull, could deliver better returns than expensive and dazzling reforms that go under labels like "knowledge nation" and "innovation".

Transport and Infrastructure Minister Anthony Albanese has become a passionate advocate of investing in the rail system to reduce business costs and boasts funding of a modest $3.4 billion under the economic stimulus plan to make the national system work more efficiently.

But that investment is modest when compared with the $16bn spent on school halls and canteens.

As Albanese argues, a single train can take 100 semi-trailers off the road, and yet major companies such as Woolworths still run about 160 B-double semi-trailers from Melbourne to Brisbane via Sydney. The focus on the Brisbane to Melbourne freight line involves new signalling systems and the removal of sharp bends. The investment should allow the Australian Rail Track Corporation to shave 11 hours off the route, he says.

But Albanese is virtually a lone voice in the government on these issues, to the point where he sounds like the Tim Fischer of the Labor Party.

Few others in cabinet or in the business community have jumped on board the Albo Express, despite the compelling savings. Few others understand and advocate the fundamental importance of a more efficient transportation system in a country like Australia.

The faster rate of road freight charges reflects the higher degree of energy intensity compared with rail. Ian MacGowan, a senior industry analyst with IBISWorld, a consulting firm, says rail uses one-third the amount of fuel compared with road for each tonne that it transports.

MacGowan says the industry is subjected to "significant market power" by the major players like Linfox and Toll. While the big four companies directly control less than 10 per cent of all freight movements, they exercise far greater control through sub-contracting.

One of the many perverse outcomes of the mining boom is that it is increasing the cost of doing business across the economy, and food producers have been hit hard as they compete directly with miners for access to the cheaper rail network. Even though agriculture underpinned the building of railways in Australia, the mining companies are squeezing out this industry because they can offer regular demand.

Farmers on the Darling Downs and in the Bowen Basin in Queensland are paying more to ship their grain by road because the mining companies now monopolise the rail network. Agforce president Wayne Newton, a grain farmer from Dalby, believes that up to 70 per cent of all grain produced in Queensland has now been forced on to the road.

Without government and business giving greater emphasis to making our national transport network more efficient, all Australians will pay even more for their daily loaf of bread, and just about every other consumer item.