CBH chairman defends Enhanced model

28 Feb, 2011 02:00 AM
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CBH chairman Neil Wandel has defended the new Enhanced CBH model after claims that the co-operative didn't want to change its structure.

Mr Wandel said examples included more rewards based on loyalty and patronage, loyalty payments in the form of interest-paying notes that would add to a grower's balance sheet and instruments such as grower bonds which would enable growers to co-invest in growth opportunities.

He said these and many others were under active investigation by CBH with some likely to be developed soon and others in the medium term.

Mr Wandel said the success of the CBH structure review was never going to be judged by the enormity of change to the underlying model and contrary to Pastoralists and Graziers Association (PGA) executive member Gary McGill's claims (in last week's Farm Weekly), the CBH board of directors went into the project with the aim of investigating the full range of models, right through to public listing, with an open mind.

Mr Wandel said if CBH's current structure or something similar to it turned out to provide the best outcome for growers, then so be it.

He said the point was that the decision to change the structure needed to be based on evidence and analysis, including by independent expert advisers.

"That is what has occurred," Mr Wandel said

"We do not dispute that Enhanced CBH is similar to our current co-operative model.

"We are remaining a co-op and we are proud to do so.

"There are many examples of successful globally competitive farmer co-ops including Cenex Harvest States, Rabobank, Fonterra, Ravensdown, and Murray Goulburn."

Mr Wandel said CBH hadn't moved back to where it started, but the difference now was CBH had clarity, certainty and confidence that this was the best structure for its future.

"As simple as that may sound, this decision means that growers and the CBH board, management and employees can move forward without the debilitating distraction of this seemingly eternal debate and focus on maximising value to growers," Mr Wandel said.

"This structure gives us the ability to provide returns to growers in ways that companies with external shareholders to satisfy may not support.

"That includes reinvesting surpluses into keeping storage and handling fees as low as possible and maintaining high levels of investment in upgrade and maintenance of our network."

Mr Wandel said now the decision had been made it also allowed CBH to really push and stretch the new model to provide new and innovative ways of returning value to growers such as through additional predictable rewards for growers based on their loyalty and patronage to CBH and through co-investment instruments.

He said the board and management had also looked into a number of new grower services including Quality Optimisation and insurance-type products that growers had indicated they wanted.

"All of this can be done while maintaining our tax-exempt status which benefits our business by $10-$15 million in an average year, more in large harvest years, for reinvestment in the network, products and services," he said.

"Some growers have said they assume CBH would constantly aim to reduce storage and handling charges and roll-out new products and services that are centred on maximising growers' long-term profitability.

"So what's different?

"That assumption by growers is absolutely correct under the model the board has supported.

"It is exactly what this model offers to every grower in WA.

"But it would be dangerous to assume that would remain the case if CBH went down the path of a different model such as the public listing favoured by Mr McGill."

Mr Wandel said private and public corporations put shareholders first but CBH put growers first.

Mr McGill said CBH should have presented a corporate listing option and asked members which they'd prefer.

"He suggests we would have come close to getting 75 per cent voting for a listing," Mr Wandel said.

"There is simply no evidence that would support this belief.

"The specific question that was asked in our survey was whether the respondent agreed with the statement: I believe the CBH Group should be publicly listed.

"It is a mystery to me how that could be perceived as "push polling" toward a co-operative outcome.

"Given the opportunity to state their views on that very clear question only 24pc of the 1000-plus respondents said they favoured public listing.

"Given the opportunity to state their views on another very clear statement, that CBH operate under co-operative principles, 72pc of member respondents said it was important or very important and another 12pc were neutral."

Mr Wandel said this was not a "facade of consultation" but one of the biggest surveys ever commissioned by CBH and it was supplemented by discussion forums, grower meetings and open lines of communication to all directors and growers were asked their views on every step of the journey.

"I remind growers that Mr McGill also stood for election to the CBH Board last year on a platform which championed public listing," Mr Wandel said.

"He received 22pc of the primary vote in District 2.

"Some might argue these outcomes would have been different if members had more knowledge about a public listing model.

"I point out that virtually all CBH members have direct experience of former farmer-controlled organisations that have transitioned into publicly listed entities."

He said there were pros and cons associated with every type of structure but on balance the board was united in believing that Enhanced CBH provided the best outcome for its members.

"CBH is not complacent about the challenges we face competing against affluent international competitors able to tap into equity markets," he said.

"But we believe we have a powerful and compelling point of difference in solely focussing on maximising value to growers, including investing in international market development and programs like Quality Optimisation."

He said CBH was also well aware that it must remain commercially strong so that it could continue to put growers first.

"That means having the right strategic and financial targets and controls in place, which we have," he said.

"Financial institutions recognise that co-operatives can be just as successful and commercially rigorous as corporations, in contrast to some views.

"The facts are that CBH annually secures more than $1 billion a year of seasonal finance from leading banks and we have sufficient access to debt capital to fund an acquisition of several hundred million dollars.

"CBH has not been restricted by lack of access to the debt markets and the capital required for prudent growth."

Assistant professor of agribusiness management at the University of Missouri Fabio Chaddad specialises in farmer-owned co-operatives and worked with CBH on its new structure.

His extensive work on co-operative capital structure and governance, in particular how co-operatives changed their structures to continue to be relevant and adapt to changes in their competitive environments, earned him an invitation to present to the CBH board.

Subsequently he was invited by CBH to engage with its management team and board on the capital restructure project in January 2010.

Mr Chaddad echoed Mr Wandel's sentiment and said the project started with a survey of 1000-plus CBH members who clearly indicated that they wanted CBH to continue to be 100pc farmer owned and controlled.

He said CBH growers were very passionate about CBH and strongly believed that it was an extension of their farm.

"So we started with a clear mandate, make some structural changes in the current structure to provide more mechanisms for value distribution while maintaining ownership and control in the hands of growers," Mr Chaddad said.

Mr Chaddad said a co-operative was like any other business except for the fact that it had a well defined class of shareholders and the ownership structure was flexible and could be designed to accommodate changing growers' objectives and corporate strategies.

"As these change, the structure has to change to continue to be relevant," he said.

"It allows CBH to aggressively pursue its commercial interests, create value and then distribute that value back to WA growers."

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READER COMMENTS

John
1/03/2011 9:42:47 AM, on Farm Weekly

What are managers/execs/etc of CBH paid to do? - so much money is spent on outside consultants and reviews telling us what we already knew that if this money was saved it would reduce our handling charges by $5/tonne !!!!! CBH erodes value with one hand whilst the other hand spends a great deal of time and resources telling us you add value (propaganda)!!!

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