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Australia - Rationalisation wheat shapes future
GENERAL, April 22, 2004
By season's end we will know if the WA crop prediction of 25 million tonnes by 2020 is likely and the structure CBH will take into the future.

This will be set against a backdrop of rationalisation, increasing deregulation and changing world markets in the grains industry.

The main players in the Australian grains industry is now five, squeezed from 15 over the past 15 years.

Added to this, the on-again, off-again merger between Ausbulk and the ABB may be decided this month - with speculation that an announcement could be made this week.

If it proceeds it would leave four major players - the AWB, GrainCorp, Ausbulk/ABB and CBH to battle it out, as inevitable rationalisation continues.

"I've predicted that we will probably get back to two," said CBH chief executive Imre Mencshelyi.

"And I think CBH will be there in some form or an other."

He said this month's announcement of CBH's 50:50 joint venture with Asia business conglomerate, Salim Group indicated a journey - one that was about positioning the grain industry in WA for the future.

"I would suggest that not too many people in the four organisations would have a clear idea where that journey is taking them - ie., what is the final destination?" he said.

"I think that will evolve in the next 6-12 months. We will know then.

"I can assure you that CBH will be one of the remaining entities."

To this end former CBH chairman Allan Watson put the question of CBH's structure on the public agenda, saying its current cooperative structure may serve it 2-4 years but not beyond.

And new chair Robert Sewell has indicated that they hoped to have a direction of how to reform the cooperative structure by year's end.

The other indication which firmed with the latest CBH manoeuvre was that the CBH group and the AWB would take separate paths.

This is despite AWB's business making up 70 per cent of that through the CBH storage and handling system.

Mr Mencshelyi said CBH was still committed to the logistics joint venture, Grain Direct, and would work with AWB through that, but a merger with the AWB under the current circumstances was unlikely.

"Mr Lindberg (AWB managing director) believes he is hopeful of a merger. But I would suggest it would be difficult to achieve under current circumstances," Mr Mencshelyi said.

"I would think there will probably be more of a commercial business relationship with AWB moving forward, as indicated by Grain Direct.

"I am not discounting a merger entirely, but I think it would be extremely difficult, under the current circumstances."

The formation of Pacific Agrifoods also gave CBH a 2.4 per cent stake in Elders' parent company, Futuris, because the 50:50 joint venture company Pacific Agrifoods acquired the Salim Group's 4.85 per cent interest in Futuris, at $1.60 a share.

While the joint venture company had "no present intention of making a takeover bid," according to a media statement. Opportunities for the three organisations to work together on various supply chain initiatives were also flagged.

But Mr Mencshelyi, who is also chair of the new joint-venture board, speaking after CBH's annual general meeting, in Perth at the start of this month, did not rule out taking a bigger stake in the future.

"We have looked at the synergies and linkages of Elders and, in effect, their direction is very similar to that of the CBH Group," Mr Mencshelyi said.

"We see some linkages there - although it may not necessarily be with grain, but we have barley within our sights.

"It's (CBH's stake in Futuris) a strategic investment for the future. The determination of where to from here is to go slow, have a good look at the environment and understand how to create value back to growers."

The Salim Group's interests include a 51.9 per cent stake in Indonesia's leading processed food company, Indofood which has a 100 per cent interest in the Bogasari Flour Mills.

Bogasari, the world's biggest privately-owned flour milling operation, is also the single biggest market for monopoly wheat exporter AWB, taking about 2 million tonnes a year, 80 per cent of which is WA-grown wheat, worth about $500 million annually.

Mr Mencshelyi said that while Bogasari was a major customer of AWB, they had also been a customer of CBH from an infrastructure point of view and he believed that all three parties could continue to service one of the biggest customers of WA grain in the Asian region.

"I think there are some synergies and linkages with AWB's relationship to Bogasari, and CBH's relationship with Bogasari," he said.

"It does benefit the grain industry of Australia and it does benefit the grains industry of WA in particular."

Salim Group chief executive Antony Salim, who also sits on the Futuris board, said the CBH Group represented a very synergistic partner for the Salim Group.

The Pacific Agrifoods investment is supported by the Futuris Board - unlike earlier posturing by the AWB, which still holds a 14.8 per cent share in Futuris acquired before the monopoly wheat exporter paid $825 million to get its hands on Landmark and its reach around rural Australia.
MGR Archive 23.4.2004
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