Transportation infrastructure for agricultural products: National Agricultural Marketing Council & Transnet briefings

Agriculture, Land Reform and Rural Development

29 August 2011
Chairperson: Mr M Johnson (ANC)
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Meeting Summary

The National Agricultural Marketing Council  and Transnet briefed Members on  the transportation infrastructure for agricultural products. The main issue was to how to get the products to the market at a faster speed but at lesser costs. In the past, rail used to be the major carrier of agricultural goods but now that was not the case.

The National Agricultural Marketing Council spoke about the transport costs involved in agriculture. Road and rail were predominant means of freight transportation in South Africa. Combined, they contributed 98% of all logistic costs. The remaining 2% of costs were associated with other modes: 0.3% from air, 0.29% from coastal shipping, and 1.7% from pipelines.

Transnet Freight Rail stated that the industry was influenced by fuel price and import and export price imbalances. Inability to plan investments and volumes to be transported impacted on the industry. Transnet Freight Rail noted there was a decline in the rolling stock in the past six years and it appeared there was never a major investment in the rolling stock.

Members wanted to know about the plans of Transnet regarding the East London harbour; if Transnet would be profitable in the hands of a private investor; what was being done with cable theft; if the use of the available 11% of land would bring prices down and how it was going to be utilised; why R90 million earmarked for training of farmers was returned to Treasury; and what the price comparison was between rail, road and other modes of transportation.

Meeting report

National Agricultural Marketing Council presentation
Prof Andre Jooste, Senior Manager: Market and Economic Research Centre, National Agricultural Marketing Council (NAMC), indicated in his presentation that road and rail were the predominant means of freight transport in South Africa. Combined, they contributed 98% of all logistic costs. The remaining 2% of costs were associated with other modes: 0.3% from air, 0.29% from coastal shipping, and 1.7% from pipelines.

He highlighted that food prices globally increased by 43%. This was due to the weakness of the dollar. The exchange rate had been shielding South Africa against global increases in commodity and food prices. Processed goods had increased compared to unprocessed food.  Water and other services increased by 36%. It was also noted that the Eastern Cape and Northern Cape were the only provinces experiencing price increases in food in the country.

On land use, his presentation revealed that 12.6% of arable land available was capable of sustaining intensive to moderately well adapted cultivation. Of this, only 2% was prime agricultural land, and a further 11% could be added.

A 2011 study on SA infrastructure, when rail was compared with road, indicated that 78% of companies moved less than 10% of their goods by rail. If adequate rail capacity were available, 17% of companies would move over 50% of their goods by rail. (To drive and clarify his arguments, Prof. Jooste showed graphs and tables.)

In his concluding remarks he stated that different value chains would be affected differently by increasing logistical costs, e.g. wheat-to-bread vs maize-to-maize meal. Administered or regulated prices were continuing to make a significant contribution to the over cost of producing agricultural commodities and food. The significant increase in administered prices would affect:

the ability of agriculture to produce enough and affordable food
the sustainability of the sector since it directly and indirectly influences investment, the profitability and competitiveness of the sector
the ability of the sector to contribute towards job creation
the ability of the sector to contribute significantly towards rural development and alleviation of poverty.
 (Please refer to the presentation document.)

Discussion
Dr L Bosman (DA) asked what was done to protect the farmers and ordinary consumers from the international price rise.

Prof. Jooste explained that there were price differences on products for consumers based in urban areas and rural areas. The rural areas were expensive more than urban areas, depending on the vehicle used to transport goods to the rural areas, the distance it had to travel, and the infrastructure in use. But differences in bread prices were very small. With regard to farmers, he had no answer but farmers were getting a tax rebate on the price of diesel, and there were some tariffs in place for some agricultural products.

Ms D Carter (COPE)  wanted to know the price comparison between rail and road transportation plus some other modes and type of goods moved.

Prof. Jooste said there was no information at this stage regarding that issue. He stated there was a study being carried out by Stellenbosch University on this issue. But he emphasised the  NAMC was not collaborating with the university or financing it.

Mr S Abram (ANC)asked if the NAMC had a national plan where the country could bring another 11% of available land into production and if its use would bring prices down

Ms Sue Middleton, Deputy Director-General: Trade and Economic Development, Department of Agriculture, Forestry and Fisheries (DAFF), responded by saying that there was a plan to use the under-utilised 11% of land and facilities in the former homelands for developing small farmers, but there was no guarantee that it would bring down prices.

The Chairperson wanted to know why the DAFF returned R90m to Treasury earmarked for training small farmers.

Ms Middleton could not comment on the issue.

Transnet Presentation
Ms Neliswa Khumalo, General Manager: Transnet Freight Rail (TFR), noted that the agriculture industry was seasonal by nature, and that natural forces like drought and floods influenced production. Fuel price and import and export prices were influencing the sector.

In giving the overview of the agriculture industry, she said that Transnet Freight Rail (TFR) served grain, timber and fast moving consumer goods customers. The timber business was mostly limited to Mpumalanga and KwaZulu-Natal areas. TFR was mostly transporting timber logs, mining timber and pulp. The grain rail business was transporting maize, wheat and barley. The Fast Moving Consumer Goods (FMCG) business was providing transportation of sugar cane, beer, sugar and malt.

The grain industry was presenting a complex value chain consisting of farmers, co-operatives, millers, traders, silo owners and manufacturers. Transport costs were making up a major portion of the delivered price of grain.  TFR was mainly involved in inbound logistics in this industry. In other words, it conveyed grain from silos to mills and animal feed producers as well as exports and imports when required. Silos were mainly concentrated in the Free State, and the rail traffic was aligned to existing hubs.

Regarding rolling stock, it was revealed that the timber industry was served by the ST wagon. It was a skeleton type wagon which could be easily loaded from the side or top. It was mostly used for the transportation of timber logs. The FZ and FG type wagons were used in the grain and FMCG industries, and their capacity was 44 tons.

In the past six years there had been a decline in rolling stock. There was never a major investment in the rolling stock. Cable theft, infrastructure failures, and aging rolling stock were leading to the decline in service levels and late deliveries. Seasonality of yields was not lending itself to sustained investment in a climate of investment squeeze.

Some of the successes recorded include increased maize trains out of Kroonstad and Kimberley; the reinstatement of grain export through East London; collaboration with the timber industry to develop new generation timber wagons; and timber optimization – the establishment of customer mega loading site to fit in with rail block load concept.

Challenges faced by TFR included small consignments that were not cost effective for rail; long turnaround times of wagons; ailing locomotives and wagons; and that the TFR was limited to locomotives and slots. From the industry side, challenges noted were a lack of bi-directional traffic; small consignment sizes – silos were not able to accommodate block loads; lack of investment in silo loading equipment; imbalance between exports and imports; and seasonality of specific products.

Solutions arrived upon:
In 2007 the TFR decided to remain in the agriculture market in order to collaborate with industry to improve service levels. The issue of food security was the key thing, and a strategy was developed for less than train-load traffic though there was little success in that.

April 2011 saw the introduction of the Grain Optimisation Project which had improved service levels, decreased turnaround time of wagons, established dedicated cross functional team to address operational and service related issues, and saw a need to increase average train length by introducing consolidated loading points.

Collaboration projects with the industry had been entered into in order to design and build a new generation timber wagon; timber customers developed a mega loading site to fit in with the block load traffic concept of the TFR; and customers were erecting lighting at sidings to allow rail operations at night.

With regard to Private Sector Participation (PSP) Initiatives, customers and TFR had talks to conclude various PSP Agreements in order to enhance investment in industry and service levels. Talks had been held with grain industry role players to explore solutions to industry challenges. The TFR was planning to improve services for Black Economic Empowerment (BEE) farmers, and was continuing to prioritise the communities within which it operated. (Tables and graphs were shown for clarification.)
(Please refer to the presentation document.)

Discussion

Mr R Cebekhulu (IFP) wanted to know how effective Transnet was with regard to transporting raw material because lots of trucks distributing sugarcane to Richards Bay from inland were destroying the roads.

Ms Khumalo agreed and explained there were challenges, and an investment plan was in place. Transnet was trying to minimize road transportation and facilitating a swift move to rail transportation in order to make roads safer for ordinary travelers. She, however, emphasised that rolling stock was a TFR challenge because of the aging rolling stock and that was impacting on volumes to be moved by rail.

Mr Abram enquired why there was little progress regarding transportation of goods in the Northern Cape between Douglas and Belmont.

Adv Phyllis Difeto, Executive Manager: Group ER, Transnet Group, explained that Transnet was invited to present its plans about Northern Cape in terms of infrastructural issues. The plan was in existence, and would be sent to the Committee to be studied.

Ms M Pilusa-Mosoana (ANC) commented on the issue that transportation costs in agriculture in the country were the highest but South Africa was the lowest after Europe. She said it was unfair to compare South Africa with Europe. Rather South Africa should be compared with South Africa. To her, it appeared that rail transportation was cheaper than road, hence it cost so much to buy items.

Ms  Carter asked what Transnet was doing with the ailing East London harbour as it could do so much in terms of job creation.

Ms Difeto explained there  was a detailed TFR investment plan for both the East London and Port Elizabeth harbours. A R3. 1 billion plan had been drafted. Problems of infrastructure nature had been raised about these two harbours, but there seemed to have been delays in carrying out improvements.

Mr N du Toit (DA) wanted to find out if Transnet would be a profitable entity were it to be sold to a private investor, and secondly asked why there was no high frequency of trains passing other points because he was of the opinion that a higher frequency would make up for long distance trains.

Ms Khumalo, with regard to the profitability question, replied that there was possible growth in Transnet. There were initiatives that had been taken to make sure that Transnet would remain viable. About high frequency, she said the idea had been taken into consideration. It was an issue Transnet was debating. However, there was a challenge of using trains for short distance.

The Chairperson asked why nothing was done on cable theft because it was sabotage.

Mr Ravi Nair, General Manager: TFR Operations, explained that cable thefts had been reduced by way of an integrated plan. There was a unit that had been created to mitigate cable theft. Great strides had been made to reduce it and Transnet was working closely with law enforcement agencies including the judiciary.

The meeting was adjourned.

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