THE decision of the CBH Board not pay a rebate to growers who sold their grain to CBH Grains is a significant departure from the practice of previous CBH boards, who treated CBH Grains as a co-operative in its own right and used its profits to either boost the capital base of CBH Grains or rebate the surpluses back to its grower patrons.
The capital base of CBH Grains has been made entirely from its retained earnings and not through any contributions from the CBH parent.
Using the windfall profits from 2021/22 to pay a dividend to the CBH parent company rather than rebate the surpluses to growers, ends this practice and treats CBH Grains as a mere fundraiser for the CBH parent rather than the honest broker of the grain market that CBH promotes.
In a year when the grain trading margins have been excessive due to shipping slot shortages, the one mechanism that would have restored some equity back to those that traded with CBH Grain has been abandoned.
By rebating surpluses back to members in proportion to patronage, co-operatives ensure fairness to producers - thus if profits have been excessive they are returned back to members.
In the coming season the grain market seems to be characterised by large differences between the price offered to producers and Free on Board prices, in other word's large profits for traders who hold shipping slots.
Selling to a co-operative trader that rebates surpluses to members would give a measure of protection against profiteering in the market.
However if growers were looking to CBH Grains to do this, it seems they'll now have to look elsewhere.
The stated reason for passing the dividend back to the CBH parent is the need for more infrastructure spending.
Using funds from CBH Grains to do this is an extremely tax ineffective way of achieving this.
CBH Grain is a tax paying entity and profits incur 30 per cent company tax.
This means that if $100 million was required for infrastructure CBH grains would need to earn $142m in before tax profit to pay it.
Contrast this with a hypothetical charge direct to users of $100m and because of the CBH's tax free status $100m is available for infrastructure, saving $42m (the tax franking credits that are attached to the dividend have no worth to the CBH parent because it pays no tax).
Rather than CBH Grains being singled out to contribute to CBH infrastructure, surely it would be fairer and more tax effective for all marketers who use and profit from CBH infrastructure to also contribute via a charge.