Better industry position

27 Feb, 2002 10:00 PM
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WA'S grain industry leaders, Cooperative Bulk Handling and the Grain Pool of WA, are poised on a burning platform and must take action to secure their position in the state's grain industry.

This has been the message from both CBH and GPWA chairmen and CEOs at the round of grower meetings being held across rural WA this month.

The four men have stated the business case for a merger, which has convinced many growers who previously sat on the fence to support it.

According to GPWA chairman Robert Sewell, the two organisations needed to join forces in order to fend off competition in the wake of deregulation.

While he saw the single desk as robust, he said deregulation was a real possibility in the future and competition was imminent.

"The burning platform hasn't burnt out yet, but it is getting warm," Mr Sewell said.

If growers don't vote for the merger and CBH doesn't make moves to better its position in the supply chain, CBH CEO Imre Mencshelyi said growers could expect it to become merely a grain warehouser.

This meant CBH's share of the supply chain would be nil and would devalue the growers' investment in CBH.

According to Mr Mencshelyi, growers could look forward to reaping rewards in terms of increased profitability, improved services and ownership of a strengthened and more competitive grower organisation.

The demise of CBH's position in WA's grain industry began in 1989 when it lost its sole right to store and handle WA's grain crop.

Competition in the domestic grain market came in the same year for GPWA when the Grain Marketing Act was changed to free up the domestic grain trade.

Prior to 1989, CBH was the face of WA's grain industry and controlled nearly 100pc of the supply chain, paying growers for grain and paying freight and wharfage on their behalf.

But in July 2001, supply chain control had plummeted to 35pc because AWB Ltd and GPWA had set up their own payment systems and negotiated their own freight rates.

Since CBH lost product control, it now acts upon instruction from the grain marketers.

Mr Mencshelyi said the key was product ownership.

Through a CBH and GPWA merger, CBH would have ownership of GPWA's grain.

Benefits to WA's grain industry included a robust industry in a regulated or deregulated environment, improved storage benefits for growers and customers, and protection for CBH's 46 customers with no preferential treatment given to any customer.

This was guaranteed, according to CBH chairman Allan Watson.

At the meetings, the chairmen and CEOs promoted the merger through a cost saving of $38m over the first three consecutive years and $16m per year thereafter.

It has been revealed at the meetings that savings per annum included $3m duplication elimination in head office, $7.8m from a boost in business operation efficiency and $5.8m gained through market value creation.

The estimated cost of the merger sat at $3m, which included legislation drafting, redundancies and paperwork, among other things.

The only risks exposed were that CBH had never been involved in marketing and trading.

The other was competition with AWB Ltd for grain ownership and threats of AWB Ltd building grain storage and handling in WA.

CBH members are being asked to approve changes to the CBH Articles of Association in the lead-up to the CBH AGM on March 7, which will enable the merger to proceed.

CBH shareholders have been encouraged to lodge their vote by post by Friday, March 1, to guarantee they are received by March 6, or attend the AGM.

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