Wandel calls for CBH differential pricing

06 Nov, 2015 01:00 AM
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FORMER CBH chairman Neil Wandel has called on the grain co-operative to look seriously at differential pricing.

In an exclusive interview with Farm Weekly, Mr Wandel said CBH is in danger of falling victim to increased competition unless it makes some changes around its logistics.

Mr Wandel said he had real concerns about the future viability of CBH, after attending a grower meeting last month where CBH management outlined the co-operative's harvest management plan.

"The management never addressed concerns about its network strategy," Mr Wandel said.

"It was sort of carry on the way we've always done it, with no mention of cross subsidisation or differential pricing.

"I think the management missed two critical points at the grower meeting I attended, which address competition and the fact that CBH doesn't have a storage issue, it has a logistics issue, because it can't get grain to port quick enough."

Mr Wandel said the best solution to the logistics issue was to implement differential pricing.

"That would send a signal to growers that CBH supports those who cart to port or to bins in the right logistical location," he said.

"There's one million tonnes of grain delivered to the Esperance port within a 10 kilometre radius and the same goes for the Geraldton zone.

"It also will happen in Albany once the new port site is established.

"But at the moment growers who deliver to port or to strategic sites, pay the same charges as those who deliver to smaller sites.

"Yet CBH gains real value from the port and strategic sites so growers delivering to those sites should be charged accordingly and not be subject to what is essentially unfair cross-subsidisation.

"I don't think many growers would know how much cross-subsidisation goes on.

"The cost of running some sites is ridiculous at between $30 and $40 a tonne, just to receive and store grain.

"That's a cost that is borne by every grower, regardless of how efficient many are in carting to CBH's value sites.

"If that strategy is held onto I worry whether CBH will survive in the face of increasing competition from the Bunges of this world.

"We see what Bunge is doing and there are other players ready to come into our market.

"I want CBH to survive because it is world class but the smaller growers need to realise if they lose the bigger growers to competition CBH won't survive (based on the smaller volumes of grain it will receive)."

Mr Wandel stressed his allegiance to CBH.

"It's a great organisation but the board needs to realise what is happening in the market place," he said.

"Gone are the days when you had two silos in the paddock and carted to a local bin in a 25-tonne capacity truck.

"We're seeing 2000 tonnes a day leave the farm and in many cases to handle the logistics of such operations, farmers are turning to short term on-farm storage because they can't get the grain off the farm quick enough.

"That has been the big change since I first started with the CBH board 12 years ago and it really reflects where the business of growing grain is heading.

"CBH can't afford to keep raising charges and maintain cross-subsidisation.

"Differential pricing will change the way grain flows because the flow of grain will change with competition.

"It won't take long for the competition to set up strategic sites to pick the cream out of the volume by charging lower costs.

"And they only need to take APW and Hard with no segregations.

"It's a compelling reason why we should retain CBH.

"The carrot for CBH to maintain commercial grain volumes, is to reward growers delivering to its value sites because the competition is not going away."

Mr Wandel said growers, by and large, would adapt to change where they could see savings of $1 or $2 a tonne.

"It's part of their business to seek least-cost pathways," he said.

"Everybody's doing their sums and growers are very adept at working out where they can save money.

"Given the chance, they will work out what savings they can make to their delivery strategy."

Mr Wandel said the goal posts for the WA grains industry had changed.

"It's a different mentality now and a different and more competitive environment than it was when I joined the board,'' he said.

"The board needs to make some hard decisions because sooner rather than later some bins will have to drop out in the same way the Esperance zone has been rationalised.

"Keeping bins that only receive 3000 or 5000 tonnes is just not commercial business."

Mr Wandel said he realised most of the pain with bin closures would involve growers in the Kwinana zone.

"They say they can't cart to port but I believe the standard (Perth-Kalgoorlie) rail line is their port, along with such sites as York, Northam and Brookton, for example.

"I'm not suggesting wholesale closure of a lot of bins, although some will have to close.

"Where history has shown volumes can be produced such bins may open in good years so a degree of flexibility is maintained.

"But at the end of the day CBH has to be commercial and any form of cross subsidisation will continue to encourage competition, to the detriment of CBH."

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Ken Wilson

Ken Wilson

is Farm Weekly's machinery writer
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READER COMMENTS

boris
6/11/2015 8:26:16 AM, on Farm Weekly

Wow, it's about time you told the full story Neil! But it does look a little like Joe Hockey, on the way out the door, encouraging the parliament to undertake tax reform. When he couldn't actually achieve it himself, when he had the opportunity. Maybe Neil and Jo will become friends? Its all too little and too late for CBH!
Deregul8
6/11/2015 8:26:54 AM, on Farm Weekly

Pity you didn't practise the preach whilst at the helm Neil. For many directors of course the ride is all about the money, lifestyle and more dangerously ego. Many shareholders want this thing corporatised so the board can be swept clean and we can get the quality of directors needed to position this company to survive into the future. Now the gravvy train ain't so frothy some hard decisions will need to be made and many losses will be finally understood by shareholders. How will the board handle a hostile shareholder base?
NSW Farmer
6/11/2015 8:33:32 AM, on Farm Weekly

where is our Newcastle Terminal CBH? many promises made.
Gerry Atric
6/11/2015 10:33:51 AM, on Farm Weekly

Pretty sure the Newcastle terminal is in Newcastle....
Consolidated
6/11/2015 11:21:23 AM, on Farm Weekly

Watch out for sniper charges this year. CBH has an expensive year ahead. Large % of grain in tier 3 catchment. Toy trains will be idle. Trucks roaring flat out 600km round trip on 55t. Already rumours of CBH keeping feed barley stacks pure in variety to cream the malt market. Wondering why malt premiums aren't surging? Wink wink nudge nudge. Maltsters are talking to CBH not with prices. Poor old WA barley grower is getting screwed by its own coop
Western Districts
6/11/2015 11:27:32 AM, on Farm Weekly

"I don't think many growers would know how much cross-subsidisation goes on." totally agree neil. even though tier 3 producers are in the money this year, guess who'll be picking up the tab for getting all those tonnes to port??? certainly not the boys close to bunbury cos they'll dodge cbh into bunge
the serf
6/11/2015 12:28:36 PM, on Farm Weekly

a farmer in Cunderdin now pays $60 a ton to get his grain exported. that's up $6 a ton in 2 years thanks largely to increased fobbing charges (thanks cbh). now there are some hefty rain freight charge increases coming too. costs are blowing out because investment has been on non core pipedreams heads should roll at the cbh board level
Genex
6/11/2015 12:41:24 PM, on Farm Weekly

No accountability NSW Farmer so they don't have to execute strategy, just come up with a half baked idea and tell members they are creating value and returning it to us. Swallowed hook line and sinker by WA growers.
X
8/11/2015 9:33:35 PM, on Farm Weekly

Unless the current CBH Board endorse management recommendations re network rationalisation/ revitalisation CBH. are probably going to sink into the mire. Given the current low cost of finance and a very competitive project environment I believe the Board are negligent in not acting.The world is changing however it appears the majority of Directors have their head in tha sand. Neil has nailed it, you cannot cross subsidise and maintain a sustainable CBH into the future. It's only a matter of time before the multinationals invest on the standard gauge line
Farmer
9/11/2015 7:44:33 AM, on Farm Weekly

X you have nailed it!
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