August 2, 2012

Australia's grain industry set for further consolidation

In line with a global trend, Australia's grain industry appears ripe for more consolidation.

This could lead to fewer competitors at the farm gate or country grain receival site and the creation of a more concentrated market, Alan Winney, chairman of grain exporter Emerald Group Australia Pty Ltd., said on Tuesday (July 31) at the Australian Grains Industry Conference.

Greater efficiency in the supply chain should benefit all through lower costs, leading to more competitive offers and higher returns, but if there's a lack of competitive tension, there might not be enough pressure to deliver better returns to farmers, Winney said.

Many global participants are quite active in Australian grains, seeking access to production, distribution and food assets or making local acquisitions, he said.

"Further consolidation will occur until we reach a similar pattern to global oil and mining conglomerates."

Winney warned that smaller traders won't be able to compete without alliances or partnerships or a strong balance sheet to make supply chain investments, as bigger participants dominate through lower interest costs, faster payment terms, and capital investment in more efficient infrastructure.

International trading companies operating in Australia include Glencore International, Cargill Inc., Noble, Louis Dreyfus, Wilmar International, Olam, Sumitomo, Marubeni, Cofco and Salim.

There are five significant Australian grain storage companies, of which three are Australian-owned, including the two largest operators, he said.

Global investment in the logistics sector "appears disproportionately lower than trading or processing, which could suggest further investment is probable," he added.

In an AUD120 million (US$126 million) investment announced in December, Emerald, which is half-owned by Sumitomo Corp. (8053.TO), integrated Sumitomo's network of upcountry grain storage sites in southeast Australia and an export terminal at Melbourne port while building more storage sites and leasing and running trains.