Routes to market

Reliable access to markets is essential and confirms the fact that location is fundamental to investment performance.

3 April 2014, Words by Ian Bailey

 

Farmland capital values are higher when locations are closer to good infrastructure due to reduced transport costs. Reliable access to markets (domestic and export) is vitally important to maximising farm profits and the overall performance of the agricultural investment.

In many ways it is a double edged sword as inputs need to reach the farm and outputs must arrive at market without losing quality during the journey.

We use Mozambique and the USA to illustrate the issues to be aware of and how to maximise opportunities to mitigate the potential costs. Location is fundamental to investment performance.

Mozambique

■ Transport can be as much as 30% of crop output

■ Transport approximately: 20 cents per km per tonne along main highway

■ 80% of roads are unpaved and only accessible in dry season

■ Transport times are excessive and unreliable

■ Costs and accessibility increase either side of road and depend on distance from main road and local conditions

COSTS CAN BE MITIGATED BY:

■ Linking road and rail investment

■ Acquiring land in accessible locations

■ Increasing output/reducing costs (especially if agronomic factors outweigh transport costs)

Map 3.1
USA

■ High capacity international ports, linking markets at home and abroad

■ Good internal waterway network including Mississippi River System

■ Good interstate road and rail networks

■ Increasing access and freight traffic capacity challenges port congestion

KEY TRANSPORT LINK

■ Transporting goods by water is the cheapest option, with road being the most expensive

■ Paved or graded roads are essential to ensure reduced transport time and reliability

■ The cost benefit of railway transport improves with distance and then plateaus

Map 3.2
 
A question of maturity

A comparison of mature and emerging markets

Mature markets

■ Good infrastructure for production areas

■ High capacity international ports

■ Good internal waterway networks

■ Good road and rail networks

■ Spare capacity

■ Bulk handling ports strategically placed near grain production

Emerging markets

■ Poor infrastructure is in some cases coupled with high levels of outputs (eg Brazil)

■ Lack of capacity along the transport links (storage and transport)

■ High proportion roads unpaved

■ Difficulty in transporting output to markets and ports results in high losses due to storage and transport costs

■ Infrastructure is developing but still limited

■ For example, 60% roads unpaved in Hungary

■ Port infrastructure is being upgraded in some areas

■ Transporting farm output to markets is still a major issue

■ Investment in better road networks and transport corridors are opening new markets; eg Mozambique and Tanzania

 
 

Key Contacts

Ian Bailey

Ian Bailey

Director
Rural Research

Savills Margaret Street

+44 (0) 207 299 3099

 

Hugh Coghill

Hugh Coghill

Director
International Farmland

Savills Margaret Street

+44 (0) 20 7016 3818

 

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