I have been asked to outline to the Conference my experience in setting up the marketing of our lucerne cube export business.
I first became aware of the potential to export lucerne cubes in 1976. At that time Japan was importing around 200,000 tonnes p.a. with the US supplying over 90% of the market. Our Trade and Resources people suggested that Japanese imports were expected to rise to around 350,000 tonnes within two or three years. I was growing lucerne in a similar climate to that of some of the US producers and, taking into account our opposite production season, I felt the prospects to export warranted some attention.
My first move was to contact a number of international trading houses to see what interest they might have in handling the product, and at what price. None had any knowledge of the product, or had even seen it. Most of them asked me what price I wanted for it, rather than tell me what price they believed I could expect. All were enthusiastic about the product itself.
I was generally disappointed with the approach of the trading houses to pricing. Trade and Resources had already given me a good indication of the likely price on a cost basis, including freight, landed at Japan.
One trading house in particular took what seemed to me a better approach. They were keen to handle the product, but suggested that by cooperation and a free exchange of information we might develop the trade to our mutual satisfaction. I had earlier received advice from the exporting division of my trading bank that the volume of trade, combined with the remote location of my property, indicated that using an agent for the final exporting arrangements was the most appropriate course to follow.
So, after agreeing to do business using this approach, the next step was to obtain costs for both domestic and overseas freight. This is where the greatest hurdle arose. No matter which way we looked at the situation, the net amount remaining after deducting these two freight items was insufficient. In attempting to resolve these I believe I learned two important lessons.
The first lesson occurred as a result of grappling with the problem of high charges on rail. The cost of railing containerised lucerne cubes over a distance in excess of 1000km was very high. Quite by chance I saw a copy of the railway’s freight schedule. There was one rate quoted for “lucerne products” which was what we had asked for and received. There was, however, a different and significantly lower rate for “sun dried hay cubes”. ‘This description, i.e. “sun dried hay cubes”, was precisely the description used when quoting the product overseas, so by correctly describing the product at all times we were able to keep freight costs as low as possible.
The second lesson involved shipping costs. We were aware that the scheduled rate for sun dried hay cubes was a lot higher than tile rate for meat meal, even though both products had a similar bulk density. Although none of the shipping companies could, or would, explain this apparent anomaly, the rate for cubes was about 35% higher than the rate for meat meal. We decided to prepare a submission and placed it before the Australian/Japan Shipping Conference, pointing out the anomaly and explaining that the higher rate was the only factor preventing the commencement of this trade. Now, whether this approach was successful or whether it was because exports of meat meal were declining or, as I suspect, a combination of both factors was responsible, as a result the scheduled rate was lowered by about 25%.
The lesson I learnt here was to use whatever leverage is available to keep these types of costs competitive, because people such as the shippers cannot be expected to be aware of what products are potentially available for export.
The combined reduction in these cost items meant that this trade could commence. I was responsible at my end for loading containers and delivering them to the railways, and the export merchants handled the product from that point.
During the early stages of my involvement in developing this trade, the assistance I received from the Department of Trade and Resources, the office of our Trade Commissioner in Japan, and the Department of Primary Industry was most helpful. Once the trade began the service provided by the NSW Department of Agriculture in carrying out the various health requirements has also been first-class.
This project, which began in 1978, has continued for all but two seasons. There have been a couple of occasions when the cost-price squeeze has meant that our product has not been competitive. At present the trade is again under way and for the immediate future prospects appear quite good.