ADM-Bunge rumour part of larger consolidation story

Archer Daniels Midland is reported to be considering buying Bunge, which one farm group called bad news for producers

Corporate consolidation has significantly reshaped the Canadian grain handling industry over the past decade or two.

Rumours that Archer Daniels Midland is pursuing a takeover of Bunge Ltd., suggest that further consolidation may be in the works, a development that has some grain industry observers wondering how primary producers might be affected.

Brian Hayward, a former grain industry executive, said he was “surprised and not surprised” when he learned that ADM may be pursuing a takeover of Bunge.

Hayward, the former chief executive officer at Agricore United, said companies that have complementary assets and are seeking to do more at a lower cost will continue to look at “combinations that make sense.”

That’s particularly true in a global grain handling sector that’s characterized by declining commodity values, tightening margins and a global surplus of major grains.

“Bigger is what’s required today,” Hayward said.

“Conditions are difficult for traders, so the way to be more effective is really just to have economies of scale.”

News of a potential takeover emerged late last week when the Wall Street Journal published a story citing unnamed sources who claimed that ADM had approached Bunge about a takeover.

So far neither company has issued an official statement about the rumoured takeover.

“As a general rule, we do not comment on rumours or speculation,” ADM’s media relations spokesperson, Jackie Anderson, said in a Jan. 22 email.

ADM, based in Chicago, is a global commodities trader and processor that operates in 160 countries.

In Canada, the company sources, stores, transports and processes crops including wheat and oilseeds at 42 facilities.

Canadian operations include wheat mills and bakery mix plants, oilseed crushing plants and refineries, grain elevators and processing plants that make animal feed and feed ingredients.

ADM’s western Canadian wheat mills are located at Calgary, Medicine Hat and Winnipeg.

The company also owns oilseed processing facilities at Windsor, Ont., and Lloydminster, Alta.

Canola for the Lloydminster crush plant is sourced through primary elevators located at Watson, Sask., and Carberry, Man.

The company’s other western Canadian assets include a feed-blending plant and phosphate-distribution terminal at Lethbridge.

Bunge, a publicly traded company based at White Plains, New York, operates in approximately 40 countries and has a market capitalization of US$9.79 billion, compared to ADM’s market cap of $22.64 billion.

In Canada, Bunge’s assets include an oilseed crush plant and refineries at Altona, Man., Hamilton, Ont., Russell, Man., and Nipawin, Sask.

Bunge Canada is also a joint venture partner in G3 Global Grains Group, along with SALIC Canada, a wholly owned subsidiary of the Saudi Agricultural and Land Investment Company (SALIC).

Through the G3 joint venture, Bunge Canada owns equity in a western Canadian elevator network with Manitoba locations at Alexander, Portage la Prairie and St. Adolphe, as well as Saskatchewan locations at Colonsay, Plenty, Leader, Dodsland, Pasqua, Luseland and Kindersley.

G3 export terminals are located in Canada at Thunder Bay and Hamilton, Ont., as well as Trois Rivieres, Que., and Quebec City.

G3 officials declined to comment on the rumoured ADM-Bunge merger, saying only that G3 “does not comment on market rumors related to its shareholders.”

Various farm groups contacted by The Western Producer also declined to comment on how a potential merger might impact Canadian grain and oilseed producers.

The National Farmers Union was one of the few farm organizations that offered a comment, suggesting mergers between any grain handling companies reduces competition and ultimately leaves growers with fewer opportunities to market their grain.

NFU vice-president Cam Goff said Bunge and ADM have a relatively small footprint in Western Canada compared to companies such as Viterra and Cargill.

Nonetheless, replacing two global commodities traders with one larger, consolidated entity would do nothing to benefit farmers.

“It just removes one more (competitor) … one more possible outlet for Canadian grain,” said Goff, who farms near Hanley, Sask.

“The world is heading toward more and more mergers and acquisitions between companies. Consumers and the people who sell commodities — like farmers — are the ones who lose in the end.”

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