CBH fees rise to cope with growing crop size

CBH fees rise to cope with growing crop size

Cropping News
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The grower receival fee and exporters port terminal shipping fee will each increase by $1.10 per tonne.

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CBH Group chief operations officer, and soon to be acting chief executive officer, Ben Macnamara.

CBH Group chief operations officer, and soon to be acting chief executive officer, Ben Macnamara.

THE CBH Group supply chain fees will increase by $2.20 a tonne for the coming harvest as Australia's biggest grain exporter focuses on improving its supply chain efficiencies, investing in additional storage and sustaining its current assets and infrastructure.

The announcement was made to Western Australian growers mid-last week, with the grower receival fee and exporters port terminal shipping fee each to increase by $1.10 per tonne.

CBH chief operations officer Ben Macnamara said due to WA's growing crop size the co-operative needed to invest in the network at elevated levels for the foreseeable future, particularly on its outbound logistics.

He said it was likely fees would go up by a similar amount next year.

"We won't determine that fully until we get through this crop and understand what our position looks like at that point in time, but we do want to be clear with growers that those are our intentions," Mr Macnamara said.

"Storage and handling fees with this increase are at $29.4 (for wheat) so essentially we are back to pre-2014 levels."

Going back a decade, Mr Macnamara said WA's five-year rolling average was roughly nine million tonnes of grain, compared to an average of 14.2mt today.

"The barley crop has certainly increased, obviously the wheat crop is increasing as well with better yields and the canola sector has pretty much doubled," Mr Macnamara said.

"There has been a minor increase in hectares - at the moment what we're seeing is a few tonnes coming out from the bluegum plantations and probably a few less sheep at the moment as well."

In response to the growing crop size, Mr Macnamara highlighted that the State's growers had invested in their harvesting and trucking capacity, with their average truck size going from 38 tonnes in 2011 to 48t in 2020, resulting in WA's crop coming in far quicker than it used to.

In anticipation of a massive harvest this year, Mr Macnamara said the co-operative was investing in "additional DOGS (drive over grids), additional tarps and additional testing equipment".

"On top of that we will have also added 2.7mt of additional storage by the end of this year," Mr Macnamara said.

While acknowledging it was early in the year to start estimating WA's grain haul this year, Mr Macnamara said it was likely the CBH Group would receive in excess of its record of 16.6mt in 2017/2018.

"Paddock Planner is more important this year than it has ever been before, on the basis that we believe we are set up very nicely for a very large crop," Mr Macnamara said.

"We are expecting a very large canola crop and that is one thing we're working our way through, in terms of could that actually pull back the overall volume of the crop - that's still expecting something in excess of our five-year average."

CBH Group chief financial officer Doug Warden emphasised that in increasing the supply chain fees the co-operative was only seeking to charge sufficient fees to cover costs and reinvest in the network.

"We have kept fees low for a long time now as the crop size has continued to grow and there is now a network requirement to increase those fees," Mr Warden said.

Based on industry standards, Mr Warden said CBH Group needed to be spending two to three per cent of the $5 billion the network is insured for on sustaining capital and maintenance.

However he said over the past decade the sustaining capital invested into the network had been too low and so the co-operative had effectively been playing a game of "catch-up" over the past few years.

"If it's a $5 billion replacement cost, 2pc of that is $100 million and 3pc of that is about $150m," Mr Warden said.

"In the past five years we have been spending about 1.5pc of the replacement cost.

"From 2010 to 2017, we spent on average a bit over $80m on capital and since 2018 we've spent just shy of $200m on average on capital.

"That's not dealing with an increasing crop size and modernising our outloading facilities - that's just sustaining and maintaining."

Due to the State's ever-increasing crop size, Mr Warden said grower rebates would be unlikely in the near future.

"If the crop size grows, so too will the capital requirement to handle that task, so that should absorb money that might otherwise go for rebates over time," Mr Warden said.

"However marketing and trading doesn't have the same capital requirements - so if they make super profits going forward the super profits belong to growers ultimately."

Mr Macnamara will be the co-operative's acting chief executive from July 1, when Jimmy Wilson leaves CBH Group.

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