Weighing up the value of CBH proposal

02 Mar, 2016 01:00 AM

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.

Gregor Heard

Gregor Heard

is the national grains writer for Fairfax Agricultural Media
Date: Newest first | Oldest first


2/03/2016 2:27:45 PM

This should be as plain as day for a logical thinker. West Aussies who thought the grower corporate AWB was ripping them off can hardly turn around now and suggest that a corporate CBH would not end up doing the same. The value of this cooperative is there only whilst it belongs to growers, those who want their "equity" turned into cash are obviously planning to spend it somehow and the only way to do that other than borrowing against it is to sell, if you all sell you won't own anything and GrainCorp etc will extract their margins because the shareholders come first
2/03/2016 4:10:49 PM

Cost increases will be linked to CPI for the next 5 years. Don't you blokes read or listen? In the long run though there will be winners and losers BUT this was going to happen anyway if the CBH board under the current model made the changes that the network plan is going to need to make. The board is too gutless to even show the plan let alone enact it. That's just making investment a no brainer by the competition.
beacon boy
3/03/2016 5:49:23 AM

as a long time coop supporter I've had it up to here from the board with the so called network plan we never get to see. It's obvious there is no plan so for me the AGC proposal shows leadership which this company needs. the reality is CBH has to get efficient or it is going the way of the dodo along with our equity. put it to a vote mr Newman .. What are you afraid of ? Growers exercising a bit of democratic right??
3/03/2016 8:08:51 AM

one needs half a brain to see the golden egg will be broken and the farmer who take the short term view will need to be one who is getting out as the profit takers will be there fleecing you.
3/03/2016 8:32:04 AM

Go to it you CBH members level the playing field for us in the East? So we can all pay huge cost to export our grain through Graincorp! Eventually ADM will own it all and you will all be price takers like us working for the man. You will all get short term gain and then sink deep into financial pain like us as well. Solidarity you lot come on and join us and feel the pain we do ? Happy days ahead with crappy days to follow! Why should growers own their entire supply chain paddock to plate and share the profit? You can not have that it would make to much sense to keep a successful structure !!
mike tancock
3/03/2016 10:33:13 AM

Farmers of Western Australia beware of smiling gentlemen too afraid to create their own entity and devising shades of stealth to obtain yours.
3/03/2016 11:36:49 AM

All the east coast simpletons fail to understand WA is no comparison to the East. When the domestic market was deregulated in 1989, east coast opportunists chose to focus on that rather than export and busily built on farm storage. Any drought that has since come has seen domestic demand satisfied from on farm supplies and the export network gets left sitting idle. That can never happen in WA. Export is the game and always will be. Farmers will not have to build on farm storage because there are plenty of others willing to do that which means you can focus on buying more land.
3/03/2016 11:37:39 AM

If Consolidated is so convinced that the board is getting it all wrong, he is free to stand for a seat on the board and let other farmers vote as to his opinion and ideas. All very democratic and fair. I don't see Graincorp making decisions which are so favourable to farmers, so there is no good reason for them to have a say in CBH.
4/03/2016 2:46:41 PM

Are you for real D8?......and you're calling us here in the east simpletons!!?! The fact that there is no domestic market in the west should make the concept of cooperative handling a no brainer. People over here are building farm storage because it's the only way to get around the cost of elevating grain in a timely manner, why would you duplicate the bloody storage and handling network if you didn't have to?? You need to stop peddling BS d8 , get on the Jetstar red eye and have a look around before making rash decisions about CBH
6/03/2016 12:18:13 PM

Kanzi if your so democratic put the AGC proposal to the vote. NOW that true democracy for the growers.
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