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Australia’s airfreight food exports:Trends, issues and case studiesLindsay Hogan and Kristopher Morey

Research by the Australian Bureau of Agriculturaland Resource Economics and Sciences

Research Report No. 14.14September 2014

Australia’s airfreight food exports: Trends, issues and case studies ABARES


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Cataloguing dataHogan, L and Morey, K 2014, Australia’s airfreight food exports: Trends, issues and case studies, ABARES Research Report 14.14, Canberra, September.

ISSN: 1447-8358ISBN: 978-1-74323-205-7ABARES project: 43434

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The Australian Government acting through the Department of Agriculture represented by the Australian Bureau of Agricultural and Resource Economics and Sciences, has exercised due care and skill in the preparation and compilation of the information and data in this publication. Notwithstanding, the Department of Agriculture, ABARES, its employees and advisers disclaim all liability, including liability for negligence, for any loss, damage, injury, expense or cost incurred by any person as a result of accessing, using or relying upon any of the information or data in this publication to the maximum extent permitted by law.

AcknowledgementsThis report was prepared for the Agricultural Policy Division (APD) in the Australian Government Department of Agriculture (DA). Haydn Valle from ABARES is author of Box 5 in chapter 7. The authors very much appreciate the helpful information and comments provided by industry and government participants in the ABARES consultations, including Caroline Gunning-Trant and Trish Gleeson from ABARES and participants in workshops at regional outlook conferences in 2013. Among many others, the authors thank: Gary Dolman, David Mitchell and Pearl Louis from the Bureau of Infrastructure, Transport and Regional Economics (BITRE); and, within DA: Barbara Jones, Michael Ryan, Christie Downard and Martin Worthy from APD; Sian Hewitt and Wendy Voss from Trade and Market Access Division; Greg Williamson, Debbie Langford, Melanie Allard, Jutta Tuerck, Wayne Terpstra, Bill Magee, Russell Cant, Andre Mayne and Adam Powell from various biosecurity divisions; Helen Appleton and Nora Galway from Exports Division; and Peter Gooday, Tim Goesch and the infrastructure team, and Teresa Foster from ABARES (some affiliations have changed from those given here). Special thanks to the industry participants in the Tasmanian case studies.

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ForewordOngoing research in ABARES has been examining the outlook for the world agrifood market to 2050, with a recent focus on what Asia wants, and assessing the implications for Australia’s food exports. In complementary research, ABARES has been examining infrastructure issues in the supply chain for Australia’s food exports: a preliminary economic assessment was released in November 2013, and follow-up research is being undertaken with a focus on transport infrastructure issues for three major commodity exports (wheat, beef and dairy products) and Australia’s airfreight supply chain.

Global food demand is projected to increase strongly to 2050, providing substantial export market opportunities. Efficient supply chains will ensure Australia’s farmers and food processers are well positioned to assess investment options for increased food production and exports, particularly to Asia.

This report examines trends and issues in the supply chain for Australia’s airfreight food exports. Previously unpublished data are used to track Australia’s airfreight exports from state of origin to state of departure (that is, state of loading for export by airfreight). Tasmanian case studies are also presented to gain a better understanding of key issues in the supply chain for specific food products.

Air transport is a significant supply chain option: Australia’s airfreight food exports were $1.6 billion in 2011–12. Between 2005–06 and 2011–12, there was strong growth in the value of livestock-based exports, especially for meat and meat products, and Victoria, Tasmania and Queensland were key growth areas. However, this report finds there are also significant challenges in the airfreight supply chain. Increasing the efficiency of the airfreight supply chain will increase the international competitiveness of Australia’s farming and food processing activities, particularly for high value food products that need to be moved quickly to destination markets.

Peter GoodayActing Executive DirectorSeptember 2014

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ContentsSummary..................................................................................................................................................................................................... 1

1 Introduction...........................................................................................................................................................7

2 Background............................................................................................................................................................9

Food commodities.................................................................................................................................................................... 9Australia’s food exports, by transport mode.................................................................................................................9Australia’s airfreight food exports..................................................................................................................................10

3 Airfreight food supply chain..........................................................................................................................10

Airfreight food exports: food of Australian origin...................................................................................................10Overview.................................................................................................................................................................................... 10Supply chain for Australia’s airfreight food exports...............................................................................................10

4 Food in the airfreight supply chain.............................................................................................................10

Australia’s total airfreight trade......................................................................................................................................10Supply chain for Australia’s airfreight exports.........................................................................................................10Main commodities in Australia’s airfreight exports................................................................................................10

5 Infrastructure issues........................................................................................................................................10

World Economic Forum global competitiveness indicators...............................................................................10Policy setting for Australia’s major airports..............................................................................................................10Australia’s airfreight and passenger movements.....................................................................................................10

6 Toward increasing the efficiency of Australia’s airfreight supply chain.......................................10

Air transport: global perspective....................................................................................................................................10Air transport: Australia........................................................................................................................................................10Efficiency study of Victoria’s airfreight supply chain.............................................................................................10

7 Further issues in increasing Australia’s airfreight food exports......................................................10

Economic incentives to increase airfreight food exports.....................................................................................10Australian Government: market access and biosecurity reform.......................................................................10Farmers and food processors in the airfreight supply chain..............................................................................10

8 Case studies from Tasmania..........................................................................................................................10

Tasmania’s food supply chain...........................................................................................................................................10Case study 1: Seafood products—abalone..................................................................................................................10Case study 2: livestock–based products—sheep meat..........................................................................................10Case study 3: horticultural products—cherries........................................................................................................10Discussion..................................................................................................................................................................................10

9 Conclusion............................................................................................................................................................10

Appendix A: Global food demand to 2050.................................................................................................................................10

Appendix B: Australia’s airfreight food supply chain, by jurisdiction..........................................................................10

Appendix C: Airport sale and lease conditions in Australia..............................................................................................10

Appendix D: Productivity Commission (2011): findings and recommendations....................................................10

References............................................................................................................................................................................................... 10

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TablesTable S1 Overview of regional patterns in Australia's airfreight supply chain, 2005-06 to 2011-12...............2

Table S2 Australia's airfreight supply chain in 2011-12.......................................................................................................3

Table 1 Australia's food exports, by transport mode and commodity, selected years..........................................10

Table 2 Australia's airfreight food export shares, by commodity, selected years...................................................10

Table 3 Airfreight food export shares in Australia, by jurisdiction, 2005-06 and 2011-12................................10

Table 4 Value of Australia's airfreight food exports, by commodity, 2005-06 to 2011-12.................................10

Table 5 Volume of Australia's airfreight food exports, by commodity, 2005-06 to 2011-12.............................10

Table 6 Australia's airfreight food exports, by jurisdiction, 2005-06 to 2011-12...................................................10

Table 7 Value of Australia's airfreight food exports, by commodity and jurisdiction, 2011-12.......................10

Table 8 Volume of Australia's airfreight food exports, by commodity and jurisdiction, 2011-12...................10

Table 9 Australia's airfreight food exports, by commodity and jurisdiction, 2011-12: share of total............10

Table 10 Growth in Australia's airfreight food exports, by commodity and jurisdiction, 2005-06 to 2011-12..............................................................................................................................................................10

Table 11 Value of Australia's total airfreight trade, by jurisdiction, 2011-12...........................................................10

Table 12 Volume of Australia's total airfreight trade, by jurisdiction, 2011-12.......................................................10

Table 13 Australia's airfreight food and non-food exports, 2005-06 to 2011-12: state of origin....................10

Table 14 Australia's airfreight food and non-food exports, 2005-06 to 2011-12: net imports from other states...........................................................................................................................................10

Table 15 Australia's airfreight exports, 2005-06 to 2011-12: state of departure...................................................10

Table 16 Australia's airfreight and total merchandise exports, by commodity, 2011-12....................................10

Table 17 WEF global competitiveness index, Australia, 2013-2014: main components.....................................10

Table 18 WEF global competitiveness index, Australia, 2013-2014: infrastructure.............................................10

Table 19 WEF global competitiveness index: infrastructure in selected economies, 2013-2014....................10

Table 20 Australia's airfreight & revenue passenger movements, by jurisdiction, 1985-86 to 2012-13.....10

Table 21 Farm financial profile of exporting and non-exporting vegetable farms in Australia, 2011–12. . .10

Table 22 Impediments to developing export markets, 2011–12....................................................................................10

Table 23 Value, volume and price of Australia's airfreight food exports, by commodity, 2011-12.................10

Table 24 Export unit values in Australia's airfreight supply chain, by jurisdiction, 2011-12............................10

Table 25 Tasmanian freight statistics, 2011–12....................................................................................................................10

Table 26 Bass Strait shipping lines...............................................................................................................................................10

Table 27 Indicative Bass Strait shipping costs, by container and volume..................................................................10

Table 28 Domestic airline trips connecting Hobart and Launceston airports, 2011–12.....................................10

Table 29 Domestic airline trips connecting Hobart and Launceston airports, 2011–12.....................................10

Table 30 Distance between Hobart, Launceston, Melbourne, Sydney, Brisbane, Adelaide andCanberra airports...................................................................................................................................................................10

Table 31 Total passengers, freight capacity and range of major international aircraft departing Melbourne................................................................................................................................................................................. 10

Table 32 Distance between Melbourne Airport and key international airports......................................................10

Table 33 Size, volume, weight and compatible aircraft of container type unit load devices..............................10

Table 34 Size, volume, weight and compatible aircraft of pallet type unit load devices......................................10

Table B1 Airfreight food exports, by commodity, 2005-06 and 2011-12: Victoria................................................10

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Table B2 Airfreight food exports, by commodity, 2005-06 and 2011-12: Queensland........................................10

Table B3 Airfreight food exports, by commodity, 2005-06 and 2011-12: New South Wales............................10

Table B4 Airfreight food exports, by commodity, 2005-06 and 2011-12: South Australia.................................10

Table B5 Airfreight food exports, by commodity, 2005-06 and 2011-12: Tasmania.............................................10

Table B6 Airfreight food exports, by commodity, 2005-06 and 2011-12: Western Australia...........................10

Table B7 Airfreight food exports, by commodity, 2005-06 and 2011-12: Northern Territory.........................10

FiguresFigure S1 Australia's food exports, by transport mode and commodity, 1996-97 to 2011-12............................1

Figure S2 Supply chain for Australia's airfreight food exports in 2011-12...................................................................1

Figure S3 Australia's airfreight and revenue passenger movements, 1985-86 to 2012-13..................................4

Figure 1 Agriculture, fisheries and forestry—food and non-food commodities and uses......................................9

Figure 2 International transport options for Australia's food exports.........................................................................10

Figure 3 Australia's food exports, by transport mode & commodity, 1996-97 to 2011-12................................10

Figure 4 Australia's airfreight food exports, by commodity, 1996-97 to 2011-12.................................................10

Figure 5 Airfreight export shares for selected food commodities, 1996-97 to 2011-12......................................10

Figure 6 Airfreight food export shares, by jurisdiction, 2000-01 to 2011-12...........................................................10

Figure 7 Airfreight food exports of Australian origin, by commodity, 2005-06 to 2011-12..............................10

Figure 8 Key stages in Australia's airfreight food exports.................................................................................................10

Figure 9 Australia's airfreight food supply chain in 2011-12...........................................................................................10

Figure 10 Australia's airfreight food exports, by jurisdiction, 2005-06 to 2011-12..............................................10

Figure 11 Growth in the value of airfreight food exports, by jurisdiction and commodity, 2005-06 to 2011-12: state of origin...............................................................................................................................10

Figure 12 Growth in the value of airfreight food exports, by jurisdiction and commodity, 2005-06 to 2011-12: state of departure......................................................................................................................10

Figure 13 Australia's airfreight exports and imports, 2005-06 to 2011-12..............................................................10

Figure 14 Australia's airfreight supply chain, 2005-06 to 2011-12: state of origin...............................................10

Figure 15 Australia's airfreight supply chain, 2005-06 to 2011-12: net imports from other states...............10

Figure 16 Australia's airfreight exports and imports, 2005-06 to 2011-12: state of departure.......................10

Figure 17 Australia's 20 leading airfreight export commodities: value and volume, 2011-12.........................10

Figure 18 Australia's 14 leading destination markets for airfreight food exports, 2011-12..............................10

Figure 19 Australia's airfreight and revenue passenger movements, 1985-86 to 2012-13...............................10

Figure 20 Australia's airfreight and revenue passenger movements, by jurisdiction, 1985-86 to 2012-13..............................................................................................................................................................10

Figure 21 Simplified domestic component of the airfreight supply chain: farmer to flight................................10

Figure 22 Issues in Victoria's airfreight export supply chain: survey responses....................................................10

Figure 23 Prices in a simplified airfreight export supply chain: farmer to consumer...........................................10

Figure 24 Price and volume for Australia's airfreight food and non-food exports, 2011-12.............................10

Figure 25 Distribution of vegetable cash receipts, vegetable growing farms in Australia, 2005-06 to 2011–12.............................................................................................................................................................10

Figure 26 A typical price-reliability spectrum, with circle size illustrating US traffic volume..........................10

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Figure 27 Price and volume for Australia's airfreight and total food exports, 2011-12.......................................10

Figure 28 Value, volume and price for Australia's airfreight food exports, by commodity, 2011-12.............10

Figure 29 Australia's airfreight food supply chain in 2011-12: export unit value..................................................10

Figure 30 Simplified Tasmanian food supply chain..............................................................................................................10

Figure 31 Melbourne Airport flight departures by destination country and carrier, 2011–12........................10

Figure 32 Abalone production by state and Tasmanian price, 2005-06 to 2011-12.............................................10

Figure 33 Abalone exports by state of production and Tasmanian price, 2005-06 to 2011-12.......................10

Figure 34 Tasmanian sheep meat production and price, 2005-06 to 2011-12........................................................10

Figure 35 Tasmanian sheep meat exports and price, 2005-06 to 2011-12...............................................................10

Figure 36 Cherry production by state of production and Tasmanian price, selected years...............................10

Figure 37 Cherry exports by state of production and Tasmanian price, 2005-06 to 2011-12..........................10

Figure A1 ABARES projections for world agrifood consumption and imports, 2007 and 2050.......................10

Figure B1 Airfreight food exports, by commodity, 2005-06 to 2011-12: Victoria..................................................10

Figure B2 Airfreight food exports, by commodity, 2005-06 to 2011-12: Queensland..........................................10

Figure B3 Airfreight food exports, by commodity, 2005-06 to 2011-12: New South Wales..............................10

Figure B4 Airfreight food exports, by commodity, 2005-06 to 2011-12: South Australia...................................10

Figure B5 Airfreight food exports, by commodity, 2005-06 to 2011-12: Tasmania..............................................10

Figure B6 Airfreight food exports, by commodity, 2005-06 to 2011-12: Western Australia.............................10

Figure B7 Airfreight food exports, by commodity, 2005-06 to 2011-12: Northern Territory...........................10

MapsMap 1 Direct routes between Melbourne Airport and key international airports..................................................10

BoxesBox 1 Economic and social infrastructure...................................................................................................................................8

Box 2 Airport lease provisions.......................................................................................................................................................10

Box 3 Australian Logistics Council: supply chain efficiency and airports...................................................................10

Box 4 BAHS airfreight study: key priority areas in Victoria’s airfreight supply chain..........................................10

Box 5 ABARES vegetable survey: Australian farms with and without export earnings........................................10

Box 6 WTO (World Trade Organization): market access and agriculture..................................................................10

Box 7 WTO (World Trade Organization): market access and agriculture..................................................................10

Box 8 Australian liquid milk exports...........................................................................................................................................10

Box 9 Product attributes and labelling.......................................................................................................................................10

Box 10 Trans-Bass Strait aircraft specifications and route distances...........................................................................10

Box 11 International aircraft details departing Melbourne and route distances....................................................10

Box 12 Unit Load Devices used by Qantas Airways..............................................................................................................10

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Summary This report examines trends and issues in the supply chain for Australia’s airfreight food

exports, and presents case studies from Tasmania. Demand for relatively high-priced, low-volume food products is likely to increase significantly over the medium to longer term, particularly in the Asian region as consumer incomes rise.

Transport modes for Australia’s food exports

In 2011–12, Australia’s food exports were $30.5 billion, comprising sea freight exports of $28.8 billion (95 per cent of total) and airfreight exports of $1.6 billion (5 per cent). Australia’s main food exports by sea freight are other food (62 per cent of total sea freight food exports in 2011-12) and livestock-based food (33 per cent), and by airfreight are livestock-based food (45 per cent) and fisheries-based food (40 per cent) (Figure S0).

Airfreight is a significant transport mode for Australia’s exports of fisheries products(65 per cent of the total export value of fisheries products in 2011–12), unprocessed fruit and vegetables (24 per cent), live animals (17 per cent), and meat products (8 per cent).

Figure S0 Australia's food exports, by transport mode and commodity, 1996-97 to 2011-12

Sources: Based on DAFF 2013a and ABS 2013a

Previously unpublished data are used to examine trends in Australia’s airfreight supply chain (Figure S1, Table S0; based on food of Australian origin). Victoria is the most important jurisdiction in the supply chain for Australia’s airfreight food exports. All jurisdictions produce food that is exported by airfreight, although output from the Northern Territory is very small (state of origin). Notably, food is moved from Tasmania (100 per cent) and South Australia (more than half) to other jurisdictions for export by airfreight (state of departure) (Table S1). Asia and the Middle East are the main destination markets.

Figure S1 Supply chain for Australia's airfreight food exports in 2011-12

Source: Based on BITRE estimates using ABS cargo data

1

a) Sea transport b) Air transport

0

5

10

15

20

1996-97 2001-02 2006–07 2011–12

20

11

-12

$b

0.0

0.4

0.8

1.2

1996-97 2001-02 2006–07 2011–12

20

11

-12

$b Livestock-based food

Fisheries-based food

Fruit & vegetables

Other food

a) Supply side b) Demand side: destination markets

0 200 400 600 800

Northern TerritoryTasmania

South AustraliaNew South Wales

Western AustraliaQueensland

Victoria

$m

State of departureState of origin

0 400 800 1200

Other

North America

Pacific

Europe

Middle East

Asia

$m

Source: Based on BITRE estimates using ABS cargo data


Table S0 Overview of regional patterns in Australia's airfreight supply chain,2005-06 to 2011-12

Key stage in Variable Eastern states Other statessupply chain Vic

. Qld. NSW SA Tas. WA NT AustraliaFood ValueState of origin Rank, 2011-12 1 2 4 5 6 3 7 –

Growth VolumeRank, 2011-12 1 2 3 5 6 4 7 -Growth

Interstate food 2011-12 (=net imports from other states; =net exports to other states)movements Value -

Volume -State of departure Value

Rank, 2011-12 1 2 4 5 7 3 6 -Growth VolumeRank, 2011-12 1 2 3 5 7 4 6 -Growth

Non-food ValueState of origin Rank, 2011-12 3 4 2 5 6 1 7 -


Interstate non-food 2011-12 (=net imports from other states; =net exports to other states)movements Value -

Volume -State of departure Value

Rank, 2011-12 3 4 2 5 7 1 6 -Growth VolumeRank, 2011-12 2 4 1 5 7 3 6 -Growth

Re-exports ValueState of departure Rank, 2011-12 2 3 1 6 7 4 5 -


Total ValueState of departure Rank, 2011-12 3 4 2 5 7 1 6 -

Growth VolumeRank, 2011-12 2 3 1 5 7 4 6 -

Growth Note: Airfreight food and non-food exports of Australian origin (i.e. excluding re-exports). Re-exports are defined as goods, materials or articles originally imported into Australia which are exported in either the same condition in which they were imported, or after undergoing some minor operations (e.g. blending, packaging, bottling, cleaning and sorting) which leave them essentially unchanged; included in international merchandise export statistics (ABS 2001). NSW includes the ACT.ü= increase in value or volume of exports between 2005-06 and 2011-12 (in 2011-12 prices).û = decrease in value or volume of exports between 2005-06 and 2011-12 (in 2011-12 prices).Sources: Based on BITRE estimates using ABS cargo data, and ABS 2013a

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Table S1 Australia's airfreight supply chain in 2011-12

Jurisdiction

Airfreight exports, by state of origin Airfreight exports, by state of departureNet exports to other

states, as % of:Net imports from

other states, as % of:Value Volume Value Volume Value Volume Value Volume

$m kt % % $m kt % %Eastern statesVictoriaFood 466 59 - - 675 65 31 9Non-food 2614 30 11 21 2334 24 - -Food & non-food 3080 90 2 1 3009 89 - -Re-exports - - - - 2564 9 - -Total - - - - 5573 98 - -QueenslandFood 315 35 - - 325 37 3 3Non-food 921 12 7 18 861 10 - -Food & non-food 1236 47 4 2 1186 46 - -Re-exports - - - - 1237 4 - -Total - - - - 2423 50 - -New South WalesFood 216 21 - - 252 32 14 33Non-food 4522 36 - - 5648 49 20 26Food & non-food 4738 57 - - 5900 81 20 29Re-exports - - - - 10234 36 - -Total - - - - 16134 116 - -South AustraliaFood 174 13 53 57 82 5.4 - -Non-food 424 5 61 54 165 2.1 - -Food & non-food 598 17 59 56 247 7.5 - -Re-exports - - - - 146 0.5 - -Total - - - - 392 8.0 - -TasmaniaFood 160 10 100 100 0.0 0.000 - -Non-food 155 1 99 99 1.0 0.004 - -Food & non-food 315 11 100 100 1.0 0.004 - -Re-exports - - - - 0.2 0.001 - -Total - - - - 1.2 0.005 - -Other statesWestern AustraliaFood 261 16 - - 261 17 0 2Non-food 17580 12 1 8 17336 11 - -Food & non-food 17841 28 1 2 17596 27 - -Re-exports - - - - 935 2 - -Total - - - - 18532 29 - -Northern TerritoryFood 2.1 0.6 96 99 0.1 0.01 - -Non-food 146 0.3 88 56 18 0.1 - -Food & non-food 149 0.9 88 83 18 0.1 - -Re-exports - - - - 173 0.2 - -Total - - - - 191 0.3 - -AustraliaFood 1594 155 - - 1594 155 - -Non-food 26362 96 - - 26362 96 - -Food & non-food 27957 251 - - 27957 251 - -Re-exports - - - - 15290 51 - -Total - - - - 43247 302 - -

Note: Food and non-food exports of Australian origin; total airfreight exports include re-exports. NSW includes the ACT. e.g. in Victoria’s airfreight supply chain: 11% of the value of non-food products originating from Victoria is moved to other states for export by airfreight; and 31% of the value of airfreight food exports from Victoria is sourced from other states.Source: Based on BITRE estimates using ABS cargo data

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Key growth areas in Australia’s airfreight food supply chain, based on export value, are:

- by food product—meat products (export value increased by 6.2 per cent a year between 2005–06 and 2011–12) and dairy products (2.9 per cent)

- by state of origin—Victoria (5.0 per cent), Tasmania (2.2 per cent) and Queensland (1.4 per cent)

- by state of departure—Victoria (3.7 per cent) and Queensland (3.2 per cent).

Key areas of concern in the supply chain over the period 2005–06 to 2011–12 are broadly based declines in the value and volume of airfreight food exports from New South Wales and Western Australia. In South Australia, airfreight food exports have also declined overall but the value of livestock-based food and other food exports have increased.

Australia’s total airfreight exports were $43 billion in 2011–12, representing 16 per cent of the value of Australia’s merchandise exports. Gold is the largest airfreight export commodity ($16 billion). Between 2005–06 and 2011–12, the value of total airfreight exports increased (2.7 per cent a year on average), but the volume fell slightly (–0.3 per cent).

- Food of Australian origin accounted for 4 and 51 per cent of the value and volume, respectively, of Australia’s total airfreight exports in 2011–12. Between 2005–06 and 2011–12, both the value and volume of Australia’s airfreight food exports increased (0.4 and 2.4 per cent, respectively). Meat products, fruit and vegetables, and fisheries products are Australia’s three largest airfreight exports, based on volume.

Issues and case studies in Australia’s airfreight supply chain

In the latest World Economic Forum global competitiveness indicators, Australia ranks between 30 and 42 (out of 148 economies) for quality of air, rail, road and port transport infrastructure. Quality of air transport infrastructure in destination markets is a key consideration when food producers or exporters are assessing export market opportunities. In 2011–12, leading destination markets for airfreight food exports rank above Australia for quality of air transport infrastructure and/or are located in the Asian region.

The Australian government commenced a process of deregulation and privatisation of capital city airports in 1997. Between 1997 and 2003, the Australian Government sold long term leases for 22 airports to the private sector (50 year leases with an option to renew for a further 49 years). This process is consistent with the direction of international policy reform in recent decades, particularly in high income countries.

- The volume of outbound airfreight from Australia has levelled off since privatisation and there is substantial excess airfreight capacity in outbound flights, particularly at Sydney airport (Figure S2).

Figure S2 Australia's airfreight and revenue passenger movements, 1985-86 to 2012-13

Source: BITRE data

4

a) Freight b) Revenue passengers

0

150

300

450

600

1985-86 1994-95 2003-04 2012-13

kt

Inbound

Outbound

0

4

8

12

16

1985-86 1994-95 2003-04 2012-13

mil

lion

Inbound

Outbound


Increasing the efficiency of Australia’s airfreight supply chain

Tier 1 airports (Sydney, Melbourne, Brisbane and Perth) are subject to light handed monitoring (mandatory price and quality of service monitoring). In its latest review, released in 2011, the Productivity Commission concluded economic regulation of tier 1 airports generally worked well, but recommended some strengthening of the arrangements.

- Future reviews could include a more comprehensive assessment of the regulatory framework for the pricing and provision of freight services by major airports.

- Recent trends suggest the primary focus of international airport operators has been to invest in capacity to meet the growing demand for passenger travel. Since freight is also a core aeronautical activity, major airport operators could liaise with other supply chain participants to assess cost-effective options to facilitate airfreight exports.

An efficiency study of Victoria’s airfreight supply chain was undertaken in 2010 and 2011 to identify problems in the supply chain (stage I) and options to address those problems (stage II). Six key priority areas range from improving airfreight strategic planning to reducing inconsistencies in operating hours for key supply chain participants.

- The efficiency of Australia’s airfreight supply chain may be enhanced by extending the Victorian airfreight supply chain study to other jurisdictions and/or considering the recommendations in the 2011 report for other jurisdictions. There is a potential role for government in the provision of data to ensure airfreight supply chain participants have access to information to enhance investment and production decisions.

Further issues in increasing Australia’s airfreight food exports

Tasmania is the strongest growth jurisdiction in Australia’s airfreight food supply chain, based on volume. Tasmania also has strong growth prospects with emerging crops like berries for future export by airfreight. Airfreight accounts for nearly one third of the value of Tasmania’s food exports, and food is mainly moved by sea transport to the mainland and airfreight from Melbourne airport. Tasmanian case studies in this report are based on businesses that have overcome logistical problems presented by airfreight as well as additional regulatory requirements such as biosecurity and food safety protocols required by importing countries, although the high cost of coastal sea freight and limited capacity during peak periods remain as key challenges.

This report also provides a preliminary assessment of ABARES survey data on Australian vegetable farms. Only a small share of vegetable growing farms export produce (4 per cent in 2011–12), but these farms are significantly larger on average than non-exporting vegetable farms (higher vegetable cash receipts). One potential future research direction is to use the ABARES farm survey framework to obtain better information on export supply chains and the financial performance and farm characteristics of exporting farms. More detailed information about the profitability and business management practices of exporting farms should be a useful input to investment, production and export decisions of farmers and food processors, and contribute to identifying and realising export market opportunities.

Increasing the efficiency of Australia’s airfreight supply chain is particularly important for food products. Most airfreight food products are perishable, and reliability, including transport time and cold chain management, is a key influence on the economic viability of the airfreight supply chain. Since airfreight food prices tend to be low compared with airfreight non-food prices, transport costs are likely to be a relatively high share of airfreight food prices. Expanding efficient supply chain options for food exporters would also increase competitive pressures on the demand side of the food market, which is an issue given concerns about the competitiveness of food retailing in Australia.

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The Australian Government has an important role in facilitating international market access for food exporters, that is, gaining access to new markets or improving access in established markets). Three key components of market access are particularly important for food trade: free trade agreements (FTAs; for example, the Australia-Japan FTA), technical barriers to trade (TBTs; for example, food labelling), and sanitary and phytosanitary provisions (SPS measures; food safety, and animal and plant health).

- In the latest World Bank report on the ease of doing business, Australia ranks 46 (out of 189 economies) for ease of trading across borders.

- The Australian Government’s biosecurity reforms should significantly increase the efficiency of the airfreight supply chain. The reforms are wide ranging, including moving toward a risk based approach to inspections and electronic documentation, and should achieve a high level of biosecurity protection at lower cost to industry and government. A transparent evidence-based biosecurity system should also facilitate market access negotiations.

There is an important role for farmers and food processors to identify and assess options to enhance the economic viability of the airfreight supply chain. A key message from the Victorian airfreight study is that food producers should obtain information about the supply chain to make well informed investment, production and export decisions.

- Australia’s airfreight food exports tend to be relatively high-priced food products. In 2011-12, the export unit value for Australia’s airfreight food exports was $10/kg (weighted average), ranging from $3/kg for fruit and vegetables to $28/kg for fisheries products. Jurisdictions with at least a 50 per cent price premium (compared with the national average) include Victoria (fisheries products), Queensland (meat products), New South Wales (live animals), Tasmania (live animals, dairy products, and fruit and vegetables) and Western Australia (fisheries products).

- The key advantages of air transport are speed, reliability and flexibility—food can be moved directly to inland and remote destinations. The airfreight supply chain is cost effective where the price premium for food quality justifies the higher transport cost. Food producers may use air transport as part of a diversified food export strategy or as a stock management strategy, for example, to replenish supermarket stocks if consumer demand is stronger than anticipated.

- Investment options should consider both the demand-side and supply-side of the market. Consumers will be more likely to pay a price premium for quality attributes if there is a relatively high degree of confidence in food quality. Product labelling is the main investment option to indicate reliable food quality, but provenance protection technologies may be required to ensure product integrity. Other investment options include product/processing development and packaging; for example, the economic viability of airfreight exports of broccoli is linked to supermarket-ready packaging.

In conclusion, Australia’s airfreight supply chain has considerable growth potential. All supply chain participants can benefit from increased airfreight food exports, but farmers and food processors need reasonable economic incentives to invest in food production.

- The Australian Government has an important role. New commodities in the Australian Government’s market access negotiations are reported to be mainly focused on the airfreight supply chain. Biosecurity reform has the potential to be a significant contributing factor to enhancing the efficiency of Australia’s airfreight supply chain and facilitating future growth in food exports.

- It may be useful in future research to examine trends, issues and case studies in the sea freight supply chain for Australia’s food exports with a focus on non-bulk commodities.

6


1 Introduction The real value of Australia’s food exports has increased strongly in recent years—from $26 billion in 2009–10 to $31 billion in 2012–13, the highest level since 2001–02 (in this report, values are converted to 2011–12 prices using the consumer price index; ABARES 2013a; ABS 2013a). Food exports accounted for 12.8 per cent of Australia’s total merchandise exports in 2012–13 (ABARES 2013a,b, ABS 2013b).

Ongoing research in ABARES has been examining the outlook for the world agrifood market to 2050 and assessing the implications for Australia’s food exports (appendix A). ABARES projections indicate that world agrifood consumption and imports are likely to increase markedly to 2050, with relatively strong growth in food demand in the Asian region (Linehanet al. 2012a,b, 2013, ABARES 2013c).

Ensuring Australia’s infrastructure and biosecurity systems allow food producers, processors and exporters to move food cost-effectively and efficiently to destination markets is a key to realising potential new and expanded export market opportunities (Box 1). In November 2013, ABARES released a preliminary economic assessment of infrastructure and Australia’s food industry (see Nguyen et al. 2013). In follow-up research, more detailed economic assessments are being undertaken on infrastructure and the supply chains for Australia’s major commodity exports (wheat, beef and dairy products). ABARES, in collaboration with the CSIRO, is also undertaking more detailed assessments of supply chains in northern Australia in the Northern Australia Food and Fibre Supply Chains study.

Nguyen et al. (2013) found that airfreight is an important transport mode for some food commodities including fisheries products and unprocessed fruit and vegetables. The value of airfreight exports of meat products has also increased strongly in recent years. Demand for relatively high-priced, low-volume food products is likely to increase significantly over the medium to longer term, particularly in the Asian region as consumer incomes rise (ABARES 2013c).

This report examines trends and issues in the supply chain for Australia’s airfreight food exports, and presents case studies from Tasmania:

Trends (chapters 2-4)—chapter 2 provides background information, and Australia’s airfreight supply chain is documented in chapter 3 (airfreight food exports) and chapter 4 (importance of food in total airfreight exports) using previously unpublished data for the period 2005-06 to 2011-12. Trends in Australia’s exports are examined at a relatively aggregated level. Trends may vary for individual commodities within a food category.

Issues (chapters 5-7)—chapter 5 identifies infrastructure issues in Australia’s airfreight supply chain, and economic issues for enhancing the efficiency of the airfreight supply chain are discussed in chapter 6 (broader issues) and chapter 7 (food exports).

Case studies (chapter 8)—issues in the supply chain for Tasmania’s airfreight food exports are examined, drawing on the experience of several food producers and transport providers in the region.

Some concluding comments are provided in chapter 9. Appendix B also provides more detailed information on the airfreight food supply chain for each Australian jurisdiction.

7


Box 1 Economic and social infrastructure

A key role of the public sector is to ensure the provision, directly or through private supply, of efficient economic and social infrastructure, subject to budgetary and other constraints, to complement private sector economic activities and to ensure people have access to some reasonable level of infrastructure services. Hence, there are both efficiency and equity goals to infrastructure provision—efficiency is concerned with maximising the marginal net gain to total social welfare, while equity is concerned with the distribution of social welfare between individuals.

Economic and social infrastructure are defined as follows:

Economic infrastructure—includes the physical networks and facilities that provide electricity, gas, water, transport and communication services.

Social infrastructure—includes educational and health facilities, and other public buildings and places such as government offices, fire and police stations, public housing, child care facilities, libraries and parks.

Economic infrastructure services are direct inputs to industry, while social infrastructure services are mainly consumed by individuals and enter less directly as inputs to production.

Hogan et al. (1999) examined some broad trends and key issues in Australia’s regional economic performance. Based on ABS census employment data, economic and social infrastructure has tended to increase most rapidly in high population growth regions (the correlation between growth in economic infrastructure services and population growth was 0.8 between 1986 and 1996; similarly for social infrastructure services).

From business surveys of locational preferences, the provision of both economic and social infrastructure services may influence the location decisions of industry (EPAC 1991, Cook 1999). Cook (1999), for example, reported that the factors cited most often by business in choosing locations, in descending order of priority, are telecommunications, roads, lifestyle, energy/water, education, health care, sport/recreation, domestic airport, rail transport and international airport. Industry assistance provided by government may also influence industry location (Industry Commission 1996). The importance of specific infrastructure services, however, will vary between industries.

Compared with capital cities, other areas tend to have lower average household incomes, more specialised economies and higher levels of structural change. However, there is considerable diversity between regions.

Nguyen et al. (2013) provided a preliminary economic assessment of infrastructure and Australia’s food industry with a focus on exports. The current study focuses on food exports and Australia’s airfreight supply chain.

8


2 BackgroundThis chapter provides background information on recent developments in Australia’s food exports by air and sea transport, with some focus on the importance of airfreight.

Food commoditiesEconomic data on food commodities should be interpreted with some caution. Agriculture and fisheries industries produce both food and non-food commodities, but not all food commodities are produced for human consumption (Figure 0). Food commodities may be produced for food use (human consumption and/or animal and fish feed) or non-food use (such as sugar in biofuel production).

This chapter uses food exports data based on the definition of food commodities in DAFF (2013a) (see also ABARES 2013a, b). A simplified definition of food commodities based on Standard International Trade Classification (SITC) groups (defined at the 2-digit level) is used in chapter 3 to examine Australia’s airfreight food supply chain in more detail.

Figure 0 Agriculture, fisheries and forestry—food and non-food commodities and uses

Australia’s food exports, by transport modeAustralia’s food exports are transported to overseas markets using either sea or air transport (Figure 1). Sea transport options include bulk shipping, and unrefrigerated and refrigerated containers. Air transport options include the cargo hold of passenger aircraft, dedicated freight aircraft and ad hoc charter flights (House of Representatives Standing Committee on Communications, Transport and Microeconomic Reform 1996).

Sea freight is the main transport mode for Australia’s food exports, although Nguyen et al. (2013) found that airfreight is a significant transport mode for a number of food commodities. In 2011–12, the latest year for which airfreight export data are available, the value of Australia’s food exports was $30.5 billion comprising sea freight exports of $28.8 billion (95 per cent of total) and airfreight exports of $1.6 billion (5 per cent) (Australia’s sea freight food exports are derived as the difference between total food exports and airfreight food exports; Table 0).

In this report, Australia’s food exports are broadly grouped into four commodity categories: livestock-based food (comprising live animals, meat products, and dairy products; export value was $10.3 billion or 34 per cent of total food exports in 2011–12), fisheries-based food ($1.0 billion, 3 per cent), fruit and vegetables ($1.2 billion, 4 per cent), and other food (mainly comprising other crop-based food and beverages; $18.0 billion, 59 per cent) (ABARES 2013a).

9

Agricultureand fisheries

Food commodities

Food use

Human consumption

Animaland fish feed

Non-food use(e.g. sugar in

biofuels)

Non-food commodities Non-food use


Figure 1 International transport options for Australia's food exports

The composition of food exports, and recent trends in the value of exports, vary by transport mode (Figure 2). The two main food commodities exported by sea freight are other food (accounting for 62 per cent of the value of total sea freight exports) and livestock-based food (33 per cent) (Figure 2a). Since 2007–08, there has been a divergence in trends with strong growth in the real value of sea freight exports of other crops, and a decline in the real value of sea freight exports of livestock-based food.

Table 0 Australia's food exports, by transport mode and commodity, selected years

Commodity1996–97 2000-01 2005-06 2011–12

ValueShare

of total ValueShare

of total ValueShare

of total ValueShare

of total

$m % $m % $m % $m %

Sea transport

Livestock-based food 7713 29.3 12529 40.2 11291 42.2 9525 33.0

Fisheries-based food 764 2.9 1204 3.9 740 2.8 353 1.2

Fruit and vegetables 1250 4.7 1432 4.6 1233 4.6 1078 3.7

Other food 16603 63.1 15968 51.3 13468 50.4 17885 62.0

Total food 26330 100.0 31133 100.0 26733 100.0 28841 100.0

Air transport




Other food 71 4.3 95 4.5 105 6.6 91 5.7

Total food 1639 100.0 2130 100.0 1586 100.0 1616 100.0

Total




Other food 16674 59.6 16063 48.3 13572 47.9 17977 59.0

Total food 27970 100.0 33263 100.0 28319 100.0 30458 100.0

Note: Values are in 2011-12 prices. Other food includes beverages. Sources: Based on DAFF 2013a and ABS 2013a

10

Food exports

Sea transport

Bulk shippinge.g. grains,

live animals (beef cattle, sheep)

ContainersUnrefrigerated

e.g. grains, processed food

Refrigeratede.g. meat products,

dairy products, fruit & vegetables

Air transport

Cargo hold of passenger

aircrafte.g. meat products,fisheries products, fruit & vegetables

Dedicated freight aircraft

e.g. live animals (1-day old chicks,

goats)

Ad hoc charter aircraft

e.g. abalone (domestic transport)


Figure 2 Australia's food exports, by transport mode & commodity, 1996-97 to 2011-12

Note: In 2011-12 prices. Other food includes beverages. Sources: Based on DAFF 2013a and ABS 2013a

The two main food commodities exported by airfreight are livestock-based food (accounting for 45 per cent of the value of total airfreight exports) and fisheries-based food (40 per cent)(Figure 2b, Table 0). Notably, since 2003–04, there has been an increase in the real value of airfreight exports of livestock-based food, and a further decline in the value of fisheries-based products.

Australia’s airfreight food exportsThe real value of Australia’s airfreight food exports has been relatively steady since 2003–04, but below the peak of $2.2 billion in 2001–02 (in 2011–12 prices; Figure 3). The value of Australia’s airfreight food exports in 2011–12 was similar to the annual average between1996–97 and 2011–12 ($1.6 billion, Table 0). Over this period, airfreight accounted for between 5.3 per cent (2004–05 and 2011–12) and 6.8 per cent (1999–00) of the total value of Australia’s food exports. Excluding other food, the share of Australia’s food exports transported by airfreight has increased over the past several years, from a low of 9.4 per cent in 2004–05 to 12.2 per cent in 2011–12.

Figure 3 Australia's airfreight food exports, by commodity, 1996-97 to 2011-12

Note: Values are in 2011-12 prices. The dashed line is the value of airfreight exports (excluding other food) as a percentage of the value of total food exports (also excluding other food).Sources: Based on DAFF 2013a and ABS 2013a,b

11

a) Sea transport b) Air transport

0

5

10

15

2019

96-9

7

1999

-00

2002

-03

2005

–06

2008

–09

2011

–12

20

11

-12

$b

0.0

0.4

0.8

1.2

1996

-97

1999

-00

2002

-03

2005

–06

2008

–09

2011

–12

20

11

-12

$b Livestock-based food


Fruit & vegetables

Other food

0

5

10

15

0

1

2

3

1996

-97

1999

-00

2002

-03

2005

–06

2008

–09

2011

–12

%

20

11

-12

$b

Other food

Fruit & vegetables


Livestock-based food

% of total food exports (right axis)

% of total food exports (excluding other food; right axis)


Airfreight food export shares, by commodityThe airfreight export share—that is, the percentage of the value of exports transported by airfreight—varies widely between food commodities (Figure 4). Notably, over the past decade, airfreight has become significantly more important for Australia’s exports of fisheries products (the airfreight export share for fisheries products increased from a low of 45 per cent in 2002–03 to 65 per cent in 2011–12).

Figure 4 Airfreight export shares for selected food commodities, 1996-97 to 2011-12

Note: Value of airfreight exports as a percentage of the value of total exports of the same commodity. Meat products include meat.Sources: Based on DAFF 2013a and ABS 2013b

Airfreight is also a significant transport mode for exports of unprocessed fruit and vegetables (24 per cent in 2011–12), live animals (17 per cent), and meat products (8 per cent) (Table 1). The airfreight export share has fallen to below 1 per cent for fruit and vegetable products (from 1.3 per cent in 2004–05 to 0.8 per cent in 2011 12) and other food (from 1.0 per cent in 2002–03 to 0.5 per cent in 2011 12). Further information is provided in Nguyen et al. (2013).

Table 1 Australia's airfreight food export shares, by commodity, selected years

Commodity 1996–97 2000-01 2005-06 2011–12

% % % %


Live animals (excluding fish) 12.2 14.7 20.8 17.1

Meat and meat products 6.4 5.8 4.8 7.8

Dairy products 1.0 0.7 1.0 1.5

Total livestock-based food 5.2 4.9 4.9 7.1


Fisheries products 52.9 48.4 49.5 64.7

Fruit and vegetables

Unprocessed fruit & vegetables 34.7 27.9 22.2 24.0

Fruit and vegetable products 1.4 1.2 0.9 0.8

Total fruit and vegetables 18.5 15.7 12.2 12.1

Other food 0.4 0.6 0.8 0.5

Total food 5.9 6.4 5.6 5.3

Total excluding other food 13.9 11.8 10.0 12.2

Note: Value of airfreight exports as a percentage of the value of total exports of the same commodity. Fisheries products include unprocessed fish and shellfish, and processed seafood.Source: Based on DAFF 2013a

12

0

25

50

75

1996

-97

1999

-00

2002

-03

2005

–06

2008

–09

2011

–12

%

Live animals (excl. fish)

Meat products

Dairy products

Fisheries products

Unprocessed fruit & vegetables

Other food


Airfreight food export shares, by jurisdictionIn this report, jurisdictions are grouped into eastern states (Victoria, Queensland, New South Wales, South Australia and Tasmania), and other states (Western Australia and the Northern Territory) to be most relevant to transport infrastructure linkages in the airfreight food supply chain in Australia (interstate food movements are examined in chapter 3; within each group, jurisdictions are listed in order of the value of airfreight food exports in 2011–12). The airfreight food export share varies widely between jurisdictions (based on state of departure, Figure 5). In 2011–12, the airfreight food export share ranged from zero in Tasmania to 10 per cent in Victoria (based on state of departure; discussed further in chapter 3).

Figure 5 Airfreight food export shares, by jurisdiction, 2000-01 to 2011-12

Note: Based on state of departure. For each jurisdiction, the value of airfreight exports as a percentage of the value of total exports of the same food category.Sources: Based on DAFF 2013a and ABS 2013b

Excluding other food, the airfreight export share is substantially higher, particularly in Western Australia (24 per cent in 2011–12), Victoria (16 per cent) and New South Wales (14 per cent) (Table 2). Notably, between 2005–06 and 2011–12, the airfreight export share (excluding other food) increased in Victoria, Queensland and Western Australia, and declined sharply in New South Wales.

Table 2 Airfreight food export shares in Australia, by jurisdiction, 2005-06 and 2011-12

Jurisdiction Total food Excluding other food

2000-01 2005-06 2011–12 2000-01 2005-06 2011–12

% % % % % %

Eastern states

Victoria 6.4 8.0 9.6 8.7 10.6 16.1

Queensland 4.8 3.9 4.8 7.2 5.8 8.5

New South Wales 12.1 8.5 5.2 29.0 18.1 13.7

South Australia 2.1 2.5 1.8 6.1 7.6 5.6

Tasmania 0.0 0.1 0.0 0.0 0.1 0.0

Other states

Western Australia 9.7 7.0 6.8 21.7 17.3 23.9

Northern Territory 2.8 0.2 0.04 2.4 0.2 0.03

Australia 6.4 5.6 5.3 11.8 10.0 12.2

Note: Value of airfreight exports as a percentage of the value of total exports for the corresponding food category, based on state of departure.Source: Based on DAFF 2013a

13

a) Total food b) Total excluding other food

Note: For each jurisdiction, the value of airfreight exports as a percentage of the value of total exports of

0

5

10

15

2000

-01

2002

-03

2004

-05

2006

–07

2008

–09

2010

–11

%

0

10

20

30

2000

-01

2002

-03

2004

-05

2006

–07

2008

–09

2010

–11

%Victoria

Queensland

New South Wales

South Australia

Tasmania

Western Australia

Northern Territory


3 Airfreight food supply chainThis chapter uses a simplified definition of food exports to examine Australia’s airfreight food supply chain over the period 2005–06 to 2011–12. To examine the supply chain, it is necessary to distinguish between food of Australian origin and food of foreign origin (that is, re-exports).

Airfreight food exports: food of Australian originIn chapter 2, airfreight food exports included re-exports and used a mix of classification systems to obtain commodity detail (see DAFF 2013a and ABARES 2013a,b). In this chapter, airfreight food exports exclude re-exports and, for simplicity, include commodities defined at the 2-digit level in the Standard International Trade Classification (SITC)—these are food and live animals (SITC commodities 00-09) and beverages (SITC commodity 11). Oils and fats are not included in this simplified definition of food commodities—these commodities comprise both edible and inedible oils, fats and waxes, and only a small share is transported overseas by airfreight. In 2011–12, the value of airfreight exports of oilseeds and oleaginous fruits (SITC commodity 22), and animal and vegetable oils, fats and waxes (SITC commodities 41-43) was $7.3 million, accounting for 0.3 per cent of Australia’s total exports of these commodities (BITRE estimates using ABS cargo data, ABS 2013b).

By value, the main food commodities in the airfreight supply chain (excluding re-exports) are fisheries products, and meat products (Figure 6a, Table 3). By volume, the main food commodities are meat products, fruit and vegetables, and fisheries products (Figure 6b, Table 4) The value of Australia’s airfreight food exports, excluding re-exports, is estimated to be $1594 million (Table 3)—this is $22 million lower than the estimate of $1616 million in chapter 2 that included re-exports (Table 0). The estimates of airfreight exports are similar for livestock-based food ($723 million and $727 million, respectively), fisheries-based food ($646 million, $649 million), and fruit and vegetables ($148 million, $149 million). The main difference is in airfreight exports of other food ($76 million, $91 million) which is consistent with the exclusion of oils and fats in the simplified definition, and indicates food sourced from overseas is mainly used in this category.

Figure 6 Airfreight food exports of Australian origin, by commodity, 2005-06 to 2011-12

Note: Based on SITC commodities 00-11 and excluding re-exports. Values are in 2011-12 prices. Other food includes beverages. SITC is the Standard International Trade Classification.Sources: Based on BITRE estimates using ABS cargo data, and ABS 2013a

14

a) Value b) Volume

0

200

400

600

800

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

20

11

-12

$m

0

20

40

60

80

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

kt

Live animals

Meat products

Dairy products

Fisheries products

Fruit & vegetables

Other food

Note: Based on SITC commodities 00-11 and excluding re-exports. Values are in 2011-12 prices.


Table 3 Value of Australia's airfreight food exports, by commodity, 2005-06 to 2011-12

2005–06 2011–12SITC no. Commodity Value

Shareof total Value

Shareof total

Growth rate

$m % $m % %


00 Live animals 161 10.3 131 8.2 -3.4

01 Meat products 388 24.9 557 35.0 6.2

02 Dairy products 30 1.9 35 2.2 2.9

Total livestock-based food 578 37.1 723 45.4 3.8

03 Fisheries products 723 46.4 646 40.5 -1.8

05 Fruit and vegetables 171 10.9 148 9.3 -2.304, 06-11 Other food 88 5.6 76 4.8 -2.2

00-11 Total food 1559 100.0 1594 100.0 0.4

Note: Based on SITC commodities 00-11 and excluding re-exports. Values are in 2011-12 prices. Growth rate is the average annual growth rate between 2005-06 and 2011-12. Some SITC commodity labels have been simplified: live animals exclude fish; meat products include meat; dairy products include birds eggs (total export value for eggs was $3 million in 2011-12). Other food includes: cereals and cereal preparations (SITC 4); sugars, sugar preparations & honey (SITC 6); coffee, tea, cocoa, spices etc (SITC 7); feeding stuff for animals (SITC 8); miscellaneous edible products (SITC 9); and beverages (SITC 11). Beverages include non-alcoholic beverages not elsewhere specified and alcoholic beverages; fruit and vegetable juices are included in fruit and vegetables. Estimates may be affected by the ABS approach whereby confidential data are grouped into a separate SITC category (SITC 98). SITC is the Standard International Trade Classification.Sources: Based on BITRE estimates using ABS cargo data, and ABS 2013a

Between 2005–06 and 2011–12, the real value of Australia’s airfreight food exports (excluding re-exports) increased marginally (0.4 per cent a year on average)—export value increased only for meat products (6.2 per cent) and dairy products (2.9 per cent) (Table 3). Over the same period, the volume of Australia’s airfreight food exports increased moderately (2.4 per cent a year on average)—export volume increased strongly for live animals (15 per cent) and meat products (6.5 per cent), and declined only for fruit and vegetables (–1.8 per cent) (Table 4).

Table 4 Volume of Australia's airfreight food exports, by commodity, 2005-06 to 2011-12

2005–06 2011–12SITC no. Commodity Volume

Shareof total Volume

Shareof total

Growth rate

kt % kt % %


00 Live animals 3.2 2.4 7.5 4.9 15.0

01 Meat products 43.8 32.6 63.9 41.2 6.5

02 Dairy products 6.1 4.6 6.5 4.2 1.0

Total livestock-based food 53.2 39.6 78.0 50.3 6.6

03 Fisheries products 23.0 17.1 23.3 15.1 0.3

05 Fruit and vegetables 50.1 37.3 45.0 29.0 -1.8

04, 06-11 Other food 8.0 5.9 8.8 5.7 1.6

00-11 Total food 134.2 100.0 155.1 100.0 2.4

Note: Based on SITC commodities 00-11 and excluding re-exports. Growth rate is the average annual growth rate between 2005-06 and 2011-12.Sources: Based on BITRE estimates using ABS cargo data, and ABS 2013a

15


Overview

Key stages in the airfreight supply chainData are available to track airfreight food exports of Australian origin through three key stages of the supply chain (Figure 7; the terms states and jurisdictions are used interchangeably in this report):

State of origin—provides an indication of the regional pattern of food production in the airfreight supply chain. In practice, the supply chain may be more complex; for example, wine may be produced using grapes sourced from various jurisdictions. State of origin of exports is the Australian state in which the final stage of production or manufacture occurs (Australian Government Australian Customs Service 2003).

State of departure (or state of loading)—provides an indication of the regional pattern of food exports in the airfreight supply chain (jurisdictions where food products are loaded onto the aircraft for the international flight). Data are not available on the domestic transport modes used to move food from the state of origin to the state of departure (aggregate data for the volume of freight movements by transport mode are given in BITRE 2013a).

Destination markets—provides an indication of the regional pattern of demand for Australia’s airfreight food exports. In practice, the demand side of the market may be more complex; for example, food may be re-exported to a third country for final consumption.

Origin-to-departure data, the main focus in this report, are available for both the value and volume of airfreight exports defined at the 2-digit commodity level in the Standard International Trade Classification (SITC). Export value data are an important indicator of the economic significance of key components of the supply chain. Export volume data are an important indicator of demand for transport services as food is moved through the supply chain. Destination data are presented at the 1-digit commodity level (food and live animals, including re-exports; excludes beverages). The export data have been provided to ABARES by the Bureau of Infrastructure, Transport and Regional Economics (BITRE) in the Australian Government Department of Infrastructure and Regional Development. These estimates are based on ABS International Cargo Statistics (unpublished, 2013)—for simplicity, these are referred to throughout this report as BITRE estimates using ABS cargo data.

Figure 7 Key stages in Australia's airfreight food exports

16

• State of origin

Food production

Domestic transport Road, rail, air,

coastal shipping

• State of departure

Food exports

Internationalair transport

• Destination markets

Food consumption

Transport in destination markets


Regional pattern of Australia’s airfreight food exportsOrigin to destination: 2011–12An overview of Australia’s airfreight food supply chain in 2011–12, including the regional pattern of food supply in Australia and the regional pattern of food demand in destination markets, is provided in Figure 8. Victoria is the largest supplier of food for export by airfreight. All jurisdictions in Australia produce food that is exported by airfreight, although output from the Northern Territory is very small. Notably, domestic transport is used to move all food produced in Tasmania, and over half of the food produced in South Australia to other jurisdictions for export by airfreight—Victoria is the largest net food importer from other jurisdictions based on value (Figure 8a), while New South Wales is the largest net food importer based on volume (Figure 8b).

The Asian region is the most important destination market for Australia’s airfreight food exports, followed by the Middle East. In 2011–12, export market shares based on value were70 per cent for Asia, 14 per cent for the Middle East, 7 per cent for Europe and 3 per cent for the Pacific region, while export market shares based on volume were 61 per cent for Asia,26 per cent for the Middle East, 4 per cent for Europe and 5 per cent for the Pacific region.

Figure 8 Australia's airfreight food supply chain in 2011-12

Note: Based on SITC commodities 00-11 and excluding re-exports. NSW includes ACT. Data for destination markets exclude beverages (SITC 11) and include re-exports; in 2011-12, export value was $1592 million and export volume was 152 kt.Source: Based on BITRE estimates using ABS cargo data

17

a) Value

i. Supply side ii. Demand side: destination markets

b) Volume

i. Supply side ii. Demand side: destination markets

0 200 400 600 800


South AustraliaNew South Wales

Western AustraliaQueensland

Victoria

$m


0 400 800 1200

Other

North America

Pacific

Europe

Middle East

Asia

$m

0 20 40 60 80


South AustraliaNew South WalesWestern Australia

QueenslandVictoria

kt


0 25 50 75 100

Other

North America

Pacific

Europe

Middle East

Asia

ktNote: Based on SITC commodities 00-11 and excluding re-exports. NSW includes ACT.


Origin to departure: 2005–06 to 2011–12 Recent developments in airfreight food exports vary widely across jurisdictions in Australia. Table 5 and Figure 9 provide information on the regional pattern of total food production (state of origin), net food movements between jurisdictions, and total food exports (state of departure or loading) in the airfreight supply chain.

Most food in the supply chain is sourced from eastern states—Victoria, Queensland, New South Wales, South Australia and Tasmania together accounted for 84 and 89 per cent of the value and volume of Australia’s airfreight exports, respectively, in 2011–12. Between 2005–06 and2011–12, the value and volume of food produced for the supply chain increased overall in the eastern states (average annual growth rate of 0.8 and 3.7 per cent, respectively), and declined overall in other jurisdictions (–1.8 per cent, –5.0 per cent). Notably, among the eastern states, the value and volume of food produced for the supply chain increased in Victoria (5.0 per cent, 7.4 per cent), Tasmania (2.2 per cent, 14.8 per cent) and Queensland (1.4 per cent, 1.0 per cent), and declined in New South Wales (–3.3 per cent, –0.6 per cent) and South Australia(–4.1 per cent, –0.7 per cent).

Most interstate food movements occur between the eastern states. Between 2005–06 and2011–12, the main net food movements were from Tasmania and South Australia to Victoria and New South Wales. The value of net food movements to Victoria increased slightly (from$194 million in 2005–06 to $209 million in 2011–12). Notably, the value of net food movements to New South Wales declined markedly over the period (from $103 million in 2005–06 to$36 million in 2011–12), although the volume of net food movements to New South Wales remained relatively high (10.4 thousand tonnes in 2005–06 and 10.5 thousand tonnes in2011–12).

Most food in Australia’s airfreight supply chain departs from four jurisdictions—Victoria, Queensland, New South Wales and Western Australia together accounted for 95 and 97 per cent of the value and volume of Australia’s airfreight exports, respectively, in 2011–12. Between 2005–06 and 2011–12, the value and volume of airfreight food exports increased in Victoria (average annual growth rate of 3.7 and 7.1 per cent, respectively) and Queensland (3.2 per cent, 3.4 per cent), and declined in New South Wales (–6.1 per cent, –0.4 per cent) and Western Australia (–1.5 per cent, –5.1 per cent). South Australia accounts for nearly all other airfreight food exports from Australia, but the value and volume of South Australia’s airfreight food exports have declined in recent years (–2.3 per cent, –2.2 per cent).

Demand for international airfreight services is indicated by the volume of food exports. Overall, Victoria is the most important state of departure, and demand for international freight services from this jurisdiction has increased significantly in recent years—Victoria’s share of the volume of Australia’s airfreight food exports increased from 32 per cent in 2005–06 to 42 per cent in 2011–12. Over the period, Queensland has overtaken New South Wales to be the second largest state of departure, and demand for international freight services from Queensland has also increased in recent years—Queensland’s airfreight export volume share increased from22 per cent in 2005–06 to 24 per cent in 2011–12. Victoria and Queensland therefore accounted for around two thirds of the volume of Australia’s airfreight food exports in 2011–12. Over the period, the airfreight export volume shares declined in New South Wales (24 per cent,20 per cent), Western Australia (17 per cent, 11 per cent) and South Australia (6 per cent,5 per cent).

Recent developments in the airfreight food supply chain for each jurisdiction are examined further in appendix B.

18


Table 5 Australia's airfreight food exports, by jurisdiction, 2005-06 to 2011-12

Jurisdiction

Value Volume

2005–06 2011–12 2005–06 2011–12

Level% of total Level

% of total

Growthrate Level

% of total Level

% of total

Growthrate

$m % $m % % kt % kt % %

State of origin

Eastern states

Victoria 348 22.3 466 29.2 5.0 38.6 28.8 59.4 38.3 7.4

Queensland 290 18.6 315 19.8 1.4 33.3 24.8 35.3 22.7 1.0

New South Wales 264 16.9 216 13.5 -3.3 21.9 16.3 21.0 13.6 -0.6

South Australia 223 14.3 174 10.9 -4.1 13.1 9.8 12.6 8.1 -0.7

Tasmania 141 9.0 160 10.1 2.2 4.4 3.3 10.0 6.4 14.8

Total eastern states 1267 81.2 1331 83.5 0.8 111 82.9 138 89.2 3.7

Other states

Western Australia 290 18.6 261 16.3 -1.8 22.6 16.9 16.3 10.5 -5.4

Northern Territory 2.2 0.1 2.1 0.1 -0.8 0.3 0.2 0.6 0.4 11.1

Total other states 293 18.8 263 16.5 -1.8 23 17.1 17 10.8 -5.0

Australia 1559 100.0 1594 100.0 0.4 134.2 100.0 155.1 100.0 2.4

Net imports from other states

Eastern states

Victoria 194 - 209 - - 4.6 - 5.7 - -

Queensland -20 - 10 - - -3.4 - 1.2 - -

New South Wales 103 - 36 - - 10.4 - 10.5 - -

South Australia -130 - -93 - - -6.9 - -7.2 - -

Tasmania -140 - -160 - - -4.4 - -10.0 - -

Total eastern states 7.8 - 2.0 - - 0.3 - 0.3 - -

Other states

Western Australia -5.8 - 0.04 - - -0.1 - 0.3 - -

Northern Territory -1.9 - -2.1 - - -0.2 - -0.6 - -

Total other states -7.8 - -2.0 - - -0.3 - -0.3 - -

State of departure

Eastern states

Victoria 543 34.8 675 42.3 3.7 43.2 32.2 65.1 42.0 7.1

Queensland 270 17.3 325 20.4 3.2 29.9 22.3 36.5 23.5 3.4

New South Wales 368 23.6 252 15.8 -6.1 32.2 24.0 31.5 20.3 -0.4

South Australia 94 6.0 82 5.1 -2.3 6.2 4.6 5.4 3.5 -2.2

Tasmania 0.6 0.04 0.0 0.0 -100.0 0.01 0.01 0.0 0.0 -100.0

Total eastern states 1274 81.7 1333 83.6 0.8 112 83.1 139 89.3 3.7

Other states

Western Australia 285 18.2 261 16.3 -1.5 22.6 16.8 16.5 10.7 -5.1

Northern Territory 0.3 0.02 0.1 0.005 -20.2 0.1 0.1 0.01 0.005 -31.7

Total other states 285 18.3 261 16.4 -1.5 23 16.9 17 10.7 -5.1

Australia 1559 100.0 1594 100.0 0.4 134.2 100.0 155.1 100.0 2.4

Note: Based on SITC commodities 00-11 and excluding re-exports. Values are in 2011-12 prices. Growth rate is the average annual growth rate between 2005-06 and 2011-12. New South Wales includes the ACT; ACT airfreight exports were positive in two years only: $0.4 million (other food; state of origin and departure) in 2005-06, and $0.6 billion (live animals excluding fish; state of origin) in 2008-09.Sources: Based on BITRE estimates using ABS cargo data, and ABS 2013a

19


Figure 9 Australia's airfreight food exports, by jurisdiction, 2005-06 to 2011-12

Note: Based on SITC commodities 00-11 and excluding re-exports. Values are in 2011-12 prices.Sources: Based on BITRE estimates using ABS cargo data, and ABS 2013a

20

a) State of origin

i. Value ii. Volume

b) Net food imports from other states

i. Value ii. Volume

c) State of departure

i. Value ii. Volume

0

100

200

300

400

50020

05-0

6

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

20

11

-12

$m

-400

-200

0

200

400

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

20

11

-12

$m

0

200

400

600

800

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

20

11

-12

$m

0

15

30

45

60

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

kt

Victoria

Queensland

New South Wales

South Australia

Tasmania

Western Australia

Northern Territory

-15

-10

-5

0

5

10

15

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

kt

Victoria

Queensland

New South Wales

South Australia

Tasmania

Western Australia

Northern Territory

0

20

40

60

80

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

kt

Victoria

Queensland

New South Wales

South Australia

Tasmania

Western Australia

Northern Territory


Supply chain for Australia’s airfreight food exports

Airfreight food supply chain in 2011–12More detailed information on the supply chain for the value and volume of Australia’s airfreight food exports in 2011–12 is presented in Table 6 and Table 7, respectively. These tables also include a measure of market concentration, the Herfindahl-Hirschman index (HHI). The HHI has a value between 0 and 1 where a higher value indicates a higher degree of market concentration. For example, a value of 1 indicates a food product is produced or exported in a single jurisdiction (HHI by commodity) or a jurisdiction produces or exports a single food product (HHI by jurisdiction). Table 8 provides airfreight export shares for detailed components of the supply chain (by commodity and jurisdiction on a state-of-origin and state-of-departure basis).

As noted earlier, all jurisdictions in Australia produce food for export by airfreight, although output from the Northern Territory is very small. The largest market segment in the production stage in each jurisdiction’s airfreight supply chain, based on value, is: meat products in Victoria ($213 million, 13.4 per cent of Australia’s total airfreight food exports in 2011–12), Queensland ($159 million, 10.0 per cent) and New South Wales ($95 million, 6.0 per cent); fisheries products in Western Australia ($200 million, 12.5 per cent), Tasmania ($142 million, 8.9 per cent) and South Australia ($112 million, 7.0 per cent); and fruit and vegetables in the Northern Territory ($2 million, 0.1 per cent). Food production in the airfreight supply chain is highly concentrated in South Australia, Tasmania, Western Australia and the Northern Territory (HHI ranges from 0.47 to 0.91), and is most dispersed or diversified in Victoria (0.28) and South Australia (0.29).

Victoria’s net food imports from other states mainly comprise fisheries products ($188 million in 2011–12), sourced nearly entirely from Tasmania and South Australia. New South Wales is a net importer for all food products except meat products (based on value of net food movements). Notably, meat products from South Australia, New South Wales and Tasmania (valued around $42 million) are moved to Queensland and Victoria for export by airfreight (interstate movements of meat products may be more complex, but this is the net outcome of those interstate movements).

The largest market segments in the export stage of Australia’s airfreight supply chain, based on value, are: fisheries products from Victoria ($282 million, 17.7 per cent of Australia’s total airfreight food exports in 2011–12) and Western Australia ($200 million, 12.5 per cent); and meat products from Victoria ($227 million, 14.2 per cent) and Queensland ($186 million, 11.7 per cent). Notably, food exports in the airfreight supply chain for New South Wales are relatively dispersed (HHI is 0.22, based on value).

Production and exports are most concentrated for dairy products, based on value (HHI is 0.60 and 0.55, respectively). Victoria produces and exports the majority of dairy products in Australia’s airfreight supply chain.

In terms of the physical movement of food products through the supply chain in each jurisdiction, market segments are assessed on the basis of volume rather than value. In broad terms, meat products, and fruit and vegetables become relatively more important in the supply chain, and fisheries products become relatively less important (reflecting the relatively high price of fisheries products). For example, exports of meat products from Victoria accounted for 20.2 per cent of the total volume of Australia’s airfreight food exports in 2011–12. Notably, the airfreight supply chains in South Australia and Western Australia are much more dispersed based on volume than on value (for example, the HHI for volume is 0.21 and 0.31, respectively, based on state of origin).

21


Table 6 Value of Australia's airfreight food exports, by commodity and jurisdiction,2011-12

Commodity Eastern states Other states

Vic. Qld. NSW SA Tas. WA NT Australia HHI

$m $m $m $m $m $m $m $m no.

State of origin

Live animals 50 15 53 6 0.4 7 0.0 131 0.33

Meat products 213 159 95 41 8 42 0.003 557 0.27

Dairy products 27 3 2 1 2 1 0.02 35 0.60

Fisheries products 94 87 13 112 142 200 0.1 646 0.21

Fruit & vegetables 59 43 23 4 9 9 2.0 148 0.27

Other food 23 10 31 11 0.2 2 0.0003 76 0.29

Total food 466 315 216 174 160 261 2.1 1594 0.19

HHI (no.) 0.28 0.35 0.29 0.47 0.79 0.62 0.91 0.30 -

Net food imports from other states

Live animals 15 -14 3 -3 -0.4 -1.2 0.0 - -

Meat products 13 27 -12 -22 -8 1.1 -0.003 - -

Dairy products -2 -0.2 4 -1 -2 0.5 0.0 - -

Fisheries products 188 -0.4 14 -60 -142 -0.2 -0.03 - -

Fruit & vegetables -2 -4 19 -3 -9 0.01 -2.0 - -

Other food -4 1 7 -4 -0.2 -0.1 0.01 - -

Total food 209 10 36 -93 -160 0.04 -2.1 - -

State of departure

Live animals 65 1 56 4 0 6 0.0 131 0.43

Meat products 227 186 83 18 0 43 0.0 557 0.31

Dairy products 25 3 6 0.1 0 1 0.02 35 0.55

Fisheries products 282 86 27 52 0 200 0.05 646 0.31

Fruit & vegetables 57 39 42 1 0 9 0.0 148 0.30

Other food 19 11 38 7 0 2 0.01 76 0.34

Total food 675 325 252 82 0 261 0.08 1594 0.28

HHI (no.) 0.31 0.41 0.22 0.46 - 0.62 0.52 0.30 -

Note: Based on SITC commodities 00-11 and excluding re-exports. There were no airfreight food exports from the ACT in 2011-12. HHI is the Herfindahl-Hirschman index (0<HHI≤1), a measure of market concentration; the closer the HHI is to one, the higher the level of market concentration; e.g. an HHI of one indicates a food product is sourced from a single jurisdiction (HHI by commodity), or a jurisdiction produces a single food product for the supply chain (HHI by jurisdiction).Source: Based on BITRE estimates using ABS cargo data

22


Table 7 Volume of Australia's airfreight food exports, by commodity and jurisdiction,2011-12


Vic. Qld. NSW SA Tas. WA NT Australia HHI

kt kt kt kt kt kt kt kt no.

State of origin

Live animals 2.4 0.8 1.9 1.3 0.01 1.0 0.0 7.5 0.23

Meat products 31.3 12.1 9.3 3.2 0.9 7.2 0.0 63.9 0.31

Dairy products 4.4 1.0 0.5 0.2 0.2 0.4 0.004 6.5 0.48

Fisheries products 2.2 4.3 0.7 3.2 8.1 4.8 0.002 23.3 0.23

Fruit & vegetables 16.7 16.3 6.4 1.8 0.7 2.5 0.6 45.0 0.29

Other food 2.5 0.8 2.2 2.9 0.03 0.4 0.0001 8.8 0.26

Total food 59.4 35.3 21.0 12.6 10.0 16.3 0.6 155.1 0.24

HHI (no.) 0.37 0.35 0.31 0.21 0.68 0.31 0.97 0.28 -


Live animals -0.2 -0.8 1.2 -0.2 -0.01 -0.02 0.0 - -

Meat products 0.1 1.5 0.9 -1.7 -0.9 0.1 0.0 - -

Dairy products -0.2 -0.1 0.6 -0.2 -0.2 0.1 0.0 - -

Fisheries products 8.5 -0.02 0.7 -1.1 -8.1 0.01 0.0 - -

Fruit & vegetables -2.0 -1.9 6.3 -1.3 -0.7 0.1 -0.6 - -

Other food -0.5 2.5 0.8 -2.7 -0.03 -0.1 0.0004 - -

Total food 5.7 1.2 10.5 -7.2 -10.0 0.3 -0.6 - -

State of departure

Live animals 2.2 0.1 3.1 1.1 0.0 1.0 0.0 7.5 0.30

Meat products 31.4 13.6 10.2 1.5 0.0 7.3 0.0 63.9 0.32

Dairy products 4.1 0.9 1.0 0.0 0.0 0.5 0.004 6.5 0.45

Fisheries products 10.7 4.3 1.4 2.1 0.0 4.8 0.002 23.3 0.30

Fruit & vegetables 14.7 14.4 12.8 0.6 0.0 2.5 0.0 45.0 0.29

Other food 1.9 3.3 3.0 0.2 0.0 0.4 0.0005 8.8 0.31

Total food 65.1 36.5 31.5 5.4 0.0 16.5 0.01 155.1 0.29

HHI (no.) 0.32 0.32 0.29 0.28 - 0.31 0.47 0.28 -

Note: Based on SITC commodities 00-11 and excluding re-exports. There were no airfreight food exports from the ACT in 2011-12. HHI is the Herfindahl-Hirschman index (0<HHI≤1), a measure of market concentration; the closer the HHI is to one, the higher the level of market concentration; e.g. an HHI of one indicates a food product is sourced from a single jurisdiction (HHI by commodity), or a jurisdiction produces a single food product for the supply chain (HHI by jurisdiction).Source: Based on BITRE estimates using ABS cargo data

23


Table 8 Australia's airfreight food exports, by commodity and jurisdiction, 2011-12:share of total


Vic. Qld. NSW SA Tas. WA NT Australia

% % % % % % % %

Value

State of origin

Live animals 3.1 0.9 3.3 0.4 0.03 0.4 0.0 8.2

Meat products 13.4 10.0 6.0 2.5 0.5 2.6 0.0 35.0

Dairy products 1.7 0.2 0.1 0.1 0.1 0.0 0.0 2.2

Fisheries products 5.9 5.4 0.8 7.0 8.9 12.5 0.01 40.5

Fruit & vegetables 3.7 2.7 1.4 0.2 0.5 0.6 0.1 9.3

Other food 1.4 0.6 1.9 0.7 0.02 0.1 0.0 4.8

Total food 29.2 19.8 13.5 10.9 10.1 16.3 0.1 100.0

State of departure

Live animals 4.1 0.1 3.5 0.2 0.0 0.3 0.0 8.2

Meat products 14.2 11.7 5.2 1.2 0.0 2.7 0.0 35.0

Dairy products 1.6 0.2 0.4 0.003 0.0 0.1 0.0 2.2



Other food 1.2 0.7 2.4 0.4 0.0 0.1 0.0 4.8

Total food 42.3 20.4 15.8 5.1 0.0 16.3 0.0 100.0

Volume

State of origin

Live animals 1.6 0.5 1.2 0.8 0.0 0.6 0.0 4.9

Meat products 20.1 7.8 6.0 2.0 0.6 4.6 0.0 41.2

Dairy products 2.8 0.6 0.3 0.1 0.1 0.2 0.0 4.2



Other food 1.6 0.5 1.4 1.9 0.0 0.3 0.0 5.7

Total food 38.3 22.7 13.6 8.1 6.4 10.5 0.4 100.0

State of departure

Live animals 1.4 0.1 2.0 0.7 0.0 0.6 0.0 4.9

Meat products 20.2 8.7 6.6 0.9 0.0 4.7 0.0 41.2

Dairy products 2.7 0.6 0.7 0.004 0.0 0.3 0.0 4.2



Other food 1.2 2.1 1.9 0.1 0.0 0.2 0.0 5.7

Total food 42.0 23.5 20.3 3.5 0.0 10.7 0.0 100.0

Note: Based on SITC commodities 00-11 and excluding re-exports. Value (volume) of airfreight exports of a food commodity in a jurisdiction as a percentage of the total value (volume) of Australia's airfreight food exports (by state of origin or state of departure).Source: Based on BITRE estimates using ABS cargo data

24


Growth in the airfreight food supply chain: 2005–06 to 2011–12Average annual growth rates for the value and volume of airfreight exports between 2005–06 and 2011–12 vary widely across food commodities and jurisdictions, both on a state-of-origin and state-of-departure basis (Table 9). The regional pattern of growth rates is illustrated in Figure 10 for state of origin and Figure 11 for state of departure.

As noted earlier, the airfreight food supply chain has expanded significantly over the period in three jurisdictions—this includes the value and volume of food production and exports in Victoria and Queensland, and the value and volume of food production in Tasmania (the volume of food production also increased in the Northern Territory). Growth in the value of production and exports of meat products has been a key feature of all airfreight supply chains in the eastern states (although the growth rate was relatively low in New South Wales).

Overall, growth tends to be more broadly based in Victoria and Tasmania compared with airfreight supply chains in other jurisdictions. However, between 2005–06 and 2011–12, the value of production for the airfreight supply chain increased for four food categories in South Australia, and the volume of airfreight exports increased for four food categories in Queensland.

Key areas of concern are the airfreight supply chains in New South Wales and Western Australia. In New South Wales, between 2005–06 and 2011–12, the average annual growth rate for both production (state of origin) and exports (state of departure) was negative for five food products based on value and four food products based on volume. Similarly, negative growth rates were recorded for the majority of food products in Western Australia’s airfreight supply chain.

25


Table 9 Growth in Australia's airfreight food exports, by commodity and jurisdiction,2005-06 to 2011-12


Vic. Qld. NSW SA Tas. WA NT Australia

% % % % % % % %

Value

State of origin

Live animals 0.4 -5.6 -6.0 8.3 12.6 -6.7 -100.0 -3.4

Meat products 13.5 8.7 0.3 4.9 9.9 -6.7 -26.0 6.2

Dairy products 3.7 15.3 -5.9 3.4 -1.6 -8.2 - 2.9

Fisheries products 1.8 -4.6 -4.9 -7.3 1.1 0.3 -37.6 -1.8

Fruit & vegetables -2.2 -0.9 -6.0 -5.7 32.5 -10.0 18.6 -2.3

Other food -2.2 -3.5 -4.7 8.4 -2.5 5.4 -47.7 -2.2

Total food 5.0 1.4 -3.3 -4.1 2.2 -1.8 -0.8 0.4

State of departure

Live animals 2.7 -35.9 -6.8 14.2 - -1.0 -100.0 -3.4

Meat products 9.5 11.7 0.7 1.6 -100.0 -6.4 - 6.2

Dairy products 5.4 13.0 -5.1 -26.9 - -3.1 17.6 2.9

Fisheries products 1.1 -3.7 -17.7 -4.9 -100.0 0.5 -9.8 -1.8

Fruit & vegetables 2.2 0.3 -6.6 -9.8 - -9.7 -100.0 -2.3

Other food -3.9 -4.6 -2.4 13.6 - -0.3 -24.0 -2.2

Total food 3.7 3.2 -6.1 -2.3 -100.0 -1.5 -20.2 0.4

Volume

State of origin

Live animals 17.4 8.7 16.5 15.7 17.5 13.0 -100.0 15.0

Meat products 20.2 5.7 -0.5 -3.3 21.8 -6.8 -3.1 6.5

Dairy products 2.3 11.1 -9.9 8.1 -0.7 -8.7 - 1.0

Fisheries products 5.7 -6.0 1.8 -8.6 14.5 -1.4 -50.7 0.3

Fruit & vegetables -1.9 -0.1 -1.8 -4.0 20.3 -11.6 29.7 -1.8

Other food -4.6 -3.1 -4.1 25.2 -0.2 16.0 -42.5 1.6

Total food 7.4 1.0 -0.6 -0.7 14.8 -5.4 11.1 2.4

State of departure

Live animals 14.0 -20.2 23.2 12.9 -100.0 13.3 -100.0 15.0

Meat products 12.0 8.3 8.6 -6.3 - -6.7 - 6.5

Dairy products 4.6 9.1 -8.7 -15.0 - -4.9 42.4 1.0

Fisheries products 8.5 -5.0 -13.3 -0.3 -100.0 -1.2 -22.3 0.3

Fruit & vegetables 1.8 0.7 -4.7 -8.8 - -10.5 -100.0 -1.8

Other food -8.7 22.7 -0.1 -10.3 - 6.5 -26.4 1.6

Total food 7.1 3.4 -0.4 -2.2 -100.0 -5.1 -31.7 2.4

Note: Based on SITC commodities 00-11 and excluding re-exports. Growth rate is the average annual growth rate for the real value or volume of airfreight exports between 2005-06 and 2011-12.Sources: Based on BITRE estimates using ABS cargo data, and ABS 2013a

26


Figure 10 Growth in the value of airfreight food exports, by jurisdiction and commodity, 2005-06 to 2011-12: state of origin

Note: Average annual growth rate for the real value of airfreight food exports. Sources: Based on BITRE estimates using ABS cargo data, and ABS 2013a

27

a) Australia b) Victoria

c) Queensland d) New South Wales

e) South Australia f) Tasmania

g) Western Australia h) Northern Territory

-5 0 5 10 15

Other foodFruit & vegetablesFisheries products

Dairy productsMeat products

Live animalsTotal food

%

-10 0 10 20




%-10 -5 0 5 10




%

-10 -5 0 5 10




%-10 0 10 20 30 40




%

-10 -5 0 5 10




%

-10 -5 0 5 10




%

-100 -75 -50 -25 0 25




%


Figure 11 Growth in the value of airfreight food exports, by jurisdiction and commodity, 2005-06 to 2011-12: state of departure

Note: Average annual growth rate for the real value of airfreight food exports. Sources: Based on BITRE estimates using ABS cargo data, and ABS 2013a

28

a) Australia b) Victoria

c) Queensland d) New South Wales

e) South Australia f) Tasmania

g) Western Australia h) Northern Territory

-5 0 5 10




%

-5 0 5 10




%

-40 -30 -20 -10 0 10 20




%

-20 -15 -10 -5 0 5




%

-30 -20 -10 0 10 20




%

-100 -75 -50 -25 0 25




%

-10 -5 0 5




%

-100 -75 -50 -25 0 25




%


4 Food in the airfreight supply chain This chapter briefly examines recent developments in Australia’s airfreight exports and imports, and the importance of food in the broader airfreight export supply chain.

Australia’s total airfreight tradeAustralia’s airfreight imports consistently exceeded Australia’s airfreight exports on both a value and volume basis between 2005–06 and 2011–12 (Figure 12). In 2011–12, international air transport accounted for exports of $43 billion (16 per cent of total merchandise exports;17 per cent excluding ship stores and bunker fuel, BITRE 2014a) and imports of $68 billion (28 per cent of total merchandise imports; 26 per cent) (Table 10). The value of Australia’s net airfreight imports was $24 billion in 2011–12.

The domestic component of the airfreight supply chain (origin to departure) is examined by disaggregating Australia’s total airfreight exports into food and non-food exports of Australian origin, and re-exports. Re-exports are merchandise goods of foreign origin that are imported into Australia and then exported to a third country in substantially the same condition as imported (re-exports are distinct from goods in transit; the full ABS definition is given in the note to Table S0). In 2011–12, Australia’s total airfreight exports comprised food exports of $1.6 billion (see chapter 3), non-food exports of $26 billion and re-exports of $15 billion. Airfreight food and non-food exports of Australian origin were $28 billion, accounting for65 per cent of total airfreight exports in 2011–12 (83 per cent based on volume). Notably, food products account for a small share of total airfreight exports based on value (4 per cent in2011–12), but a significantly larger share based on volume (51 per cent).

The value of Australia’s total airfreight exports has increased moderately in recent years (average annual growth rate of 2.7 per cent between 2005–06 and 2011–12), mainly as a result of strong growth in the value of non-food exports (4.8 per cent) with slow or no growth in the value of food exports (0.4 per cent) and re-exports (0.0 per cent). Notably, between 2005–06 and 2011–12, the total value of airfreight exports increased strongly in Western Australia (5.6 per cent) and New South Wales (4.9 per cent), increased slightly in Queensland(1.5 per cent) and Tasmania (0.4 per cent), and fell significantly in Victoria (–6.5 per cent),South Australia (–5.4 per cent) and the Northern Territory (–4.2 per cent) (Table 10).

Figure 12 Australia's airfreight exports and imports, 2005-06 to 2011-12

Note: Values are in 2011-12 prices. Food=SITC commodities 00-11; non-food=other SITC commodities (12-99).Sources: Based on BITRE estimates using ABS cargo data, and ABS 2013a

29

a) Value b) Volume

0

100

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500

2005

-06

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-07

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Non-food exports

Food exports

Imports0

20

40

60

80

2005

-06

2006

-07

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-08

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-11

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-12

20

11

-12

$b

Note: Food and non-food exports exclude re-exports. Food exports are given by SITC commodities 00-11;


Table 10 Value of Australia's total airfreight trade, by jurisdiction, 2011-12

JurisdictionExports Imports Net exports

2005–06

2011–12

Growth

rate2005

–062011

–12Growth

rate2005

–062011

–12

$b $b % $b $b % $b $b

Eastern states

Victoria 8.3 5.6 -6.5 16.6 14.9 -1.8 -8.3 -9.3

Queensland 2.2 2.4 1.5 5.5 5.6 0.3 -3.2 -3.1

New South Wales 12.1 16.1 4.9 32.3 36.4 2.0 -20.2 -20.2

South Australia 0.5 0.4 -5.4 1.0 0.7 -5.4 -0.5 -0.3

Tasmania 0.001 0.001 0.4 0.01 0.03 30.8 0.0 -0.03

Other states

Western Australia 13.4 18.5 5.6 7.3 9.7 4.9 6.1 8.8

Northern Territory 0.2 0.2 -4.2 1.8 0.2 -28.8 -1.5 0.0

Australia 36.8 43.2 2.7 64.4 67.5 0.8 -27.6 -24.3

Note: Values are in 2011-12 prices. Exports are based on state of departure and Include re-exports. NSW includes the ACT. Growth rate is the average annual growth rate between 2005-06 and 2011-12.Sources: Based on BITRE estimates using ABS cargo data, and ABS 2013a

By contrast, the volume of Australia’s total airfreight exports has declined marginally in recent years (–0.3 per cent a year between 2005–06 and 2011–12), with moderate growth in the volume of food exports (2.4 per cent) and falls in the volume of non-food exports (–1.5 per cent) and re-exports (–4.5 per cent). Notably, between 2005–06 and 2011–12, the total volume of airfreight exports increased slightly in Queensland (1.5 per cent), Victoria (1.3 per cent) and the Northern Territory (0.5 per cent), and fell in other jurisdictions (Table 11).

Table 11 Volume of Australia's total airfreight trade, by jurisdiction, 2011-12

JurisdictionExports Imports Net exports

2005–06

2011–12

Growth rate

2005–06

2011–12

Growth rate

2005–06

2011–12

kt kt % kt kt % kt kt

Eastern states

Victoria 91 98 1.3 129 130 0.2 -38 -32

Queensland 46 50 1.5 40 50 3.8 6 0

New South Wales 131 116 -1.9 202 222 1.6 -71 -106

South Australia 9 8 -1.3 10 9 -0.8 -1.2 -1.4

Tasmania 0.01 0.005 -15.9 0.1 0.1 4.8 -0.08 -0.12

Other states

Western Australia 30 29 -0.8 20 37 11.1 11 -8

Northern Territory 0.3 0.3 0.5 1.5 0.9 -9.1 -1.2 -0.5

Australia 307 302 -0.3 402 451 1.9 -95 -148

Note: Exports are based on state of departure and Include re-exports. NSW includes the ACT. Growth rate is the average annual growth rate between 2005-06 and 2011-12. Volume of airfreight exports from Victoria have been adjusted in two years, to 90.7 kt in 2005-06 and 95.4 kt in 2006-07 (transcription errors in the original cargo data were identified in SITC 74 and adjusted to 2.0 kt in 2005-06 and 1.9 kt in 2006-07).Sources: Based on BITRE estimates using ABS cargo data, and ABS 2013a

30


Supply chain for Australia’s airfreight exports This section provides information on the supply chain for airfreight food and non-food exports of Australian origin between 2005–06 and 2011–12. The focus is on the domestic component of the airfreight supply chain including the regional pattern of production (state of origin; Table 12 and Figure 13), net interstate food and non-food movements (Table 13 and Figure 14) and the regional pattern of exports, including re-exports (state of departure or loading; Table 14 and Figure 15).

State of originThere is greater regional variation in the value of total food and non-food production for the airfreight supply chain, as indicated in Table 12 and Figure 13, than was the case for the value of food production (as outlined in Table 5 and Figure 8).

The four main jurisdictions, in order of the value of food and non-food production in 2011–12, are Western Australia ($17.8 billion in 2011–12, 64 per cent of total airfreight export value;11 per cent of total airfreight export volume), New South Wales ($4.7 billion, 17 per cent;23 per cent), Victoria ($3.1 billion, 11 per cent; 36 per cent) and Queensland ($1.2 billion,4 per cent; 19 per cent). Western Australia’s very high share based on value is mainly as a result of gold produced for the airfreight supply chain (further information on commodities in the airfreight supply chain is provided at the end of this chapter). The three smaller jurisdictions are South Australia ($0.6 billion, 2 per cent; 7 per cent), Tasmania ($0.3 billion, 1 per cent; 4 per cent) and the Northern Territory ($0.1 billion, 0.5 per cent; 0.4 per cent).

The value of food and non–food production for the airfreight supply chain has increased in recent years in three jurisdictions, including Western Australia (average annual growth rate of 8.9 per cent between 2005–06 and 2011–12), Tasmania (2.8 per cent) and Queensland(1.3 per cent). In Victoria, the volume of production for the airfreight supply chain has increased in recent years, but the value of production has declined (in contrast to the outcome for the airfreight food supply chain).

Tasmania is the only jurisdiction in recent years to achieve growth in the value and volume of both food and non-food production for the airfreight supply chain. Food products are also relatively more important in Tasmania’s airfreight supply chain than in other jurisdictions (state-of-origin basis). In 2011–12, food accounted for 51 and 92 per cent of the total value and volume of production, respectively, for Tasmania’s airfreight supply chain.

In all jurisdictions, food is an important component of the airfreight export supply chain based on volume, but is less important based on value. In the four largest jurisdictions, food is relatively more important in Queensland (25 per cent of export value, 75 per cent of export volume) and Victoria (15 per cent, 66 per cent), compared with New South Wales (5 per cent,37 per cent) and Western Australia (1 per cent, 58 per cent).

31


Table 12 Australia's airfreight food and non-food exports, 2005-06 to 2011-12:state of origin

Jurisdiction

Value Volume

2005–06 2011–12 2005–06 2011–12

Level% oftotal Level

% oftotal

Growth rate Level

% oftotal Level

% oftotal

Growth rate

$m % $m % % kt % kt % %

Eastern states

Victoria

Food 348 10 466 15 5.0 39 50 59 66 7.4

Non-food 3112 90 2614 85 -2.9 39 50 30 34 -4.2

Food & non-food 3460 100 3080 100 -1.9 78 100 90 100 2.4

Queensland

Food 290 25 315 25 1.4 33 71 35 75 1.0

Non-food 857 75 921 75 1.2 14 29 12 25 -2.5

Food & non-food 1147 100 1236 100 1.3 47 100 47 100 0.02

New South Wales

Food 264 6 216 5 -3.3 22 36 21 37 -0.6

Non-food 4529 94 4522 95 -0.03 39 64 36 63 -1.3

Food & non-food 4793 100 4738 100 -0.2 61 100 57 100 -1.1

South Australia

Food 223 24 174 29 -4.1 13 67 13 74 -0.7

Non-food 715 76 424 71 -8.3 6 33 5 26 -5.5

Food & non-food 938 100 598 100 -7.2 19 100 17 100 -2.2

Tasmania

Food 141 53 160 51 2.2 4.4 88 10.0 92 14.8

Non-food 126 47 155 49 3.5 0.6 12 0.8 8 6.0

Food & non-food 267 100 315 100 2.8 5.0 100 10.8 100 13.9

Other states

Western Australia

Food 290 3 261 1 -1.8 23 79 16 58 -5.4

Non-food 10395 97 17580 99 9.2 6 21 12 42 11.6

Food & non-food 10685 100 17841 100 8.9 29 100 28 100 -0.4

Northern Territory

Food 2.2 1 2.1 1 -0.8 0.3 75 0.6 63 11.1

Non-food 208 99 146 99 -5.7 0.1 25 0.3 37 21.4

Food & non-food 210 100 149 100 -5.6 0.4 100 0.9 100 14.1

Australia

Food 1559 7 1594 6 0.4 134 56 155 62 2.4

Non-food 19942 93 26362 94 4.8 106 44 96 38 -1.5

Food & non-food 21501 100 27957 100 4.5 240 100 251 100 0.8

Note: Excludes re-exports. Food exports are given by SITC commodities 00-11; non-food exports are given by other SITC commodities (12-99). Values are in 2011-12 prices. Growth rate is the average annual growth rate between 2005-06 and 2011-12. NSW includes the ACT.Sources: Based on BITRE estimates using ABS cargo data, and ABS 2013a

32


Figure 13 Australia's airfreight supply chain, 2005-06 to 2011-12: state of origin

33

a) Victoria

i. Value ii. Volume

b) Queensland

i. Value ii. Volume

c) New South Wales

i. Value ii. Volume

d) South Australia

i. Value ii. Volume

cont...

0

25

50

75

100

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

kt Non-food exports

Food exports

0

1

2

3

420

05-0

6

2006

-07

2007

-08

2008

-09

2009

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-12

20

11

-12

$b

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5020

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6

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-12

kt Non-food exports

Food exports

0.0

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1.5

2005

-06

2006

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2007

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2008

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-11

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-12

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11

-12

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75

2005

-06

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2007

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-12

kt Non-food exports

Food exports

0

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4

6

2005

-06

2006

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2008

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-12

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0

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15

20

2005

-06

2006

-07

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-08

2008

-09

2009

-10

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2011

-12

kt Non-food exports

Food exports

0.0

0.2

0.4

0.6

0.8

1.0

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

20

11

-12

$b


Figure 14 Australia's airfreight supply chain, 2005-06 to 2011-12: state of origin

Note: Excludes re-exports. Food exports are given by SITC commodities 00-11; non-food exports are given by other SITC commodities (12-99). Values are in 2011-12 prices. NSW includes the ACT.Sources: Based on BITRE estimates using ABS cargo data, and ABS 2013a

34

e) Tasmania

i. Value ii. Volume

f) Western Australia

i. Value ii. Volume

g) Northern Territory

i. Value ii. Volume

0

5

10

15

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

kt Non-food exports

Food exports

0.0

0.1

0.2

0.3

0.420

05-0

6

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

20

11

-12

$b

0

10

20

30

4020

05-0

6

2006

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2007

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2008

-09

2009

-10

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-11

2011

-12

kt Non-food exports

Food exports

0

5

10

15

20

25

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

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-11

2011

-12

20

11

-12

$b

0.0

0.2

0.4

0.6

0.8

1.0

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

kt Non-food exports

Food exports

0.0

0.1

0.2

0.3

0.4

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

20

11

-12

$b



Net interstate movements of food and non-food productsThere are major differences in the regional pattern of net interstate movements of food and non-food products in Australia’s airfreight supply chain (Table 13, Figure 14). Food is mainly moved between eastern states—from Tasmania and South Australia to Victoria, New South Wales and Queensland in 2011–12—for export by airfreight.

By contrast, in recent years, New South Wales has been the only net importer of non-food products from other states in the airfreight supply chain ($1.2 billion in 2011–12). All other jurisdictions are net exporters of non-food products to other states (ranging from $60 million in Queensland to $280 million in Victoria). Notably, in 2011–12, Victoria moved 11 per cent of the value of its non-food products to other states, representing 21 per cent of the volume of its non-food products (in net terms). Similarly, Queensland moved 7 and 18 per cent of the value and volume, respectively, of its non-food products to other states in 2011–12. Western Australia also moved part of its non-food products to other states (1 and 8 per cent, respectively).

The airfreight supply chains in South Australia and Tasmania are similar for food and non-food products. In South Australia, more than half of both food and non-food products are moved to other states for export by airfreight (59 and 56 per cent of total value and volume, respectively, in 2011–12). Tasmania moves all food products and nearly all non-food products to mainland states for export by airfreight.

For food and non-food products in aggregate, New South Wales is also the only net importer from other states in the airfreight supply chain (on both a value and volume basis).

35


Table 13 Australia's airfreight food and non-food exports, 2005-06 to 2011-12:net imports from other states

Jurisdiction Value Volume

2005–06 2011–12 2005–06 2011–12

$m $m kt kt

Eastern states

Victoria

Food 194 209 4.6 5.7

Non-food -294 -280 -3.2 -6.5

Food & non-food -100 -71 1.4 -0.8

Queensland

Food -20 10 -3.4 1.2

Non-food -92 -60 -0.6 -2.1

Food & non-food -112 -50 -3.9 -0.9

New South Wales

Food 103 36 10.4 10.5

Non-food 1043 1126 8.4 13.0

Food & non-food 1147 1162 18.7 23.5

South Australia

Food -130 -93 -6.9 -7.2

Non-food -419 -259 -4.2 -2.4

Food & non-food -549 -352 -11.2 -9.6

Tasmania

Food -140 -160 -4.4 -10.0

Non-food -125 -154 -0.6 -0.8

Food & non-food -265 -314 -5.0 -10.8

Other states

Western Australia

Food -6 0.04 -0.1 0.3

Non-food -73 -245 0.2 -0.9

Food & non-food -79 -245 0.1 -0.7

Northern Territory

Food -2 -2 -0.2 -0.6

Non-food -40 -128 0.0 -0.2

Food & non-food -42 -130 -0.3 -0.7

Australia

Food - - - -

Non-food - - - -

Food & non-food - - - -

Note: Excludes re-exports. Food exports are given by SITC commodities 00-11; non-food exports are given by other SITC commodities (12-99). Values are in 2011-12 prices. Growth rate is the average annual growth rate between 2005-06 and 2011-12. NSW includes the ACT.Sources: Based on BITRE estimates using ABS cargo data, and ABS 2013a

36


Figure 14 Australia's airfreight supply chain, 2005-06 to 2011-12:net imports from other states

37

a) Victoria

i. Value ii. Volume

b) Queensland

i. Value ii. Volume

c) New South Wales

i. Value ii. Volume

d) South Australia

i. Value ii. Volume

cont...

-10

-5

0

5

10

15

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

kt Non-food exports

Food exports

-0.6

-0.4

-0.2

0.0

0.2

0.4

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

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20

11

-12

$b

-4

-2

0

2

4

2005

-06

2006

-07

2007

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2008

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2009

-10

2010

-11

2011

-12

kt Non-food exports

Food exports

-0.15

-0.10

-0.05

0.00

0.05

2005

-06

2006

-07

2007

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2008

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-11

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11

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$b

0

5

10

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20

25

2005

-06

2006

-07

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2010

-11

2011

-12

kt Non-food exports

Food exports

0.0

0.5

1.0

1.5

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

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-12

20

11

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-12

-8

-4

0

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

kt Non-food exports

Food exports

-0.6

-0.4

-0.2

0.0

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

20

11

-12

$b


Figure 15 Australia's airfreight supply chain, 2005-06 to 2011-12:net imports from other states

Note: Excludes re-exports. Food exports are given by SITC commodities 00-11; non-food exports are given by other SITC commodities (12-99). Values are in 2011-12 prices. NSW includes the ACT.Sources: Based on BITRE estimates using ABS cargo data, and ABS 2013a

38

e) Tasmania

i. Value ii. Volume


i. Value ii. Volume


i. Value ii. Volume

-15

-10

-5

0

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

kt Non-food exports

Food exports

-0.4

-0.3

-0.2

-0.1

0.0

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

20

11

-12

$b

-1.0

-0.5

0.0

0.5

1.0

1.5

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

kt Non-food exports

Food exports

-0.3

-0.2

-0.1

0.0

0.1

0.2

0.3

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

20

11

-12

$b

-0.8

-0.6

-0.4

-0.2

0.0

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

kt Non-food exports

Food exports

-0.3

-0.2

-0.1

0.0

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

20

11

-12

$b



State of departureFood and non-food exports of Australian originThe regional pattern of Australia’s total airfreight exports (excluding re-exports), by state of departure, is broadly similar to the regional pattern based on state of origin. The main difference is the increased importance of New South Wales as a state of departure (or loading) in Australia’s airfreight supply chain (Table 14, Figure 15). This is the result of the significant net food and non-food movements to New South Wales from other states in the supply chain.

The main states of departure (or loading) in the airfreight supply chain, excluding re-exports, are Western Australia ($17.6 billion in 2011–12, 63 per cent of Australia’s airfreight export value, excluding re-exports; 11 per cent of export volume), New South Wales ($5.9 billion,21 per cent; 32 per cent), Victoria ($3.0 billion, 11 per cent; 35 per cent), Queensland($1.2 billion, 4 per cent; 18 per cent) and South Australia ($0.2 billion, 1 per cent; 3 per cent). Airfreight exports from the Northern Territory and Tasmania are very limited.

The value of total airfreight exports (excluding re-exports) has increased in recent years in only two jurisdictions: Western Australia (average annual growth rate of 8.8 per cent between2005–06 and 2011–12) and Queensland (2.3 per cent). The volume of exports is an important indicator of the use of international air transport services. In recent years, the volume of total airfreight exports (excluding re-exports) has increased in Victoria (average annual growth rate of 1.9 per cent between 2005–06 and 2011–12), Queensland (1.2 per cent), the Northern Territory (1.1 per cent) and New South Wales (0.2 per cent). Notably, the volume of airfreight exports fell in Western Australia (–0.8 per cent) and South Australia (1.7 per cent).

Australia’s total food exports and importsRe-exports are an important component of Australia’s airfreight supply chain in the state of departure (or loading). Australia’s re-exports of $15.3 billion in 2011–12 were mainly located in New South Wales ($10.2 billion), Victoria ($2.6 billion), Queensland ($1.2 billion) and Western Australia ($0.9 billion).

Food continues to be important in the airfreight supply chain based on volume, but less important based on value. In the five main states of departure, food is relatively more important in South Australia (21 per cent of the state’s export value in 2011–12, 68 per cent of export volume), Queensland (13 per cent, 72 per cent) and Victoria (12 per cent, 66 per cent), compared with New South Wales (2 per cent, 27 per cent) and Western Australia (1 per cent,57 per cent).

In aggregate, the volume of Australia’s airfreight imports exceeds the volume of airfreight exports (Table 11, Figure 12). Recent trends in the volume of airfreight imports vary widely across jurisdictions (Figure 15). Between 2005–06 and 2011–12, the volume of imports increased in all jurisdictions except South Australia and the Northern Territory (Table 11).In 2011–12, the volume of airfreight imports exceeded the volume of airfreight exports in all jurisdictions except Queensland, with the largest net imports in New South Wales (106 thousand tonnes), Victoria (32 thousand tonnes) and Western Australia (8 thousand tonnes). Victoria was the only jurisdiction in Australia that recorded a significant improvement in its net import position over the period 2005–06 to 2011–12 (Victoria’s net imports were 38 thousand tonnes in 2005–06; the Northern Territory recorded a marginal improvement in its net import position over the period).

39


Table 14 Australia's airfreight exports, 2005-06 to 2011-12: state of departure

Jurisdiction

Value Volume2005–06 2011–12 2005–06 2011–12


% oftotal

Growthrate Level

% oftotal Level

% oftotal

Growthrate

$m % $m % % kt % kt % %

Eastern states

Victoria

Food 543 7 675 12 3.7 43 48 65 66 7.1

Non-food 2818 34 2334 42 -3.1 36 40 24 24 -6.7

Food & non-food 3361 40 3009 54 -1.8 79 87 89 91 1.9

Re-exports 4957 60 2564 46 -10.4 11 13 9 9 -3.7

Total 8318 100 5573 100 -6.5 91 100 98 100 1.3

Queensland

Food 270 12 325 13 3.2 30 65 37 72 3.4

Non-food 765 34 861 36 2.0 13 29 10 19 -5.0

Food & non-food 1035 47 1186 49 2.3 43 94 46 92 1.2

Re-exports 1185 53 1237 51 0.7 3 6 4 8 5.8

Total 2220 100 2423 100 1.5 46 100 50 100 1.5

New South Wales

Food 368 3 252 2 -6.1 32 25 32 27 -0.4

Non-food 5573 46 5648 35 0.2 48 36 49 42 0.6

Food & non-food 5940 49 5900 37 -0.1 80 61 81 69 0.2

Re-exports 6198 51 10234 63 8.7 51 39 36 31 -5.8

Total 12138 100 16134 100 4.9 131 100 116 100 -1.9

South Australia

Food 94 17 82 21 -2.3 6.2 72 5.4 68 -2.2

Non-food 295 54 165 42 -9.3 2.1 25 2.1 26 -0.2

Food & non-food 389 71 247 63 -7.3 8.3 96 7.5 94 -1.7

Re-exports 159 29 146 37 -1.5 0.3 4 0.5 6 7.3

Total 549 100 392 100 -5.4 8.6 100 8.0 100 -1.3

Tasmania

Food 0.6 56 0.0 0 -100.0 0.01 88 0.000 0 -100.0

Non-food 0.5 43 1.0 86 12.8 0.002 12 0.004 90 17.9

Food & non-food 1 98 1.0 86 -1.8 0.01 100 0.004 90 -17.4

Re-exports 0.0 2 0.2 14 43.4 0.00 0 0.001 10 74.0

Total 1.2 100 1.2 100 0.4 0.01 100 0.005 100 -15.9

Other states

Western Australia

Food 285 2 261 1 -1.5 23 74 17 57 -5.1

Non-food 10322 77 17336 94 9.0 6 21 11 38 9.5

Food & non-food 10607 79 17596 95 8.8 29 95 27 95 -0.8

Re-exports 2758 21 935 5 -16.5 1 5 2 5 0.4

Total 13365 100 18532 100 5.6 30 100 29 100 -0.8

Northern Territory

Food 0.3 0 0.1 0 -20.2 0.07 21 0.01 2 -31.7

Non-food 168.3 68 18 9 -31.0 0.07 20 0.14 40 12.7

Food & non-food 169 68 18 10 -31.0 0.14 41 0.15 42 1.1

Re-exports 77.9 32 173 90 14.2 0.20 59 0.20 58 0.1

Total 246.4 100 191 100 -4.2 0.34 100 0.35 100 0.5

Australia

Food 1559 4 1594 4 0.4 134 44 155 51 2.4

Non-food 19942 54 26362 61 4.8 106 34 96 32 -1.5

Food & non-food 21501 58 27957 65 4.5 240 78 251 83 0.8

Re-exports 15336 42 15290 35 -0.05 67 22 51 17 -4.5

Total 36837 100 43247 100 2.7 307 100 302 100 -0.3

Note: Values are in 2011-12 prices; average annual growth rate (2005-06 to 2011-12). NSW includes the ACT.Sources: Based on BITRE estimates using ABS cargo data, and ABS 2013a

40


Figure 15 Australia's airfreight exports and imports, 2005-06 to 2011-12: state of departure

41

a) Victoria

i. Value ii. Volume

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Figure 16 Australia's airfreight exports and imports, 2005-06 to 2011-12: state of departure

Note: Values are in 2011-12 prices; average annual growth rate (2005-06 to 2011-12). NSW includes the ACT.Sources: Based on BITRE estimates using ABS cargo data, and ABS 2013a

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e) Tasmania

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Main commodities in Australia’s airfreight exportsTable 15 provides information on the value and volume of Australia’s airfreight exports in2011–12 for major commodity categories (defined at the 1-digit commodity level in the Standard International Trade Classification, SITC). The value of total merchandise exports and the corresponding share that is exported by airfreight are also provided in the table. Notably, Australia’s airfreight exports (excluding re-exports) were 10.6 per cent of the value of total merchandise exports in 2011–12—the airfreight export share was 5.9 per cent for food products and 11.1 per cent for non-food products. Including re-exports, Australia’s airfreight exports were 16.4 per cent of the value of total merchandise exports in 2011–12.

Table 15 Australia's airfreight and total merchandise exports, by commodity, 2011-12

SITC commodity

Volume of airfreight exports

Value of exports

Airfreight Total Airfreightexport

shareVolume% oftotal Value

% oftotal Value

% oftotal

kt % $b % $b % %

0 Food & live animals 151 50.1 1.6 3.6 25.0 9.5 6.3

1 Beverages & tobacco 4 1.2 0.0 0.0 2.2 0.8 0.9

2 Crude materials, inedible, except fuels 3 0.9 0.1 0.2 94.9 36.0 0.1

3 Mineral fuels, lubricants & related materials 0 0.0 0.0 0.0 75.5 28.6 0.0

4 Animal and vegetable oils, fats & waxes 0 0.1 0.0 0.0 0.5 0.2 1.0

5 Chemicals & related products, nes 14 4.5 2.1 4.9 8.2 3.1 25.6

6 Manuf. goods classified chiefly by material 13 4.3 0.7 1.6 15.0 5.7 4.5

7 Machinery & transport equipment 27 9.0 2.7 6.3 13.1 5.0 20.7

8 Miscellaneous manufactured articles 18 6.1 3.0 7.0 5.3 2.0 56.8

9 Commodities & transactions nec in the SITC 21 6.9 17.7 41.0 24.1 9.1 73.5

Total 251 83.1 28.0 64.6 264.0 100.0 10.6

Food 155 51.3 1.6 3.7 27.1 10.3 5.9

Non-food 96 31.8 26.4 61.0 236.9 89.7 11.1

Re-exports 51 16.9 15.3 35.4 - - -

Total (includes airfreight re-exports) 302 100.0 43.2 100.0 264.0 100.0 16.4

Note: Based on SITC 1-digit categories. Food exports are given by SITC commodities 00-11; non-food exports are given by other SITC commodities (12-99). Airfreight food and non-food exports exclude re-exports. For consistency with airfreight supply chain data, airfreight non-food exports include SITC commodity 99 (commodities & transactions not included in merchandise trade; exports were $261 million and 3.7 kt in 2011-12). nes/nec is not elsewhere specified/classified.Sources: Based on BITRE estimates using ABS cargo data, and ABS 2013b

The twenty leading commodities in the value and volume of Australia’s airfreight exports in 2011–12 are indicated in Figure 16a and Figure 16b, respectively. The main commodity in Australia’s airfreight supply chain is gold (non-monetary, excludes gold ore and concentrates; SITC commodity 97), which is mainly exported from Western Australia. The value of airfreight gold exports was $16 billion in 2011–12, accounting for 57 per cent of total airfreight exports. Airfreight gold exports increased by $7 billion between 2005–06 and 2011–12. All of Australia’s exports of this SITC commodity are transported overseas by airfreight.

There are three other non-food commodities where airfreight exports exceeded $1 billion in 2011–12 and the airfreight supply chain is important in each case. These commodities are medicinal and pharmaceutical products (SITC commodity 54; airfreight exports of $1.8 billion, accounting for 44 per cent of total exports of this commodity); miscellaneous manufactured

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articles, not elsewhere specified (SITC commodity 89; $1.7 billion, 66 per cent), and professional, scientific and controlling instruments and apparatus, not elsewhere specified (SITC commodity 87; $1.1 billion, 57 per cent). Notably, medicinal and pharmaceutical products are highly perishable and an important feature of the supply chain for this commodity is access to reliable cold chain management in the transport process.

Figure 16 Australia's 20 leading airfreight export commodities: value and volume, 2011-12

Note: Ranking is based on SITC 2-digit categories; excludes re-exports and SITC 99 (commodities and transactions not included in merchandise trade). SITC 97 is non-monetary gold (excluding gold ores and concentrates).Source: Based on BITRE estimates using ABS cargo data

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a) Value

b) Volume

0.0 0.5 1.0 1.5 2.0

55 Essential oils & resinoids & perfume materials etc00 Live animals

05 Fruit & vegetables69 Manufactures of metals, nes

93 Special transactions & commodities etc66 Non-metallic mineral manufactures, nes

75 Office machines etc79 Transport equipment (excl. road vehicles)

72 Machinery specialized for particular industries74 General industrial machinery, equipment nes, etc

76 Telecommunications & sound recording etc01 Meat products

98 Combined confidential items77 Electrical machinery, apparatus etc nes

03 Fisheries products95 Gold coin, & other coin being legal tender

87 Professional, scientific instruments etc nes89 Miscellaneous manufactured articles, nes

54 Medicinal & pharmaceutical products97 Gold (excl. gold ores & concentrates)

$b

0 10 20 30 40 50 60 70

75 Office machines etc98 Combined confidential items

09 Miscellaneous edible products78 Road vehicles (incl. air-cushion vehicles)

55 Essential oils & resinoids & perfume materials etc11 Beverages

69 Manufactures of metals, nes67 Iron and steel

87 Professional, scientific instruments etc nes77 Electrical machinery, apparatus etc nes

74 General industrial machinery, equipment nes, etc02 Dairy products

72 Machinery specialized for particular industries54 Medicinal & pharmaceutical products

00 Live animals89 Miscellaneous manufactured articles, nes

93 Special transactions & commodities etc03 Fisheries products05 Fruit & vegetables

01 Meat products

kt

$15.8b

Food products

Non-food products

Food products

Non-food products


5 Infrastructure issuesThe airfreight supply chain uses the domestic transport network to move food and non-food products from the producer (farm, boat, processing facility) to an international airport for export. This chapter briefly examines infrastructure issues in Australia’s airfreight supply chain with a focus on airport infrastructure and the associated policy framework.

World Economic Forum global competitiveness indicators

Overview of key results for AustraliaIn its latest assessment, World Economic Forum (2013a) ranks 148 economies based on factors that underpin national competitiveness, including infrastructure. Table 16 provides an overview of the key results for Australia in 2013-2014, including the rank and score for the twelve main components of the global competitiveness index (GCI). The results are based on a mix of quantitative information and qualitative assessments based on the World Economic Forum’s annual executive opinion survey.

The World Economic Forum (2013a, p. 4) defines ‘competitiveness as the set of institutions, policies, and factors that determine the level of productivity of a country’. The stated aim of the World Economic Forum (2013a, p. 4) in studying and benchmarking factors underpinning national competitiveness is ‘to provide insight and stimulate discussion among all stakeholders about the best strategies and policies to help countries to overcome the obstacles to improved competitiveness. In the current challenging economic environment, our work is a critical reminder of the importance of sound structural economic fundamentals for sustained growth’.

Table 16 WEF global competitiveness index, Australia, 2013-2014: main components

Variable Rank Score

(out of 148) (1-7)

no. no.

Global competitiveness index (GCI) 2013–2014 21 5.1

Basic requirements (20.0%) 17 5.7

1. Institutions 23 5.0

2. Infrastructure 18 5.6

3. Macroeconomic environment 25 5.8

4. Health and primary education 22 6.4

Efficiency enhancers (50.0%) 13 5.2

5. Higher education and training 15 5.5

6. Goods market efficiency 31 4.7

7. Labor market efficiency 54 4.5

8. Financial market development 7 5.4

9. Technological readiness 12 5.8

10. Market size 18 5.1

Innovation and sophistication factors (30.0%) 26 4.6

11. Business sophistication 30 4.7

12. Innovation 22 4.5

Note: WEF is World Economic Forum. The table shows the twelve main components of the global competitiveness index. The score is on a 1 to 7 scale; a score closer to 7 indicates a higher level of global competitiveness.Source: World Economic Forum 2013a

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Australia ranked 21 out of 148 economies for the global competitiveness index (GCI) (Table 16). For economies ranked from 11 to 50 in the overall GCI (such as Australia), components that rank higher than the economy's GCI rank are considered to be areas of competitive advantage. World Economic Forum (2013a, p. 31) provides the following comments on Australia’s competitiveness results:

This edition marks the first time that Australia (21st, down one) exits the top 20 and is overtaken by New Zealand (18th), which jumps five places. Australia delivers a consistent—and essentially unchanged—performance across the board, the highlight of which is its 7th rank in the financial market development pillar, the only pillar where it features in the top 10. The country also earns very good marks for higher education and training, placing 15th. Australia’s favourable macroeconomic situation is improving further (25th, up one place). Its budget deficit was reduced in 2012 and inflation brought to under 2 percent, while the public debt-to-GDP ratio, though on the rise, is the third lowest among advanced economies, behind only Estonia and Luxembourg. The main area of concern for Australia is the rigidity of its labor market (54th, down 12), where the situation has deteriorated further. Australia ranks 137th for the rigidity of the hiring and firing practices and 135th for the rigidity of wage setting. The quality of Australia’s public institutions is excellent except when it comes to the burden of government regulation, where the country ranks a poor 128th. Indeed, the business community cites labor regulations and bureaucratic red tape as being, respectively, the first and second most problematic factor for doing business in their country.

Key results for infrastructureInfrastructure, a main component of the global competitiveness index, is based on nine detailed components (Table 17):

Extensive and efficient infrastructure is critical for ensuring the effective functioning of the economy, as it is an important factor in determining the location of economic activity and the kinds of activities or sectors that can develop within a country. Well-developed infrastructure reduces the effect of distance between regions, integrating the national market and connecting it at low cost to markets in other countries and regions. (World Economic Forum 2013a, p. 5)

Table 17 WEF global competitiveness index, Australia, 2013-2014: infrastructure

Variable Rank Score

(out of 148) (1-7)

no. no.

2. Infrastructure 18 5.6

2.01 Quality of overall infrastructure 34 5.2

2.02 Quality of roads 40 4.9

2.03 Quality of railroad infrastructure 33 4.1

2.04 Quality of port infrastructure 42 5.0

2.05 Quality of air transport infrastructure 30 5.6

2.06 Available airline seat km/week, millions* 6 4,334.3

2.07 Quality of electricity supply 29 6.2

2.08 Mobile telephone subscriptions/100 pop.* 82 106.2

2.09 Fixed telephone lines/100 pop.* 16 45.7

Note: WEF is World Economic Forum. The table shows the nine detailed components for infrastructure. The score is on a 1 to 7 scale except for variables marked with an asterisk (*); a score closer to 7 indicates a higher level of global competitiveness.Source: World Economic Forum 2013a

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Effective modes of transport—including quality roads, railroads, ports, and air transport—enable entrepreneurs to get their goods and services to market in a secure and timely manner and facilitate the movement of workers to the most suitable jobs. (World Economic Forum 2013a, p. 5)

Australia’s ranking for infrastructure is 18 which would indicate this is an area of international competitive advantage. However, there is considerable variation in Australia’s rankings for the detailed components of infrastructure (Table 17). Notably, Australia ranks highly (6) for airline passenger travel (available airline seat km/week). Australia’s rank for the quality of overall infrastructure is 34: 30 for quality of air transport, 33 for rail transport, 40 for road transport and 42 for port infrastructure (these results for quality of transport infrastructure are based on the executive opinion survey).

Key destination markets for Australia’s airfreight food exportsAn important issue in considering Australia’s airfreight supply chain is the ranking for infrastructure in major destination countries. The fourteen leading destination countries for Australia’s airfreight food exports in 2011–12 are indicated in Figure 17 (each country accounted for at least 2.0 per cent of the total value of Australia’s airfreight food exports). The top five countries accounted for 60 per cent of the value of Australia’s airfreight food exports in 2011–12, and include Hong Kong (33 per cent), Singapore (9 per cent), Japan (7 per cent), the United Arab Emirates (5 per cent) and China (5 per cent).

Notably, nine of Australia’s fourteen main destination countries for airfreight food exports (based on value) rank more highly than Australia for quality of air transport infrastructure (Figure 17)—these countries are located in several regions including Asia (Singapore, Hong Kong, Malaysia), the Middle East (United Arab Emirates, Qatar, Bahrain), Europe (Switzerland), the Pacific (New Zealand) and North America (United States). The other five main destination markets are all located in Asia in close geographic proximity to Australia (Japan, Thailand, China, Indonesia and Vietnam).

Figure 17 Australia's 14 leading destination markets for airfreight food exports, 2011-12

Note: Based on SITC commodities 00-10 (excludes beverages); includes re-exports. Airfreight export market share; that is, value of Australia's airfreight food exports to a destination country as a percentage of the total value of Australia's airfreight food exports. Source: Based on BITRE estimates using ABS cargo data

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0 10 20 30 40

OtherQatar

BahrainUnited States

MalaysiaIndonesia

New ZealandThailand

SwitzerlandVietnam

ChinaUnited Arab Emirates

JapanSingapore

Hong Kong

%Note: Based on SITC commodities 00-10 (excludes beverages); includes re-exports. Export

Countries rank above Australia based on the WEF results for quality of air transport infrastructure.

Countries rank below Australia based on the WEF results for quality of air transport infrastructure.


International comparisonsTable 18 provides key results for eighteen leading economies based on scores for infrastructure (main component); the table also includes other economies that were key destination markets for Australia’s airfreight food exports in 2011–12. One approach to using this information is to draw on the experience of overseas economies that rank more highly than Australia to increase the efficiency of Australia’s infrastructure networks (this is beyond the scope of this study).

Table 18 WEF global competitiveness index: infrastructure in selected economies,2013-2014

Economy 2. Infrastructure2.05 Quality of air

transport infrastructureGlobal

competitiveness index

Rank Score Rank Score Rank Score

Leading 18 economies

Hong Kong a 1 6.74 2 6.7 7 5.47

Singapore a 2 6.41 1 6.8 2 5.61

Germany 3 6.24 8 6.1 4 5.51

France 4 6.21 10 6.1 23 5.05

United Arab Emirates a 5 6.20 3 6.7 19 5.11

Switzerland a 6 6.20 7 6.2 1 5.67

Netherlands 7 6.13 4 6.5 8 5.42

United Kingdom 8 6.12 28 5.6 10 5.37

Japan a 9 6.03 37 5.4 9 5.40

Spain 10 5.97 12 6.0 35 4.57

Korea, Rep. of 11 5.85 22 5.8 25 5.01

Canada 12 5.80 19 5.9 14 5.20

Luxembourg 13 5.79 29 5.6 22 5.09

Taiwan 14 5.77 41 5.4 12 5.29

United States a 15 5.77 18 5.9 5 5.48

Austria 16 5.72 39 5.4 16 5.15

Iceland 17 5.61 13 6.0 31 4.66

Australia 18 5.60 30 5.6 21 5.09

Other selected economies a

New Zealand 27 5.21 17 6.0 18 5.11

Qatar 28 5.20 14 6.0 13 5.24

Malaysia 29 5.20 20 5.8 24 5.00

Bahrain 30 5.20 25 5.6 43 4.50

Thailand 47 4.50 34 5.5 37 4.50

China 48 4.51 65 4.5 29 4.84

Indonesia 61 4.20 68 4.5 38 4.50

Vietnam 82 3.69 92 4.0 70 4.18

Note: Rank is out of 148 economies. The score is on a 1 to 7 scale; a score closer to 7 indicates a higher level of global competitiveness. a The 14 leading destination markets for Australia's airfreight food exports in 2011-12.Source: World Economic Forum 2013a

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Policy setting for Australia’s major airportsInformation in this section is from the Australian Government Department of Infrastructure and Regional Development (2013) and Productivity Commission (2011).

The Airports Act 1996 (Cwlth) provides an overarching framework to govern airport activity in Australia (including amendments that mainly occurred in 1997, 2003 and 2010; seeappendix C).

The Australian Government commenced a process of deregulation and privatisation of capital city airports in 1997 (Productivity Commission 2011). The privatisation process was concluded with the sale of Sydney airport in 2002. In each case, the Australian Government sold long term leases to the private sector (50 year leases with options to renew for a further 49 years; seeBox 2). To address market power concerns, the privatised capital city airports were subject to price cap regulation and monitoring of their service quality.

Following recommendations in a Productivity Commission inquiry in 2002, price controls were replaced by light-handed monitoring of aeronautical services at Adelaide, Brisbane, Canberra, Darwin, Melbourne and Perth airports and introduced at the newly privatised Sydney airport. Following recommendations in a follow-up Productivity Commission inquiry in 2006, the regime continued with some changes, including the excision of Canberra and Darwin airports from coverage, and a slightly expanded definition of aeronautical services and facilities.

In December 2009, the Australian Government introduced a second tier of economic regulation involving self reporting arrangements for the four next largest leased federal airports (Canberra, Darwin, Gold Coast and Hobart). Following the finding in the Productivity Commission inquiry in 2011 that Adelaide airport had limited market power, Adelaide airport was removed from the first tier light-handed monitoring regime and placed in the second tier reporting system.

In general terms, current arrangements for major airports are:

Light handed regulation for tier 1 airports—covers Sydney, Melbourne, Brisbane and Perth airports; regulatory framework includes mandatory price and quality of service monitoring by the Australian Competition and Consumer Commission (ACCC) in accordance with the Airports Act 1996 and Competition and Consumer Act 2010.

Self regulation for tier 2 airports—covers Adelaide, Canberra, Darwin, Gold Coast and Hobart airports; regulatory framework includes self reporting arrangements whereby various pricing, quality of service and complaints handling procedures and outcomes are disclosed through the airports’ websites.

Since 1958, the Australian Government has gradually sold its regional airports to local council authorities under the Aerodrome Local Ownership Plan. Local councils acquired their airports under a freehold agreement with the Government, rather than a long-term lease. During the transfer period, each local council was eligible for financial assistance from the Government, with an equal split for both maintenance and approved development. The Government finalised the transfer of all regional airports by 1993. Subsequently, some airports have been sold to private (that is, non-government) owners, the largest being Cairns airport in 2009.

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Box 2 Airport lease provisions

Prior to 1997, Australia’s major airports were operated and managed by a self-regulated government-owned business enterprise, the Federal Airports Corporation (FAC). Between 1997 and 2003, the Australian Government sold long term leases for the 22 FAC-operated airports to the private sector (50 year leases with options to renew for a further 49 years) (Australian Government Department of Infrastructure and Regional Development 2013). The information on airport lease provisions in this box is from Productivity Commission (2011, box 3.1 on p. 24).

The then Australian Government Department of Infrastructure and Transport (now the Department of Infrastructure and Regional Development) informed the Commission that the lease provisions covering each airport are broadly uniform. Drawing on the publicly available lease agreement for Canberra airport, the main provisions state that the lessee:

has paid for a lease of the airport site (including the buildings, runways, taxiways, aprons, roads, dams, etc)

is required to operate the site as an airport

can pursue ‘non-airport development’, providing it is not inconsistent with the operation of the airport as an airport site

can only refuse access to aircraft when the airline operator has failed to pay any amounts owing and the airport operator informs the Government of its decision to refuse access

is required to invest in airport infrastructure (e.g. terminals, runways, taxiways, aprons, roads etc) that meets current demand and anticipates the level and nature of future demand for airport services

– if the Government believes that an airport is not complying with its obligations to invest, it may request that airport provide it with detailed plans to bring the airport site up to the standard required. The airport has 60 days to submit a five year plan to the Government

is to develop the airport site having regard to ‘good business practice’ (defined as providing appropriate facilities for comfort, ease of access, quick movement and efficient use of the airport site by passengers and other users)

keep and maintain the airport site in ‘good and substantial repair’

is required to pay all rates, land tax, stamp duties and other taxes (or rate equivalent payments in their absence) for non-aeronautical development (as defined)

must comply with all relevant site obligations including maintaining adequate insurance and environmental protection

does not have rights to any minerals at the airport site

is required to permit easements (e.g. sewerage, water etc, and ‘transport or other services to the public’).

The lease also provides arbitration provisions in the event of a dispute arising between the airport operator and the Government in relation to maintenance and investment issues.

Source: Productivity Commission (2011) based on Canberra airport lease (unpublished)

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Productivity Commission inquiry in 2011Productivity Commission (2011) indicated that, in March 2010, the regulator—the Australian Competition and Consumer Commission (ACCC)—suggested that: Sydney Airport had increased profits by running down the quality of its services; Melbourne Airport might have influenced unduly the cost or convenience of alternatives to its on-airport car parking businesses, thereby contributing to high margins; and it was possible that Brisbane Airport had earned monopoly rents for airport car parking by inefficiently delaying investment. In addition, there were increasing concerns about traffic congestion in and around airports (especially the interface between airports’ planning and surrounding state and territory planning regimes).

During the course of the review, the Productivity Commission (2011, pp. XXIV-XXV) indicated it received contradictory views about the performance of light-handed regulation:

Airports claim that the arrangements work well. Airlines say that airports adopt ‘take it or leave it’ tactics—Sydney airport is often nominated as culpable.

Other users, such as car rental, land transport and logistics firms object to the airports’ tough negotiation stances, and the cost of car parking flares periodically as a lightning rod issue for airport users. In terms of government perspectives, the relevant department submits that light-handed monitoring is a success, the ACCC contends it has failed, whereas the NCC says that the ACCC’s deemed declaration approach would increase the risk of regulatory error.

The Commission found that some capital city airports have significant market power, whereas other airports are in a weaker bargaining position. Under the light-handed monitoring regime, Productivity Commission (2011) found:

there has been a marked increase in aeronautical investment and airports have not experienced the bottlenecks that have beset other infrastructure areas

aeronautical charges do not point to the inappropriate exercise of market power

service quality outcomes overall are ‘satisfactory’ to ‘good’, although airlines have, on occasion rated two airports as ‘poor’

Australian airports’ aeronautical charges, revenues, costs, profits and investment look reasonable compared with (the mostly non-commercial) overseas airports.

Productivity Commission (2011) noted that price monitoring aims to constrain airports from inappropriately exercising any inherent market power, but neither the regulator nor Governments have acted when the regulator has raised the possibility that some airports might potentially be exercising market power. Productivity Commission (2011) recommended some modifications to the arrangements (introduction of a ‘show cause’ to avoid a price inquiry).The Commission also recommended that quality of service monitoring continue until June 2020 (with a review of the objective criteria; the ACCC completed this review and released its revised Guideline in June 2013).

Productivity Commission (2011) further noted that access to airport precincts in most major cities is congested owing to inadequate arterial roads and insufficient mass transit services. Developments on airport land (a Commonwealth responsibility) can also add to congestion on connecting transport links (state and territory responsibilities). Recent reforms to better integrate airport transport planning across jurisdictions have been introduced, and Productivity Commission (2011) recommended a review of their efficacy should be undertaken in 2015.

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Australia’s airfreight and passenger movementsPassenger aircraft are important for Australia’s airfreight supply chain. Aircraft movements at Australia’s international airports are mainly passenger aircraft (accounting for 97 per cent of total aircraft movements in 2011–12) and the remainder are freighters (3 per cent) (BITRE 2012b). Around 80 per cent of the volume of airfreight exports is transported in the cargo hold of passenger aircraft, and the remaining 20 per cent is transported in dedicated freight aircraft or ad hoc charter aircraft (see, for example, Victorian Airfreight Working Group 2010).

Data are available for inbound and outbound freight and revenue passenger movements from Australia’s international airports over the period 1985–86 to 2012–13 (Figure 18 for Australia and Figure 19 for Australia’s major international airports; Table 19). Total freight and passenger movements provide an indication of throughput at airport facilities (that is, total air transport services provided).

The information is based on uplift and discharge data—thus, for example, inbound freight includes imports where Australia is not the final destination market, and outbound freight includes exports of foreign origin (similar approach for passenger movements). The data are based on scheduled flights—BITRE (2012b) indicates outbound freight may be underestimated as dedicated freighters may operate some non-scheduled services out of Australia. In 2011–12, inbound freight exceeded outbound freight by 210 thousand tonnes, larger than Australia’s airfreight net imports of 148 thousand tonnes (Table 11).

The main role of international airports is to facilitate the efficient, reliable and safe movement of people and goods between countries (Box 2). In practice, international airports provide both aeronautical and non-aeronautical services—globally, investment in non-aeronautical services has been important in ensuring the ongoing economic viability of airport facilities (see, for example, Tretheway and Markhvida 2013). Liberalisation of international air transport has also been an important policy reform process (see, for example, Button and Pels 2010; discussed briefly in chapter 6).

Figure 18 Australia's airfreight and revenue passenger movements, 1985-86 to 2012-13

Note: Volume of airfreight movements and number of revenue passenger movements. Total is the sum of inbound and outbound movements. Data based on scheduled international airport traffic movements; does not include charter or other non-scheduled activity. Provisional data for 2012-13. Also see notes in BITRE (2012b).Source: BITRE data, available from http://www.bitre.gov.au/publications/ongoing/files/WebAirport_FY_1986-2013.xls

52

a) Freight b) Revenue passengers

0

250

500

750

1000

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-86

1990

-91

1995

-96

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-01

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kt

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-86

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-91

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-96

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-06

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-11

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Note: Volume of airfreight movements and number of revenue passenger movements. Total

http://www.bitre.gov.au/publications/ongoing/files/WebAirport_FY_1986-2013.xls


Table 19 Australia's airfreight & revenue passenger movements, by jurisdiction,1985-86 to 2012-13

Airport

Freight movements Passenger movements

Growth rate Growth rate

2000-01

2012-13

1985-86to

2000–01

2000–01to

2012–132000

-012012

-13

1985-86to

2000–01

2000–01to

2012–13

kt kt % % million million % %

Outbound

Eastern states

Melbourne airport 98.5 116.8 6.8 1.4 1.6 3.5 7.1 6.5

Brisbane airport 52.3 49.1 13.5 -0.5 1.2 2.2 10.8 5.5

Cairns airport 7.4 3.6 22.3 -5.9 0.3 0.3 19.5 -2.5

Gold Coast airport 0.0 1.2 - - 0.0 0.4 - 31.5

Sydney airport 146.0 129.6 6.0 -1.0 4.3 6.3 7.7 3.2

Adelaide airport 8.6 10.2 7.4 1.4 0.1 0.3 5.4 8.7

Hobart airport 0.0 0.0 -100.0 - 0.0 0.0 -100.0 -

Other states

Perth airport 40.3 37.4 6.7 -0.6 0.8 1.8 7.8 7.4

Darwin airport 0.8 0.1 3.9 -19.7 0.1 0.2 8.9 5.6

Australia 353.9 347.9 7.2 -0.1 8.5 15.1 8.1 4.9

Inbound

Eastern states

Melbourne airport 91.4 127.7 7.3 2.8 1.6 3.5 6.6 6.6

Brisbane airport 26.4 53.7 11.7 6.1 1.4 2.3 11.3 4.5

Cairns airport 1.5 1.9 31.4 1.8 0.4 0.3 18.0 -2.5

Gold Coast airport 0.0 5.1 - - 0.0 0.4 - 30.9

Sydney airport 173.4 289.2 6.5 4.4 4.2 6.3 7.3 3.5

Adelaide airport 4.2 11.2 7.6 8.6 0.1 0.4 5.6 8.5

Hobart airport 0.0 0.0 -100.0 - 0.0 0.0 -100.0 -

Other states

Perth airport 14.0 46.1 6.7 10.5 0.8 1.9 7.9 7.2

Darwin airport 0.7 0.3 11.5 -8.2 0.1 0.2 9.3 4.6

Australia 311.7 535.2 7.1 4.6 8.6 15.3 7.9 4.9

Net outbound

Eastern states

Melbourne airport 7.1 -10.9 - - 0.0 0.0 - -

Brisbane airport 25.9 -4.6 - - -0.2 0.0 - -

Cairns airport 5.9 1.7 - - 0.0 0.0 - -

Gold Coast airport 0.0 -3.9 - - 0.0 0.0 - -

Sydney airport -27.4 -159.6 - - 0.1 0.0 - -

Adelaide airport 4.4 -1.0 - - 0.0 0.0 - -

Hobart airport 0.0 0.0 - - 0.0 0.0 - -

Other states

Perth airport 26.3 -8.7 - - 0.0 -0.1 - -

Darwin airport 0.1 -0.2 - - 0.0 0.0 - -

Australia 42.2 -187.2 - - -0.1 -0.2 - -

Note: Average annual growth rate. Volume of airfreight movements and number of revenue passenger movements. Data based on scheduled international airport traffic movements; does not include charter or other non-scheduled activity. Provisional data for 2012-13. Also see notes in BITRE (2012b).Source: BITRE data, available from http://www.bitre.gov.au/publications/ongoing/files/WebAirport_FY_1986-2013.xls

53



Figure 19 Australia's airfreight and revenue passenger movements, by jurisdiction,1985-86 to 2012-13

54

a) Victoria - Melbourne airport

i. Freight ii. Revenue passengers

b) South Australia - Adelaide airport


c) Tasmania - Hobart airport


cont...

0

50

100

150

200

250

1985

-86

1990

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2010

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-91

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2010

-11

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lion


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-86

1990

-91

1995

-96

2000

-01

2005

-06

2010

-11

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0.2

0.4

0.6

0.8

1.0

1985

-86

1990

-91

1995

-96

2000

-01

2005

-06

2010

-11

mil

lion


0.0

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0.3

1985

-86

1990

-91

1995

-96

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-01

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-06

2010

-11

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0.01

0.02

0.03

1985

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1990

-91

1995

-96

2000

-01

2005

-06

2010

-11

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lion




55

d) Queensland - Brisbane airport


e) Queensland - Cairns airport


f) Queensland - Gold Coast airport


cont...

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125

1985

-86

1990

-91

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2010

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10

15

20

25

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1990

-91

1995

-96

2000

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2010

-11

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0.2

0.4

0.6

0.8

1.0

1985

-86

1990

-91

1995

-96

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-01

2005

-06

2010

-11

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lion


0

2

4

6

8

10

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-86

1990

-91

1995

-96

2000

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0.2

0.4

0.6

0.8

1.0

1985

-86

1990

-91

1995

-96

2000

-01

2005

-06

2010

-11

mil

lion




Note: Volume of airfreight movements and number of revenue passenger movements. at major international airports.Total is the sum of inbound and outbound movements. Data based on scheduled international airport traffic movements; does not include charter or other non-scheduled activity. Provisional data for 2012-13. Also see notes in BITRE (2012b).Source: BITRE data, available from http://www.bitre.gov.au/publications/ongoing/files/WebAirport_FY_1986-2013.xls

56

h) New South Wales - Sydney airport


i) Western Australia - Perth airport


j) Northern Territory - Darwin airport


0

125

250

375

500

1985

-86

1990

-91

1995

-96

2000

-01

2005

-06

2010

-11

kt


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5

10

15

1985

-86

1990

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2010

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100

125

1985

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1990

-91

1995

-96

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2005

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3

4

5

1985

-86

1990

-91

1995

-96

2000

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2005

-06

2010

-11

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lion


0

1

2

3

4

5

1985

-86

1990

-91

1995

-96

2000

-01

2005

-06

2010

-11

kt


0.0

0.1

0.2

0.3

0.4

0.5

1985

-86

1990

-91

1995

-96

2000

-01

2005

-06

2010

-11

mil

lion


Note: Volume of airfreight movements and number of revenue passenger movements. at



Between 1985–86 and 2000–01, the volume of inbound and outbound freight each increased and there was some tendency for outbound freight volumes to slightly exceed inbound freight volumes (Figure 18). Over this period, outbound freight exceeded inbound freight mainly at Brisbane, Perth, Adelaide and Cairns airports (Figure 19).

Notably, since the privatisation process for Australia’s major airports (1997 to 2003), the number of passenger movements and the volume of inbound freight have continued to increase, but the volume of Australia’s outbound freight has levelled off. The divergence between inbound and outbound freight movements is most marked at Sydney airport, although the shift in the trend outbound freight movements since around 2000–01 is also apparent at Perth, Melbourne and Brisbane airports (both inbound and outbound freight movements have been reduced to very low levels at Darwin airport).

It is beyond the scope of this report to consider the reasons for the apparent changed approach to outbound freight services (some brief comments are provided in chapter 6). However, recent trends raise concerns about the efficiency of outbound freight services at some of Australia’s international airports or the supply chain more generally.

Privatisation is an important policy option for governments to consider for infrastructure assets—commercialisation options more broadly were discussed briefly in the ABARES preliminary economic assessment of infrastructure and the food industry in Australia (see Nguyen et al. 2013). In its latest assessment of the economic regulation of airport services in Australia, Productivity Commission (2011) did not undertake a detailed analysis of airfreight trade—assessing the implications of economic regulation for the pricing and provision of freight services by the international airports is likely to be a useful inclusion in future reviews, or at least an area for future consideration.

Recent trends suggest the primary focus of international airport operators has been to invest in capacity to meet the growing demand for passenger travel. Chapter 6 examines key areas where there is likely to be significant potential to increase the efficiency of the supply chain for Australia’s airfreight food exports over time.

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6 Toward increasing the efficiency of Australia’s airfreight supply chain

This chapter examines some key areas where there is likely to be significant potential to increase the efficiency of the supply chain for Australia’s airfreight exports. Broader issues in air transport, including global developments, are considered first.

Air transport: global perspective

Policy reform in air transport Policy reform in air transport has been an important contributing factor to strong growth in international airfreight since the 1970s (Button and Pels 2010). In recent decades, there has been a shift toward deregulation of the air transport industry with increasing private sector participation in air transport infrastructure (regulations in areas such as the environment, safety and security have been tightened over the period).

Deregulation of the US air cargo industry in 1977 liberalised licensing of air cargo carriers and opened domestic routes to full competition; as a result, ‘new carriers and forwarders entered the industry, a large number of new routes were opened and, most notably, the reform led to the emergence of integrated express carriers’ (Grosso and Shepherd 2010. p. 4). The European common aviation area was finalised in 1997, providing operational flexibility and ending regulatory discrimination between scheduled and non-scheduled services; ‘although direct effects were less significant since air cargo in the internal market plays a limited role compared to other transport modes such as rail and road, the reforms set the stage for broader air transport liberalisation’ (Grosso and Shepherd 2010. p. 4).

Air cargo has been part of the broader process of air transport liberalisation in APEC member economies since the establishment of the Air Services Group (ASG) in 1995 (Gross and Shepherd 2010). For example, China has been moving toward a more liberal air cargo policy, particularly since 1998 (Button and Pels 2010).

Button and Pels (2010) provide a brief historical perspective on international air transport, including basic features of the modern industry:

The modern air transport industry is thus one that increasingly operates within a liberal market context. While government controls over fares, market entry and capacity continue in many smaller countries, they are gradually and almost universally being removed or relaxed. International controls under the bilateral ASA structure are increasingly moving towards broad Open Skies formulations, allowing free provision of services between countries. However, progress on an open market, where nationality of ownership of airlines is unrestricted, is coming more slowly. The EU area has effectively been the largest international free market in air transport services in the world since 1997, and this has grown as the EU has expanded. The supply and operation of air transport infrastructure is also becoming more market driven with privatisation of airports and air traffic control systems, or the use of franchising mechanisms to involve private capital and expertise (Button, 2008). It is also becoming more co-ordinated. Button and Pels (2010, pp. 84-5)

Further information on the regulatory framework for air transport is also provided in, for example, Niemeier (2010) and International Transport Forum (2010a).

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Recent developments in air transport and projections to 2030 Air transport is less important for moving Australia’s merchandise exports compared with the global average. Airfreight accounted for 16 per cent of the value of Australia’s merchandise exports in 2011–12 (see Table 15). By contrast, Button and Pels (2010) estimate international aviation moves around 40 per cent of the value of world trade (representing around 2 per cent of the volume of world trade). Pearce (2013) indicates the value of world airfreight trade is around US$6 trillion (using the 2005 world airfreight share of 35 per cent).

Global air cargo traffic mainly occurs in the Asia-Pacific region, North America and Europe (in 2005, these three regions represented 91 per cent of global air cargo traffic—39, 27 and25 per cent, respectively; Grosso and Shepherd 2010). In recent years, there has been relatively modest growth in North America and Europe, and strong growth in the Asia-Pacific region. Asia-related air cargo traffic, particularly China, is projected to continue to grow strongly to 2030 (Grosso and Shepherd 2010; see also slide 9 in Pearce 2013). Air cargo represents up to 55 and 40 per cent of the total value of air and sea exports from the United States and the European Union, respectively (International Transport Forum 2011). In 2010, 79 per cent of the value of US airfreight exports were moved to the Asia-Pacific region (40 per cent) and Europe(39 per cent), and 72 per cent of the value of EU airfreight exports were moved to the Asia-Pacific region (39 per cent) and North America (33 per cent). In 2010, the five leading destination countries were: the United Kingdom, China, Japan, Germany and Switzerland for US airfreight exports; and the United States, China, Japan, Hong Kong and India for EU airfreight exports.

OECD (2012) examined global strategic transport infrastructure needs to 2030 (including major international gateways and their key inland connections). Assuming global output (measured by gross domestic product) doubles between 2010 and 2030, OECD (2012) estimated that global airline traffic and airfreight may increase by around 4.7 and 5.9 per cent a year, respectively—that is, air passenger traffic could double in 15 years (by 2025), and airfreight could triple in 20 years (by 2030). Current infrastructure is inadequate to meet these growing international air transport demands; OECD (2012) estimates global infrastructure investment needs for airports could amount to US$2.2 trillion to 2030 (Pearce 2013 suggests airlines will need to invest US$4.8 trillion in new aircraft over twenty years).

In World Economic Forum (2013b), global freight transportation, measured in freight ton kilometres (ftk), is forecast to increase by 60 per cent between 2010 and 2025 (reaching up to 31.1 trillion ftk). (Freight ton kilometres is a measure of the freight task, calculated as the number of tons moved by an aircraft multiplied by the distance the cargo travelled in kilometres; individual flights are aggregated to provide estimates for total freight ton kilometres; see BITRE 2013a) Around 59 per cent of the world freight ton kilometres involve the United States (Button and Pels 2010); China is a key future growth area:

China’s rapid industrialisation, and in particular the development of its manufacturing industries, has also led to a massive growth in its use of air cargo to export commodities and to bring into the country components, etc., that are needed to keep its factories working ... Much of this traffic has come in through three major gateways: Shanghai, Beijing and Guangzhou ... The airports at these cities have become focal points in the country’s domestic and international freight network. Beijing, for example, offered 57 freight connection cities in 1990, of which 13 were international; by 2003 this had grown to 126 connections with 65 destinations. The comparable figures for international connections for Shanghai were 13 in 1990, rising to 65 in 2003. (Button and Pels 2010, pp. 114-5)

Given the geography and size of China’s domestic market, Button and Pels (2010) suggest its air transport sector will move toward a structure similar to that in the United States.

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Key features of the global air transport marketGrosso and Shepherd (2010) note that airfreight has traditionally been an important transport mode for high-value, low-bulk cargoes (high value-to-weight products), perishable goods or urgent items (such as medicines), but the range of products moved by air transport has widened since the late 1990s:

In the late 1990s, the range of air transported products has widened, reflecting an increasingly liberal and dynamic trading environment. The industry has grown with rising value-per-weight of many goods but has also been able to move down the value-to-weight ladder. Electronics and garment account for a significant share of international air cargo flows. As noted, these industries have combined low-cost labour (particularly in Asia) with air transport in complex, labour-intensive production processes and international supply chains. Other important commodities carried by air include food (e.g. live animals), pharmaceuticals and machine parts ... Most cargo airlines are also involved in the transportation of mail.

While for obvious reasons air passenger and cargo transport share many features, there are a number of characteristics which are specific to air freight. For starters, air cargo flows are “unidirectional” since, unlike passengers, goods move in one direction. This imbalance is apparent in the cargo flows between Asia and North America. Secondly, the routing of goods (e.g. whether they fly direct to destinations) is not very important as long as time requirements for delivery are met. Air cargo firms, particularly integrated express operators, also rely considerably on overnight transport in order to make best use of the time between close of business, when a company hands over its shipment, to delivery early the following day (reducing the lead-time of cargo on the ground). Furthermore, air freight is often combined with other modes of transport, which allows the use of more remote and less congested airports ... (Grosso and Shepherd 2010, p. 11)

Similar issues are discussed in Button and Pels (2010). They note the air transport industry is large (accounts for about 1 per cent of gross domestic product in both the United States and the European Union), and is important for many industries such as tourism, exotic plants and fruits, and high technology. Airfreight transport has become an integrated part of the modern supply chain in some industries. For example, rapid movement of exotics (largely flowers and fruits with a short market life) is essential because of a lack of durability in the product; in other industries, air transport services are used because of the need for reliable and rapid delivery (industrial components and legal documents; air cargo includes both freight and mail, although the terms cargo and freight are often used interchangeably). A large part of the global market for airfreight services is provided by a limited number of large carriers that often provide seamless domestic and international collection and delivery (particularly for wealthier countries with large land masses).

Air transport is mainly an international activity because road and rail generally offer cost-effective alternatives over short distances (about 85 per cent of world freight tonne kilometres are intercontinental):

Further, much of the longer-distance air freight is carried in the belly-holds of scheduled passenger aircraft because of the costs savings from economies of scale that this can create. Short-distance movements, because there are fewer synergies between passenger and freight traffic, are usually done on dedicated aircraft. Not only does the carriage of freight slow the turnaround times of passenger planes, the peak times for its movement often do not coincide with passenger schedules, and freight hubs, such as Memphis for FedEx, are not large passenger airports. (Button and Pels 2010, pp. 112)

In some developing countries with poor infrastructure and difficult terrain, there has been an increasing role for air cargo (Button and Pels 2010).

60


Air transport: AustraliaThe privatisation of Australia’s major airports over the period 1997 to 2003 is consistent with the direction of international policy reform in recent decades (particularly in high income countries). There is also likely to be an important future role for increased private sector investment in strategic transport infrastructure, including international gateway airports and key inland connections (OECD 2012; see also table 9 in Nguyen et al. 2013).

From chapter 5, the volume of outbound airfreight from Australia has levelled off since privatisation and there is substantial excess airfreight capacity in outbound flights, particularly at Sydney airport (see Table 19 and Figure 19). Factors that may have placed downward pressure on Australia’s airfreight exports include, for example: the strong Australian dollar (reducing the international price competitiveness of Australian exports); increased domestic demand for food and non-food products; prolonged and widespread drought conditions in Australia; and the introduction of more stringent biosecurity protocols in some destination markets that may have affected export market opportunities for some food products, particularly fruit and vegetables.

There may have also been changed priorities at major airports with privatisation: a government-owned organisation may have provided services on a commercial basis by substantially or fully covering costs, but have both commercial and non-commercial (or public interest) objectives (Productivity Commission 2006, 2005); private airport operators have a focus on commercial objectives (given the obligations of the airport lease; see Box 2).

Since privatisation, and following Productivity Commission reviews, there have been some changes to the regulatory framework for airports: tier 1 airports are now subject to light handed monitoring, and include Sydney, Melbourne, Brisbane and Perth airports; tier 2 airports are subject to self regulation, and include Adelaide, Canberra, Darwin, Gold Coast and Hobart airports. Canberra and Hobart airports currently do not offer international services. As outlined in chapter 5, in its latest review, Productivity Commission (2011) received contradictory views about the performance of light handed monitoring: airports argued the arrangements worked well; airlines and other users raised some issues; and the regulator, the ACCC, had also raised some concerns. The Commission concluded light handed monitoring of tier 1 airports generally worked well, but recommended some strengthening of the arrangements (see appendix D); these recommendations included:

Price monitoring—the introduction of a ‘show cause’ for airports to avoid a price inquiry; this would be triggered when the regulator forms the view that there is evidence that an airport has been exercising market power (recommendation 9.3).

Quality of service monitoring—to continue until June 2020, but with specific improvements such as reviewing and updating the objective criteria (recommendation 10.1, the ACCC completed this review and released its revised Guideline in June 2013; see also recommendation 9.8).

Inland transport networks, particularly connections to the gateway airports, are also important for the efficiency of Australia’s airfreight supply chain (see Box 3). The Commission found ground transport access issues, such as congestion, arise in most major city airports to varying degrees, but they seem to be particularly extreme in and around Sydney airport (finding 12.1). Productivity Commission (2011) noted reforms had recently been introduced to better integrate airport transport planning across jurisdictions, and recommended a review of their efficacy should commence in 2015 (recommendation 12.1).

61


Productivity Commission (2011, p. XXIII) also found the ‘Gold Coast and Avalon airports have provided competitive pressures on Brisbane and Melbourne airports respectively’. The Gold Coast airport services international flights, but has a focus on leisure travel (see Figure 19f); Avalon airport services domestic flights only. Recent developments and announcements should, over time, provide additional competitive pressures on Australia’s international gateway airports and enhance opportunities for Australian producers to export by airfreight:

Canberra airport—since privatisation in May 1998, there has been substantial investment in aeronautical and non-aeronautical services at Canberra airport with, most recently, the completion of an upgraded and extended runway to service international aircraft (747 or A380; Peake 2014a).

Airport near Toowoomba—located 20 kilometres south-west of Toowoomba and 130 kilometres west of Brisbane’s central business district, the Brisbane West Wellcamp Airport is the first privately built public airport in Australia; aims to be operational in the third quarter of 2014 (see http://www.wellcamp.com.au/airport/overview).

Sydney’s second airport at Badgerys Creek—planning for Sydney’s second airport at Badgerys Creek was announced in April 2014, with construction to start in 2016; the airport is planned to be fully operational in a decade (Truss 2014).

Canberra airport currently caters extensively for business travellers (Productivity Commission 2011). Canberra airport is potentially well placed to provide international airfreight services for Australian food and non-food producers in the eastern states, and would provide increased competitive pressures on both Melbourne and Sydney airports. Canberra airport is located between Melbourne and Sydney where there is substantial excess airfreight capacity (see Figure 19). Food and non-food products are already moved between Australia’s eastern states, including Victoria and New South Wales, for export by airfreight (see Table 13). While Canberra airport has the potential to develop into a significant freight hub, Peake (2014b) reports there are constraints on some direct international flight connections:

Managing director Stephen Byron...said the current landing limit of 80 aircraft per hour at Sydney airport should be lifted and the curfew made more flexible. ''Canberra has a third of its flights go to Sydney airport so the effectiveness and efficiency of Sydney airport is critical, and that's why we welcome Badgerys Creek and that's why we want to make the most out of Sydney's operating capability now,'' he said. Canberra Airport is hoping Singapore Airlines, Emirates, Etihad or Cathay Pacific will run direct flights to Singapore and Hong Kong. Mr Byron also said the federal government should lift the ban on direct flights from the national capital to the US.

The efficiency of Australia’s airfreight supply chain is likely to be enhanced over time by opening up Canberra airport. This would increase the international supply chain options for food and non-food producers in the eastern states, particularly in New South Wales where the volume of food and non-food commodities produced for export by airfreight has declined in recent years (see Table 12 and Figure 13c). Canberra airport’s curfew-free status provides greater flexibility for freight aircraft compared with Sydney airport where a curfew applies; Grosso and Shepherd (2010, p. 19) note the following on airport utilisation:

Airport congestion and slot scarcity can inhibit air cargo services, particularly combination carriers carrying passengers and cargo, since these carriers tend to operate during the day at peak hours. All-cargo carriers and integrated express operators are less affected by slot scarcity as they work principally at night. The latter operators are more constrained by so-called airport curfews, whereby airports stop their services during night time, in light of noise-related environmental concerns. However, only a few airports in APEC maintain restrictions on night flights (Senguttuvan, 2006).

62


Box 3 Australian Logistics Council: supply chain efficiency and airports

The Australian Logistics Council (ALC) is a representative organisation for Australia’s freight transport and logistics industry. ALC aims to influence national transport and infrastructure regulation and policy to ensure Australia has safe, secure, reliable, sustainable and internationally competitive supply chains (Australian Logistics Council 2014). ALC was established by the Australian Government in September 2002 as a partnership between the Australian Transport & Logistics (T&L) supply chain and government; ALC has been funded by subscriptions since 2010 (Australian Logistics Council 2010).

Supply chain efficiency in Australia

Australia’s international competitiveness will be enhanced by improving supply chain efficiency. ALC has identified key blockages, or bottlenecks, in Australia’s supply chain; addressing these blockages will improve supply chain efficiency (Australian Logistics Council 2012b, 2008).

More broadly, ALC encourages government at all levels to consider the needs of freight in its investment and policy decisions—these include improving urban planning around key freight routes; identifying and protecting key freight corridors; and ensuring road, rail, port and intermodal facilities keep up with freight demand which nationally is predicted to double by 2030 and almost triple by 2050. Australian Logistics Council (2013) identified ten key logistics issues to improve supply chain efficiency in Australia.

1. Reducing red tape

2. 2Harnessing greater private sector investment in infrastructure

3. 3Improved project identification

4. 4A national approach to freight

5. 5A nationally consistent regulatory framework

6. Getting more freight onto rail

7. Heavy vehicle charging and investment reform

8. Intermodal facilities

9. Improved freight planning

10. Fixing Sydney

ALC position paper on airports (Australian Logistics Council 2012a)

Australia’s large and rising national freight task includes significant growth in the air freight sector. According to the Asian White Paper, air freight volumes are expected to double by 2025. The NSW Government predicts Sydney Airport will deal with more than 1.5 million tonnes of cargo each year by 2035; this is up from 650,000 tonnes in 2012. Against the backdrop of these figures, it is clear the efficient movement of freight needs to be a primary consideration at all airports. Airports are critical links in the supply chain, and therefore, all need to view the freight task in the same way that acknowledges air freight is an important part of the national economy. ALC believes:

freight needs to be regarded as part of core business at airports

airport managers should place a higher priority on freight, over and above a range of non-aeronautical activities

ALC would like to see an appreciation of the importance of the air freight facilities and how they are in fact the lynchpin between passenger and freight aircraft and road efficiency

the efficient movement of freight between air, road and rail should be a critical consideration at all domestic airports.

cont...

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Box 3 Australian Logistics Council: supply chain efficiency and airports

Pricing

As the Productivity Commission noted in its report on the Economic Regulation of Airports, land transport and logistics firms have objected to the tough negotiation stands taken by some airports, where offers on a ‘take it or leave it’ basis are made. ALC therefore believes the Productivity Commission’s recommendations that the ACCC be able to ask airport operators to ‘show cause’ where an airport has demonstrated a consistent pattern of excessive returns on investment should be adopted.

Planning

Some ALC members have reported a ‘disconnect’ between airport planning and the needs of both domestic and international freight services. Some airport authorities appear keen to ‘shuffle’ freight providers to extreme ends of the airports. There is also a lack of appreciation by some airports about the key differences between domestic and international air freight environments – essentially it is all about time and the daily timing pressures in a domestic air environment. ALC believes there is scope for an amendment to the Airports Act 1996 to require a master plan to expressly deal with how the freight volumes projected to be handled by the airport will be facilitated.

There is also a need to restrict encroachment upon key infrastructure corridors and buffer zones for airports. According to Criterion 3 of the COAG National Objective and Criteria for Future Planning of Capital Cities, capital city strategic planning systems should provide for nationally-significant economic infrastructure (both new and upgrade of existing) including:

transport corridors

international gateways

intermodal connections

major communications and utilities infrastructure

reservation of appropriate lands to support future expansion.

ALC believes that to ensure criterion 3 of the national criteria is delivered, state, territory and local governments must make land-use decisions prioritising the efficient use of the infrastructure over other possible land uses. It therefore believes the Council of Australian Governments should recommend the development of a National Partnership that: acknowledges that land use decisions should prioritise the efficient operation of the ports and infrastructure identified as being nationally significant infrastructure; and create a fund for state and local governments which incur expense as a result of making land-use decisions that favour nationally significant infrastructure over other land uses (e.g. dealing with spill-over effects on communities located within the ‘last mile’ of nationally significant infrastructure as a result of prioritising the freight effort over other uses).

Sydney Airport

Sydney Airport will always be Australia’s principal aviation hub and making the best use of space available at Kingsford Smith is essential. It is timely however to start planning for a second airport in the Sydney basin to ensure that future aviation related growth opportunities can be realised. A second Sydney airport would: reduce congestion both at, and on the corridors surrounding, Sydney Airport; and add price competition into the Sydney Air Freight market, which would advantage not only logistics operators but also ultimately the consumer as the cost of air freight reduces through the natural effects of competition. Land is identified and reserved at Badgerys Creek; the go ahead for the planning of a second Sydney Airport should be given now. (Sydney’s second airport at Badgerys Creek was announced in April 2014; see Truss 2014.)

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In an international study, Burghouwt (2013) found that hubs mainly contribute to regional economic growth through enhanced long-haul direct connectivity; the study also identified success factors of airport hubs, and reasons for the emergence of airline multi-hub networks. In another international study, Tretheway and Markhvida (2013) found that airlines have the lowest profit rates in the aviation value chain (see also footnote 14 on p. 17 in Button and Pels 2010, and slide 11 in Pearce 2013), and discuss options to enhance the aviation value chain through, for example, better risk sharing between airlines and airports (airports tend to be relatively low risk compared with airlines).

More generally, Australia’s major airport operators could increase the focus on freight movements at major airports by liaising with other supply chain participants and assessing cost-effective options to facilitate airfreight exports (freight is a core aeronautical activity at airports; see Box 2 and appendix C). As noted in chapter 5, Productivity Commission (2011) did not undertake a detailed analysis of airfreight trade—assessing the implications of economic regulation for the pricing and provision of freight services by the international airports is likely to be a useful inclusion in future reviews, or at least an area for future consideration.

The Australian Logistics Council (ALC) is an important representative organisation for Australia’s freight transport and logistics industry; key aspects of the ALC position paper on airports, based on Australian Logistics Council (2012a), are provided in Box 3.

Efficiency study of Victoria’s airfreight supply chain Increased airfreight food exports from Victoria in recent years may, at least partly, be the result of the implementation of options identified in an efficiency study of Victoria’s airfreight supply chain in 2010 and 2011. This section provides an overview of the key findings and recommendations from this efficiency study.

Following a business activity harmonisation study (BAHS) of Victoria’s sea freight supply chain (see http://www.supplychainbahs.com.au/seabahs/), the Victorian Freight and Logistics Council examined the efficiency of Victoria’s airfreight supply chain in two stages:

Stage I report—aim was to identify the issues and gain a deeper understanding of the airfreight supply chain (Victorian Freight and Logistics Council 2010)

Stage II report—aim was to identify and develop solutions to the impediments identified in stage 1 to provide opportunities for efficiency gains that would increase the competitiveness of Victoria’s airfreight supply chain (Victorian Freight and Logistics Council 2011).

The BAHS airfreight study noted that airfreight supply chains are very time compressed and involve a high degree of collaboration to move high value, time sensitive and often perishable freight (see http://www.supplychainbahs.com.au/air-freight/).

Airfreight supply chain participantsA simplified airfreight supply chain from farmer to international flight is provided in Figure 20 (see http://www.supplychainbahs.com.au/air-freight/ or Victorian Freight and Logistics Council 2010 for further information, including an origin-to-destination supply chain). More generally, food and non-food products may originate from the farm (agriculture), boat (fisheries) or factory (food and non-food processors), although some food processing may also be undertaken on the farm or boat. There are several stages in the supply chain and domestic transport networks are clearly important.

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http://www.supplychainbahs.com.au/air-freight/

http://www.supplychainbahs.com.au/air-freight/

http://www.supplychainbahs.com.au/seabahs/


Figure 20 Simplified domestic component of the airfreight supply chain: farmer to flight

Source: Based on Victorian Freight and Logistics Council 2010

A wide range of supply chain participants from industry and government contributed to the BAHS airfreight study through surveys, workshops and case studies. Airfreight supply chain participants included: exporters/importers/domestic shippers, freight transport and logistics companies, freight forwarders/customs brokers, cargo terminal operators/ramp operators, airports, airlines and government/regulatory bodies (biosecurity, customs, security). The BAHS airfreight study noted that activities in the supply chain may be undertaken by one or more participants; for example, a flight may be booked by the producer/exporter or freight forwarder/cross-dock operator.

Issues in the airfreight supply chainIn the survey conducted in stage I of the BAHS airfreight study, supply chain participants were asked the following question:

Question: When thinking about EXPORTS, what are the main impediments to your efficiency within your supply chain? Listed are some of the more common issues related to inefficiencies raised in surveys to date. (Choose one or more) (Victorian Freight and Logistics Council 2010, p. 21)

The answer options, and survey results, are provided in Figure 21 (82 per cent of the survey respondents were engaged in exporting activities).

The stage I report also includes a summary of comments and queries from the workshops (see Victorian Freight and Logistics Council 2010, pp. 22-3); examples of relatively broad comments on the airfreight export supply chain include:

Freight is not a big priority for airlines.

“Australia is exporting a lot of fresh air”

Could companies do more business if they could break through impediments?

Capacity; seasonal issues (end of year, end of financial year) – export is hardly ever a problem (Victorian Freight and Logistics Council 2010, pp. 22-3)

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Farmer, food processor

Transport Packing location

TransportFreight forwarder, cross-dock location

Biosecurity

Transport

AirportCargo terminal operator

and ramp operatorCustoms/terminal release

Airline/aircraft Overseas flight


Figure 21 Issues in Victoria's airfreight export supply chain: survey responses

Note: % of survey respondents who identified issue as a main impediment to the efficiency of their airfreight export supply chain. Some labels have been simplified; CTO is cargo terminal operations; AQIS is Australian Quarantine and Inspection Services (now biosecurity); ULD is unit load device.Source: Victorian Freight and Logistics Council 2010

Other issues raised in the workshops include, for example: slow uptake of e-freight throughout the supply chain (several comments made on this point; noted that Hong Kong will be100 per cent e-freight by the end of 2010 and Cathay will be 100 per cent e-freight in three years), cumbersome electronic/paper documentation; confusing and inconsistent operating hours by different supply chain participants; road congestion; and lack of information (reporting/benchmarking; for example, percentage of flights departing with spare capacity, percentage of missed cut offs, percentage capacity refused).

[The e-freight project, launched by the International Air Transport Association (IATA) in 2006, aims to replace paper documentation in air cargo with the exchange of electronic data and messages (see http://www.iata.org/whatwedo/cargo/e/efreight/Pages/index.aspx).]

Cold chain management in the airfreight export supply chain is particularly important for food products, and medicinal and pharmaceutical products (SITC 54; see Figure 16). Some issues raised in the workshops relate to cold chain management in the airfreight supply chain:

Overall customer awareness re services such as Envirotainers is low.

CTOs and airlines not always aware of services such as Envirotainers.

Hold temperatures at CTO can be variable which is an issue for some cargo. E.g. CSL has agreed procedures with suppliers for the handling of their cargo throughout the freight journey. [CSL develops and manufactures vaccines and plasma protein biotherapies for human medical conditions.] (Victorian Freight and Logistics Council 2010, pp. 22)

[Envirotainers are containers for air cargo that assist with temperature-controlled cold-chain transportation of products; mainly used in healthcare (see http://www.envirotainer.com/).]

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0 10 20 30 40 50

Technology & technical issues

Co-ord/priorities between domestic tasks & exports

Transport co. hours & after hours loading schedule

Delays caused by road infrastructure

Customs inspection requests

Service providers commitment to dates & times

Availability of ULD/pallets

Communication between supply chain participants

Airline availability

CTO operating hours

Freight priority in airline system (vs. passengers)

Delays caused by traffic congestion, accidents etc.

Government regulatory requirements

Customers' lack of understanding of supply chain

Cut-off times set by airlines

Aviation security processes

AQIS inspection of perishable freight/processes

Delays at airport due to CTO operational procedures

Airline capacity at seasonal peaks

Documentation (cumbersome, duplicated etc)

Late packing & short notice from customers

%

Note: % of survey respondents who identified issue as a main impediment to the efficiency of

http://www.envirotainer.com/

http://www.iata.org/whatwedo/cargo/e/efreight/Pages/index.aspx


The BAHS airfreight study included two case studies for exports: a pharmaceutical product (bulk flu vaccines, case study one) and a perishable food (broccoli, case study three). The flu vaccines are high value and highly perishable; cold chain management through the supply chain is critical (envirotainers are used to manage the integrity of the supply chain). Broccoli is low value and perishable; there has been little innovation in packaging over time (cold chain management is based on polystyrene boxes that require a minimum of two kilograms of ice). The study provides a rule of thumb for the economic viability of broccoli exports (viable if the export market price is at a 10 to 15 per cent premium to the local market price plus transport costs; Victorian Freight and Logistics Council 2010, p. 55).

Issues raised in the case studies are broadly consistent with Figure 21 (see Victorian Freight and Logistics Council 2010 for further information). The Tasmanian case studies in chapter 7 also identify issues in the airfreight export supply chain.

Options to enhance the efficiency of the airfreight supply chainThe BAHS airfreight study identified six priority areas and suggested a number of possible options to enhance the efficiency of Victoria’s airfreight supply chain (see Box 4). The key priority areas range from high level strategic planning for freight movements in the supply chain, to addressing inconsistencies in operating hours between supply chain participants; the findings and recommendations of the BAHS airfreight study are likely have broader relevance for other airfreight supply chains in Australia.

Priority 1 Airfreight strategic planning—more effective integration of airfreight in the state’s transport network planning, and information provision to underpin industry and government decision-making and build co-operation across the airfreight supply chain.

Priority 2 Education and training (including customers)—better co-ordination across the supply chain by addressing information gaps; the BAHS airfreight study suggested, for example, conducting whole of supply chain seminars supported by a web-based airfreight supply chain model.

Priority 3 Airline capacity—examine supply-side issues in the airfreight supply chain, particularly the decision of airlines to provide international airfreight services (including dedicated freight services); the BAHS airfreight study provided the specific option of a freight leakages study to identify why 20 per cent of Victoria’s freight is moved through other airports.

Priority 4 Airport infrastructure and interface—assess the efficiency of the pricing and provision of airport and interface infrastructure services; the BAHS airfreight study suggested a dedicated airside precinct study to identify options to improve efficiencies and reduce time delays.

Priority 5 Information, systems and processes—assess options to invest in more efficient administrative systems and processes, such as e-freight.

Priority 6 Operating hours—inconsistencies in operating hours is an issue if, for example, a key input (such as biosecurity services) is unavailable at a time that would otherwise be optimal for the airfreight export supply chain (inconsistent operating hours may effectively constrain flight times, including potential dedicated freight services that may otherwise be operating at a curfew-free airport).

Lack of measurements within the airfreight supply chain was found to be an overarching problem that is relevant across all priority areas (identified impediments), including:

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information to underpin strategic planning; performance metrics (if it can’t be measured, how can it be managed?); and coordination of data and strategy (possible role for government).

While the BAHS airfreight study has implications for other airfreight supply chains in Australia, there may be a role to consider undertaking this type of efficiency study in other jurisdictions.

An additional future research direction may be to examine economic incentives across the airfreight supply chain in Australia, compare with the overseas experience (such as New Zealand), and identify and assess options to achieve more efficient outcomes that would encourage growth in Australia’s airfreight food exports.

Box 4 BAHS airfreight study: key priority areas in Victoria’s airfreight supply chain

Stage I in the BAHS airfreight study identified six key priority areas (problems or impediments) in Victoria’s airfreight supply chain (Victorian Freight and Logistics Council 2010). Stage II of the study identified possible options to address these identified impediments (solutions). This box outlines the six key priority areas and possible response options to enhance the efficiency of Victoria’s airfreight supply chain (some of the text below draws directly from Victorian Freight and Logistics Council 2011).

Priority 1 Airfreight strategic planning

Participants identified the need for development of a concise strategic plan that would underpin future decision making; the strategic plan would need to:

address critical industry issues at government, airport and operator levels

build co-operation across the airfreight supply chain

support the desire to make Victoria the ‘Gateway of Choice’ for air cargo by making it attractive to investors, importers and exporters

support industries using international supply chains.

An airfreight strategy should be integrated into State transport planning. Essential elements of a strategic plan for Victoria’s airfreight include: accurate information for forecasting and preparation of business cases; accurate freight movement data, particularly origin-to-destination data; and strategies to develop airfreight transport network access and distribution linkages. The BAHS airfreight study noted the importance of airfreight for growth industries such as biomedical, advanced manufacturing and food exports.

Priority 2 Education and training (including customers)

Participants identified the need to increase awareness of supply chain processes and procedures by all airfreight participants, including shippers and receivers to:

recalibrate expectations of all airfreight supply chain participants

provide training courses to agreed competencies

minimise customer dissatisfaction and improve productivity.

Options to address information gaps include, for example, whole of supply chain seminars supported by a web-based airfreight supply chain model.

cont...

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Box 4 BAHS airfreight study: key priority areas in Victoria’s airfreight supply chain

Priority 3 Airline capacity

Participants identified the need for increased dedicated freighter services to key Victorian trading blocks. Non-existence of services to the European and American markets and one service to New Zealand makes it difficult for Victorian exporters to export to these destinations via Melbourne. Options to address airline capacity constraints include, for example, to undertake a freight leakages study (identify why 20 per cent of Victoria’s freight is shipped via other airports).

Priority 4 Airport infrastructure and interface

Participants identified the importance of infrastructure and developments around the airports as key to improving efficiencies and time delays. The key improvement areas in infrastructure surrounding the airports are:

airport—CTO apron staging areas and CTO access roads; and CTO sites (driveways/internal shed)

handling areas and on airport—storage and staging; and dedicated animal handling facility

public roads—local access (within 5 km radius of airport) to CTO facilities; and access through major arterials (Eastern Freeway to Tullamarine)/Ring Road/Eastern Freeway.

Options to address airport infrastructure and interface constraints include, for example, to undertake a dedicated airside precinct study (benchmark airfreight logistics performance, landside, against international standards).

Priority 5 Information, systems and processes

Participants identified the large number of documents required across the supply chain, the complexities associated with attaining original certificates from regulatory bodies, and the differing processes for different trade locations result in inefficiencies and duplication. The industry has been slow moving towards e-freight.

Promoting the use of advanced e-commerce systems such as e-freight is needed for the industry to minimise the documents and create efficiencies. A number of airlines have taken the initiative to impose compulsory use of e-freight with its stakeholders in an effort to improve service levels and minimise their carbon footprint. Options to address information, systems and processes constraints include, for example: to outline e-freight documentation requirements (make publicly available); and analyse the costs and benefits of e-freight.

Priority 6 Operating hours

Participants identified operating hours as a key determinant of a ‘breakdown’ in supply chain efficiency. The issue of mismatch in operating hours between the supply chain stakeholders was first raised in the BAHS sea freight study. The ‘mismatch’ in the airfreight chain leads to inefficiencies and congestion at airport CTO interfaces.

Options to address issues relating to operating hours include, for example, information provision to supply chain participants, and assess opportunities to optimise (supply chain benchmarking).

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7 Further issues in increasing Australia’s airfreight food exports

The previous chapter examined some key areas where there is likely to be significant potential to increase the efficiency of the supply chain for Australia’s airfreight exports. This chapter examines key economic aspects of Australia’s airfreight exports of food products.

Economic incentives to increase airfreight food exportsIncreasing the efficiency of the airfreight supply chain should provide economic incentives to increase Australia’s airfreight food (and non-food) exports. Figure 22 provides a simplified representation of food prices and transport costs in key stages of the airfreight supply chain—from the farmer (or fisher) in Australia to the consumer in the destination market (an earlier version is provided in Figure 7). Australian farmers and food processors compete with overseas food producers to meet consumer demand. In general terms, higher transport and handling costs reduces the international price competitiveness of Australia’s airfreight food exports, making it less profitable (or not profitable) for farmers and food processors to produce and export food using this supply chain option (all else constant).

Enhancing the efficiency of Australia’s airfreight supply chain should increase the assessed profitability of exporting food (and non-food) products by airfreight. Efficiency gains are likely to reduce transport and handling costs. A more efficient airfreight supply chain may also enhance the reliability of the supply chain, for example, by reducing the likelihood of delays (including, for perishable products, the time spent in conditions that may increase the likelihood of damage; for example, time kept on the tarmac in the hot sun). Reliability is an important issue for perishable exports where the price premium relies on maintaining the quality attributes of the product; reliability is also important for other time sensitive exports, for example, that are key inputs in a more complex international supply chain.

Figure 22 Prices in a simplified airfreight export supply chain: farmer to consumer

Note: Prices and transport costs are expressed as $ per unit of food moved through the supply chain. Transport costs include handling, storage and other costs associated with the transport network. For simplicity, food processing is not included explicitly in the supply chain (farming and food processing may be included as two separate stages).

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a) Prices and transport costs in Australia's airfreight supply chain

b) Relationship between key prices and transport costs

• Producer price (Pp)

Domestic transport costs

(tdom)

• Export price (Px)

Internationalairfreight costs

(tint) • Import price (Pm)

Transport costs in destination market (tm)

• Overseas consumer price (Pc)

Overseas food demand

Pp=

(1-tdom)x(1-tint)x(1-tm)xPc

Px=

(1-tint)x(1-tm)xPc

Pm=

(1-tm)xPcPc


Together with growing export market opportunities, especially in Asia (see appendix A), a more efficient airfreight supply chain would provide farmers and food processors with economic incentives to assess production and investment options to increase airfreight food exports. Notably, all supply chain participants can benefit from increased airfreight food exports. Importantly, farmers and food processors need reasonable economic incentives to invest in food production for export by airfreight (that is, farmers and food processors need to assess there will be a reasonable return to the investment given the risks associated with the activity; similar economic incentives apply in the airfreight supply chain for non-food products).

Increasing the efficiency of Australia’s airfreight supply chain is particularly important for food products.

Most airfreight food exports are perishable—reliability is a key influence on the economics of the airfreight supply chain; improvements in reliability, including transport time and cold chain management, will increase the international competitiveness of this supply chain option.

Transport costs are likely to be a relatively high share of airfreight food prices—airfreight food exports tend to be relatively low priced products compared with airfreight non-food exports; export unit values for airfreight food and non-food exports in 2011–12 are indicated in Figure 23 (export unit value is calculated as export value divided by export volume). In 2011–12, the weighted average export unit value was $10/kg for food products and $45/kg for non-food products (excludes gold and coins, SITC 95-97). Reducing transport costs will increase the international competitiveness of the airfreight food supply chain.

Increasing competitive pressures on the demand side of the food market—this would result from expanding cost-effective supply chain options for food producers. Supply chain options include both domestic and export markets where food may be moved overseas using either sea or air transport. Concerns about the competitiveness of food retailing in Australia are discussed briefly, for example, in Gray et al. (2013).

Figure 23 Price and volume for Australia's airfreight food and non-food exports, 2011-12

Note: Includes 11 food products and 53 non-food products (SITC 2-digit commodity categories). A small number of outliers for non-food products are excluded; notably, export unit value is $48880/kg for gold, non-monetary etc (SITC 97), $2566/kg for gold coin etc (SITC 95) and $887/kg for metalliferous ores and metal scrap (SITC 28).Source: Based on BITRE estimates using ABS cargo data

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0

100

200

300

400

0 20 40 60 80

Exp

ort u

nit

val

ue,

$/k

g

Volume, kt

Food products

Non-food products


Access to export markets allows farmers and food processors in Australia to sell food to domestic or overseas consumers according to relative profitability. In general terms, exports increase competition on the demand side of the food market. Box 5 provides key results from ABARES survey data on Australian vegetable farms with and without export earnings (the vegetable farm survey results do not specify whether produce is moved overseas by sea or air transport). A small percentage of vegetable growing farms sell produce on the export market (4 per cent in 2011–12); on average, these farms are larger (higher average total cash receipts) and more profitable (higher average business profit) than non-exporting vegetable growing farms, although there is wide variation in farm size. One potential future research direction is to use the ABARES farm survey framework to obtain better information on export supply chains and the financial performance (and farm characteristics) of exporting farms.

A simple hypothetical example illustrates the relative importance of transport costs for higher and lower priced airfreight exports. Assume there are two products with different import unit values: $50/kg (non-food) and $10/kg (food). Further assume the domestic transport cost in the airfreight supply chain is the same for each product, at $3/kg. Transport costs represent 6 per cent of the import unit value of the higher priced product, but 30 per cent of the import unit value of the lower priced product. A 10 per cent reduction in transport costs (to $2.70/kg) will have a proportionately greater impact on the cost structure of airfreight food exports (the transport cost share would be reduced to 5.4 and 27 per cent for the higher and lower priced product, respectively; all else constant).

The broccoli case study in the BAHS airfreight study provides further evidence that the efficiency of the airfreight supply chain is likely to have particularly important implications for the economics of Australia’s airfreight food exports (the case study is given on pp. 55-60 in Victorian Freight and Logistics Council 2010). Broccoli is grown in Victoria throughout the year and the export market depends on consistent quality and supply. Broccoli is a low priced product, and variability in local market prices (up to 30 per cent day to day) and the value of the Australian dollar are key sources of price risk. The importer purchases broccoli from several locations (including New Zealand, South Africa and South America), and product is purchased on the day for delivery within a 2-4 day lead time (that is, the supply chain needs to be responsive to changes in local market conditions). Transport costs are a large percentage of the sales price:

Any efficiency gained through transport will have a significant impact on the viability of the market.

Any delay in transport can impact pricing on the day and profitability of the transaction

Any issue with cool chain delays or temperature fluctuations will impact temperature integrity

Any delay at any node can have impact to product shelf life and quality, which will impact on final price/credit from importer (Victorian Freight and Logistics Council 2010, p. 57)

Since food exports of Australian origin represent around half of the volume of Australia’s airfreight exports (including re-exports; see Table 14, chapter 4), developments in the food industry will also have important implications for airfreight supply chain participants.

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Box 5 ABARES vegetable survey: Australian farms with and without export earnings

With joint funding between Horticulture Australia Limited and the Department of Agriculture, ABARES has undertaken a survey of vegetable growing farm businesses in Australia. The data collected dates back to2005–06 and provides information on the physical and financial performance of growers in the industry. As part of the survey, growers were asked whether they earned any vegetable receipts from exports. This box draws on the data collected from this survey, and some of the information published in the most recently released vegetable industry report entitled An economic survey of vegetable growing farms: 2011–12 and 2012–13 (Valle et al. 2014).

In 2011–12, 4 per cent of Australian vegetable growing farms received part of their income from the export of vegetables. As a proportion of the total cash receipts received from vegetables produced and sold, the distribution of income received ranged between 2 per cent and 40 per cent—21 per cent on average. Since the survey of vegetable growers began in 2006, there have been farms surveyed who export vegetables across all the major vegetable growing regions of Australia each year.

Figure 25 shows the range for vegetable cash receipts that is estimated to cover 80 per cent of vegetable growing farms in Australia (that is, the range excludes the top and bottom 10 per cent of farms). Vegetable growing farms that received income from exports are larger on average than farms that only received income from domestic markets—average vegetable cash receipts were $2.86 million and $637 600, respectively, for exporting and non-exporting vegetable growing farms (statistically significant difference at a 95 per cent confidence level). However, there is wide variation in farm size and vegetable cash receipts for some exporting farms fall within the range for non-exporting farms (Figure 24). The average profitability of exporting vegetable growing farms is also higher—the average business profit of exporting vegetable growing farms is estimated to be $301 000 compared with $60 200 per farm for non-exporting farms (Table 20).

Table 20 Farm financial profile of exporting and non-exporting vegetable farms in Australia, 2011–12average per farm

Variable UnitsExporting vegetable

growing farmsNon-exporting vegetable

growing farms

Vegetable cash receipts $ 2 857 200 (34) 637 600 (6)

Total cash receipts $ 3 303 600 (29) 745 800 (5)

Total cash costs $ 2 801 600 (28) 578 600 (6)

Farm cash income $ 502 000 (51) 167 200 (10)

Farm business profit $ 301 000 (83) 60 200 (26)

Rate of return (excl. capital appreciation) % 4.9 (49) 2.8 (16)

Rate of return (incl. capital appreciation) % 5.9 (49) 2.4 (25)

Farm capital at 30 June $ 9 536 400 (19) 3 740 800 (7)

Farm debt at 30 June a $ 2 090 900 (23) 477 400 (11)

Note: Export vegetable growing farms are defined as growers who received a positive amount of cash receipts from exports. Figures in parentheses are standard errors expressed as a percentage of the estimate. a Average per debt responding farm.Source: ABARES Australian vegetable growing farm survey

An estimated 9 per cent of vegetable growers in 2011–12 considered exporting as a growth opportunity for their business. However, 81 per cent of vegetable growers indicated the logistics involved in exporting activities was too hard or time consuming. The main impediments to developing export markets differed between vegetable growers in different states. For example, 79 per cent of respondents in Tasmania identified shipping costs as an impediment to developing export markets, while this proportion was 21 per cent at the national level (Table 21).

cont...

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Box 5 ABARES vegetable survey: Australian farms with and without export earnings

Figure 24 Distribution of vegetable cash receipts, vegetable growing farms in Australia, 2005-06 to 2011–12

a) Exporting vegetable growing farms

b) Non-exporting vegetable growing farms

Note: Figures represent the range between the 10th and 90th percentiles to protect confidentiality. Values are in 2011–12 prices. 2011–12 estimates are preliminary.Sources: ABARES Australian vegetable growing farms survey

Table 21 Impediments to developing export markets, 2011–12Percentage of farms

Selected estimatesUnit

s Tasmania AustraliaNo local agents % 37 (38) 10 (25)

Prices not high enough % 77 (15) 39 (9)

Shipping costs too high % 79 (13) 21 (13)

Transport not available % 43 (29) 8 (26)

Infrastructure on farm needed % 47 (31) 12 (22)

Too hard / time consuming % 65 (18) 81 (4)

75

0

2

4

6

8

2005–06 2008–09 2011–12

20

11

-12

$m

0

2

4

6

8

2005–06 2008–09 2011–12

20

11

-12

$m

90th percentileAverage10th percentile


Note: Figures in parentheses are standard errors expressed as a percentage of the estimate.Sources: ABARES Australian vegetable growing farms survey

Australian Government: market access and biosecurity reform

Role of governmentFrom an economic perspective, government has an important role in addressing market failures and achieving distributional goals. Market failures occur when private markets do not produce a socially optimal level of goods and services. Market failures may arise, for example, when:

markets are not highly competitive (imperfect competition, including infrastructure industries that typically have natural monopoly characteristics; in a natural monopoly, industry costs tend to be lower if there is a single provider since this avoids costly duplication of infrastructure facilities such as water storage, treatment and delivery infrastructure; see also Box 1)

markets do not provide certain goods or services (public goods)

by-products in production or consumption have a significant impact on third parties, resulting in suboptimal outcomes (also referred to as externalities or spillover effects; an example of a negative externality is pest or disease incursion from the international movement of people and goods)

producers or consumers have inadequate market information (imperfect information).

The presence of market failures provides an economic rationale for considering government intervention. Governments should ensure policy interventions are assessed to be cost effective, noting that some aspects of an economic assessment, such as equity (distributional) and risk assessment issues, rely on the subjective judgment of policy makers.

The ABARES preliminary economic assessment of infrastructure and Australia’s food industry, released in November 2013, briefly discussed the economic rationale for government intervention in infrastructure industries, broad policy reform processes in Australia and private participation in infrastructure industries (see Nguyen et al. 2013). It was noted that economic infrastructure services provided by the transport, water, energy and telecommunications industries are essential inputs to a wide range of economic activities, including Australia’s domestic and international food supply chains. It was broadly assumed that policymakers aim to ensure the adequate and reliable provision of infrastructure services at least cost over time given budgetary and other constraints, and taking into account economic and other risks in the outlook.

The private sector has an important role in the provision of Australia’s economic infrastructure services. For example, the value of engineering construction work done on Australia’s roads was $18.5 billion in 2011–12, of which $14.0 billion was work undertaken by the private sector (76 per cent of the total) and $4.5 billion was work undertaken by the public sector (24 per cent of total) (see Nguyen et al. 2013, table 9, p. 53 for further information). The report also provided a brief overview of key economic issues in the pricing and provision of economic infrastructure services in Australia, based on a survey of previous studies; the Productivity Commission has since released its draft report on public infrastructure (see Productivity Commission 2014b).

This section focuses on other aspects of the role of the Australian government that influence the economics of the airfreight supply chain.

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International market accessThe Australian Government has an important role in facilitating international market access; that is, improving the conditions agreed by countries for the entry of specific products into their markets. This may include gaining access to new markets, or improving access in established markets. Three key components of market access are particularly important for food trade (see also Box 6).

Free trade agreements (FTA)—international treaties that remove or reduce barriers to trade and facilitate stronger trade and commercial ties, and increase economic integration between participating countries (https://www.dfat.gov.au/fta/faq.html).

Technical barriers to trade (TBTs)—regulations, standards, testing and certification procedures that could obstruct trade; the WTO’s TBT Agreement aims to ensure that these do not create unnecessary obstacles to international trade.

Sanitary and phytosanitary provisions (SPS)—measures dealing with food safety, and animal and plant health (sanitary for human and animal health; phytosanitary for plants and plant products); the WTO’s SPS Agreement sets out the rules for how governments can apply these measures.

Free trade agreementsFree trade agreements can support global trade liberalisation and are explicitly allowed for under the World Trade Organization (WTO) rules (see https://www.dfat.gov.au/fta/). Under free trade agreements, which can include two or more economies, parties enter into legally binding commitments to liberalise access to each others' markets for goods and services, and investment. Free trade agreements also typically address a range of other issues such as intellectual property rights, government procurement and competition policy.

Australia currently has seven free trade agreements: New Zealand; Singapore; Thailand; the United States; Chile; the Association of South East Asian Nations (ASEAN) (with New Zealand); and Malaysia (accounts for around 26 per cent of Australia's total trade). Australia signed a free trade agreement with Korea in April 2014 (expected to be implemented in 2015) and concluded an agreement with Japan in the same month (16 per cent). Australia is currently engaged in seven FTA negotiations: three bilateral FTA negotiations (China, India and Indonesia); and four plurilateral FTA negotiations (Trans-Pacific Partnership, 29 per cent; Regional Comprehensive Economic Partnership; PACER Plus; and Gulf Cooperation Council). In engaging in trade negotiations, Australia seeks very ambitious outcomes that would eliminate tariffs and address other impediments to trade in agricultural products such as quota and export subsidies. Australia supports countries’ rights and obligations under the WTO and in particular seeks to protect its high quality biosecurity regime. Australia also promotes the development of trading rules that permit the free flow of trade between the FTA member countries.

ABARES has recently examined the implications of the Korea-Australia free trade agreement (KAFTA) for Australia’s agricultural exports: ‘Exporters and producers of beef, cheese, butter, malting barley and unroasted malt are expected to benefit most from the agreement, as these commodities are currently subject to relatively high import tariffs. In contrast, potential gains to Australian exporters and producers of commodities such as wheat, cotton, wool and sugar are expected to be modest, since they already benefit from low tariffs or tariff-free access to the Republic of Korea.’ Hyde et al. (2014, p. 27).

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https://www.dfat.gov.au/fta/

https://www.dfat.gov.au/fta/faq.html


Box 6 WTO (World Trade Organization): market access and agriculture

What is the WTO?

The World Trade Organization (WTO) is the only global international organization dealing with the rules of

trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s

trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters,

and importers conduct their business.

Source: http://www.wto.org/english/thewto_e/whatis_e/whatis_e.htm

Market access for goods

Market access for goods in the WTO means the conditions, tariff and non-tariff measures, agreed by members

for the entry of specific goods into their markets. Tariff commitments for goods are set out in each member's

schedules of concessions on goods. The schedules represent commitments not to apply tariffs above the listed

rates — these rates are “bound”. Non-tariff measures are dealt with under specific WTO agreements ... WTO

Members seek to continually improve market access through the regular WTO work programme and through

negotiations such as those launched at the Doha Ministerial Conference in November 2001.

Source: http://www.wto.org/english/tratop_e/markacc_e/markacc_e.htm

Technical barriers to trade (TBT Agreement)

Technical regulations and product standards may vary from country to country. Having many different

regulations and standards makes life difficult for producers and exporters. If regulations are set arbitrarily, they

could be used as an excuse for protectionism.

The Agreement on Technical Barriers to Trade tries to ensure that regulations, standards, testing and

certification procedures do not create unnecessary obstacles, while also providing members with the right to

implement measures to achieve legitimate policy objectives, such as the protection of human health and safety,

or the environment.

Source: http://www.wto.org/english/tratop_e/tbt_e/tbt_e.htm

Sanitary and phytosanitary measures (SPS Agreement)

Problem: How do you ensure that your country’s consumers are being supplied with food that is safe to eat —

“safe” by the standards you consider appropriate? And at the same time, how can you ensure that strict health

and safety regulations are not being used as an excuse for protecting domestic producers? An agreement on

how governments can apply food safety and animal and plant health measures (sanitary and phytosanitary or

SPS measures) sets out the basic rules in the WTO.

Source: http://www.wto.org/english/tratop_e/sps_e/sps_e.htm

Agriculture

The WTO’s Agriculture Agreement was negotiated in the 1986–94 Uruguay Round and is a significant first step

towards fairer competition and a less distorted sector. WTO member governments agreed to improve market

access and reduce trade-distorting subsidies in agriculture. In general, these commitments were phased in over

six years from 1995 (10 years for developing countries). The Agriculture Committee oversees the agreement’s

implementation. Meanwhile, members also agreed to continue the reform. Further talks, which are separate

from the committee’s regular work, began in 2000. They were included in the broader negotiating agenda set at

the 2001 Ministerial Conference in Doha, Qatar and subsequent Ministerial conference meetings.

Source: http://www.wto.org/english/tratop_e/agric_e/agric_e.htm

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http://www.wto.org/english/tratop_e/agric_e/agric_e.htm

http://www.wto.org/english/tratop_e/sps_e/sps_e.htm

http://www.wto.org/english/tratop_e/tbt_e/tbt_e.htm

http://www.wto.org/english/tratop_e/markacc_e/markacc_e.htm

http://www.wto.org/english/thewto_e/whatis_e/whatis_e.htm


TBT and SPS agreementsBoth the TBT and SPS agreements aim to prevent unnecessary trade barriers (these elements may also be addressed specifically in FTAs). The TBT Agreement permits the introduction of TBT regulations to meet various objectives, including national security, the prevention of deceptive practices, and protection of human health or safety or the environment. Under the SPS Agreement, measures may be imposed only to the extent necessary to protect life or health, on the basis of scientific information.

Health-related trade restrictions are addressed in both agreements. The TBT Agreement covers all technical requirements, voluntary standards and the procedures to ensure these are met, except when these are SPS measures as defined by the SPS Agreement. Most measures related to human disease control are under the TBT Agreement, unless they concern food safety or diseases that are carried by plants or animals. In terms of food, labelling requirements dealing with nutrition claims, quality and packaging regulations are normally subject to the TBT Agreement; labelling requirements dealing with food safety are considered to be SPS measures. Examples of the coverage of the agreements are:

TBT measures—labelling of composition or quality of food; quality requirements for fresh food; volume, shape and appearance of packaging; and packaging and labelling for dangerous chemicals and toxic substances, pesticides and fertilizer

SPS measures—additives, contaminants or toxic substances in food or drink; residues of veterinary drugs or pesticides in food or drink; certification of food safety, and animal or plant health; processing methods with implications for food safety; labelling requirements directly related to food safety; plant/animal quarantine; declaring areas free from pests or disease; preventing disease or pests spreading to or in a country; and other sanitary requirements for imports (for example, imported pallets used to transport animals).

(See http://www.wto.org/english/tratop_e/sps_e/sps_agreement_cbt_e/c1s4p1_e.htm for further information.)

Australian Government Department of Agriculture and biosecurity reformThe Australian Government Department of Agriculture has an important role in facilitating international market access, particularly TBT and SPS measures (Box 7). The Department ‘works with Australia’s trading partners and other government agencies to hold open discussion on TBT measures impacting on both imports and exports of agricultural, fisheries and forestry goods’ (http://www.daff.gov.au/market-access-trade/tbt, accessed 23 June 2014). ‘The Department's Trade and Market Access Division is responsible, in partnership with other state and federal government agencies, for representing Australia's SPS interests in the international arena’ (http://www.daff.gov.au/market-access-trade/sps, accessed 23 June 2014).

The Department also negotiates market access for portfolio industries, manages quarantine controls at the borders, and provides import and export inspection and certification to help retain Australia's highly favourable animal, plant and human health status and wide access to overseas export markets. The Department works with other government agencies (such as the Department of Immigration and Border Protection, the Department of Health, Food Standards Australia and New Zealand (FSANZ) and state/territory governments) to support management of post-border detections and incursions of pests and diseases, and to support verification and certification activities for agriculture and food products (http://www.daff.gov.au/biosecurity/about).

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http://www.daff.gov.au/biosecurity/about

http://www.daff.gov.au/market-access-trade/sps

http://www.daff.gov.au/market-access-trade/tbt

http://www.wto.org/english/tratop_e/sps_e/sps_agreement_cbt_e/c1s4p1_e.htm


Box 7 WTO (World Trade Organization): market access and agriculture

The Department of Agriculture ... leads the development of policy advice and provides services to improve the

productivity, competitiveness and sustainability of agriculture, fisheries, forestry and related industries; and

assists people and goods to move in and out of Australia, while managing the risks to the environment and

animal, plant and human health. The department achieves this through its two outcomes:

Outcome 1: More sustainable, productive, internationally competitive and profitable Australian agricultural,

food and fibre industries through policies and initiatives that promote better resource management practices,

innovation, self-reliance and improved access to international markets.

Outcome 2: Safeguard Australia’s animal and plant health status to maintain overseas markets and protect the

economy and environment from the impact of exotic pests and diseases, through risk assessment, inspection

and certification and the implementation of emergency response arrangements for Australian agricultural, food

and fibre industries.

In 2014–15 the portfolio will place priority under both outcomes on:

developing and implementing deregulation initiatives to reduce the regulatory burden on business and farmers as a result of Agriculture portfolio activities, in particular for the regulation of biosecurity and agricultural and veterinary chemicals;

working closely with other agencies, industry and foreign governments to maintain and increase access to global markets for Australia’s agriculture, fisheries, forestry and related industry export products;

supporting the development of the White Paper on Agricultural Competitiveness and the White Paper on the Development of Northern Australia by the Department of the Prime Minister and Cabinet;

delivering high quality forecasts, research and statistics to support effective decision making by the Government and the private sector; and

maintaining a positive workplace in times of change.

... For Outcome 2, additional priorities include:

providing efficient and effective biosecurity and export certification services within a risk based approach;

strengthening biosecurity and quarantine arrangements, including emergency response arrangements for incursions of exotic pests and disease;

supporting the eradication and management of nationally significant agricultural and environmental plant and animal pests and diseases;

assisting small exporters with the costs of gaining export certification;

initiating work to better understand and manage marine pests;

progressing biosecurity reforms to more effectively and efficiently manage biosecurity risk in the context of continued growth in trade volumes;

progressing the transition of post entry quarantine operations to a single facility, which will occur from late 2015; and

conducting a review of the structure of fees and charges under cost recovery arrangements to ensure that they are appropriate as part of a sustainable funding model for biosecurity and export certification services.

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Source: Extract from Australian Government Department of Agriculture 2014, pp. 11-13

The Australian Government Department of Agriculture has been implementing reforms to Australia’s biosecurity system (DAFF 2012a, pp. 1-2):

Australia’s biosecurity system has been subject to review several times. Recommendations made for improvements to the way it operates started with the Nairn Review in 1995, and culminated in the 2008 independent review of Australia’s quarantine and biosecurity arrangements – One biosecurity: a working partnership (the Beale review). The Beale review found that Australia’s biosecurity system operated well, but could be improved. It proposed significant reforms to strengthen the system by revising legislation; targeting resources to the areas of greatest return from a risk management perspective; sharing responsibility between government, businesses and the community; and improving transparency, timeliness and operations across the continuum.

Changing global demands, growing passenger and trade volumes, increasing imports from a growing number of countries, population expansion and climate change mean that biosecurity risk is growing. There is also an increasing demand from international trading partners for greater levels of assurance in relation to Australia’s exports.

The reforms being undertaken position the department to meet this increasing demand and to ensure the biosecurity system is effective and sustainable into the future. The reform program is consistent with the themes outlined in the Beale review, informed by previous reviews and stakeholder needs; and underpinned by five key principles:

implementing a risk-based approach to biosecurity management

managing biosecurity risk across the continuum – offshore, at the border and onshore

strengthening partnerships with stakeholders

being intelligence-led and evidence-based

supported by modern legislation, technology, funding and business systems.

DAFF (2012a) provides information on progress in implementing the Beale review recommendations (see also Beale et al. 2008). Progressing biosecurity reform continues to be a policy priority (Box 7).

Increasing the efficiency of the food export supply chainEach year, the World Bank releases a report that compares business regulations for domestic firms across economies. The latest report includes 189 economies: Australia ranks 11th for ease of doing business, and 46th for ease of trading across borders (World Bank 2013). The World Bank provided the following general comments on the ease of trading across borders:

Globally the most common feature of trade facilitation reforms in all regions over the past 5 years was the introduction or improvement of electronic submission and processing of customs declarations. Improving customs administration and enhancing port procedures were the second and third most common features, especially in Sub-Saharan Africa and the Middle East and North Africa. The introduction or improvement of risk-based inspection systems has also facilitated trade, especially in Europe and Central Asia and Latin America and the Caribbean. (World Bank 2013, pp. 107-8)

It is beyond the scope of this report to examine market access arrangements for Australia’s food exports. Selected issues raised by export supply chain participants (including through the ABARES consultations process) are provided below, followed by some comments on biosecurity reform and Australia’s airfreight food exports.

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Issues raised by supply chain participants Market access arrangements have important economic implications for Australia’s food exports (sea and air transport). In the 2010 Victorian airfreight study, issues in documentation (cumbersome, duplicated etc.) were identified by supply chain participants as the second main impediment associated with exporting; issues in biosecurity inspection of perishable freight and related processes were identified as the equal fourth main impediment (see Figure 21). In the export case study for a pharmaceutical product (bulk flu vaccines), labelling requirements for products exported to South America was given as an example of a key industry issue:

Each carton must be labelled due to local legislation. This is time consuming at the loading location. DHL [a freight forwarder] does this in a cool room. (Victorian Freight and Logistics Council 2010, pp. 50)

Similar concerns, including reliance on paper documentation, were also raised in the ABARES consultations (for sea and air transport). For example, workshop participants at ABARES regional outlook conferences identified biosecurity protocols and red tape for food exports to some trading partners, including the requirement for original paper documentation which, if lost, needs to be sent again while produce remains on the wharf (resulting in lost time and risk of damage to produce) (Melbourne, August, and Coonawarra, July 2013).

Gallagher (2014a) indicated an important industry goal is to develop a sustainable export platform for Australian seafood to China. Australia’s abalone exports to China provide an example of two market access issues (particularly for moving food from the destination port into the mainland; based on industry consultations, September 2013).

Customs clearance time for live abalone—the quality of abalone and rock lobster shipments degrades and mortality rises the longer it takes to transport product between holding tanks in Australia and those in China. Customs processing times may result in losses for Australian exporters. The Australian Live Abalone industry has two key priorities regarding customs clearance times: to encourage Chinese customs authorities to replicate global best practice for customs clearance (clearance within 2 to 4 hours); and to increase the consistency and transparency of customs clearance times between Beijing and Shanghai.

Use of a sulphur dioxide (SO2) anti–browning agent in canned abalone—Chinese food additives regulations are based on the principle that any additives must be technically necessary and proven to be safe. Food additives can only be used if they are covered in the national food safety standards (GB-2760-2011, Food Safety National Standards for the Usage of Food Additives). Sulphur dioxide is not recognized by the standards as an approved food additive for abalone. Despite being a common additive in soy sauce production, Chinese regulation is silent about the use of sulphur dioxide in abalone. This increases the risk that shipments of preserved abalone will be impounded by Chinese customs for non-compliance. There is however a CODEX standard covering sulphur dioxide. A key focus of the Australian canned abalone industry is to have the Chinese accept this CODEX standard, and therefore approve use of the anti browning agent in canned abalone product.

The Seafood Trade Advisory Group (STAG) has been established to improve China trade and market access for Australia's abalone and rock lobster industry, and to support intergovernmental negotiations concerning the export of these premium seafood products (see http://www.seafoodcrc.com/australian-wild-abalone/china-trade-industry-reference-group.html for further information).

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http://www.seafoodcrc.com/australian-wild-abalone/china-trade-industry-reference-group.html

http://www.seafoodcrc.com/australian-wild-abalone/china-trade-industry-reference-group.html


Economic comments on Australia’s biosecurity reform processFrom an economic perspective, the Australian Government’s changes to the biosecurity system, following the recommendations in the Beale review, is an important policy reform process. A key objective of biosecurity reform is to achieve a high level of biosecurity protection (where warranted) at lower industry cost. Ideally, biosecurity reform should include, where possible, flexibility for industry supply chain participants to choose the least cost option of biosecurity risk management given their individual circumstances.

Biosecurity reform is based on managing biosecurity risk across the continuum (offshore, at the border and onshore) and strengthening the evidence-based approach in biosecurity risk and management assessments (including both science and economic input). As noted in World Bank (2013), the introduction or improvement of a risk-based approach in biosecurity systems facilitates international trade. There are two key elements of the Australian Government’s risk-based approach to biosecurity management.

Review and consolidate Australia’s import conditions—rationalise import conditions to better target biosecurity risk. For example, import permits are no longer required for highly processed plant products (not a significant biosecurity risk); 120 import conditions for frozen fruit and vegetables have been rationalised to 3 import conditions (lower risk food products); and more stringent import conditions now apply to tomato seed (higher risk product) (Williamson 2013). A simplified and consistent system of biosecurity import conditions that is evidence based should reduce transaction costs in the supply chain (all else constant).

Better targeted inspection policy—develop systems that better target compliant and non-compliant activity (see, for example, DAFF 2012b); that is, shift from 100 per cent inspection rates for imports and exports to a system that reflects biosecurity risk. Notably, lower inspection rates would apply to importers/exporters that have a demonstrated compliance with biosecurity arrangements (that is, a high level of biosecurity quality assurance in the international supply chain). For example, the inspection rate for cocoa imports has been reduced from 100 per cent to 5 per cent (Williamson 2013). Rewarding compliant activity with lower inspection rates should result in less time lost and lower inspection costs in the supply chain (all else constant).

A key finding in the Victorian airfreight study is the need for greater consultation and coordination between supply chain participants to identify and address impediments in the supply chain (such as inconsistent operating hours): biosecurity (referred to as AQIS in the study) is a key participant in both the export and import supply chains. Enhancing the timeliness, reliability and consistency of information available to industry should improve the efficiency of the supply chain. For example, the revised import conditions are planned to be accessible through a more efficient search mechanism or database, BICON (biosecurity import conditions; replaces ICON). Other aspects of biosecurity reform that relate to improved service delivery are also important. This includes, for example, the S-cargo automatic messaging system and increased use of electronic documentation such as the paperless initiative for airfreight biosecurity screening (Williamson 2013; DAFF 2012c).

An important aspect of biosecurity reform is to liaise with industry supply chain participants to facilitate the process of identifying and assessing cost effective options to manage biosecurity risks. For example, Kmart is a major importer who, with input from the biosecurity areas of the Australian Government Department of Agriculture, streamlined documentation processes and established low biosecurity risk supply chains for imports; these changes significantly reduced

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the cost of biosecurity compliance (including the risk of unexpected delays that occurred under previous procedures) (ABARES consultations).

Improved cooperation between industry and government should allow the biosecurity system to be more responsive to commercial opportunities in international supply chains (including food safety issues in international market access negotiations; see Box 8). The hazelnut project is an example of industry/government cooperation where a flexible and risk-based approach was taken by the Australian Government to manage biosecurity import risks: around 200 000 small hazelnut plants were imported, in two stages, with the longer term goal of establishing an export-oriented hazelnut industry in Australia; maximum imports of six plants usually apply (see, for example, Ferrero Australia 2013 and New South Wales Government 2014).

Maintaining a high level of biosecurity protection in Australia, including an effective emergency response mechanism, is a key aspect of international market access for Australia’s food exports. Through the biosecurity reform process, ensuring a high level of biosecurity protection at lower cost for imports should also facilitate growth in Australia’s food exports in a number of ways.

Reduced input costs for Australian businesses—some imports are direct inputs to export-oriented farms and food processing activities; in these cases, biosecurity reform should place downward pressure on input costs (except for higher risk imported products). For example, cocoa importers are estimated to have benefited from reduced inspection costs of around $100 000 a year (Williamson 2013).

Facilitate international negotiations for market access—investment in a transparent evidence-based biosecurity system should enhance Australia’s prospects for negotiating cost-effective access for Australia’s food exports. Negotiating biosecurity protocols for market access can be complex (often undertaken on a commodity-by-country basis, particularly for fruit and vegetables), and is administratively costly; enhancing the consistency of biosecurity protocols, where possible, would reduce negotiation costs.

Destination countries can benefit from the Australian Government’s investment in biosecurity reform—as Australia works toward a well targeted and cost effective biosecurity system, other countries could draw on the Australian experience to enhance their biosecurity systems.

There has recently been an increased focus on market access issues in the airfreight supply chain (see, for example, Box 8). Most new commodities in Australia’s market access negotiations have an airfreight focus; this has occurred, at least partly, in response to increased airfreight food exports from Chile to Asian markets (ABARES consultations).

A key issue for Australia’s airfreight food exports is to identify cost effective biosecurity protocols consistent with the timeframe of the airfreight supply chain (particularly relevant for fruit and vegetables). Cold treatment, a common biosecurity protocol to manage fruit fly risks for exports from mainland Australia, takes more than 14 days to complete and is typically not viable for the airfreight supply chain because fresh food needs to be delivered quickly to the consumer; the quality of some commodities is also affected by cold treatment. Methyl bromide fumigation and irradiation are alternative treatments that would be consistent with the timeframe of the airfreight supply chain. However, methyl bromide fumigation may be phased out as a treatment (because of its detrimental effect on the ozone layer). Irradiation has significant potential: food irradiation is used in more than 50 countries and is permitted, in limited situations, under Food Standards Australia and New Zealand (FSANZ 2013). Australia has been exporting irradiated mangoes to New Zealand since 2004, and export value has increased markedly over the period; irradiation treatment for tomato and capsicum exports to New Zealand has recently been

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approved (Fulton 2013). The economic viability of irradiation is likely to depend largely on cost and consumer acceptance (Horticulture Australia 2013). Some of Australia’s trading partners have asked for irradiation to be considered as a treatment measure.

The Tasmanian experience highlights the importance of identifying cost-effective biosecurity protocols. Tasmania is the strongest growth jurisdiction in Australia’s airfreight food exports (based on volume), partly as a result of lower biosecurity risks. Notably, fruit fly does not survive in Tasmania (Tasmania is recognised as fruit fly free by Australia’s trading partners), which removes the requirement to apply quarantine treatments against this pest. Tasmania also has strong growth prospects with emerging crops like berries for future export by airfreight (ABARES consultations). The Tasmanian case studies in chapter 8 provide some further information on the role of biosecurity arrangements in the airfreight supply chain.

Box 8 Australian liquid milk exports

Liquid milk accounts for around five per cent of Australia’s dairy exports. However, producers and processors

have been assessing the potential to expand liquid milk exports (Astley 2013, Coghill and Blackmore 2014,

Dairy News Australia 2012, Garnett 2013, Thompson 2014). In particular, this appears to be the case in

Australian states where liquid milk is the main dairy product (such as Queensland and Western Australia).

The value of Australia’s liquid milk exports was $113 million in 2011–12, of which airfreight accounted for

$19 million (ABS 2014a,c, DAFF 2013a). Victoria and Western Australia dominate these exports, accounting for

45 and 42 per cent of total liquid milk exports, respectively, in 2011–12. Liquid milk exports accounted for

97 per cent of Western Australia’s total dairy exports. Between 2005–06 and 2011–12, the total value of

Australia’s liquid milk exports decreased overall (average rate of 1.9 per cent a year): liquid milk exports from

Queensland recorded the largest decline (almost –40 per cent a year), while exports from Western Australia

increased strongly (5.3 per cent a year). Singapore, Hong Kong, Taiwan and South Korea were the top

destination markets in 2011–12, together accounting for 59 per cent of Australia’s liquid milk exports. Between

2005–06 and 2011–12, liquid milk exports to the Philippines and the United States decreased (14.1 and 5.9 per

cent a year, respectively), while exports to Singapore and China increased (11.7 and 6.7 a year, respectively).

Broadly, Australia’s liquid milk exports are either fresh milk (that is, milk that has been pasteurised at 72°C for

15 seconds) or long-life milk (that is, milk that has been subjected to higher heat treatment; for example, ultra

heat-treated milk). The transport mode used to export these different types of milk is determined by the

product’s shelf life (including transport time)—up to 21 days for fresh pasteurised milk and up to a year for

ultra heat-treated milk. This includes:

shipping or air travel time—for example, from Melbourne to Singapore it takes 15 days via sea freight and more than eight hours via airfreight, while from Fremantle to Singapore it takes six days via sea freight and seven and a half hours via airfreight (Horton and Harnett 2012, Qantas 2014)

time to clear the importing country’s border clearance processes

time to distribute the product to retail stores

time for the product to be purchased and consumed.

Overall, fresh pasteurised liquid milk can only viably be exported using airfreight, while long-life milk can be

exported using either sea freight or airfreight. The northern New South Wales dairy cooperative Norco recently

announced that it had successfully trialled airfreighting 1000 litres of fresh pasteurised milk into China within

seven days of milking; as part of this trial, Australian and Chinese officials are reported to have collaborated to

develop rigorous quality assurance protocols that streamlined the border clearance process (Dairy Connect,

Norco and PGS 2014).

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Farmers and food processors in the airfreight supply chainThere is an important role for farmers and food processors to identify and assess options to enhance the economic viability of the airfreight supply chain. A key message from the Victorian BAHS airfreight study (discussed in the previous chapter) is for food producers to better understand the supply chain so they are in a position to make well informed investment, production and export decisions. This section briefly examines key areas where food producers may influence the economic viability of the airfreight supply chain.

Advantages and uses of the airfreight supply chainThe key advantages of air transport are speed and reliability (airfreight reduces the risk of damage to the food product compared with sea freight). An additional potential advantage of airfreight is that food can be transported directly to inland destinations in overseas markets and to remote areas (for example, dedicated freight aircraft are used to deliver food within the Pacific region). Sea freight, the alternative supply chain option, requires food to be shipped to a seaport before distribution for use in the destination market. Similarly, airfreight is a relatively flexible transport option for moving food within Australia (including for use in remote areas and in emergency situations such as natural disasters).

Air transport expands supply chain options for food exporters. Airfreight is a cost-effective transport option for higher-priced, low-volume food products where food quality is dependent on timely delivery to the end-use market with reliable cold chain management (as relevant), and where the price premium received for food quality attributes is sufficient to justify the higher transport cost. However, food exporters may use the airfreight supply chain in various ways.

Food exports using only air transport—airfreight may be the most cost effective or the only feasible supply chain option for exporting some food products. For example, live abalone is a high-priced, perishable and highly time-sensitive food product, and is therefore only exported by airfreight (case study 1 in chapter 8).

Diversified food exports using both air and sea transport—for example, a food producer may adopt a commercial model that uses sea transport for exporting food products that are not time sensitive and air transport for exporting food products that are time sensitive. In this case, there may be efficiency gains by exporting a range of food products (that is, economies of scope) and advantages in terms of diversifying risk (that is, risk management advantages). For example, canned abalone are exported from Australia using both air and sea transport options; canned abalone are exported by airfreight to Asian markets, prior to the live abalone airfreight exports, to ensure product availability during the peak demand period in the Chinese New Year celebrations (case study 1 in chapter 8; also relevant to next dot point). Lamb products are also exported by sea freight (frozen lamb) and airfreight (chilled lamb) (case study 2 in chapter 8).

Airfreight food exports as a stock management strategy—in some cases, food products may be exported by sea freight, but the airfreight supply chain is used to supplement supplies in the consumer market (that is, ensure continuity of supply in the end use activity). Efficient transport networks have resulted in the widespread adoption of just-in-time stock management strategies (to reduce storage costs), although storage options are limited for perishable food products. For example, in the ABARES consultations, a sea freight beef exporter indicated that, if there has been an unanticipated increase in consumer demand, airfreight is used to export beef to maintain supplies on supermarket shelves (that is, the benefits of continuity of product availability in the supermarket outweighs the higher international transport costs).

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The airfreight supply chain for a particular food product may be based on consistent and reliable supply throughout the year, or where there is strong seasonality in supply and/or demand conditions. For example, chilled sheep meat exports from Tasmania occur throughout the year (case study 2 in chapter 8; see also the broccoli case study in the Victorian airfreight study, outlined earlier in this chapter). By contrast, the abalone and cherry harvesting seasons in Tasmania coincide with the peak demand, Chinese New Year celebrations (case studies 1 and 3, respectively, in chapter 8).

Price-reliability trade-offs in transport networksThe International Transport Forum (ITF) at the OECD has examined reliability issues in transport networks, noting sensitivity to reliability varies widely across product groups—from high sensitivity in fresh food to low sensitivity in bulk products:

The demand for reliability varies across users, products, locations and firms. Demand for reliability is differentiated – or “granulated”. So the efficient “level” of reliability is not one level but, rather, a range of levels. So, strictly speaking, efficient levels of reliability is the appropriate term.

Keeping to schedule is often critical, such as for perishable goods or where the goods are an integral part of a complex logistics schedule. In such situations, operators are likely to place a high value on reliability. They will be willing to pay a premium on transport costs to ensure the goods arrive at the destination within a tight timescale albeit, taking their own “insurance” actions (such as buffer time and buffer stock). At the other end of the spectrum, where timeliness is not the key factor, firms will not be prepared to pay a premium for a high level of reliability. International Transport Forum (2010b, p. 41)

In aggregate, the various transport modes provide services with different reliability levels. Figure 25 illustrates the size of different transport markets in the United States and where the markets tend to lie in terms of the price-reliability trade-off (within the domestic market only). Airfreight has high service quality products for a relatively high price.

Figure 25 A typical price-reliability spectrum, with circle size illustrating US traffic volume

Source: International Transport Forum 2010b, p.115

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The report noted that, in principle, network providers need to be responsive to the need for reliability and, in particular, to differential levels of reliability. A key message from the study, consistent with key findings from the Victorian BAHS airfreight study, is:

Opportunities to enhance reliability often lie with the network provider and network users – “low cost” strategies that should be pursued first are often available to both parties. (International Transport Forum 2010b, p.48)

International Transport Forum (2010b, see p.46) also noted there are four principal policy options that can be used to improve the reliability of the transport network: physical expansion and better standard of capacity; better management of capacity; pricing mechanisms to deliver a market for reliability; and information systems intended to mitigate the adverse consequences of unreliability (that is, reduce its costs; for example, these can work to ease and manage the problems associated with delays to schedules).

In Australia, anecdotal evidence (based on ABARES consultations with actual and potential airfreight supply chain participants) suggests that domestic transport costs may be higher than international transport costs in the airfreight supply chain (but this is not always the case; see chapter 8). In an inquiry into airfreight exports of perishable and time sensitive products, it was noted that the export unit value for airfreight exports to Asia in 1994–95 was $20/kg for seafood and $2.20/kg for fruit and vegetables (House of Representatives Standing Committee on Communications, Transport and Microeconomic Reform 1996, see p. 4) and:

Australia is considered by the airline industry as a 'back haul' market with export freight rates set at less than full commercial rates. Export freight rates are sustained by either passenger services or inbound freight rates. For example, DTRD [Department of Transport and Regional Development] advised that freight rates ex-Australia to Tokyo could be as low as $1.32/kg, and to Singapore as low as $0.53/kg. (House of Representatives Standing Committee on Communications, Transport and Microeconomic Reform 1996, p. 6)

Sea freight costs are likely to be significantly lower than airfreight costs on a weight basis. For example, Keogh (2013) indicated sea freight costs for exporting chilled/frozen beef from Melbourne to Shanghai are around $0.20/kg. This is below indicative unit sea freight costs from competing exporting countries to the same destination; for example, $0.32 from Los Angeles to Shanghai, as well as from Santos, Brazil to Shanghai (all estimates are based on quotes for a 40-foot refrigerated container of boxed frozen or chilled beef; see also Goucher 2011 and Keogh 2012). However, from the ABARES consultations, the sea freight supply chain tends to be slower and less reliable than the airfreight supply chain.

Food investment optionsA key issue in the outlook for the food industry is the extent to which Australia can maintain or enhance its competitive advantage in airfreight food exports. As noted in Nguyen at al. (2013), in assessing food investment options, farmers and food processors in Australia need to consider both demand-side and supply-side aspects of the airfreight food supply chain.

Demand-side aspects of airfreight food exports—income is a key determinant of demand for high value food products. People on middle to high incomes may be willing to pay more for the quality attributes of food products compared with lower income groups (all else constant). An important aspect of this market is to provide consumers with a relatively high degree of confidence in food quality. Any significant uncertainty about the quality of a food product will result in a lower price premium (that is, a risk-averse consumer will demand a risk premium in the purchase price to compensate for the risks associated with food quality, all else constant). Product labelling is an option for food producers (farmers and food processors) to provide consumers with information about the quality attributes of a food

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product (see, for example, Hogan and Thorpe 2009; Box 9). Demand for high value, low volume food products is likely to increase significantly over the medium to longer term, particularly in the Asian region where economic growth is projected to be relatively strong (appendix A).

Supply-side aspects of airfreight food exports—future growth in Australia’s airfreight food exports will be influenced by infrastructure investment to support the further development of efficient international supply chains based on air transport (see chapter 6), market access and biosecurity arrangements (see previous section), and investment in domestic high-value food production and processing activities.

Farmers and food processors have a range of investment options to consider that may influence the economic viability of the airfreight supply chain:

investment in information—invest in information about the airfreight export supply chain to underpin profitability assessments of food investment options (reduce risks in identifying and assessing food investment options)

investment in quality attributes—invest in a food product with greater quality attributes that returns a price premium in the end-use market

investment in product development—invest in a new or improved product to gain access to a new export market, or enhance access to an established export market (for example, through a higher price premium)

investment in processing development—invest in a new or improved process to reduce processing costs (possibly resulting in a new food export if the airfreight supply chain switches from uneconomic to economic)

investment in packaging—invest in a new or improved packaging method to reduce transport and handling costs in the airfreight supply chain and/or enhance the reliability of cold chain management (reduce the risk of damage in transit).

Australia’s fisheries industry provides several examples of investment options (domestic and export market, air and sea transport; see also Gallagher 2014a) that are outlined below.

Product labelling and provenance protection technology—the label, Australian Wild Abalone™ (AWA™), provides consumers with quality assurance about the supply chain for wild caught abalone from Australia (Gallagher 2014b); the label incorporates provenance protection technology and is underpinned by a Quality Assurance Code of Practice that meets the food safety requirements of the Australian Government from harvest to export.

Sardines for human consumption—establishing a supply chain for sardines as a food product for human consumption; sardines are widely consumed in Spain, Italy, Portugal, Greece and the Baltic countries, but have been traditionally used in Australia for bait and pet food; product development in Australia started around 2000, and sardines are now converted to a higher-value food product with quality assurance in the supply chain from boat to consumer (Howieson 2013a).

High-value dried seafood products—using a new vacuum drying machine to convert abalone, scallops and dried pearl oyster meat into high-value dried seafood products for sale in Hong Kong, China and Japan (still at the trial stage; Howieson 2013b).

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Vacuum packing—vacuum packaged products can extend shelf life, reduce freight costs and provide information to consumers (allows for labelling); has been applied to fisheries products in internet based shopping (Madigan 2014).

Active and intelligent packaging—product quality is maintained or prolonged with active packaging (specific compounds are added to the packaging system to release or absorb substances) and intelligent packaging (used to detect temperature abuse or loss in packaging integrity) (Turnbull 2014); improved temperature management in the supply chain for fisheries products is also briefly discussed in Howieson (2012) and Boulter (2011).

Clements (2013) argues that supply chain management—achieving efficiency and adding value in the process of moving product from the boat or farm to the consumer—is just as important as managing the harvesting or production stage:

The use of new technologies such as radio frequency ID tags (RFID) are increasingly being used to track and trace product along the length of the supply chain from manufacturer to customer, and there needs to be greater investment by the industry in market intelligence and customer buying behaviours.

Supply chain management must also be more closely connected to a company’s marketing strategy. Identifying the needs from the customer and working back to redesign the supply chain so that it is 100% customer focussed and market driven, will produce the most value- add for the customer, and the most return for the supplier.

Supply chains are often thought of as a cost. But if they are linked to strategy, they provide efficiency, growth, cost savings and improved profitability. (Clements 2013, p. 9)

Broccoli is an example of a food product where supermarket-ready packaging has been a critical aspect of the economic viability of the airfreight supply chain. House of Representatives Standing Committee on Communications, Transport and Microeconomic Reform (1996, p. 15) discussed the importance of packaging for airfreight food exports:

2.72 Designing appropriate packaging is a critical aspect of market intelligence. Packaging should allow the products to be safely and efficiently transported, enable transfer to the point of sale with minimum handling, and also be attractive to customers. Mr Ken Matthews, Executive Director, DPIE, described to the committee one such project:

... the packaging of broccoli in an attractive way and which happens to stack particularly well into transport containers, but which also at the other end can be opened up and is ready immediately to go onto supermarket shelves. They proved to be particularly attractive in Taiwan or Japan, where they just take them out and they are literally the most attractive product of that genus on the shelves. It has been put to me that a significant proportion of their value added was only in the packaging ... (Transcripts, p. 304}

2.73 A similar comment was made in a submission from Mr Brian Roberts, General Manager, DHL International (Aust) Pty Ltd. He stated that exporters should pack and price the goods in Australia so that they could go straight to the shop shelf reducing handling and time at the destination (Sub 57, Submissions p. 720).

2.74 The committee agrees that supermarket-ready packaging is an important aspect of marketing. Although producers may have to invest in market research and/or technology to achieve this, the returns, if other requirements of successful marketing are met, should be able to meet the cost of the investment. Moreover, by being prepared to commit particular lines of products to specific outlets in foreign countries, producers will have demonstrated a commitment to export and the achievement of an export culture.

Chapter 8 provides case studies for selected airfreight food exports from Tasmania.

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Box 9 Product attributes and labelling

Hogan and Thorpe (2009) examined economic issues concerning labelling of food products; this box draws

directly from that study. Product labelling aims to provide consumers with information about credence

attributes of a product—these are attributes of a product which typically may not be reasonably checked by

consumers, even after consumption. As noted by Karl and Orwat (1999) products and product attributes can be

grouped into three categories:

search—product attributes may be checked by searching the product before purchase (for example, by looking at or feeling the product)

experience—product attributes may be checked after the product is consumed or experienced

credence—claims about product attributes may not be reasonably checked by consumers at all, even after consumption.

The food safety and environmental quality attributes of a product are typically in the credence category. For

example, it is typically not possible for consumers to distinguish between production processes that have

different environmental impacts when the final consumer product is the same.

There are three types of product labels, which vary according to the approach used to signal information on

credence attributes to consumers.

Type I labels are criteria based, third-party certification programs—these labels signal to consumers that criteria, which define a minimum quality level, have been met with verification by a reputable independent organisation.

Type II labels are information self-declaration programs.

Type III labels are quantified product information label programs, using preset indices—these labels are report cards that provide more information to consumers on the quality attributes of the product.

Product labelling may provide consumers with information about a credence attribute associated with a

particular stage in the product’s life cycle—stages include production and delivery (including processing,

storage and transport), consumer use and product disposal. For example, organic certification (type I label)

provides consumers with information about quality attributes associated with the production process.

Food miles

Hogan and Thorpe (2009) examined the food miles campaign whereby consumers are encouraged by some

environmental, community and farmer groups to purchase products with lower food miles, mainly to reduce

energy use in transport and, hence, carbon emissions in the food supply chain. The food miles campaign has

been a key issue for the agricultural sector because of its potential to distort international trade outcomes and,

in particular, to reduce market access for Australia’s agricultural exports.

Empirical evidence indicates that food miles is an unreliable indicator of carbon emissions in the food supply

chain. For example, in 2006, a major study on the validity of food miles found that New Zealand is substantially

more energy efficient, and less carbon intensive, than the UK farmers in producing and delivering lamb and

dairy products to the UK market (see Saunders et al. 2006). Importantly, while food miles may have intuitive

appeal among some consumers, the food miles concept results in less informed consumption choices and does

not reflect the carbon emissions embodied in many products.

cont...

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Box 9 Product attributes and labelling

Food miles (cont.)

Proponents of food miles in the United Kingdom have been particularly concerned about the carbon intensity of

air transport and the rapid growth in airfreighted food imports. The practical experience in the United Kingdom

with discouraging consumers from purchasing food products that have been airfreighted from abroad has

highlighted two key issues for proponents of food miles:

the role of international trade in global poverty eradication

the poor reliability of aircraft stickers in indicating airfreighted food products are more carbon intensive than locally produced alternatives.

For example, airfreight exports of green beans and strawberries from Kenya to the United Kingdom serve to

highlight the importance of the UK market for the Kenyan economy and the role of international trade in

facilitating economic development; in addition, carbon emissions from Kenya’s airfreight exports may be lower

compared with the UK produce. Saunders and Hayes (2007, p. v) concluded that when a product’s life cycle of

emissions is considered, ‘the emissions associated with air transport tend to be low. Most of the studies assume

that the importing country could supply the market and reduce or replace imports. For many products this is

unlikely to be the case and even where this may be possible this would be likely to lead to an intensification of

production systems thereby raising energy and emissions intensity’.

As noted earlier, around 80 per cent of the volume of Australia’s airfreight exports are transported in the cargo

holds of passenger aircraft. The main objective of these flights is to move people, not freight; that is, these flights

will occur with or without freight. The addition of freight has a marginal impact on energy costs.

Brand Australia

By international standards, Australia has a strong policy framework (covering, for example, food safety,

biosecurity and environmental standards). The country or state of origin of a food product may be associated

with quality attributes that have the potential to earn a price premium in the end use market. However, a price

premium will not be earned if consumers (domestic or export market) do not have relevant information about

the credence attributes of Australian food produce.

In 2013, the Australian Government commenced a two-year project to deliver a national food brand (Austrade

2013). Austrade has previous experience in brand building (for example, Australia’s education services). The

Brand Australia Global Food Strategy aims to increase Australia’s food exports by building on Australia’s

existing strong credentials in food safety, quality and innovation. Establishing a globally recognised food brand

would provide Australia’s food exporters with a competitive advantage:

target existing, growing and emerging premium markets

achieve higher returns for Australian food producers and businesses

position Australia’s food, services and technology favourably against strong and increasing global competition

build on our reputation as a leader in the production of premium food

The first two phases of the research—desk review (phase 1) and Australian stakeholder consultations (phase 2)

—have been completed (outcome of these phases is given in Austrade 2013). The following two phases of the

research are international market trade interviews (phase 3) and international market consumer surveys

(phase 4). Austrade (2013) indicates the national food brand will be developed, tested and launched in 2014.

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Price premium for food products in the airfreight supply chainThis section provides information on export unit values of food products in Australia’s airfreight supply chain, including an indication of food products and jurisdictions that earn a price premium.

By food productFigure 23 indicated food exports are relatively low-priced products in Australia’s total airfreight supply chain; Figure 26 indicates airfreight food exports tend to be relatively high-priced low-volume food products. In addition to eleven airfreight food products, Figure 26 gives export unit values for Australia’s total exports of 33 food products (sea and air transport) including eleven crop commodities, five meat products, five dairy products (excludes fresh milk) and twelve fisheries products (data are derived from commodity export value and volume data; excludes some processed food products; fruit and vegetables not included for brevity; ABARES 2013a).

Summary information for Australia’s airfreight exports of the eleven food products is provided in Table 22 and Figure 27 (includes value, volume and export unit value, calculated as export value divided by export volume).

Figure 26 Price and volume for Australia's airfreight and total food exports, 2011-12

Note: Crops excludes two outliers: wheat (export unit value=$0.28/kg, volume=23.0 Mt) and barley (export unit value=$0.29/kg, volume=6.6 Mt).Sources: Based on ABARES 2013a and BITRE estimates using ABS cargo data

In 2011–12, the export unit value varied widely between these commodity groups:

Meat products—meat products are a moderate-priced food category in the airfreight supply chain ($8.70/kg, weighted average; Table 22). For Australia’s total exports, the export unit value ranges from $1.20/kg for poultry meat to $4.70/kg for beef and veal, and $6.10/kg for lamb, indicating higher quality meat tends to be exported by airfreight. Sea freight using refrigerated containers is the main transport mode, although airfreight has become more important in recent years (8 per cent of export value, Table 22).

Dairy products—dairy products are also a moderate-priced food category in the airfreight supply chain ($5.40/kg). For total exports, the export unit value mainly ranges from $3.40/kg for skim milk powder to $4.70/kg for butter; casein is a higher-priced dairy product with an export unit value of $11.50/kg. Sea freight using unrefrigerated containers (milk powders) or refrigerated containers (butter, cheese) are the main transport modes;

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0

10

20

30

40

50

60

70

0 1000 2000 3000

Exp

ort u

nit

val

ue,

$/k

g

Volume, kt

Crops

Meat

Dairy

Fisheries

Airfreight food commodities


airfreight has increased in recent years, but is still a minor transport option for this commodity group (2 per cent of export value; biosecurity issues in airfreight exports of dairy products were discussed briefly in, for example, Box 8).

Fisheries products—the export unit value in the airfreight food supply chain is highest for fisheries products ($28/kg). For total exports, the export unit value ranges from $2.80/kg for whiting to $56/kg for rock lobster and $63/kg for abalone, indicating Australia uses the airfreight supply chain to export a range of fisheries products. Airfreight is the most important transport mode (65 per cent of export value), followed by sea freight using refrigerated containers.

Fruit and vegetables—fruit and vegetables tend to be a relatively low-priced food category in the airfreight supply chain ($3.30/kg). Total exports include a large number of commodities such as carrots ($0.70/kg), navel oranges ($1.00/kg), mandarins ($1.40/kg), fresh tomatoes ($3.10/kg), and lettuce ($4.40/kg) (ABARES 2013a). Cherries are an example of a relatively high-priced fruit export ($16.10/kg from Tasmania, see case study 3 in chapter 8). Overall, sea freight using refrigerated containers is the main transport mode, followed by airfreight (8 per cent of export value; the airfreight export share was 24 per cent for unprocessed fruit and vegetables, Table 1).

Crop commodities—the export unit value tends to be low for crop commodities, ranging from $0.30/kg (grain sorghum, lupins, wheat, barley, unprepared oats and cottonseed; rounded to the closest 10 cents) to $1.80/kg (other oilseeds) (based on total exports). Bulk shipping is the main transport option for crop exports, followed by sea freight using unrefrigerated containers (airfreight export share for other food is 0.6 per cent).

Table 22 Value, volume and price of Australia's airfreight food exports, by commodity, 2011-12

CommodityValue Volume Price Airfreight

exportshare

SITCno. Level

Growthrate Level

Growthrate Level

Growthrate

$m % kt % $/kg % %

00 Live animals 131 -3.4 7.5 15.0 17.4 -16.0 11.8

01 Meat products 557 6.2 63.9 6.5 8.7 -0.3 7.8

02 Dairy products 35 2.9 6.5 1.0 5.4 1.8 1.6

03 Fisheries products 646 -1.8 23.3 0.3 27.7 -2.1 64.4

05 Fruit & vegetables 148 -2.3 45.0 -1.8 3.3 -0.6 8.0

Other food

04 Cereals & cereal preparations 4 -10.6 0.9 -2.0 4.4 -8.8 0.04

06 Sugars, sugar preparations & honey 2 -7.0 0.3 -4.1 6.5 -3.0 0.5

07 Coffee, tea, cocoa, spices etc 8 -7.7 0.6 -8.5 13.5 0.9 3.1

08 Feeding stuff for animals 3 4.7 0.6 -6.6 5.3 12.1 0.3

09 Miscellaneous edible products 42 -2.4 2.8 -0.6 15.4 -1.8 4.6

11 Beverages 17 5.6 3.6 12.7 4.6 -6.3 0.8

Total other food 76 -2.2 8.8 1.6 8.7 -3.8 0.6

Total food 1594 0.4 155.1 2.4 10.3 -2.0 5.9

Note: Food commodities are defined as SITC commodities 00-11; excludes re-exports. Growth rate is the average annual growth rate between 2005-06 and 2011-12 (in real terms for value and price). Price is export unit value, calculated as export value divided by export volume for a food commodity (weighted average for other food and total food). Airfreight export share is airfreight export value as a percentage of the total export value of the same food product. SITC is the Standard International Trade Classification.Sources: Based on BITRE estimates using ABS cargo data, and ABS 2013a,b

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Figure 27 Value, volume and price for Australia's airfreight food exports, by commodity, 2011-12

Note: Food commodities are defined as SITC commodities 00-11; excludes re-exports. Price is export unit value, calculated as export value divided by export volume for a food commodity. SITC is the Standard International Trade Classification.Source: Based on BITRE estimates using ABS cargo data

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a) Value

b) Volume

c) Price

0 10 20 30

BeveragesMiscellaneous edible products

Feeding stuff for animalsCoffee, tea, cocoa, spices etc

Sugars, sugar preparations & honey Cereals & cereal preparations

Fruit & vegetablesFisheries products


Live animals

$/kg

0 100 200 300 400 500 600 700






Live animals

$m

0 10 20 30 40 50 60 70






Live animals

kt


Overall, the two most important food categories in the airfreight supply chain in 2011–12 (based on value, volume and export unit value, respectively) were: fisheries products and meat products (based on export value, an indicator of economic significance); meat products, and fruit and vegetables (based on export volume, an indicator of demand for transport infrastructure services); and fisheries products and live animals (based on export unit value; the export unit value for live animals should be interpreted with caution because it includes wide variation in animals exported; for example, day-old chicks and goats). Dairy products is the only food category in the airfreight export supply chain that recorded growth in value, volume and export unit value between 2005–06 and 2011–12 (Table 22).

By jurisdictionIn 2011–12, the export unit value for Australia’s airfreight food exports was $10/kg (weighted average). The export unit value in the airfreight supply chain was highest in Tasmania ($16/kg), Western Australia ($16/kg) and South Australia ($14/kg) on a state-of-origin basis, and Western Australia ($16/kg) and South Australia ($15/kg) on a state-of-departure basis (Table 23, Figure 28a; value and volume data are in Table 5 and Figure 8).

The export unit value in Victoria’s airfreight food supply chain is higher on a state-of-departure basis ($10/kg) than on a state-of-origin basis ($8/kg); this largely reflects net movements of higher priced fisheries products from Tasmania to Victoria for export by airfreight (see tables B.1 and B.5). By contrast, the export unit value in the airfreight food supply chain for New South Wales is lower on a state-of-departure basis ($8/kg) than on a state-of-origin basis ($10/kg); there are significant net movements of fruit and vegetables from other states to New South Wales for export by airfreight (see Table B2).

The export unit value for a food category may vary between jurisdictions on a state-of-origin basis. An export unit value above the national export unit value (weighted average) for the same food product may indicate higher quality food that attracts a higher price premium (it may also indicate a different mix of food items within the food category). In 2011–12, food products sourced from a jurisdiction that received at least a 25 per cent price premium include:

Victoria—fisheries products (export unit value was $42/kg in 2011–12, a 53 per cent price premium over Australia’s export unit value for fisheries products), and beverages ($17/kg, 257 per cent)

Queensland—meat products ($13/kg, 51 per cent), and beverages ($9/kg, 95 per cent)

New South Wales—live animals ($27/kg, 58 per cent), and miscellaneous edible products ($23/kg, 51 per cent)

South Australia—meat products ($13/kg, 47 per cent), fisheries products ($35/kg, 26 per cent), cereals and cereal preparations ($9/kg, 102 per cent), feeding stuff for animals (excludes unmilled cereals; $33/kg, 532 per cent), and miscellaneous edible products ($45/kg, 194 per cent)

Tasmania—live animals ($39/kg, 122 per cent), dairy products ($8/kg, 52 per cent), fruit and vegetables ($12/kg, 270 per cent), sugars, sugar preparations and honey ($8/kg, 28 per cent), coffee, tea, cocoa, spices, and manufactures thereof ($17/kg, 29 per cent), and beverages ($7/kg, 52 per cent)

Western Australia—fisheries products ($42/kg, 50 per cent), coffee, tea, cocoa, spices, and manufactures thereof ($16/kg, 150 per cent), and beverages ($12/kg, 154 per cent).

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Table 23 Export unit values in Australia's airfreight supply chain, by jurisdiction, 2011-12

Jurisdiction

State of origin State of departure

2011–12Growth

rate 2011–12Growth

rate

$/kg % $/kg %

Eastern states

Victoria 7.8 -2.3 10.4 -3.2

Queensland 8.9 0.4 8.9 -0.2

New South Wales 10.3 -2.6 8.0 -5.7

South Australia 13.9 -3.4 15.1 0.0

Tasmania 16.0 -11.0 - -

Other states

Western Australia 16.0 3.8 15.8 3.8

Northern Territory 3.8 -10.7 11.0 16.8

Australia 10.3 -2.0 10.3 -2.0

Note: Food exports are given by SITC commodities 00-11, excluding re-exports. Weighted average export unit value. Growth rate is average annual growth rate between 2005-06 and 2011-12 (in real terms). New South Wales excludes the ACT.Sources: Based on BITRE estimates using ABS cargo data, and ABS 2013a

It has been beyond the scope of this report to examine destination markets for Australia’s airfreight food exports in any detail (see Figure 8). Using aggregate export value and volume data, it appears that high income regions, Europe and North America, tend to import higher priced food products from Australia overall compared with other regions, particularly the Pacific and Middle East (Figure 28b; see also appendix A).

The case studies presented in chapter 8 provide further information on the airfreight supply chain for selected food exports, including destination markets.

Figure 28 Australia's airfreight food supply chain in 2011-12: export unit value

Note: Based on SITC commodities 00-11 and excluding re-exports. NSW excludes ACT; weighted average export unit value. Data for destination markets exclude beverages (SITC 11) and include re-exports; export unit value is calculated as export value divided by export volume, and should be regarded as indicative only.Source: Based on BITRE estimates using ABS cargo data

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a) Supply side b) Demand side: destination markets

0 5 10 15 20

Northern Territory

Tasmania

South Australia

New South Wales

Western Australia

Queensland

Victoria

$/kg


0 5 10 15 20

Other

North America

Pacific

Europe

Middle East

Asia

$/kg


8 Case studies from TasmaniaAgriculture, fisheries and forestry is a relatively important sector in the Tasmanian economy. In 2011-12, the sector accounted for 8 per cent of Tasmania’s total output, compared with the national output share of 2 per cent (Tasmanian Government Department of Treasury and Finance 2013). In 2011-12, the gross value of Tasmania’s agriculture and fisheries industries was $1.2 billion and $0.7 billion, respectively, (3 and 30 per cent, respectively, of the Australian value) (ABARES 2013b; ABS 2013a).

Tasmania exports a significant amount of food to overseas markets and airfreight is an important export supply chain option. In 2011–12, Tasmania’s food exports were $519 million, with fish and shellfish, meat and dairy products being the major goods exported (DAFF 2013a); around $160 million was exported via airfreight, representing around 31 per cent of exports (substantially higher than the national airfreight export share of 5 per cent).

An overview of Tasmania’s airfreight supply chain between 2005-06 and 2011-12 is provided in appendix B. Fisheries products are Tasmania’s major airfreight food exports, accounting for 88 per cent of total airfreight exports from this jurisdiction (Table B4). However, there has been strong growth in the value of airfreight exports of fruit and vegetables, and meat products(33 and 10 per cent a year, respectively, on average between 2005–06 and 2011–12).

This chapter presents experiences of Tasmanian producers and processors exporting via airfreight. It summarises the Tasmanian food supply chain (with a focus on airfreight exports), providing details on the factors influencing the ability to transport goods from Tasmania to the mainland and then exporting. In addition, individual experiences of three companies (one each for abalone, sheep meat and cherry industries) are presented.

Tasmania’s food supply chainTasmanian food producers and processors have three main options where their goods can be consumed. Either the goods are consumed in Tasmania, on the mainland or overseas (Figure 29). The Tasmanian market is relatively small compared with that of the mainland and overseas. As such, the mainland and overseas markets are important to Tasmania food producers and processors. In addition, Tasmania has only one monthly international containerised shipping line service and no international airline services Tasmania. This means that Tasmanian producers have limited opportunities to export food directly, differentiating this supply chain from other Australian states—Tasmanian food exports have to first cross Bass Strait via either sea freight or airfreight (which can be a significant cost).

For the most part, Tasmania’s food goods destined for either the mainland or export markets transfer through Melbourne (with a small amount of food airfreighted to Sydney). For the case of sea freight, goods are freighted between one of Tasmania’s major ports (either Burnie or Devonport) to the Port of Melbourne; while for the case of airfreight, goods are freighted between one of Tasmania’s major domestic airports (either Launceston or Hobart) and Melbourne Airport.

Goods destined for the mainland market are then transferred to distribution centres and trucked intra-state or inter-state. Goods destined for export markets are transferred to either an international ship or aircraft. This can occur via transhipment (goods transferred directly from one ship or aircraft to another within the confines of a port or airport) at the Port of Melbourne or Melbourne Airport and subsequently sea freighted and airfreighted. Otherwise goods that are

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sea freighted from Tasmania are repackaged and transferred to Melbourne Airport and airfreighted. It is worthwhile noting that it is highly unlikely that food airfreighted from Tasmania to Melbourne would then be sea freighted to export markets.

Figure 29 Simplified Tasmanian food supply chain

Producers and

Processors

Export market

Tasmanian sea port

Mainland market

Port of Melbourne

Tasmanian market

Tasmanian airport

Melbourne Airport

In evaluating Tasmania’s food supply chain in relation to exporting via airfreight, it is useful to divide it into two parts:

the domestic transfer of Tasmanian goods to the mainland either via sea freight or airfreight

the international transfer of Tasmanian goods from a mainland gateway airport to export markets via airfreight.

Domestic transfer: Tasmania to MelbourneAs mentioned, Tasmanian food producers and processors transport goods across Bass Strait via either domestic sea freight or airfreight. The cost of air freighting is much more than sea freighting; the choice of route is influenced by how perishable the goods are, how time sensitive the transfers are, and which is more profitable (given the potential revenues and known costs).

Sea freight to the Port of MelbourneTasmania is reliant on sea freight, with 99 per cent of its total freight task (both food and non-food) transported via sea freight (Aurecon 2013b). In 2011–12, around 12 900 thousand tonnes of freight was sent to and from Tasmania (Table 24). Out of this total freight volume 66 per cent was outbound, and 33 per cent of this outbound freight was non-bulk (that is, goods packed into containers or trucks). Importantly, food goods destined for export via airfreight from Melbourne and sea freighted across Bass Strait are part of this non-bulk outbound freight. However, the precise volume is unknown and would be difficult to calculate.

Tasports, a state owned enterprise, owns and manages all of Tasmania’s 12 seaports—including the four key seaports of Burnie, Devonport, Bell Bay and Hobart. While all four key ports are capable of handling non-bulk freight (or containers), Burnie and Devonport are the two main ports accounting for more than 98 per cent of Tasmania's outbound TEU (twenty foot equivalent units) movements and 63 per cent of Tasmania’s outbound tonnage (including both bulk and non-bulk) (Tasports 2012). While Bell Bay accounts for more than 1 per cent of Tasmania’s outbound TEU movements, it is the only port currently serviced by an international containerised shipping line (Swire Shipping 2013).

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Table 24 Tasmanian freight statistics, 2011–12

Outbound Inbound TotalUnit Export Coastal Import Coastal

Tonnage Non-bulk kt 840 1 957 213 1 890 4 900

% 17 40 4 39 100

Bulk kt 3 808 1 933 414 1 896 8 051

% 47 24 5 24 100

Total kt 4 648 3 890 627 3 786 12 952

% 36 30 5 29 100

TEUs Non-bulk 000's 76 165 12 125 378

% 20 44 3 33 100

Note: Excludes 752 411 tonnes of empty containers (94 229 TEUs in total) and packaging. Coastal movements

exclude exports, imports, intra-state and Australian Antarctic Territory freight.

Source: BITRE 2013b

Tasmania's outbound container freight peaks between February and May following the harvest of major agricultural commodities. Agricultural and retail products are major containerised goods sea freighted from Tasmania, comprising around 22 and 20 per cent, respectively, of the total outbound containerised freight in 2011–12 (Aurecon 2013a). However, empty containers account for the largest share, around 33 per cent. In part this reflects difficulties faced by Tasmanian producers and processors in accessing appropriate food grade containers.

Toll-ANL, Searoad and TT-line all provide overnight containerised shipping services across Bass Strait between Tasmania and Melbourne (Table 25). All three are roll-on roll-off services which enables trucks hauling containers to be driven on-board (in addition, TT-line provides passenger services) and all operate at least six days a week (TT-line operates seven days a week). Toll-ANL, departing Burnie, is the largest provider of containerised shipping with a market share of 54 per cent. The transit time, depending on the shipping line, varies between 10.5 hours (for TT-line) and 15 hours (Searoad), excluding the additional time needed for loading and unloading.

Table 25 Bass Strait shipping lines

Category Toll-ANL Searoad TT-line

Tasmanian Port Burnie Devonport Devonport

Vessel MV Tasmanian Achiever

MV Victorian Reliance

MV Searoad Tamar

MV Searoad Mersey

Spirit of Tasmania I

Spirit of Tasmania II

Frequency Daily service,

six days a week

Daily service,

six days a week

Daily service,

seven days a week

Capacity (one-way) 500 TEU plus general

freight

180 to 260 TEU plus

trailers

175 TEU

Market share (TEU %) 54 25 21

Note: All vessels arrive into Melbourne the next day.

Sources: Aurecon 2013b, PoMC 2014, Tasports 2014a,b

While all three shipping lines provide overnight services from Tasmania to the mainland, it is estimated that only 15 per cent of current users need such overnight services (Aurecon 2013a). Hence, users who derive no additional value from an overnight service, compared with a less frequent service, need to pay the higher cost for this level of service (Aurecon 2013a).

Sea freight costs faced by producers and processors shipping across Bass Strait are determined by ‘the size of the shipment, variability of user demand and type of container required’

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(Productivity Commission 2014). As such, it tends to be that those with low volumes, highly seasonal requirements, or time sensitive products which will pay more for a container than larger volume and less seasonal shippers (FLCT 2013). For example, prices for those seasonally shipping fresh agricultural product at relative low volumes and requiring reefer (refrigerated) containers, like cherries, can be in excess of $1400 a TEU (Table 26).

Table 26 Indicative Bass Strait shipping costs, by container and volume

Container type High volume Medium volume Low volume

20-foot container $600 to $800 $800 to $1000 $1000 to $1200

20-foot reefer container (including

refrigerated trailers)

Less than $1000 $1000 to $1400 Greater than $1400

Note: These are 'blue water' rates from port to port and do not include additional land transport costs.Sources: Aurecon 2013b, FLCT 2013

The relative size of shipping costs to the value of the transported container varies depending on the goods transported. As such, it is worthwhile considering the following hypothetical example for skim milk powder (a significant export for the Tasmanian dairy industry). Typically, a20-foot container holds 700 bags (each bag weighing 25 kilograms) of skim milk powder, equivalent to 17.5 tonnes. In 2011–12, the average price of skim milk powder was $3355 a tonne, leading to a derived consignment value of almost $59 000. Hence, for this hypothetical example, the shipping cost represents between one and two per cent of the value of the goods transported.

Airfreight to Melbourne AirportHobart and Launceston are Tasmania's two major domestic airports and handle all the state’s airfreight. Around 17 000 tonnes of product are air freighted annually from Tasmania to the mainland, however this represents only 1 per cent of Tasmania’s total freight task by tonnage (Aurecon 2013a). Of Tasmania's goods airfreighted to the mainland, around 85 per cent, by tonnage, are transhipped and exported (Aurecon 2013a).

There is a greater volume of inbound airfreight to Tasmania than there is outbound, with full capacity on inbound flights and spare capacity on outbound flights. However, there is a distinct seasonality for this capacity on outbound flights, with full capacity reached around Christmas and Easter (Aurecon 2013a).

Australian Air Express and Toll are the two major airfreight providers in Tasmania. Airfreight from Tasmania to the mainland is transported on passenger and freighter aircraft. Australian Air Express manages freight on Qantas and Jetstar passenger flights, while Toll manages it on Virgin Australia passenger flights.

Melbourne was the main destination and origin for passenger aircraft for both Hobart and Launceston (Table 27), accounting for 56 and 81 per cent of flights, respectively, in 2011–12 (BITRE 2012a). The aircraft operated across Bass Strait between Melbourne and Hobart or Launceston essentially determines the space available for passenger luggage and freight. Box 10 summarises key details of selected passenger (as well as freighter) aircraft operating across Bass Strait (as well as distances between Melbourne and major domestic destinations). It should be noted that both luggage and freight transported on flights across Bass Strait are loaded into the aircraft’s bulkhold.

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Table 27 Domestic airline trips connecting Hobart and Launceston airports, 2011–12

Airport Hobart Launceston Australia

Melbourne 7 996 7 380 150 714

Sydney 3 644 1 619 158 784

Other 2 645 71 446 156

Total 14 285 9 070 755 654

Sources: BITRE 2012a, 2014b

The freight capacity of aircraft operating across Bass Strait varies. However, the tonnage available can be as little as one tonne (in the case of an Airbus A320-200 operated by Jetstar). In addition, passenger luggage takes priority over freight on all passenger flights. As such, if there is more passenger luggage than expected, freight which had been scheduled to be on the aircraft would be removed. Recently, Qantas announced that QantasLink, its regional subsidiary airline, would be taking over its routes between Hobart and Melbourne (Denholm 2014). It was reported that a Boeing 717-200, which has a freight capacity of 1.2 tonnes, will replace the Boeing 737-800 which currently operated on this route, which has a freight capacity of3.6 tonnes.

In addition to passenger aircraft, Australian Air Express also operates daily scheduled freighter services from Hobart to Melbourne stopping at Launceston. These routes are serviced by a Boeing 737-300F (Freighter) and BAe 146-300, which have a freight capacity of 17.3 tonnes and 10.5 tonnes respectively (Table 28).

International transfer: Melbourne Airport to export marketsTasmania's two main airports, Hobart and Launceston, are not serviced by international flights. The closest international airport is Melbourne Airport and is the major airport for Tasmanian goods exported via airfreight.

In 2011–12, Melbourne Airport handled around 34 600 outbound flights, accommodating 6.2 million passengers (BITRE 2012b). Accounting for 21 per cent of Australia’s outbound international flights and 22 per cent of outbound passengers, it is Australia's second largest airport after Sydney. However, unlike Sydney Airport, Melbourne Airport has no aircraft curfews, allowing aircraft to operate 24 hours a day (Melbourne Airport n.d.).

With its curfew free status, Melbourne Airport handled 233 thousand tonnes of international freight in 2011–12 (BITRE 2012b). Accounting for 27 per cent of Australia's international freight, it is ranked Australia's largest freight airport and handles goods from in Victoria, southern New South Wales, South Australia and Tasmania (Victorian Government 2013). The current operators of Melbourne Airport‘s five cargo terminals are Qantas, DHL, Menzies, Toll Dnata and Australia Post (Melbourne Airport n.d.).

Around 80 per cent of airfreight exports, by volume, are transported on-board passenger aircraft (Pakula 2009). Therefore, the ability to export product via airfreight is in part dependent on airline passenger flight’s scheduling. In 2011–12, the top five destinations for passenger flights from Melbourne were New Zealand, the United Arab Emirates, China, the United States and Singapore (Figure 30a). While the top five carriers operating flights out of Melbourne were Qantas, Emirates, Jetstar, Air New Zealand and Virgin Australia (Figure 30b).

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Box 10 Trans-Bass Strait aircraft specifications and route distances

Domestic aircraft servicing the routes between Melbourne and Hobart or Launceston are relatively small

compared with those operating internationally (Box 11). The number of passenger, freight capacity and range

varies between aircrafts (Table 28).

Table 28 Domestic airline trips connecting Hobart and Launceston airports, 2011–12

Aircraft

Operating

carrier

Total

passengers a

Freight capacity a

(full passenger load)

Range a

(full payload)

no. t m3 km

Airbus 320-200 Jetstar 180 1.0 3.6 4 167

BAe 146-300 QT (Freighter) AaE b 0 10.5 70.0 1 927

Boeing 717-200 QantasLink 125 3.3 c - 2 408

Boeing 737-300 (Freighter) AaE b 0 17.3 132.9 4 175

Boeing 737-800 Qantas 168 3.6 28.0 4 800

Embraer 190 Virgin Australia 98 1.5 5.0 4 260

Note: a Data are indicative and subject to variability depending on aircraft configurations, number of passengers and routes. b AaE is Australian air Express and is a joint venture between Qantas and Australia Post. c Derived assuming each passenger checks-in 23 kilograms (2.9 tonnes in total) and the total cargo capacity is 6.2 tonnes (Qantas n.d.-f).Sources: BAE Systems 2009, Qantas 2012a, n.d.-a,d,f,g, Jetstar 2013, Airliners.net 2014, Planespotters 2014, Finnair n.d., Virgin Australia n.d.

The distance between Melbourne and Hobart or Launceston is relatively small compared with most major

routes among Australia’s mainland capital cities (Table 29).

Table 29 Distance between Hobart, Launceston, Melbourne, Sydney, Brisbane, Adelaide and Canberra airports

Hobart Launcesto

n

Melbourn

e

Sydney Brisban

e

Adelaid

e

Canberr

a

Hobart -

Launcesto

n

145 -

Melbourne 613 477 -

Sydney 1 038 913 707 -

Brisbane 1 789 1 662 1 380 752 -

Adelaide 1 171 1 055 643 1 167 1 621 -

Canberra 848 714 470 236 954 972 -

Note: These distances are calculated using the Great Circle Distance method (Geoscience A 2013) and is the

minimum distance between two airports.

Source: Swartz 2014

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Figure 30 Melbourne Airport flight departures by destination country and carrier, 2011–12a) Destination country b) Carrier

New Zealand23%

United Arab Emirates

11%

China9%United States

9%Singapore

7%

United Kingdom7%

Other34%

Qantas18%

Emirates11%

Jetstar9%

Air New Zealand

8%Virgin Australia

7%

Singapore Airlines

6%

Other41%

Source: BITRE 2012b

In regards to the routes and carriers of flights from Melbourne, it is important to note that:

some routes have a number of carriers operating—for example, Qantas, Emirates, Jetstar, Air New Zealand and Virgin Australia all fly to New Zealand

some routes will be exclusively serviced by a single carrier—for example, Vietnam Airlines into Vietnam

some long haul routes encompass stopovers at international hubs—for example, flights to the United Kingdom would stopover at Singapore or the United Arab Emirates

some routes to international hubs offer the ability to connect with flights to other destinations—for example, flights to Hong Kong on Cathay Pacific provide connections to China, Vietnam and India.

In addition, the aircraft operated also determines cargo space available for freight. Box 11 summarises key details of selected passenger aircraft operating internationally from Melbourne (as well as distances between Melbourne and major destinations). Importantly, passenger luggage takes first priority on all passenger aircraft. Hence, the volume and mass available for freight can reduce at short notice if passenger luggage is unexpectedly high. For example, around 30 per cent of the passenger flights departing Melbourne are a type of Airbus A330 (BITRE 2012b). An Airbus A330-300 operated by Qantas has a minimum freight capacity of 80 m3 and mass of 15 tonnes (Table 30). In addition, it has a range (with a full payload) of 7000 kilometres, allowing if to travel between Melbourne and Singapore directly.

Dedicated freighter aircraft also operate out of Melbourne Airport and carry around 20 per cent of freight, by volume. In 2011–12, there were 611 freighter flights, representing around 2 per cent of total flights (BITRE 2012b). Around 60 per cent of these flights are connecting with Asian destinations and 40 per cent to destinations in New Zealand and the Pacific (Victorian Government 2013). Malaysia Airlines, Cathay Pacific, Qantas and Singapore Airlines are the major international airlines operating freighter aircraft (Melbourne Airport n.d.).

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Box 11 International aircraft details departing Melbourne and route distances

International aircraft servicing Melbourne range from relatively small (like a Boeing 737-800) to large (like an

Airbus A380-800) (Table 30). While the total number of passengers, freight capacity and range of these aircraft

vary considerably, these same factors for an aircraft also vary depending on the operating carrier and the

combination of passengers. That is, the number of classes (first, business, premium economy and economy)

and the number of seats allocated to each class.

Table 30 Total passengers, freight capacity and range of major international aircraft departing Melbourne

Aircraft

Operating

carrier

Total

passengers a

Freight capacity a

(full passenger load)

Range a

(full payload)

no. t m3 km

Airbus A320-200 Jetstar 180 1.0 3.6 4 167

Airbus A330-200 Qantas 235 14.1 61.8 8 500

Airbus A330-300 Qantas 297 15.0 80.2 7 000

Airbus A380-800 Qantas 484 20.0 68.0 14 800

Boeing 737-800 Qantas 168 3.6 28.0 4 800

Boeing 747-400 Qantas 371 20.0 74.3 12 700

Boeing 747-400F (Freighter) Atlas Air b 0 110.0 765.7 13 450

Boeing 767-300F (Freighter) EFA c 0 56.0 438.5 6 025

Boeing 777-300 ER Emirates 442 23.0 132.0 14 594

Note: a Data are indicative and subject to variability depending on configurations, number passengers and routes.

b Atlas Air operates freighter aircraft for Qantas between Australia and the United States. c EFA is Express Freighters

Australia and is a wholly owned subsidiary of Qantas (Qantas n.d.-b).

Sources: Qantas 2012a, Jetstar 2013, Emirates 2014, Emirates Skycargo 2014, Qantas n.d.-c,d,e,g

Table 31 Distance between Melbourne Airport and key international airports

City Country Airport code Distance

km

Auckland New Zealand AKL 2 644

Nandi Fiji NAN 3 867

Denpasar Indonesia DPS 4 376

Singapore Singapore SIN 6 025

Bangkok Thailand BKK 7 316

Hong Kong Hong Kong Special Administrative

Region

HKG 7 387

Hanoi Vietnam HAN 7 694

Tokyo Japan HND 8 124

Dubai United Arab Emirates DXB 11 637

Los Angeles United States LAX 12 748

London United Kingdom LHR 16 904

Note: These distances are calculated using the Great Circle Distance method (Geoscience Australia 2013) and is

the minimum distances between Melbourne Airport and the respective international airports.

Source: Swartz 2014

cont...

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Box 11 International aircraft details departing Melbourne and route distances

In particular, it is useful to consider the ranges of different aircraft and the routes they operate (Map 1 and

Table 31). Generally, smaller aircraft with lower ranges service nearer destinations as direct routes. For

example, an Airbus A320-200 operated by Jetstar (with a range of 4167 kilometres) from Melbourne services

Auckland (2644 kilometres) and Nandi (3867 kilometres). While larger aircraft with longer ranges do not

service nearer destinations but those further away. For example, an Airbus A380-800 (with a range of

14 800 kilometres) operated by Qantas from Melbourne services Dubai (11 637 kilometres) and Los Angeles

(12 748 kilometres). It is interesting to note that neither an Airbus A380-800 nor Boeing 777-300 ER (with a

range of 14 594 kilometres) can fly directly from Melbourne to London (16 904 kilometres).

Map 1 Direct routes between Melbourne Airport and key international airports

Source: Swartz 2014

Similar to passenger aircraft, freighter aircraft scheduling and the aircraft operated determine where airfreight can be exported to and the volume. Box 11 also summarises key details on freighter aircraft operating from Melbourne. The Boeing 747-400 Freighter was the main freight aircraft operating out of Melbourne, accounting for 98 per cent of the freight flights (BITRE 2012b). A Boeing 747-400 Freighter operated by Qantas has a freight capacity of around 766 m3 and a maximum payload mass of 110 tonnes (Qantas 2012a). In addition, it has a range (with a full payload) of 13 350 kilometres, allowing it to fly between Melbourne and Los Angeles directly. Luggage and freight on international aircraft are packaged into containers or onto pallets known as unit load devices. These unit load devices are akin to containers for sea freight and allow cargo to be loaded quickly and easily. The types of unit load devices luggage and freight can be packed into depends on the volume and weight restrictions of the devices themselves as well as which devices are compatible with which aircraft and carrier. Box 12 summaries the volume and weight restrictions of unit load devices used by Qantas on their aircraft.

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Box 12 Unit Load Devices used by Qantas Airways

Unit load devices are the main means luggage and freight are packaged and loaded onto aircraft. These devices

are akin to shipping containers for sea freight and enable luggage and freight to be loaded onto an aircraft

relatively quickly and easily. There are a variety of unit load devices currently available for packing luggage and

freight; the dimensions, mass and aircraft compatibility for the used by Qantas are presented in Table 32 (for

containers) and Table 33 (for pallets). Although the unit load device used depends on the capacity and mass

limits of the device as well as whether the unit load device is compatible with the aircraft and its carrier.

Table 32 Size, volume, weight and compatible aircraft of container type unit load devices

Unit AAF AAP AAU AAX AKE AKH ALFAM

PDQF

Length m 2.2 2.2 2.2 2.2 1.5 1.5 1.5 2.4 1.5

Width m 3.2 3.2 3.2 3.2 1.6 1.6 3.2 3.2 2.4

Height m 1.6 1.6 1.6 2.4 1.6 1.1 1.6 1.6 1.6

Internal volume m3 13.0 10.3 14.3 13.5 4.5 3.7 8.9 14.3 7.3

Maximum net weight t 4.3 4.4 4.4 - 1.5 0.9 3.0 4.8 2.3

Main or lower deck lower both lower main lower lower lower both lower

Compatible aircraft:

Boeing 747 X X X X X XBoeing 747 FreighterBoeing 767 X X X XBoeing 767 Freighter

X X X X X

Airbus A320 X

Airbus A330 X X X X X

Airbus A380 X X X X X

Source: Qantas 2012b

Table 33 Size, volume, weight and compatible aircraft of pallet type unit load devices

Unit PAG PEB PGA PMC PRA

Length m 2.2 1.3 2.4 2.4 2.4

Width m 3.2 2.2 6.1 3.2 5.0

Maximum net weight t 4.5 2.5 5.5 5.0 6.4

Main or lower deck both main main both main

Compatible aircraft:

Boeing 747 X X

Boeing 747F X X X X X

Boeing 767 X X

Boeing 767F X X X

Airbus A320

Airbus A330 X X

Airbus A380 X X

Source: Swartz 2014

cont...

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Box 12 Unit Load Devices used by Qantas Airways

The International Air Transport Association classifies each type of unit load device with a three letter code. The

first of these letters refers to the type of device: generally whether it is a container (A) or pallet (P). The second

letter refers to the base dimension of the device—for instance, ‘A’ means that the device has a dimension of

2.2 metres by 3.2 metres. Finally, the three letter refers to other technical information concerning the device—

for instance, whether the container has forklift slots (Aussie Freight n.d.).

It is important to note that of the unit load devices compatible with an aircraft, there are a large number of

possible combinations which can be used (although this is limited by the volume and weight restriction of the

aircraft themselves). For example, a typical combination of unit load devices for an Airbus A330-300 is six AKEs,

one PAG and bulkhold space (Qantas 2012a). Whereas for a Boeing 747-400F (Freighter) operated by Qantas

can account for 31 PMCs, nine PAGs, two AKEs and two PEBs (Qantas 2012a).

Case study 1: Seafood products—abaloneIn 2011–12, seafood products accounted for 88 per cent of the value of Tasmania's exports via airfreight, having grown at an average rate of 8 per cent a year since 2005–06. In particular, the abalone industry is one of the major Tasmania seafood industries using airfreight, especially for live abalone to Asian markets. Although Tasmanian abalone contributed only 12 per cent to the value of Tasmania's fishery production in 2011–12 (ABARES 2013d), it accounts for around 25 per cent of global production (TSIC 2011). Live abalone exported via airfreight is perishable and is highly time sensitive. For this reason, all live abalone exported from Australia via airfreight are domestically airfreighted to Melbourne.

This section outlines Tasmania's recent abalone production and exports as well as a summarising the airfreight supply chain and experiences of Tasmanian Seafoods.

Tasmanian production and exportsThe blacklip (Haliotis rubar) and the greenlip (Haliotis laevugata) abalone are the two types of abalone harvested in Tasmania. While blacklip abalones are found around all of Tasmania, the greenlip are concentrated around the Bass Strait islands. Both types of abalones are located on reefs in water depths between 5 and thirty metres and are harvested manually by divers (Tasmanian Government DPIWE 2001). Harvesting in the fishery is managed through setting total allowable commercial catches across a number of zones around Tasmania.

In 2011–12, around 2500 tonnes of abalone was harvested in Tasmania, with a production value of $87 million and accounting for around 50 per cent of Australia’s harvest (Figure 31). Since 2005–06, the quantity harvested has remained relatively stable, decreasing by an average annual rate of 0.4 per cent. However, over this same period, production value decreased at an average annual rate of 6.2 per cent following the unit value falling from $50 a kilogram in 2005–06 to $35 a kilogram in 2011–12.

Abalone are exported live, chilled, frozen or canned (Australian Wild Abalone n.d.). In 2011–12, Australia exported $197 million of abalone (Figure 32); decreasing at an average rate of 3.6 per cent a year since 2005–06. Tasmania has been the major abalone exporter; accounting for 45 per cent (or $88 million) of the value Australia’s abalone in 2011–12. Live, fresh or chilled abalones were the main Tasmanian products exported (accounting for 87 per cent of export value) and Hong Kong was the main destination (accounting for around 85 per cent of export value). Around 95 per cent of Australia’s live, fresh or chilled export value to Hong Kong

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originated from Tasmania. Over this period, Tasmanian abalone’s export unit value decreased from $79 a kilogram to $63 a kilogram, an average decline of 3.7 per cent a year. Interestingly in 2011–12 Tasmanian abalone’s export unit value was $28 a kilogram higher (or more than 80 per cent) than the production unit value. This difference captures the additional cost for exporting associated with processing, packaging and transport.

Figure 31 Abalone production by state and Tasmanian price, 2005-06 to 2011-12

$/kg

20

40

60

$m

100

200

300

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Tas. NSWVic. SAWA Tas. unit value

Note: In 2011-12 prices.Sources: ABARES 2013d, ABS 2013a (and previous issues)

Figure 32 Abalone exports by state of production and Tasmanian price, 2005-06 to 2011-12

$/kg

25

50

75

100

$m

100

200

300

400

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Tas. NSW Vic.Qld SA WATas. unit value

Note: In 2011-12 prices.Sources: ABS 2014b, 2013a

Seasonality is an important feature of the Tasmanian abalone industry. During Chinese Lunar New Year celebrations, taking place between late January and mid February, abalone is served as part of traditional feasts and is given as gifts in Hong Kong, China and other Asian export markets (Carrigan 2013, Poole 2013). In the lead up to Chinese Lunar New Year, abalone harvesting, processing and exporting dramatically increases (Poole 2013). So much so that in

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2011–12, the value of Tasmanian exports over the summer months were 69 per cent greater than in the winter months (ABS 2014b).

Tasmanian Seafoods' airfreight supply chainTasmanian Seafoods is an accredited abalone processor and supplier. Based at Margate, around 40 kilometres south-west of Hobart Airport, Tasmanian Seafoods have been harvesting and exporting abalone since 1970 (Tasmanian Seafoods n.d.). Exports include both live and canned abalone, with Hong Kong the major market for live product while Singapore and Japan are the major markets for canned product. In 2011, Tasmanian Seafoods harvested and exported 140 tonnes of abalone, of which around half was exported live and the other half was exported canned. Tasmanian Seafoods exports live abalone to two customers in Hong Kong.

Tasmanian Seafoods relies on airfreight to export their live product. Once live abalone are removed from their holding tanks and packaged, they need to be in holding tanks in the export market within 29 hours. If the abalone are out of their tanks longer than this, there is a high probability of significant mortality which is an additional costs as it is claimed back by the customer.

The freight forwarding and customs brokering arrangements for Tasmanian Seafoods are managed by DHL. A brief summary of the logistics for freighting to Hong Kong is as follows:

live abalone are removed from their holding tanks and packaged into 10 or 12 kilogram polystyrene boxes (along with ice packs) more than three hours before the flight from Hobart to Melbourne departs

the consignment is then trucked from Margate to Hobart Airport, taking between 45 minutes and one hour arriving two hours before departure time

up to two hours are required to fly from Hobart to Melbourne, once at Melbourne the consignment is transhipped between terminals, packed into airfreight containers and loaded onto Cathay Pacific flights for Hong Kong (or Thai Airways or Singapore Airlines flights for Hanoi)—the consignment needs to arrive at Melbourne Airport up to three hours before departure time

up to nine hours are required to fly between Melbourne and Hong Kong, once at Hong Kong the consignment is unloaded from the plane, passes customs, is packed into a truck and transported to holding tanks

the live abalone remain in holding tanks for up to a week to then be sold to the end users.

It is interesting to note that Tasmanian Seafoods also exports canned products via airfreight prior to Chinese Lunar New Year. Broadly this is requested by Tasmanian Seafoods' customers to ensure that there is sufficient stock on the shelves.

While Tasmanian Seafoods has successfully used airfreight to export, they noted the following issues:

Aircraft freight capacity—determined by the supply and demand for capacity on domestic and international flights. The supply of freight capacity can be reduced last minute from increased passenger luggage (for instance, from touring sporting teams with additional equipment) or fuel (for instance, needed to manoeuvre around bad weather). In some cases these changes may be known by some but not those wanting to airfreight. In addition, demand of freight capacity peaks in January and February (or up to a month after the

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Chinese Lunar New Year), with abalone, rock lobsters and cherries all competing for capacity.

Returning product—either after consignments have been bumped off flights or were unable to make connecting flights. In regards to bumping, the aircraft's captain decides which consignments are removed if additional capacity is needed. In some cases the rationale for what consignments are bumped appears illogical, for instance live abalone has sometimes been bumped first. Any live abalone consignments unable to be loaded on scheduled connecting flights must be shipped back to Hobart. This comes at the additional cost of the freight and labour to collect it from Hobart Airport, as well as lost opportunities by having to re-tank fish for sufficient time until it is ready to travel again. However, from Tasmanian Seafoods' experience this occurs irregularly (two or three times a year) and some airlines (like Cathay Pacific) are aware of these issues and will not bump live consignment until necessary.

Transport costs—the cost of freighting between Hobart and Melbourne is around a quarter of the cost of freighting from Melbourne to Hong Kong.

Case study 2: livestock–based products—sheep meatIn 2011–12, livestock–based products (including live animals, meat products and dairy products) accounted for the 6.2 per cent of value of Tasmania's exports via airfreight, which have grown at an average rate of 7.5 per cent a year since 2005–06. Chilled livestock products are exported via airfreight at consistently low temperatures and need to arrive at export markets quickly. Livestock-based products intended for export via airfreight are normally sea freighted from Tasmania to Melbourne.

In total, livestock slaughterings and other disposals contributed around 22 per cent to the value of Tasmania's agricultural production in 2011–12, of which beef and sheep meat production composed 69 and 21 per cent, respectively (ABS 2013a). While the Tasmanian sheep meat industry is smaller than beef, it remains a major user of airfreight for export of chilled product. In addition, Tasmanian Quality Meats, a major Tasmanian sheep meat processor and exporter using air and sea freight, was the Regional Exporter Award and the Tasmanian Export of the Year Award winner for 2013 (Australian Export Awards 2013, O'Byrne 2013).

This section outlines Tasmania's recent sheep meat production and exports as well as summarising the airfreight supply chain and experiences of Tasmanian Quality Meats.

Tasmanian production and exportsIn 2011–12, Tasmanian sheep and lamb slaughterings were 560 800 head, producing12 thousand tonnes of mutton and lamb at a value of $54 million (Figure 33). Overall, Tasmania represents 2 per cent of the value of Australia's sheep meat production. Since 2005–06, the value of Tasmania's sheep meat production decreased at an average rate of 1.4 per cent a year (the number slaughtered fell by 5.5 per cent a year). Over this period, the production unit value increased from $2.6 a kilogram in 2006–07 to $5.9 a kilogram in 2010–11 before falling slightly to $5.4 a kilogram in 2011–12.

In 2011–12, Australia exported 277 600 tonnes of sheep meat valued at $1200 million, of which Tasmania exported 3000 tonnes valued at $15 million (Figure 34). Between 2010–11 and2011–12, the volume and value of Tasmania’s sheep meat exports increased by 130 per cent (from 1300 tonnes) and 102 per cent (from $ 7.3 million) respectively. This compares to the period between 2005–06 and 2010–11, where the volume and value of Tasmania’s sheep meat

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exports decreased at an average annual rate of 3.4 and 11.2 per cent. The top three destinations for Tasmania’s sheep meat exports, by value, in 2011–12 were the United States (accounting for 39 per cent), China (13 per cent) and the United Arab Emirates (12 per cent). Over this period the export unit value of Tasmania’s sheep meat exports decreased from$8.6 a kilogram in2005–06 to $5.0 a kilogram in 2011–12. As in the case of the abalone example, it is interesting to note the Tasmania’s sheep meat export unit value was $0.6 a kilogram (or 14 per cent) higher than the production unit value. This difference represents the additional packaging and transport cost for exporting.

Figure 33 Tasmanian sheep meat production and price, 2005-06 to 2011-12

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Figure 34 Tasmanian sheep meat exports and price, 2005-06 to 2011-12

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In 2011–12, Australia exported around 34 thousand tonnes of sheep meat via airfreight (DAFF 2012d); with 81 per cent sent to markets in the Middle East. For Tasmania, around 51 tonnes of sheep meat were exported via airfreight, mainly to markets in Europe, the Middle East and Asia.

Tasmania Quality Meats' airfreight supply chainEstablished 1997 and based in Cressy, around 35 kilometres south west of Launceston, Tasmanian Quality Meats processes Helal certified lamb, mutton and veal. Exporting from late 2011, by 2012–13 export sales had increased to around $12 million (Tasmanian Quality Meats n.d.). In late 2013 Tasmanian Quality Meats was the Regional Exporter Award winner at the Australian Exporter Awards (Australian Export Awards 2013).

Tasmanian Quality Meats uses both airfreight and sea freight to export to overseas markets. In 2011 it exported around 1700 tonnes of meat, of which 60 per cent was exported via airfreight. The major airfreight export markets of Tasmanian Quality Meats are the Middle Eastern markets of the United Arab Emirates, Jordan, Bahrain and Kuwait. In each of these markets Tasmanian Quality Meats generally has one customer that they export to, although occasionally brokers will purchase from them and ship overseas.

Tasmanian Quality Meats uses DHL and CT Freight to arrange customs brokering and freight forwarding. Each week Tasmanian Quality Meats sends a shipment of 4200 kilograms of chilled carcasses to the Middle East via airfreight, costing around $5000 from Melbourne to Dubai. The logistics for the weekly freighting to the Middle East are as follows:

Monday morning slaughtering is undertaken with the subsequent carcasses cleaned and bagged for export

Monday afternoon the consignment of prepared carcasses are hung in a refrigerated truck, which is driven to Devonport and loaded onto a ship departing for Melbourne in the evening

Tuesday morning consignment arrives in Melbourne and is trucked to the freight forwarder's warehouse for repacking. The consignment of carcasses are laid down in aircraft containers (normally these are loaded into three LD3 containers, each with a capacity of 1500 tonnes). Dry ice is placed between each carcass layer and a thermal blanket is on top, ensuring that the temperature remains low

Tuesday lunchtime the prepared aircraft containers are transferred to Melbourne Airport and loaded onto an aircraft. Normally the consignment of carcasses travels on Emirates Airlines to Dubai

Wednesday morning (local time) the consignment arrives in Dubai and is unloaded from the aircraft. If the consignment is intended for another Middle Eastern market, then it will be transhipped in Dubai. Once the consignment passes customs it is received by the customer

the chilled carcasses have an expiry date of 14 days from the date of slaughter; translating to a shelf life of around 11 days in the export market.

While Tasmanian Quality Meats has been successfully using airfreight to export, they noted the following issues:

Transport costs—Tasmanian Quality Meats sees the cost of shipping from Tasmania to the mainland as one of the biggest impediments. It costs nearly as much for Tasmanian Quality Meats to ship frozen carcasses from Devonport to Melbourne as it does from Melbourne to

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Ho Chi Minh City. While it would be better if international shipping lines and airlines serviced Tasmania, Tasmanian Quality Meats believes there is not sufficient scale to justify it.

Customs product labelling—while a relatively minor issue, the labelling requirements for each carcass are sent to Tasmanian Quality Meats by the customer. These requirements vary between export markets and can change regularly. Generally carcasses will need to be labelled (in both English and Arabic) with the country of origin, slaughtering date, expiry date and weight (in pounds and kilograms). If there are any issues with the labelling, the product is condemned unfit for sale.

Aside from these issues, Tasmanian Quality Meats sees that there is good coordination among supply chain participants. Each participant has an understanding of others needs and time requirements. There have only been limited circumstances where consignments have missed a connecting flight and been placed on the next available flight. While on these occasions the quality of the product itself is unaffected (rather, it has a reduced shelf life), the biggest inconvenience is for the customer who may encounter stock issues.

Case study 3: horticultural products—cherriesHorticultural products, which have grown at an average rate of 32.5 per cent a year since 2005–06, accounted for 5.3 per cent of Tasmania's food exports via airfreight in 2011–12. The cherry industry is the major Tasmanian horticultural industry exporting via airfreight. Like the cases of abalone and sheep meat, cherries are perishable and exporting them is time sensitive. In addition, Tasmania's fruit fly free status means that product can be exported into major international markets relatively soon after harvesting. Cherries intended for export via airfreight are generally sea freighted from Tasmania to Melbourne, although some producers have airfreighted small quantities to Melbourne.

This section outlines recent changes in Tasmania's cherry production and exports as well as summarising the airfreight supply chain and experiences of Reid Fruits.

Tasmanian production and exportsIn 2011–12, Tasmania produced around 2500 tonnes of cherries from 601 800 trees; with a production value of $18 million (Figure 35), representing 19 per cent of the value of Australia's production. Since 2005–06, the Tasmanian cherry industry has grown substantially, with the number of trees, quantity produced and production value increasing at an average rate of 14.2, 16.5 and 11.5 per cent a year, respectively. However, the production unit value of Tasmanian cherries decreased from $9.7 a kilogram to $7.5 a kilogram (an average decrease of 4.3 per cent a year).

This contrasts with the broader Australian experience, where the value of production decreased from $116 million in 2005–06 to $95 million in 2011–12, an average rate of decline of 3.3 per cent a year.

Tasmanian cherry producers have a significant advantage over mainland producers in that the state is internationally recognised as having fruit fly free status (Tasmanian Government DPIPWE 2013). This status is recognised by key export markets like Japan, South Korea, the United States, Taiwan and China. It means that Tasmanian cherry producers can export to these markets, sometimes at a price premium, and avoiding any additional phytosanitary requirements and costs faced by mainland producers (Tasmanian Government DPIPWE 2013).

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For example, fresh cherries produced in New South Wales and being exported to Taiwan are required to undergo either in-transit or on-shore cold storage (at or below 3 degrees Celsius) for at least 14 days (DAFF 2013b); this is known to reduce fruit quality. However, Tasmanian producers are able to use airfreight to export cherries directly into Taiwan immediately after harvesting.

Figure 35 Cherry production by state of production and Tasmanian price, selected years

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As such, Tasmania is a major exporter of fresh cherries. In 2011–12, Tasmania exported around 470 tonnes of fresh cherries at a value of almost $7.6 million; representing 53 per cent of the total value of fresh cherry exports (Figure 36). Overtime Tasmania's cherry exports increased from 90 tonnes (valued at $1.3 million) in 2005–06 and reached a high of 1040 tonnes (valued at $16 million) in 2009–10. The top three destinations for Tasmania's cherries in 2011–12, by value, were Taiwan, Hong Kong and Indonesia, accounting for 45, 16 and 9 per cent respectively. Over this period unit value of Tasmania’s cherry exports increased from $14.7 a kilogram in 2005–06 to $16.1 a kilogram in 2011–12 (an average increase of 1.5 per cent a year). Interestingly Tasmania’s cherries export unit value was $8.9 a kilogram (or 119 per cent) more than the production unit value. It is expected that this higher premium for exported cherries reflect high packaging and transport costs.

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Figure 36 Cherry exports by state of production and Tasmanian price, 2005-06 to 2011-12

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Cherry production and exports are highly seasonal. Typically the Tasmanian cherry season runs between mid December and mid February, with around 90 per cent of the value of Tasmania’s fresh cherries are exported during January. Importantly Tasmania’s exports to northern hemisphere export markets are counter seasonal. This counter seasonal production and export means that Tasmanian cherry producers can take advantage of high demand from Asia as part of Chinese Lunar New Year celebrations. Demand, as part of Chinese Lunar New Year celebrations, is a key market influence on Tasmania’s cherry exports.

Reid Fruits' airfreight supply chainReid Fruits was established in 1856 and is currently one Australia's largest cherry producers. Its orchards are located in the Derwent Valley (around 40 kilometres north-west of Hobart); with 100 hectares planted to cherries (Reid Fruits 2008). Tim Reid AM, Managing Director of Reid Fruits, is internationally recognised for his work in expanding Australia's horticultural trade and was named Farmer of the Year in 2013 (Briscoe 2013).

Reid Fruits exports premium cherries to more than 20 countries, in particular to Asian markets but also to the Middle East and Europe. Recently, Reid Fruits has been expanding its exports of fresh cherries to China, South Korea and Japan (Briscoe 2013) since gaining market access. All of Reid Fruits exports to these markets are airfreighted. Tasmanian cherries are renowned for their premium quality which can only be maintained by using airfreight. Like other producers, Reid Fruits' airfreight exports are seasonal, concentrated in later December through to mid February.

Reid Fruits uses Link Logistics to arrange the customs brokering and freight forwarding when exporting fresh cherries via airfreight. The following is a brief summary of Reid Fruits', and other cherry exporters (Aurecon 2013a), freight logistics:

harvested cherries are moved to a regional cold storage and packing warehouse, where they are graded and packed into either two or five kilogram cartons

these cartons are inspected by the Australian Government Department of Agriculture's Biosecurity officers and are then sealed in master cartons and placed on pallets. Tasmania

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has area freedom from fruit fly, meaning specific protocols are required to ensure product integrity

the pallets are then transported to Devonport via refrigerated trucks (taking almost 4 hours), then loaded onto a TT-line vessel and shipped to Melbourne overnight

once in Melbourne, the pallets are transported from the Port of Melbourne to the freight forwarders secure cold storage and packing warehouse, where the master cartons are placed into sealed and insulated aircraft freight containers (normally in a AKE or PAG)

the aircraft containers are transferred to Melbourne Airport and loaded onto the scheduled aircraft

some of the consignments are not air freighted directly to the intended export market, rather transhipment occurs in Hong Kong, Singapore, Kuala Lumpur or Bangkok (depending on the airline used). It is always preferable to get direct links but otherwise the quickest and most reliable options are used.

A major problem for Reid Fruits is ensuring there is enough capacity to export cherries during peak periods—such as around Chinese Lunar New Year. In the week leading into Chinese Lunar New Year, Reid Fruits finds it very difficult to secure enough airfreight capacity to meet the demand for fresh premium cherries. During these circumstances, the only option for Reid Fruits is to send the cherries earlier or miss the opportunities.

From Reid Fruits perspective, it would also be beneficial to have direct airfreight services from Hobart airport to overseas destinations. This could substantially reduce transit times, which are currently between 24 and 36 hours. However, Reid Fruits sees that a direct international service would also experience limited capacity and airfreighting from Melbourne would still need to continue.

Reid Fruits sees the current formation of the Tasmanian Freight Equalisation Scheme as another problem. Namely, that currently outbound export freight from Tasmania is not eligible, while outbound freight for mainland markets is eligible.

Overall, Reid Fruits is content with the current airfreight arrangements and experiences minor issues. For example, they have not experienced capacity issues on flights out of Melbourne and customs clearance issues in export markets are non-existent when all of the paperwork is in order.

DiscussionThe businesses in the case studies have successfully established and maintained reliable export supply chains from Tasmania using airfreight. The experience of these businesses illustrates the potential benefits of the airfreight supply chain for other high-value food industries in Tasmania and the rest of Australia. These businesses have overcome the logistical problems presented by airfreight as well as the additional regulatory requirements (for example, biosecurity and food safety protocols required by importing countries). However, the high cost of coastal sea freight and limited capacity during peak periods remain as key challenges.

A number of issues raised in the case studies warrant further discussion. These can be divided into issues directly relating to investment, production and export decisions by food producers and processors, and broader issues in the airfreight supply chain.

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Issues for producers and processorsAirfreight is a relatively complex supply chain for producers and processors. While there are potentially significant benefits from airfreight, there are risks that need to be considered and managed. There are two main issues for Tasmanian food producers and processors currently exporting via airfreight. These issues are directly influenced by producers and processors themselves and are:

evaluating profit and risks from different transportation options when exporting to overseas markets

coordination and collaboration among supply chain members.

First, all firms seek to maximise their profits; however, when deciding to adopt an action, firms also evaluate the potential risks to profit. As such, firms invest significant resources to make informed decisions on potential profit and risks to it.

The decision of Tasmanian producers and processors to export goods via airfreight demonstrates this. These producers and processors would have undertaken detailed evaluations of the potential profits from exporting via airfreight. For example, Tasmania's abalone exporters take advantage of the higher demand, prices and revenue from selling live abalone into Asian markets around Chinese Lunar New Year, albeit with increased transportation costs by using airfreight.

Further, producers and processors also invest significantly to evaluate the potential risks in the supply chain. For example, because Tasmanian abalone exporters have no control over consignments outside Hobart, there is a risk these consignments either miss connecting flights or are unloaded from aircraft as additional capacity is needed for luggage or fuel. In these circumstances, the cost of transporting back to Tasmania and the stock losses are a significant consequence. The fact that live abalone is exported via airfreight from Tasmania suggests that the airfreight supply chain is highly reliable.

Second, a supply chain firm’s profit is dependent on the decisions of others in the supply chain. In poorly performing supply chains, individual firms tend to seek to maximise their own profits ignoring the decisions of others in the supply chains (Narayana and Raman 2004). These poorly performing supply chains suffer from firms having misaligned incentives. This can originate from the decisions of a supply chain firm being unknown, firms not having complete information on aspects of the supply chain or there being poorly designed contracts or arrangements between firms (Narayana and Raman 2004). Improved coordination and collaboration among supply chain firms is a major means for improving supply chain performance and profitability. Importantly, any improvements in one aspect of the supply chain feed back to reduce costs for producers and processors.

Again, this has been the case of the Tasmanian food producers and processors in the case studies.

Broader messages There are three broader issues affecting all Tasmanian food producers and processors both exporting (both via air or sea freight) and selling to the mainland market. In a sense, these issues reflect the general policy and institutions settings of Tasmania, and are:

coastal sea freight costs between Tasmania and the mainland

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the Tasmanian Freight Equalisation Scheme

economies of scale in air and sea freight services.

It should be noted that in late 2013, the Treasurer, the Hon. Joe Hockey MP, tasked the Productivity Commission to undertake an inquiry into the current arrangements for supporting freight and passenger services between Tasmania and the mainland. The inquiry’s final report was provided to the government in early March 2014 and was publicly released on 24 June 2014 (see Productivity Commission 2014).

First, domestic sea freight costs between Tasmania and Melbourne are a significant issue for Tasmanian producers and processors wanting to export via sea freight and airfreight (Box 10). However, around 65 per cent of the sea freight cost between Tasmania and Melbourne is fixed and not sensitive to the volume transported (Aurecon 2013b). The main factors affecting the sea freight cost across the Bass Strait, compared with international shipping experience, are:

cabotage—the Coastal Trading Act 2012 (Cwlth) regulates coastal trading of both Australian and foreign-flagged vessels. In particular, it requires foreign-flagged vessels have temporary licences and mandates that all crews (both Australian and foreign) are subject to Australian labour awards. Where Australian labour costs are estimated to be three to six times higher than vessels operating internationally (Aurecon 2013b). In addition, this regulation potentially limits competition on domestic routes from foreign-flagged vessels (ACCC 2013). A review of cabotage arrangements was recommended in the final report of the Commission’s inquiry (Productivity Commission 2014)

fuel—a significant cost of vessels, Australia’s fuel prices are substantially higher compared with major Asian ports, like Singapore (Aurecon 2013b)

nature of operations—the route’s roll-on roll-off and short distance nature means that the vessels are loaded and unloaded twice each day. This compares to vessels operating international routes which would unload and load once a week at a minimum (Aurecon 2013b).

Second, intrinsically related to domestic sea freight costs is the Tasmanian Freight Equalisation Scheme (TFES). Subsidising the shipment of eligible goods, the scheme aims to make the costs of shipping across Bass Strait equivalent to the cost of transporting similar goods over a similar distance on the mainland.

In 2011–12, expenditure under the TFES was around $93 million, and paid to a variety of businesses (Productivity Commission 2014). Around 71 per cent of the value of all claims under the TFES were paid to outbound goods from Tasmania to the mainland, with the average outbound payment of $63 a tonne (BITRE 2013a, Productivity Commission 2014). Top claimants of the TFES included Norske Skog Boyer (newspaper products), J Boag and Son (beer), Cadbury Australia (confectionary and chocolate products), Simplot Australia (frozen, processed and prepared vegetables) and McCain (frozen, processed and prepared vegetables) (Productivity Commission 2014).

Importantly, the outbound subsidy is for sea freighted goods intended for use, or further transformation, on the mainland. It does not apply to the shipment of bulk freight and goods intended for export (either via airfreight or sea freight). The case studies and submissions to the Productivity Commission’s inquiry highlight two issues of particular importance to producers and processors exporting via airfreight: the discrepancy between goods intended for mainland use and export; and, the scheme not applying to goods sent via domestic airfreight.

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In regards to the eligibility of export goods, the Productivity Commission recommends there is a case to extend the scheme to eligible products shipped to the mainland for export in the absence of direct international container services. However, this extension should not lead to a net increase in the overall assistance provided by the scheme. In regards to the scheme not applying to domestic airfreight, the Productivity Commission does not consider there is a case for extending it, as ‘reliance on airfreight to access markets is a feature of many regional communities and is not a situation unique to Tasmania’ (Productivity Commission 2014).

Third, its relatively small volume of airfreight, in part, limits the air and sea freight services available to Tasmania. Currently no international airlines service Tasmania directly and only Swire Shipping provides a monthly international containerised shipping service to Tasmania (Swire Shipping 2013). In addition, the domestic air and sea freight services connecting it with the mainland have small capacities and are high cost.

One explanation for these circumstances is that Tasmania’s small volume of freight makes it insufficient for either airlines or shipping lines to take full advantage of the economies of scale when operating larger aircraft or vessels (Juturna 2013). Economies of scale occur when the average cost of handling a small freight volume is higher than the average cost of handling a large freight volume. Thus, if an airline or shipping line can increase the volume of freight it handles, its average cost would decline and potentially lead to improved profits.

In particular for sea freight, currently Tasmania’s containerised freight can be handled across the three ports of Burnie, Devonport and Bell Bay. As such, the infrastructure needed for handling containerised freight is replicated across these three ports. This leads to suggestions that Tasmania’s ports should be rationalised, and recommendations for all containerised freight to be handled through Burnie port (Juturna 2013). This could enable the handling of freight from Tasmania to be more efficient and potentially allow the port and vessels to take advantage of economies of scale (Juturna 2013). However, there is no guarantee that shipping lines can take full advantage from economies of scale as the volume of freight may still be too small. As such, detailed analysis of these issues would be required.

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9 ConclusionThis report has examined trends and issues in the supply chain for Australia’s airfreight food exports, and has presented case studies from Tasmania to gain a better understanding of key issues in the supply chain for specific food products.

During the course of this research, it was found that food products are an important part of Australia’s airfreight supply chain, accounting for around half of the volume of total airfreight exports in 2011–12. In addition, there have been limited studies on Australia’s airfreight supply chain: most notably, information on Australia’s airfreight food exports is available in DAFF (2013a) and ABARES (2013a,b), and an efficiency study was undertaken in 2010-2011 to identify and address impediments in Victoria’s airfreight supply chain (Victorian Freight and Logistics Council 2010, 2011). An important role for this study has therefore been to examine broader trends and issues in Australia’s airfreight supply chain. Previously unpublished data have been used to track Australia’s airfreight exports from state of origin to state of departure (that is, state of loading for export by airfreight; the data are BITRE estimates based on unpublished ABS cargo data).

Increasing the efficiency of the airfreight supply chain will increase the international competitiveness of Australia’s farmers and food processers, particularly for high value food products that need to be moved quickly to destination markets. However, there are challenges in the airfreight supply chain. Since Australia’s major airports were privatised (1997 to 2003), outbound airfreight has levelled off, although inbound airfreight and international passenger movements have increased.

Australia’s airfreight supply chain has considerable growth potential. Key areas to address efficiency concerns include:

major airports to provide greater focus on outbound freight; reliable cold chain management is a key priority area

extend the Victorian airfreight supply chain study to other jurisdictions and/or consider the recommendations in the 2011 report; there is a potential role for government in the provision of data to ensure airfreight supply chain participants have access to information to enhance investment and production decisions

progress the Australian Government’s biosecurity reform process; continue to improve market access more broadly.

All supply chain participants can benefit from increased airfreight food exports. Importantly, farmers and food processors need reasonable economic incentives to invest in food production (that is, a reasonable return to the investment and risks incurred)—this represents the start of the airfreight supply chain.

There are several areas that may warrant further consideration to enhance the international competitiveness of Australia’s food exports over time:

use the ABARES farm surveys framework to obtain better information on supply chains and the financial performance (and farm characteristics) of farms that supply the domestic market and those that supply the export market (see, for example, the preliminary assessment for vegetable growers in Box 5)

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use unpublished ABS cargo data to examine trends, issues and case studies in the sea freight supply chain for Australia’s food exports, distinguishing between bulk and non-bulk commodities (refrigerated and unrefrigerated containers)

undertake a more detailed assessment of issues in facilitating future growth in Australia’s airfreight food exports, including developments overseas such as airfreight supply chains in New Zealand, Chile and Europe, and the use of more advanced technologies in cold chain management in air transport.

New commodities in the Australian Government’s market access negotiations are mainly focused on the airfreight supply chain (see chapter 7; this is reported to have occurred at least partly in response to increased competition from Chile in the Asian market). Biosecurity reform has the potential to be a significant contributing factor to enhancing the efficiency of Australia’s airfreight supply chain and facilitating future growth in food exports.

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Appendix A: Global food demand to 2050The world’s long-term food requirements are likely to be substantial, particularly as the world population is projected to increase from around 7 billion in 2011 to 9.3 billion in 2050 and 10.1 billion in 2100 (UN 2011; medium variant). By 2050, world agricultural production may need to increase by 70 per cent to meet the food security demands of the growing world population (HLPE 2011).

ABARES projections indicate that, between 2007 and 2050, world agrifood consumption may increase by 77 per cent or 1.3 per cent a year on average (in 2007 US dollars) (Linehan et al. 2012a,b, 2013). Higher demand in Asia accounts for more than two-thirds of the projected increase in world food demand. World consumption is projected to increase most strongly for fruit and vegetables (annual average growth rate of 1.2 per cent), meat (1.7 per cent), dairy products (1.1 per cent), cereals (1.8 per cent), fish (1.7 per cent) and vegetable oils (1.4 per cent) (Figure A0).

Figure A0 ABARES projections for world agrifood consumption and imports, 2007 and 2050

Source: Linehan et al. (2012a)

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2007


International trade is likely to become more important in supplying people with food—ABARES projections indicate the share of world consumption sourced from imports may increase from around 10 per cent in 2007 to 15 per cent in 2050. World agrifood imports are projected to increase by 2.4 per cent a year on average between 2007 and 2050 with significant increases in world imports of fruit and vegetables (annual average growth rate of 1.5 per cent), meat (4.2 per cent), dairy products (1.8 per cent), cereals (5.1 per cent), fish (2.1 per cent) and vegetable oils (1.8 per cent) (Figure A0).

Higher global agrifood demand is expected to provide significant export market opportunities for the domestic food industry, particularly given Australia’s geographic proximity to the strongly growing Asian market. ABARES projections indicate Australia’s agricultural exports are likely to increase most strongly for beef, wheat, dairy products, sheep meat and sugar (in 2007 US dollars).

ABARES (2013c) provided an assessment of current and future trends in food consumption and production in major Asian countries (China, India, Japan, the Republic of Korea and the ASEAN member states) (What Asia wants). The report found the expected growth in Asian food production will not be sufficient to meet the expected growth in Asian food consumption for commodities other than rice. Food demand in China to 2050 is examined further in Hamshere et al. (2014), including an analysis of food demand trends in low, medium and high income households (What China wants).

Future research in the What Asia wants project will also assess developments in the export capacity of Australia’s competitors, and identify implications and opportunities for Australian agriculture and food industries.

124


Appendix B: Australia’s airfreight food supply chain, by jurisdictionAirfreight food supply chain in VictoriaVictoria’s airfreight food supply chain has expanded strongly in both value and volume terms. The most important food commodities in the supply chain are meat products, fisheries products, fruit and vegetables, and live animals (Table B0, Figure B0). Between 2005–06 and 2011–12, the real value of food produced in Victoria for the supply chain increased strongly by 5.0 per cent a year on average, with very strong growth for meat products (13.5 per cent a year over the full period, but with particularly strong growth since 2008–09). The value of Victoria’s airfreight food exports also increased strongly, by 3.7 per cent a year.

Fisheries products are consistently the most important commodity in Victoria’s interstate food trade—these are mainly transported from Tasmania and South Australia to Victoria for export by airfreight. In 2011–12, net imports of fisheries products were $189 million, accounting for around two-thirds of Victoria’s airfreight exports of fisheries products.

Table B0 Airfreight food exports, by commodity, 2005-06 and 2011-12: Victoria

Commodity

Value Volume

2005–06 2011–12 2005–06 2011–12


% oftotal

Growthrate Level

% oftotal Level

% oftotal

Growthrate

$m % $m % % kt % kt % %

State of origin

Live animals 48.9 14.0 50.1 10.8 0.4 0.9 2.4 2.4 4.1 17.4

Meat products 100.0 28.7 213.3 45.8 13.5 10.3 26.8 31.3 52.6 20.2

Dairy products 21.7 6.2 26.9 5.8 3.7 3.8 9.8 4.4 7.3 2.3

Fisheries products 84.3 24.2 93.6 20.1 1.8 1.6 4.1 2.2 3.7 5.7

Fruit & vegetables 67.6 19.4 59.1 12.7 -2.2 18.7 48.5 16.7 28.1 -1.9

Other food 26.0 7.5 22.7 4.9 -2.2 3.2 8.4 2.5 4.1 -4.6

Total food 348.4 100.0 465.7 100.0 5.0 38.6 100.0 59.4 100.0 7.4


Live animals 6.6 - 14.9 - - 0.1 - -0.2 - -

Meat products 31.3 - 13.3 - - 5.5 - 0.1 - -

Dairy products -3.3 - -1.7 - - -0.6 - -0.2 - -

Fisheries products 179.3 - 188.5 - - 5.0 - 8.5 - -

Fruit & vegetables -17.9 - -2.5 - - -5.5 - -2.0 - -

Other food -1.8 - -3.7 - - 0.1 - -0.5 - -

Total food 194.2 - 208.8 - - 4.6 - 5.7 - -

State of departure

Live animals 55.5 10.2 65.0 9.6 2.7 1.0 2.4 2.2 3.5 14.0

Meat products 131.3 24.2 226.6 33.6 9.5 15.9 36.7 31.4 48.2 12.0

Dairy products 18.4 3.4 25.2 3.7 5.4 3.1 7.3 4.1 6.3 4.6


Fruit & vegetables 49.7 9.2 56.6 8.4 2.2 13.3 30.7 14.7 22.6 1.8

Other food 24.2 4.5 19.1 2.8 -3.9 3.3 7.7 1.9 3.0 -8.7

Total food 542.6 100.0 674.6 100.0 3.7 43.2 100.0 65.1 100.0 7.1

Note: Based on SITC commodities 00-11 and excluding re-exports. Other food includes beverages. Values are in 2011-12 prices. Growth rate is the average annual growth rate between 2005-06 and 2011-12. SITC is the Standard International Trade Classification.Sources: Based on BITRE estimates using ABS cargo data, and ABS 2013a

125


Figure B0 Airfreight food exports, by commodity, 2005-06 to 2011-12: Victoria

Note: Based on SITC commodities 00-11 and excluding re-exports. Other food includes beverages. Values are in 2011-12 prices. SITC is the Standard International Trade Classification.Sources: Based on BITRE estimates using ABS cargo data, and ABS 2013a

126

a) State of origin

i. Value ii. Volume


i. Value ii. Volume


i. Value ii. Volume

0

50

100

150

200

25020

05-0

6

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

20

11

-12

$m

0

10

20

30

40

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

kt

Live animals

Meat products

Dairy products

Fisheries products

Fruit & vegetables

Other food

-100

0

100

200

300

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

20

11

-12

$m

-10

-5

0

5

10

15

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

kt

Live animals

Meat products

Dairy products

Fisheries products

Fruit & vegetables

Other food

0

100

200

300

400

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

20

11

-12

$m

0

10

20

30

40

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

kt

Live animals

Meat products

Dairy products

Fisheries products

Fruit & vegetables

Other food


Airfreight food supply chain in QueenslandQueensland’s airfreight food supply chain has expanded in both value and volume terms. The most important food commodities in Queensland’s airfreight food supply chain are meat products, fisheries products, and fruit and vegetables (Table B1, Figure B1). Between 2005–06 and 2011–12, the real value of food produced in Queensland for the supply chain increased slightly by 1.4 per cent a year on average, with very strong growth for dairy products (15.3 per cent) and meat products (8.7 per cent). The value of Queensland’s airfreight food exports increased moderately over the period, by 3.2 per cent a year.

Interstate food movements are a relatively small part of Queensland’s airfreight food supply chain overall. The main exception is live animals—these are nearly all moved to other states for export. Queensland has become a net importer of meat products ($27 million in 2011–12, accounting for 15 per cent of Queensland’s airfreight exports of meat products).

Table B1 Airfreight food exports, by commodity, 2005-06 and 2011-12: Queensland

Commodity

Value Volume

2005–06 2011–12 2005–06 2011–12


% oftotal

Growthrate Level

% oftotal Level

% oftotal

Growthrate

$m % $m % % kt % kt % %

State of origin

Live animals 20.8 7.2 14.7 4.7 -5.6 0.5 1.5 0.8 2.4 8.7

Meat products 96.3 33.2 158.9 50.4 8.7 8.7 26.0 12.1 34.2 5.7

Dairy products 1.2 0.4 2.9 0.9 15.3 0.5 1.5 1.0 2.7 11.1

Fisheries products 114.5 39.5 86.5 27.4 -4.6 6.3 18.8 4.3 12.2 -6.0


Other food 12.0 4.1 9.6 3.1 -3.5 0.9 2.8 0.8 2.2 -3.1

Total food 289.8 100.0 315.2 100.0 1.4 33.3 100.0 35.3 100.0 1.0


Live animals -8.4 - -13.8 - - -0.2 - -0.8 - -

Meat products -0.5 - 27.3 - - -0.3 - 1.5 - -

Dairy products 0.0 - -0.2 - - 0.0 - -0.1 - -

Fisheries products -6.2 - -0.4 - - -0.4 - 0.0 - -


Other food 2.2 - 1.0 - - 0.0 - 2.5 - -

Total food -19.9 - 10.0 - - -3.4 - 1.2 - -

State of departure

Live animals 12.3 4.6 0.9 0.3 -35.9 0.3 1.1 0.1 0.2 -20.2

Meat products 95.8 35.5 186.1 57.2 11.7 8.4 28.1 13.6 37.2 8.3

Dairy products 1.3 0.5 2.7 0.8 13.0 0.5 1.7 0.9 2.3 9.1



Other food 14.1 5.2 10.7 3.3 -4.6 1.0 3.2 3.3 8.9 22.7

Total food 269.9 100.0 325.2 100.0 3.2 29.9 100.0 36.5 100.0 3.4


127


Figure B1 Airfreight food exports, by commodity, 2005-06 to 2011-12: Queensland


128

a) State of origin

i. Value ii. Volume


i. Value ii. Volume


i. Value ii. Volume

0

50

100

150

20020

05-0

6

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

20

11

-12

$m

0

5

10

15

20

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

kt

Live animals

Meat products

Dairy products

Fisheries products

Fruit & vegetables

Other food

-20

0

20

40

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

20

11

-12

$m

-4

-2

0

2

4

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

kt

Live animals

Meat products

Dairy products

Fisheries products

Fruit & vegetables

Other food

0

50

100

150

200

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

20

11

-12

$m

0

5

10

15

20

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

kt

Live animals

Meat products

Dairy products

Fisheries products

Fruit & vegetables

Other food


Airfreight food supply chain in New South WalesThe airfreight food supply chain in New South Wales has contracted in both value and volume terms. The most important food commodities in the state’s airfreight food supply chain are meat products, live animals, and fruit and vegetables (Table B2, Figure B2). Between 2005–06 and 2011–12, the real value of food produced in New South Wales for the supply chain fell by3.3 per cent a year on average. Notably, the real value of airfreight food exports fell sharply by 6.1 per cent a year. Over the period, the real value of airfreight exports in the supply chain has declined for all commodities except meat products.

Interstate food movements (net imports or net exports) have been reduced for each commodity, with the exception of other food (slight increase in net imports). Overall, net food movements to New South Wales for export by airfreight have declined by around two-thirds, from $104 million in 2005–06 to $36 million in 2011–12. There was a particularly large fall in net imports of fisheries products (from $70 million to $19 million over the period), contributing to a very large fall in the real value of airfreight exports of fisheries products from this jurisdiction(–17.7 per cent a year on average between 2005–06 and 2011–12).

Table B2 Airfreight food exports, by commodity, 2005-06 and 2011-12: New South Wales

Commodity

Value Volume

2005–06 2011–12 2005–06 2011–12


% oftotal

Growthrate Level

% oftotal Level

% oftotal

Growthrate

$m % $m % % kt % kt % %

State of origin

Live animals 76.7 29.0 52.8 24.5 -6.0 0.8 3.5 1.9 9.1 16.5

Meat products 93.1 35.3 94.9 43.9 0.3 9.6 44.1 9.3 44.4 -0.5

Dairy products 3.2 1.2 2.2 1.0 -5.9 0.9 4.1 0.5 2.3 -9.9

Fisheries products 17.2 6.5 12.7 5.9 -4.9 0.6 2.7 0.7 3.1 1.8


Other food 40.8 15.5 30.5 14.1 -4.7 2.8 12.9 2.2 10.5 -4.1

Total food 264.0 100.0 215.9 100.0 -3.3 21.9 100.0 21.0 100.0 -0.6


Live animals 8.6 - 3.2 - - 0.1 - 1.2 - -

Meat products -13.1 - -11.6 - - -3.4 - 0.9 - -

Dairy products 5.1 - 3.8 - - 0.9 - 0.6 - -

Fisheries products 69.6 - 14.2 - - 2.6 - 0.7 - -

Fruit & vegetables 30.3 - 19.4 - - 9.9 - 6.3 - -

Other food 3.0 - 7.3 - - 0.2 - 0.8 - -

Total food 103.5 - 36.2 - - 10.4 - 10.5 - -

State of departure

Live animals 85.3 23.2 56.0 22.2 -6.8 0.9 2.8 3.1 9.9 23.2

Meat products 80.0 21.8 83.2 33.0 0.7 6.2 19.4 10.2 32.4 8.6

Dairy products 8.2 2.2 6.0 2.4 -5.1 1.8 5.5 1.0 3.3 -8.7



Other food 43.8 11.9 37.8 15.0 -2.4 3.0 9.4 3.0 9.5 -0.1

Total food 367.5 100.0 252.1 100.0 -6.1 32.2 100.0 31.5 100.0 -0.4


129


Figure B2 Airfreight food exports, by commodity, 2005-06 to 2011-12: New South Wales


130

a) State of origin

i. Value ii. Volume


i. Value ii. Volume


i. Value ii. Volume

0

25

50

75

100

12520

05-0

6

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

20

11

-12

$m

0

5

10

15

20

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

kt

Live animals

Meat products

Dairy products

Fisheries products

Fruit & vegetables

Other food

-50

-25

0

25

50

75

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

20

11

-12

$m

-5

0

5

10

15

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

kt

Live animals

Meat products

Dairy products

Fisheries products

Fruit & vegetables

Other food

0

25

50

75

100

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

20

11

-12

$m

0

5

10

15

20

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

kt

Live animals

Meat products

Dairy products

Fisheries products

Fruit & vegetables

Other food


Airfreight food supply chain in South AustraliaSouth Australia’s airfreight food supply chain has contracted in both value and volume terms. The two most important food commodities in the state’s airfreight food supply chain are fisheries products and meat products (Table B3, Figure B3). Between 2005–06 and 2011–12, the real value of food produced in South Australia for the supply chain fell by 4.1 per cent a year on average, mainly as a result of reduced output of fisheries products. The real value of airfreight food exports fell by 2.3 per cent a year. There was considerable variation in outcomes for individual food commodities with relatively strong growth in the production and/or exports of live animals, meat products and other food.

Interstate food movements—net exports of all food commodities—are an important part of South Australia’s airfreight supply chain. In 2011–12, more than half of South Australia’s food production was transported to other jurisdictions for export by airfreight. Overall, the value of net food movements to other states has declined markedly, from $130 million in 2005–06 to$93 million in 2011–12, almost entirely as a result of reduced net movements of fisheries products (from $107 million to $60 million over the period). By contrast, the volume of net food movements increased marginally over the period.

Table B3 Airfreight food exports, by commodity, 2005-06 and 2011-12: South Australia

Commodity

Value Volume

2005–06 2011–12 2005–06 2011–12


% oftotal

Growthrate Level

% oftotal Level

% oftotal

Growthrate

$m % $m % % kt % kt % %

State of origin

Live animals 3.8 1.7 6.1 3.5 8.3 0.5 4.1 1.3 10.4 15.7

Meat products 30.5 13.7 40.6 23.3 4.9 3.9 29.6 3.2 25.2 -3.3

Dairy products 0.7 0.3 0.8 0.5 3.4 0.1 0.8 0.2 1.4 8.1



Other food 6.8 3.0 11.0 6.3 8.4 0.8 5.7 2.9 23.1 25.2

Total food 223.3 100.0 174.2100.

0 -4.1 13.1 100.0 12.6 100.0 -0.7


Live animals -2.2 - -2.6 - - 0.0 - -0.2 - -

Meat products -13.7 - -22.1 - - -1.7 - -1.7 - -

Dairy products -0.3 - -0.8 - - -0.1 - -0.2 - -

Fisheries products -106.7 - -60.3 - - -3.4 - -1.1 - -


Other food -3.7 - -4.3 - - -0.4 - -2.7 - -

Total food -129.6 - -92.6 - - -6.9 - -7.2 - -

State of departure

Live animals 1.6 1.7 3.5 4.3 14.2 0.5 8.5 1.1 20.1 12.9

Meat products 16.8 17.9 18.5 22.7 1.6 2.1 34.6 1.5 26.8 -6.3

Dairy products 0.4 0.4 0.1 0.1 -26.9 0.0 0.2 0.0 0.1 -15.0



Other food 3.1 3.3 6.7 8.2 13.6 0.4 6.1 0.2 3.7 -10.3

Total food 93.7 100.0 81.6100.

0 -2.3 6.2 100.0 5.4 100.0 -2.2


131


Figure B3 Airfreight food exports, by commodity, 2005-06 to 2011-12: South Australia


132

a) State of origin

i. Value ii. Volume


i. Value ii. Volume


i. Value ii. Volume

0

50

100

150

200

25020

05-0

6

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

20

11

-12

$m

0

2

4

6

8

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

kt

Live animals

Meat products

Dairy products

Fisheries products

Fruit & vegetables

Other food

-125

-100

-75

-50

-25

0

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

20

11

-12

$m

-4

-3

-2

-1

0

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

kt

Live animals

Meat products

Dairy products

Fisheries products

Fruit & vegetables

Other food

0

25

50

75

100

125

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

20

11

-12

$m

0

1

2

3

4

5

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

kt

Live animals

Meat products

Dairy products

Fisheries products

Fruit & vegetables

Other food


Airfreight food supply chain in TasmaniaTasmania’s airfreight food supply chain has expanded on a state-of-origin basis in both value and volume terms. Fisheries products are the main food commodity in Tasmania’s airfreight food supply chain (Table B4, Figure B4). Between 2005–06 and 2011–12, the real value of food produced in Tasmania for the supply chain increased by 2.2 per cent a year on average, with very strong growth for fruit and vegetables (33 per cent a year), live animals (12.6 per cent) and meat products (9.9 per cent), and slight growth for fisheries products (1.1 per cent).

Tasmania does not export any food commodities directly to overseas markets. Tasmania’s food production is likely to be mainly transported to Victoria for export by airfreight.

Case studies on Tasmania’s airfreight food exports are presented in chapter 8.

Table B4 Airfreight food exports, by commodity, 2005-06 and 2011-12: Tasmania

Commodity

Value Volume

2005–06 2011–12 2005–06 2011–12


% oftotal

Growthrate Level

% oftotal Level

% oftotal

Growthrate

$m % $m % % kt % kt % %

State of origin

Live animals 0.2 0.1 0.4 0.3 12.6 0.004 0.1 0.01 0.1 17.5

Meat products 4.5 3.2 7.9 4.9 9.9 0.3 6.5 0.9 9.2 21.8

Dairy products 1.7 1.2 1.6 1.0 -1.6 0.2 4.6 0.2 1.9 -0.7



Other food 0.3 0.2 0.2 0.1 -2.5 0.03 0.7 0.03 0.3 -0.2

Total food 141.0 100.0 160.4 100.0 2.2 4.4 100.0 10.0 100.0 14.8


Live animals -0.2 - -0.4 - - 0.0 - 0.0 - -

Meat products -4.5 - -7.9 - - -0.3 - -0.9 - -

Dairy products -1.7 - -1.6 - - -0.2 - -0.2 - -

Fisheries products -132.1 - -141.7 - - -3.6 - -8.1 - -


Other food -0.3 - -0.2 - - -0.03 - 0.0 - -

Total food -140.4 - -160.4 - - -4.4 - -10.0 - -

State of departure

Live animals 0.0 0.0 0.0 - - 0.004 33.2 0.0 - -100.0

Meat products 0.02 2.4 0.0 - -100.0 0.0 0.0 0.0 - -

Dairy products 0.0 0.0 0.0 - - 0.0 0.0 0.0 - -

Fisheries products 0.6 97.6 0.0 - -100.0 0.01 66.8 0.0 - -100.0

Fruit & vegetables 0.0 0.0 0.0 - - 0.0 0.0 0.0 - -

Other food 0.0 0.0 0.0 - - 0.0 0.0 0.0 - -

Total food 0.6 100.0 0.0 - -100.0 0.01 100.0 0.0 - -100.0


133


Figure B4 Airfreight food exports, by commodity, 2005-06 to 2011-12: Tasmania


134

a) State of origin

i. Value ii. Volume


i. Value ii. Volume


i. Value ii. Volume

0

50

100

150

20020

05-0

6

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

20

11

-12

$m

0

2

4

6

8

10

12

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

kt

Live animals

Meat products

Dairy products

Fisheries products

Fruit & vegetables

Other food

-200

-150

-100

-50

0

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

20

11

-12

$m

-12

-10

-8

-6

-4

-2

0

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

kt

Live animals

Meat products

Dairy products

Fisheries products

Fruit & vegetables

Other food

0.0

0.2

0.4

0.6

0.8

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

20

11

-12

$m

0.000

0.003

0.006

0.009

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

kt

Live animals

Meat products

Dairy products

Fisheries products

Fruit & vegetables

Other food


Airfreight food supply chain in Western AustraliaWestern Australia’s airfreight food supply chain has contracted in both value and volume terms. The most important food commodities in the state’s airfreight food supply chain are fisheries products, meat products, and fruit and vegetables (Table B5, Figure B5). Between 2005–06 and 2011–12, the real value of food produced in Western Australia for the supply chain fell by1.8 per cent a year on average. Similarly, the real value of airfreight food exports fell by1.5 per cent a year. Over the period, the real value of airfreight exports in the supply chain has declined for most commodities—the main exception is production of other food (5.4 per cent a year).

Interstate food movements are relatively minor for all food commodities. In 2011–12, Western Australia’s net food imports were very small.

Table B5 Airfreight food exports, by commodity, 2005-06 and 2011-12: Western Australia

Commodity

Value Volume

2005–06 2011–12 2005–06 2011–12


% oftotal

Growthrate Level

% oftotal Level

% oftotal

Growthrate

$m % $m % % kt % kt % %

State of origin

Live animals 10.3 3.5 6.8 2.6 -6.7 0.5 2.1 1.0 6.2 13.0

Meat products 63.4 21.8 41.9 16.1 -6.7 10.9 48.4 7.2 44.2 -6.8

Dairy products 1.2 0.4 0.7 0.3 -8.2 0.6 2.9 0.4 2.3 -8.7

Fisheries products 196.6 67.7 199.7 76.7 0.3 5.2 23.1 4.8 29.6 -1.4


Other food 1.7 0.6 2.3 0.9 5.4 0.2 0.8 0.4 2.6 16.0

Total food 290.3 100.0 260.6 100.0 -1.8 22.6 100.0 16.3 100.0 -5.4


Live animals -4.4 - -1.2 - - 0.0 - 0.0 - -

Meat products 0.6 - 1.1 - - 0.2 - 0.1 - -

Dairy products 0.2 - 0.5 - - 0.0 - 0.1 - -


Fruit & vegetables -0.2 - 0.0 - - -0.3 - 0.1 - -

Other food 0.6 - -0.1 - - 0.1 - -0.1 - -

Total food -5.8 - 0.04 - - -0.1 - 0.3 - -

State of departure

Live animals 5.9 2.1 5.5 2.1 -1.0 0.5 2.0 1.0 5.9 13.3

Meat products 64.0 22.5 43.0 16.5 -6.4 11.1 49.2 7.3 44.4 -6.7

Dairy products 1.4 0.5 1.2 0.4 -3.1 0.7 3.0 0.5 3.1 -4.9

Fisheries products 194.1 68.2 199.6 76.6 0.5 5.2 23.0 4.8 29.2 -1.2


Other food 2.2 0.8 2.2 0.8 -0.3 0.3 1.1 0.4 2.3 6.5

Total food 284.5 100.0 260.6 100.0 -1.5 22.6 100.0 16.5 100.0 -5.1


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Figure B5 Airfreight food exports, by commodity, 2005-06 to 2011-12: Western Australia


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a) State of origin

i. Value ii. Volume


i. Value ii. Volume


i. Value ii. Volume

0

50

100

150

200

25020

05-0

6

2006

-07

2007

–08

2008

–09

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–10

2010

–11

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–12

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11

-12

$m

0

5

10

15

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

kt

Live animals

Meat products

Dairy products

Fisheries products

Fruit & vegetables

Other food

-6

-4

-2

0

2

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

20

11

-12

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-0.4

-0.2

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0.2

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2005

-06

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-07

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–08

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2009

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2011

–12

kt

Live animals

Meat products

Dairy products

Fisheries products

Fruit & vegetables

Other food

0

50

100

150

200

250

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

20

11

-12

$m

0

5

10

15

2005

-06

2006

-07

2007

–08

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2009

–10

2010

–11

2011

–12

kt

Live animals

Meat products

Dairy products

Fisheries products

Fruit & vegetables

Other food


Airfreight food supply chain in the Northern TerritoryThe Northern Territory has a very limited airfreight food supply chain (Table B6, Figure B6). In 2011–12, the value of fruit and vegetables production was $2 million, accounting for 95 per cent of total food produced for the supply chain. Between 2005–06 and 2011–12, the value and volume of production of fruit and vegetables for the supply chain increased strongly over the period (average annual growth rate of 18.6 and 29.7 per cent, respectively). Overall, the real value of food produced in the Northern Territory for the supply chain fell by 0.8 per cent a year.

Nearly all food produced in the Northern Territory is transported to other jurisdictions for export by airfreight.

Table B6 Airfreight food exports, by commodity, 2005-06 and 2011-12: Northern Territory

Commodity

Value Volume

2005–06 2011–12 2005–06 2011–12


% oftotal

Growthrate Level

% oftotal Level

% oftotal

Growthrate

$m % $m % % kt % kt % %

State of origin

Live animals 0.1 3.0 0.0 0.0 -100.0 0.01 1.9 0.0 0.0 -100.0

Meat products 0.02 0.9 0.003 0.2 -26.0 0.0 0.3 0.0 0.1 -3.1

Dairy products 0.0 0.0 0.02 0.8 - 0.0 0.0 0.004 0.7 -



Other food 0.01 0.7 0.0003 0.0 -47.7 0.002 0.8 0.0001 0.0 -42.5

Total food 2.2 100.0 2.1100.

0 -0.8 0.3 100.0 0.6100.

0 11.1


Live animals -0.1 - 0.0 - - -0.01 - 0.0 - -

Meat products -0.02 - -0.003 - - 0.0 - 0.0 - -

Dairy products 0.01 - 0.0 - - 0.001 - 0.0 - -



Other food 0.02 - 0.01 - - 0.001 - 0.0004 - -

Total food -1.9 - -2.1 - - -0.2 - -0.6 - -

State of departure

Live animals 0.005 1.5 0.0 0.0 -100.0 0.0 0.1 0.0 0.0 -100.0

Meat products 0.0 0.0 0.0 0.0 - 0.0 0.0 0.0 0.0 -

Dairy products 0.01 2.2 0.02 22.5 17.6 0.001 0.7 0.004 58.4 42.4



Other food 0.04 12.5 0.01 9.4 -24.0 0.003 4.4 0.0005 6.9 -26.4

Total food 0.3 100.0 0.08100.

0 -20.2 0.1 100.0 0.01100.

0 -31.7


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Figure B6 Airfreight food exports, by commodity, 2005-06 to 2011-12: Northern Territory


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a) State of origin

i. Value ii. Volume


i. Value ii. Volume


i. Value ii. Volume

0.0

0.5

1.0

1.5

2.0

2.520

05-0

6

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

20

11

-12

$m

0.0

0.2

0.4

0.6

0.8

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

kt

Live animals

Meat products

Dairy products

Fisheries products

Fruit & vegetables

Other food

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

20

11

-12

$m

-0.8

-0.6

-0.4

-0.2

0.0

0.2

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

kt

Live animals

Meat products

Dairy products

Fisheries products

Fruit & vegetables

Other food

0.0

0.1

0.2

0.3

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

20

11

-12

$m

0.00

0.03

0.06

0.09

2005

-06

2006

-07

2007

–08

2008

–09

2009

–10

2010

–11

2011

–12

kt

Live animals

Meat products

Dairy products

Fisheries products

Fruit & vegetables

Other food


Appendix C: Airport sale and lease conditions in AustraliaThe information on airport sale and lease conditions is taken directly from Productivity Commission (2011, pp. 22-23 unless otherwise indicated).

The Airports Act 1996 (Cwlth) created an overarching system to govern airport activity (20 amendments to the Act mainly occurred in 1997, 2003 and 2010). Among other things, the Act provides for:

Airport leases, the sale of airports and tripartite deed agreements (see Box 2).

Ownership restrictions—a minimum of 51 per cent of an airport must remain under Australian control. Airlines are not permitted to own more than 5 per cent of an airport, and there is a 15 per cent limit on cross-ownership between Sydney/Melbourne, Sydney/Brisbane and Sydney/Perth airports.

Site usage obligations—an airport site must be used as an airport, and an airport operator is not to carry on ‘substantial non-airport trading or financial activities’ nor undertake ‘sensitive development’.

Master plans—the airport operator must establish a master plan that is subject to Ministerial approval. The master plan is a 20-year forward plan that identifies, among other things, development objectives, future aviation requirements, noise exposure forecasts, and intentions of land use and related development. The master plan needs to align with state, territory and local government planning laws, and additionally, the airport operator must provide a ground transport plan for the first five years of the master plan (further information is given below). Master plans are updated every five years.

Major development plans—the airport operator must furnish a major development plan, for Ministerial approval, for each major development, which, among other things, covers the construction or changes to a new or existing: runway; passenger terminal; or other building, taxiway, road or railway which costs more than $20 million (Mt Isa and Tennant Creek airports are not required to provide a master plan or a major development plan).

Demand management schemes—a demand management scheme may be established, subject to Ministerial approval (curfews and demand management schemes are discussed further in Productivity Commission 2011, p. 34).

Ancillary requirements—the airport operator must conform to: environmental and safety regulations; international obligations; and standards for preparing audited accounts and reports.

As a result of the 2010 amendments to the Airport Act, for the first five years of the master plan, airport operators are now required to provide detailed information on a ground transport system on the landside of the airport (Productivity Commission 2011, p. 36); this includes:

a road network plan

facilities for moving people and freight

linkages between the facilities, the road network and public transport system at and outside the airport

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arrangements with State or local authorities or other bodies responsible for the road network and public transport system

the capacity of the ground transport system

likely effects of the proposed development on the ground transport system and traffic flows at and surrounding the airport.

A key element of the Act was the establishment of leases for certain airports to facilitate their privatisation—Brisbane, Melbourne and Perth airports were fully privatised in 1997, Adelaide airport in 1998, and Sydney airport in 2002. In total, some 22 former Federal Airport Corporation airports were sold via 50-year lease agreements between the Government as lessor and the airport operators as lessees.

Various regulations have been made under the Airports Act elaborating on specific aspects of the airport leases. These include grounds for: refusing to transfer a lease, sublease arrangements, adherence to international obligations, and the definition of ‘aeronautical services and facilities’ for the purpose of the Australian Competition and Consumer Commission (ACCC’s) monitoring of airports. Those principal lease provisions which are publicly available are outlined in Box 2.

Along with other provisions in the Act, the lease provisions effectively provide the Government with an ongoing element of control over the privatised airports. Additionally, the Australian Government Department of Infrastructure and Regional Development conducts an annual review to monitor airport operators’ compliance with lease conditions.

The federally-leased airports were privatised under formal sale agreements. For 10 of the airports (Adelaide, Alice Springs, Brisbane, Canberra, Darwin, Gold Coast, Hobart, Launceston, Melbourne and Perth) the sale agreements included specific new aeronautical investment targets for the first 10 years of ownership, in addition to nominating the price paid. These investment targets are also subject to review by the Australian Government Department of Infrastructure and Regional Development.

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Appendix D: Productivity Commission (2011): findings and recommendations This appendix presents the findings and recommendations from the most recent inquiry by the Productivity Commission into the economic regulation of Australia’s airport services (Productivity Commission 2011, pp. XLVI-LV).

Performance of Australian airportsFINDING 4.1 Australian airports’ aeronautical charges, revenues, costs, profits and investment outcomes remain within the performance range of their overseas counterparts. Within this group, Australian airports have achieved:

relatively low aeronautical and non-aeronautical revenue per passenger

relatively low total costs, operating costs and staff costs

relatively high profits

average to above average capital expenditure per passenger and return on capital employed.

FINDING 4.2 The productivity of Australian airports has improved, while any changes in efficiency or technology have been positive over the post-privatisation period. These indicators suggest that, despite earning below average revenues per passenger, Australian airports are able to profit from cost reductions.

Market power and regulationFINDING 5.1 The continued growth of low-cost carriers, overseas national airlines and competition from some secondary airports has reduced the potential for airports to exploit market power. Nevertheless, Brisbane, Melbourne, Perth and Sydney Airports retain sufficient market power to be of policy concern. Given its recent investments, size and position in the national network and long-term customer contracting—as well as evidence from airlines themselves—Adelaide Airport’s relatively lower market power is such that the countervailing power of airlines constitutes an effective constraint. Moreover, there is insufficient evidence to suggest the scope of the Tier 1 regulatory regime should be expanded.

FINDING 5.2 In general, the coverage of the current monitoring regime is appropriate, and despite recent technological developments (such as online passenger check-in facilities), the additional benefits of attempting to fine tune the monitored aeronautical facilities and services is unlikely to outweigh the cost.

Investment and capacityFINDING 6.1 The Australian Government has a number of regulatory and other levers to influence the timing and nature of investment at Australian airports, including lease provisions and requirements under the Airports Act 1996. To date, these levers have not been triggered, as investment has exceeded requirements established at the time airports were sold.

FINDING 6.2 There is evidence of significant investment in aeronautical infrastructure at Australian airports in the period since light-handed monitoring was introduced in 2002, with

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significant future investment planned. Compared to other Australian infrastructure, airport investment outcomes rate favourably.

FINDING 6.3 Despite instances of delays to aeronautical investment, it does not appear that such delays have been unreasonable. Moreover, airport operators appear to consult with airlines and other airport users about the nature and timing of individual investments at the airports for which they are responsible—although not always to the satisfaction of airlines—and the degree of consultation varies between airports.

FINDING 6.4 The pre-funding of airport investments is a recognised component of the Pricing Principles. There is not a strong case for a prescriptive approach to pre-funding airport investments, and the current arrangement (negotiation between an airport and airlines) appears to have resulted in satisfactory outcomes since privatisation. While this approach appears to have worked well so far, the construction of a new runway at Brisbane Airport (the first in the world by a privatised airport) could be a significant challenge to this approach.

Airside and terminal: monitoring outcomesFINDING 7.1 Price monitoring data since 2002–03 show substantial total price increases at most of the monitored airports. However, taken in context, these increases do not indicate systemic misuse of market power.

FINDING 7.2 Recent quality of service monitoring for the overall and passenger survey results alone do not indicate any persistent trends that would suggest the misuse of market power.

FINDING 7.3 Quality of service ratings from airline surveys are notably lower than passenger ratings, including ratings of ‘poor’ for both Sydney and Perth airports. Concerns raised by the ACCC appear to place greater emphasis on the airline surveys.

Commercial negotiationFINDING 8.1 Commercial agreements are the basis for the relationships between airports and most airlines. Reflecting that commercial negotiation in a light-handed environment only began after 2002 and that commercial agreements typically are for five years or more (and up to 15 to 17 years for some terminal agreements), the opportunity for the parties to iterate to more comprehensive and refined agreements has been limited.

FINDING 8.2 Commercial agreements now incorporate features that airlines considered were absent or deficient in 2006. But despite these advances, airlines assert that commercial negotiations with some airports are one-sided and dysfunctional.

FINDING 8.3 Problems with commercial negotiation are not symptomatic of system-wide failure, but appear to reflect different practices across airports. Sydney airport in particular attracts more criticism than other airports. The variations between airports demonstrate that commercial negotiation can, but may not always, work well.

FINDING 8.4 The divergence in the observations and assertions made by airports, on the one hand, and their airline customers on the other, seems to reflect ‘positioning’ to either protect or change the distribution of profits between them. Ultimately, the claim and counter claim nature of the evidence means it is not possible to make a definitive call that greater regulatory intrusion is warranted. There is considerable scope to improve commercial negotiation—particularly with regard to contract formation—as it has not yet achieved the level of maturity envisaged with the lifting of price regulation nearly a decade ago.

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Options for future airport regulationFINDING 9.1 Despite complaints from airport users and the public stance on airports taken by the Australian Competition and Consumer Commission (ACCC), existing safeguards have been very little used.

The ACCC has not called for, nor has the relevant Minister instigated, a price investigation of any airport.

Since the privatisation of airports, there has only been one application by an airport user to the National Competition Council to have airport services declared. Further, during this time, the relevant Minister has not commenced an application.

No user sought to have the declaration of domestic airside services at Sydney extended beyond the December 2010 expiry date.

RECOMMENDATION 9.1 The Australian Competition and Consumer Commission should publicly release a draft monitoring report and, following consultation with the monitored airports in response to that draft report, subsequently publicly release a final monitoring report.

RECOMMENDATION 9.2 As part of its monitoring report process, the Australian Competition and Consumer Commission (ACCC) should be able to nominate that an airport show cause why its conduct should not be subject to scrutiny under a Part VIIA price inquiry. Such a nomination should be contained in the draft monitoring report which should present, and set out the basis for, the ACCC’s preliminary findings.

RECOMMENDATION 9.3 To nominate an airport to show cause, the Australian Competition and Consumer Commission should form a view that there is prima facie evidence that the airport has, over time, demonstrated a consistent pattern of achieving aeronautical returns in excess of a reasonably expected band of outcomes, having regard to price paths, the quantum and timing of investment and how that bears on quality outcomes and market conditions. These criteria should be included in regulations.

RECOMMENDATION 9.4 An airport’s response to the nomination in the draft monitoring report should be made public. Where the Australian Competition and Consumer Commission (ACCC) is satisfied with the airport’s response, the final report shall reflect that and no further action will be taken. Where the ACCC is dissatisfied with that airport’s response to a show cause request, it shall recommend that the relevant competition Minister invokes a Part VIIA inquiry. If the Minister initiates a Part VIIA price inquiry, the review body would draw on the monitoring reports and also take evidence and consult with the airport operator and its customers. In forming a view about an airport’s exercise of market power, the review should examine:

whether charges for airport services have consistently been set at a level higher than would be justified on the basis of costs, investment requirements and changes to service quality

how non-price terms and conditions are treated in agreements and how rights to vary such terms are set

the extent to which consultation mechanisms allow for the reasonable provision of (two way) information.

The review body must be guided by the ‘Pricing Principles’.

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RECOMMENDATION 9.5 Assessments of airport behaviour during the next period of price monitoring should continue to be governed by an overarching set of principles. All the current ‘Pricing Principles’ should be retained.

RECOMMENDATION 9.6 Where an airport includes recourse to an approved binding independent dispute resolution mechanism as part of its contract formation process, it should not be subject to the show cause mechanism. To be eligible for this exception, the airport’s default binding dispute resolution mechanism must be approved by the Minister. The approved binding dispute resolution mechanism would not preclude the airport and its negotiating partner from subsequently agreeing to their own independent dispute resolution mechanism.

RECOMMENDATION 9.7 An airport-specific arbitration regime activated by deemed declaration of airport services under Part IIIA should not be introduced. Similarly, mandatory codes of conduct and mandatory guidelines to specify matters such as, the allocation of costs to aeronautical and non-aeronautical purposes and building block parameters, should not be introduced.

RECOMMENDATION 9.8 There should be a further period of price and quality of service monitoring at Australia’s major airports when the current arrangements end in June 2013. The new arrangements should continue to apply to Brisbane, Melbourne, Perth and Sydney airports until June 2020 and be subject to a review in June 2018.

Improving the monitoring regimeFINDING 10.1 In part due to the alignment of price monitoring requirements with the Corporations Act, and the flexibility afforded under the quality of service monitoring, compliance costs for the monitoring regime are low.

RECOMMENDATION 10.1 Quality of service monitoring should continue to apply to the price monitored airports until June 2020. However, specific improvements are warranted:

the objective criteria should be reviewed and updated by June 2013

the Australian Competition and Consumer Commission should work with the industry to explore means of standardising the passenger survey across airports, while maintaining low compliance costs

where an airport has submitted itself to independent dispute resolution, and has service level agreements with airlines covering the majority of its passengers, which stipulate methods for recourse in the event of a failure to meet a standard, the airline survey should no longer be conducted for that airport

government agencies should no longer be surveyed as part of the program. Any relevant variables that were previously in the government agencies survey can be obtained through objective measures and passenger surveys.

RECOMMENDATION 10.2 In administering the monitoring regime, the Australian Competition and Consumer Commission should:

take steps to make as much of its methodology publicly available as possible (subject to a review of statutory requirements)

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focus its conclusions on trends over time at a given airport, rather than comparisons across the five monitored airports. Such attempts at benchmarking are better suited to less frequent, broader reviews that can examine the airports in a wider international context.

Airport car parking and ground transport accessFINDING 11.1 There is an increasing array of pick-up and/or drop-off options at airports. More recently, some airports have introduced (with others in the planning phase) ‘park and wait areas’ to reduce congestion in the terminal forecourt and illegal parking around the airport. These options are either free or low cost.

FINDING 11.2 Airports control ground transport access to their precincts whether by private vehicle, taxi, bus, shuttle and, if available, train. The most common option, travel by private vehicle, includes drop-off and pick-up, use of a valet service, and short- or long-term parking either on-airport or in a competing off-airport facility. While there is a locational premium attached to the convenience of parking in close proximity to an airport terminal, the range and extent of modal options at each airport provides a competitive constraint on airports’ car park pricing, particularly long-term parking.

FINDING 11.3 At a minimum, car parking prices at airports reflect the fixed and variable costs of the service, the inbuilt over-capacity inherent in catering to peak demand and the opportunity cost of the land. Added to this is the imperative to ensure that passengers are guaranteed the convenience and amenity associated with a short-term car park when needed, and the necessity to enable demand management strategies to use price as a mechanism to shift long-term car parkers away from short-term places.

FINDING 11.4 Airports generally have invested in car parking facilities. No evidence has been found during this inquiry to substantiate concerns that Brisbane Airport may have inefficiently delayed investment, especially given the problems of access to finance during the global financial crisis.

FINDING 11.5 Airports charge access fees for vehicles, ranging from nothing for drop-off and pick-up to differential fees for taxis, limousines and shuttle/mini buses, including direct competitors such as off-airport car park providers. At face value, the fees do not appear excessive, notwithstanding that they may be in excess of costs for reasons of reducing congestion in the limited forecourt areas and rationing of the scarce resources available to those ground transport providers willing to pay for premium access. However, information about terms and conditions of access is less transparent.

RECOMMENDATION 11.1 For Brisbane, Melbourne, Perth and Sydney airports, the Australian Competition and Consumer Commission should monitor and publish:

prices, costs and profits relating to the supply of car parking

car parking capacity, annual throughput and the schedule of landside assets

ground transport access charges and the associated revenues for ground transport operators

qualitative indicators of service provision drawn from passenger surveys.

RECOMMENDATION 11.2 Mandatory Part IIIA access undertakings setting out prices, terms and conditions for surface transport operators to access airports should not be introduced.

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RECOMMENDATION 11.3 The price monitored airports should be required to publish on their websites the general prices and terms and conditions of access for transport operators and provide this material to the Australian Competition and Consumer Commission as part of their reporting obligations for monitoring. This should not preclude airports and their customers from being able to agree to vary these general conditions to suit their particular circumstances.

Broader land transport access and integration issuesFINDING 12.1 While ground transport access issues, such as congestion, arise in most major city airports to varying degrees, they seem to be most extreme in and around Sydney airport.

FINDING 12.2 When entering into public-private partnerships, governments need to consider carefully restrictive competitive arrangements that aim to ensure profitability for the private provider. Locking in such arrangements, especially for extended periods, may lead to inefficient transport outcomes.

RECOMMENDATION 12.1 The recent changes to master plan requirements and the introduction of the consultative forums should be allowed to take their course before other policy options are considered. A review into the efficacy of these measures should commence in 2015.

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