January 16, 2007

 

Australian's grains companies urged to merge

 

 

A much needed consolidation in Australian agribusiness could see two grain companies emerge from the current four that dominate now, GrainCorp Ltd. (GNC.AU) chairman Don Taylor said Tuesday (Jan 16).

 

Taylor said the grain industry is not down to its optimum size yet, and it may take a while.

 

Taylor said it is inevitable that AWB Ltd would lose its historical control of wheat exports, further exports to Iraq in 2007 would be undertaken by Wheat Australia Ltd., in which GrainCorp has a one-third stake.

 

Iraq would likely put out a tender in the next few months for wheat supplies, he said.

 

The listed grain companies that operate in Australia's eastern states are GrainCorp with a market capitalization of AUS$542 million, the AUS$1.1 billion AWB and ABB Grain Ltd. (ABB.AU) with a market cap of AUS$982 million.

 

Including these, there are nine major agricultural companies listed on the Australian stock exchange, with some of evolving from state-based, commodity-based cooperatives.

 

For a business to have a more stable earnings base, it needs to be geographically spread and also a bit more commodity spread, he said, adding that it is time to move onto the next phase.

 

The cost of capital for Australian agribusinesses is more expensive than for major global commodity traders and must be reduced if Australian companies are to compete in international markets, he added.

 

Financial markets penalize GrainCorp because of its fluctuating income that reflects the impact of drought, Taylor said.

 

In GrainCorp's annual report issued Monday, he said deregulated markets now apply to nearly all rural commodities and urged the whole sector to put aside vested interests and look at building a truly globally competitive rural services business.

 

Turning to wheat exports, GrainCorp is "ready, willing and able" to move into this business when, as he believes, AWB loses control of the industry.

 

Wheat exports would be liberalised as it is in the best interest of growers, he said, again without trying to predict the timing of such a move.

 

The opportunity to enhance grower returns will be improved by having more people supplying into the international market, which means there will be more people trying to buy the grain from farmers, he said.

 

On Friday, the Australian government named a panel headed by businessman John Ralph to consult with wheat growers and the industry "about their wheat export marketing needs" and report by March 30.

 

The report would be used by the government to decide on the future of wheat export marketing.