WESTERN Australian grower members of the CBH co-operative are currently trying to make sense of the proposal from Australian Grains Champion (AGC) to privatise the company.
Central to their decision-making will be what the changes will mean to their bottom line, or whether pay-outs for their co-operative shares are worth the risk of potentially increasing costs.
Agricultural market analysts Mercado took a look at the numbers involved in the CBH deal to try and see what the plan would mean for growers in different positions.
Generally speaking, the research showed corporatisation would benefit a large number of growers financially, so long as supply chain costs did not increase massively.
“We wanted to look at the theory thrown up by some growers that it would be short term gain for long term pain,” said Mercado business development manager Andrew Whitelaw.
He said growers who were maintaining a steady level of production could have a net benefit from corporatisation of between $15-20 a tonne.
In contrast, a grower expanding will initially have benefits from the cash injection but higher costs will gradually impact.
However, Mr Whitelaw said using median numbers for the rise in supply chain costs and the amount of tonnes produced, it would take 25-30 years before the grower is in negative territory on a purely financial basis.
Even under a more pessimistic set of figures, he said it would take 16 years before the deal became negative.
However, Mr Whitelaw said the numbers needed to be considered just as a conversation point, rather than an absolute forecast of what would happen should CBH go public.
“It is difficult to quantify in some respects, because the supply chain cost increases could range from anything from nothing to $30/t once the price rise freeze is over,” Mr Whitelaw said.
“The numbers also do not take into account how the share capital would be reinvested or other issues that would vary on a case-by-case basis.”
He did acknowledge, however, the research painted a relatively positive picture of the proposal.
“By these numbers, both costs and production would need to rise rapidly for a grower to be worse off in the short to medium term.”
He said for the Mercado study, a range of valuations for CBH of $2-3 billion was used and the income for shares sold came from figures from AGC.