March 5, 2010

Grain business Emerald Australia sells 50% stake to Sumitomo

Privately-held grain marketer and risk manager Emerald Group Australia recently announced the sale of a 50% equity stake to global trading giant Sumitomo Corp. of Japan for an undisclosed sum.

The placement is a significant step toward further developing Emerald's position as a leading Australian agribusiness and increasing its access to global grain markets, Emerald Chairman Alan Winney said in a statement.

"This strategic alignment with global powerhouse Sumitomo will provide Australian growers with unrivaled access to the premium Japanese market, as well as many other key Asian markets where Sumitomo already has investments in flour milling and other grain processing assets," he said.

Sumitomo's investment will provide it with a grain accumulation base in Australia through Emerald's; nine offices, 35 staff and a string of joint ventures with farmer and commercial groups that have a strong reach to farms through Australia's wheat lands, he said.

Sumitomo has been active in Australia for nearly 50 years, and along with many other local assets, particularly in mining and energy, owns 50% of Australian Bulk Alliance, which operates an upcountry grain storage network in the nation's southeast. ABA owns a grain terminal at Melbourne Port in an equal partnership with AWB Ltd. 

Australia is a priority for Sumitomo, and Winney said that for Emerald, which was founded in 2004, to be selected as an agribusiness partner is a real achievement.

Emerald bought on its own account, through joint ventures or sales pools 2.5 million tonnes or about 12% of Australia's 2009-10 wheat crop, with the grain having an approximate value of around A$700 million (US$632 million), he said. The company had handled about 1.5 million tonnes of the previous crop.

Sumitomo is the biggest supplier of Australian wheat into the Japanese market and Emerald is the sole supplier to the Japanese company.

Winney refused to disclose the price Sumitomo paid for its half of Emerald, but in the year that it has taken to negotiate the equity purchase, Sumitomo has come to understand the business well and seen it grow.

"We're happy with the outcome. It's a business of enough size that it's worth paying a little bit for," he said.

Moreover, Winney is excited about the prospects for the 50% he and the previous owners still hold, and said linking with Sumitomo with its scale and global presence could take Emerald business to a level that would not have been achievable on its own.

"The financial strength of Sumitomo dwarfs that of our main publicly listed competitors in Australia and is likely to lead to a change in the whole dynamic of the Australian grains industry," he said.

Emerald is not the biggest grain company in Australia, he said citing, Cooperative Bulk Handling Ltd. and AWB, "but we're pretty quickly catching up."