Newman warns beware on corporatisation

27 Jan, 2016 01:00 AM
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CBH chairman Wally Newman is warning WA growers
The juicy carrot might look good on the outside to be an attractive proposal
CBH chairman Wally Newman is warning WA growers "buyer beware" as debate continues surrounding a coporatisation bid of the co-operative which could include a pay out for grower shareholders but possibly lead to higher costs in the long run.

"BUYER beware" is the message CBH chairman Wally Newman is sending to growers in the wake of a rumoured bid to turn the co-operative into a corporate entity.

"There's no free lunches in this world," he said.

"You can't expect someone to outlay capital for CBH and not expect a return.

"The juicy carrot might look good on the outside to be an attractive proposal, but you need the full equation over the long-term.

"How much are we giving up for that carrot?"

Mr Newman sent a letter to the co-operative's 4200 grower members last week addressing the emergence of Australian Grains Champion (AGC), a group formed by some WA growers that is said to be forming a corporatisation concept for consideration by CBH growers.

In this letter Mr Newman outlines that the board has no details of any proposal from AGC, but welcomes the opportunity to consider any proposals.

He asks growers not to lose sight of "what your co-operative has been able to achieve by being the sole owners of a supply chain that is now the largest grain handler and marketer in Australia and returns all that value directly back to you, the growers".

Speaking to Farm Weekly, Mr Newman likened a corporate entity in WA having control over the grain supply chain as not being dissimilar to Brookfield Rail's monopoly over rail in WA.

"It's a good example of a monopoly owning a vital part of the supply chain where they can charge five times what the east coast are charging for the same service," he said.

"It's a really good example of what can happen if someone externally controls that supply chain and you no longer have the option to elect your directors.

"It's like selling your farm and leasing it back, you no longer own or control it."

Mr Newman said through a co-operative structure, CBH was investing hundreds of millions of dollars into supply chain upkeep annually, whereas WA growers could see the rail chain deteriorating under a corporate structure which was not responsible to users as grower shareholders.

Much of the criticism of CBH in its co-operative structure and surrounding the AGC debate has centred on CBH not adjusting quickly enough to competition in the marketplace, particularly as fellow grain handler Bunge bolsters its up-country supply chain.

One of the methods highlighted as a cost-saving mechanism for CBH while simultaneously putting money into grower bank accounts is the optimisation of the grain supply chain from paddock to port.

Mr Newman said following consultation with growers and feedback travelling between the board and growers at pre-harvest meetings last year, changes would begin to the supply chain in the coming months and continue for the next five years.

"Competition is really good, it makes us really work on how we can do it better," he said.

"We are looking at how we can get more tonnes to port to meet the market needs in the prime times.

"The network is about putting more value in growers' pockets at the end of the day, it's about getting grain to port faster than ever before with quicker turnarounds and when they do deliver they can deliver everything to one key local site.

"There could be up to $6 a tonne in savings by implementing a new network.

"We know that 80 per cent of the grain flow goes through 92 primary sites so we're only talking about 20pc of the grain that's going though 107 sites.

"It's about getting them to be more efficient so that we're not carrying all that cost of maintenance and employment for those sites.

"It's about doing it smarter, quicker and better and hitting the markets faster and keeping our growers internationally competitive."

Despite clear indications the network would become smaller under the new strategy, Mr Newman said sites would not be closed indefinitely, but kept for use in peak seasons and labelled "non-active" outside of these times.

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Rachael Oxborrow

Rachael Oxborrow

is grains writer for Farm Weekly
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READER COMMENTS

boris
27/01/2016 7:24:11 AM, on Farm Weekly

Agri-politicians or CBH directors will exploit the CBH resource for self interest until there is not much left. Running a multi-billion dollar company on politics is fine when growers have to use CBH. But the mix of socialism and business is a recipe for failure against new competitive forces. The Chairman knows the future is not bright for CBH unless they can forcefully lock growers into the static CBH supply chain. Well done to AGC, you will have your detractors but only because CBH has indoctrinated obedience into some growers. Lets vote on a value proposition and see where the numbers lay.
Deregul8
27/01/2016 7:29:17 AM, on Farm Weekly

Wally shareholders are sick of being treated like mushrooms while the board spends like drunken sailors overseas, interstate, trading desk losses. All of which serves to deliver us the most expensive storage and handling costs at a time of decade low oil prices. Only a corporatised structure will deliver a more experienced board with the ability to ensure this doesn't end in tears. At stake is billions of dollars of our equity. You'll be fine with your 5 shares ...
Simon
27/01/2016 8:27:43 AM, on Farm Weekly

The users of agribusiness infrastructure should control that infrastructure. Governments have traditionally run ports to prevent monopoly behaviour. Monopoly behaviour is what you will eventually get if you corporatise CBH.
Sasquatch
27/01/2016 10:42:58 AM, on Farm Weekly

More cliches from Wally than you can shake a stick at. Time to seperate the wheat from the chaff CBH.
boris
27/01/2016 10:59:15 AM, on Farm Weekly

Open your eyes Simon. CBH gets the top award for monopoly behaviour to the detriment of its own growers. Take a look at the Grain Express rules, take a look at site based pricing, take a look at longterm agreements, take a look at the financials, take a look at the propaganda without your rose colored glasses on, take a look at the supply chain costs, take a look at the malinvestments on the east coast, ask whether the Pacific North West trading office is still open after all the fan-fare. Think Simon just think!
drowning in debt
27/01/2016 12:14:07 PM, on Farm Weekly

so you sent yourself 5 letters mr newman?? these directors should declare their exact shareholdings if they expect shareholders to respect their words
Consolidated
27/01/2016 12:23:02 PM, on Farm Weekly

The current gang of 'yes wally' directors are obviously worried, because we finally hear from their illustrious leader outside of the election process. Growers want their equity and they want CBH to be a strong company that is a tangible asset on their balance sheets. And above all else growers want CBH to stop wasting money on stupidly thought out pipedreams. The current fertilizer war is going to be subsidised by higher storage and handling costs. CBH is haemorrhaging and all we get is a carefully crafted annual report hiding the true extent of losses. Wouldn't be possibly when listed.
Interested Party
28/01/2016 8:23:57 AM, on Farm Weekly

I see the sheep brigade are out bleating again. Short term gain long term pain comes to mind! Good luck with it and privatize at your peril. Trust you don't end up like growers over here. Slim growers and fat investors.
Rural Realist
28/01/2016 9:01:53 AM, on Farm Weekly

Good stuff Mr. Newman. We farmers love a whinge, but when you look over the fence, or storage and handling costs are pretty reasonable (best in the world?). As a grower I realise that whatever I sold my shares for, the increase in FOB cost would detract equally if not more from my land value. Something nobody seems to want to consider.
Jock Munro
28/01/2016 12:54:53 PM, on Farm Weekly

Well said Wally-any doubters should come over to the East and see what a mess we have made of things. Graincorp was set up as a corporate structure and its directors had a party at the grower's expense. The system was allowed to run down whilst it was being leveraged to fund non core activities. And as Wally said-You cannot sell off the company and hope to have the same co operative advantages.
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