![CBH CEO Andy Crane & chairman Wally Newman.](/content/dam/images/g/n/3/5/p/f/image.related.afrArticleLead.620x350.gtoavh.png/1483944400645.jpg)
A record crop for CBH Group, Australia's largest grains handler, is good timing for chief executive Andy Crane and the board as it comes a year after they rejected efforts to corporatise the company and list it on the Australian Securities Exchange (ASX).
CBH is also the country's largest co-operative. It is, in fact, one of the few remaining large farmer co-operatives around. Co-operatives have long been considered the dinosaurs of the industry with critics pointing to antiquated governance and constrained growth.
Other former co-ops including South Australia's ABB Grain and Victoria's AWB abandoned the model years ago and listed on the ASX before being acquired by foreign players.
But CBH has successfully resisted pressure from rebel growers and former directors to go down that path.
GrainCorp-backed Australian Grains Champion (AGC) lost its bid last year to list the company after bypassing the CBH board to pitch the $1 billion deal directly to the co-operative's growers.
The fortress continues to look impenetrable after CBH on Monday reported a strong financial year ending September 30. Its more than 4000 growers will receive a windfall in the form of a record $62.7 million rebate. The 13.6 million tonne harvest was Western Australia's fourth-largest on record.
A weak harvest would give cash-strapped farmers more incentive to take the money and run. Dealmakers were looking at a similar move back in 2010 when Western Australia delivered its second lowest harvest in two decades due to drought. Corporatisation would have looked more attractive to farmers back then than it would at the moment.
Current structure
A survey of CBH members late last year showed support for the current structure. About 80 per cent of those surveyed, which saw an unusually high 2600 out of 4200 growers respond, favoured keeping the current structure.
That does mean the merits for corporatising the business have gone way. Even Crane admits growers will continue to look at the idea from time to time. Co-operatives have long been viewed as the dinosaurs of the agri-business world and an ASX-listing is viewed by many as inevitable.
"It remains a question and every few years the growers will come back and have a look at it. They are perfectly entitled to," Crane says. "They have come back again with a clear statement for the job that we do – which is running the supply chain that connects them to that export market – that the custodian of the supply chain is best being a grower controlled cooperative.
"I can say the co-op mutual sector is alive and well more Australians are members than own shares. It is a large sector of the Australian economy that is under reported and not well understood."
CBH clearly won the latest battle for its survival but it could be a different story if another push emerges during leaner times. Central to the philosophy for retaining the current model is that the co-operative is an asset that is handed on from generation to generation. That is not happening so much in the modern world and the number of smaller grower members, who are the strongest supporters of a co-operative model, is shrinking.
There are other challenges facing the grains industry. Crane acknowledged the threat from Black Sea producers, led by Russia, and says Australia can no longer take its proximity to Asia for granted. Lower freight costs, better infrastructure and new technology has made the Southeast Asian market core competitive.
"We are seeing that strong pressure from the Black Sea. They have been growing in tonnage over several years now. We have seen it with our own flour mills … the price discount needed to take grains from that origin is getting less. We can't take our proximity advantage for granted," he says.
Donald Trump is also a worry for the industry given the US President-elect's sentiments towards free trade. Crane can take some comfort from the bilateral trade deals Australia has negotiated with China and Japan which will stay in place regardless of what happens to multilateral agreements. But opposition to the Trans Pacific Partnership (TPP) will not help.
michael.smith@fairfaxmedia.com.au