CBH delivers rebate and freight saving

05 Oct, 2016 08:25 AM
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CBH chairman Wally Newman.
CBH chairman Wally Newman.

DESPITE tough global conditions the CBH Group has announced it will deliver $48.4 million in rebates to growers, the second highest paid since the grower patronage rebate program was established five years ago.

The rebate will equate to $4.20 per tonne to be paid to grain growers who delivered and sold grain to CBH last year.

CBH Chairman Wally Newman said the rebate was a demonstration of the co-operative continuing to create and return value to growers, keeping them internationally competitive.

"We are proud to announce this rebate as we head into what we expect will be a record harvest," he said.

"Despite challenging conditions CBH has worked hard to drive value within the business to support growers through rebates."

The total $4.20 per tonne rebate is made up of a $3.00 per tonne rebate from operations, with an additional $1.20 per tonne rebate from marketing and trading.

A significant proportion of the operations rebate has been delivered through the business's efficiency program, which has saved a total of $15 million - more than half of the $25 million total savings target over two years.

This included energy reduction initiatives, an organisational restructure which led to a reduction in staff numbers, changes to the procurement processes and moving away from print communications in favour of digital.

"We have carefully examined how we can do business smarter and found ways to operate more efficiently and cost-effectively," Mr Newman said

"This is how we drive the co-operative's performance - by returning as much value as possible to our growers through rebates and at the same time keeping the business very viable."

Mr Newman said the board made the decision not to pay an investment rebate from its Interflour and Blue Lake Milling (BLM), using the profits to re-invest in expansion opportunities in South East Asia.

CBH owns a 50pc share in the Interflour Group, which consists of seven flour mills located throughout Indonesia, Malaysia, Vietnam and Turkey.

"Trading conditions were tough globally and South East Asia is going through an economic downturn so our investments in Interflour are experiencing tighter margins," he said.

"At the same time there are some really good opportunities so the board made a decision not to pay an investment rebate but use the opportunity to pick up any good deals and consolidate."

This year CBH also expanded its BLM operations - which it purchased in 2015 for $40m - to construct an export oat processing facility at the Metro Grains Centre in Forrestfield.

"Blue Lake Milling was never intended to pay a rebate in the first year and they have also had it pretty tough and have had to import oats from WA," Mr Newman said.

"However, they have still made a profit and in a normal year we expect that to be significantly better."

Mr Newman said this year there had also been a change to how the rebate was calculated, with growers receiving it based on what they delivered or sold last year.

The rebate would be used to offset storage and handling this year as a lump sum, rather than as a dollar per tonne delivered.

The co-operative has also kept storage and handling fees flat across the network, which was attributed to a focus on reducing costs and network efficiencies.

As well as providing the rebate, CBH also announced an estimated 4pc freight rate reduction for harvest which has been driven by large grain volumes and lower fuel costs.

CBH general manager of operations David Capper said the estimated reduction was the result of larger than average harvests bringing the cost per tonne down.

"We've had a number of good harvests and are expecting another this season - this has a positive impact on our fixed rail costs which are based on a five year average," Mr Capper said.

"The more tonnes the freight fund handles the more cost effective it is per tonne.

"We're pleased to be able to forecast a reflection of this in freight rates for the upcoming season."

CBH is currently negotiating with Brookfield Rail for an interim rail access agreement, with the current agreement set to expire on December 31, while arbitration continues to settle long-term access arrangements.

Mr Capper said while negotiations were progressing, grower freight rates would be contingent on the outcome.

"We are continuing to negotiate a fair price for rail access to help our growers be competitive in the global market.

"We are hopeful of a positive outcome, however we will finalise freight rates early in 2017 when we have a clearer picture of the environment, including Brookfield Rail's access fees."

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READER COMMENTS

Deregul8
7/10/2016 12:30:25 PM, on Farm Weekly

All they have done is manufactured a rebate out of consolidated taxings on grain receivals. There'll be nothing next year and millions have been spent on no future sites to take in grain that won't be there now. The only path forward is investment in super sites and rationalisation of costly sites (unreliable tonnes). Wonder how much dough has been wasted on expensive oats with early contracts? Not to mention buying and building assets whose value have been inflated by that high oats price at the time.
Rural Realist
10/10/2016 10:16:51 AM, on Farm Weekly

D8 some real expertise there! Even if money was wasted going long oats, do you not think exactly the opposite would have been true last year? Did you know it's cheaper to keep running down old sites with minimal maintenance than it is to build new ones (not that I don't think we should build new ones). The fact is they had a profitable year because of volume in the system, and the rebates reflect exactly that. Although that must be an inconvenient slap in the face to the AGC proponents.
RETRAC
19/10/2016 1:30:44 PM, on Farm Weekly

I heard that the rebate would have been twice what is given if it wasn't wasted on all those expensive oats contracts. Lots of oats on the horizon.

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