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

central wheatbelt
9/11/2015 12:48:33 PM, on Farm Weekly

X you have not nailed but dyna bolted it. There is always self interest when directors are elected by popularity and can subsidise their own operations with their directors fee's. Today's modern grower wants value out of CBH in $, not by paying more and getting $2 at the end when you exit the industry. With the 2016 elections coming up we need some young blood on as directors. My farm cannot afford to subsidise fellow grain growers, the current CBH cooperative model ain't working anymore.
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