Glencore International eyes Viterra | If deal goes ahead, the country’s two largest grain exporters will be merged
MELBOURNE, Aus. — A potential takeover of Viterra has Australian grain companies wondering how their industry will be affected.
Viterra is well established in Australia, particularly in the state of South Australia, where it controls the vast majority of country collection sites as well as several port facilities located in and around the south coast city of Adelaide.
One of the companies considered to be a likely buyer of Viterra is Glencore International Plc of Switzerland, also no stranger in the Australian grain industry.
“It’s further consolidation within the international grain trading environment,” said Tim Ross, a logistics strategist with CBH Group, one of Australia’s largest grain exporters and bulk handling companies.
Read Also
European wheat production makes big recovery
EU crop prospects are vastly improved, which could mean fewer canola and durum imports from Canada.
“If you look at the export volumes that go out of Australia … Glencore is already quite a large exporter across all the (Australian) states, including South Australia, and obviously Viterra is one of the dominant exporters out of South Australia as well.
“So what does it mean? It means that two of the largest exporters and traders who are fairly dominant in the South Australian market will be merged into one entity if (the deal) goes ahead.”
The potential takeover has many in Australia wondering if further consolidation will occur.
Simon McNair, chief executive officer of Australian Bulk Alliance, said the Glencore takeover, if it goes ahead, would not have an immediate impact on ABA operations.
However, farmers in South Australia could eventually be operating in a less competitive environment.
In addition, Agrium could solidify its position in the Australian farm input market if it assumes control of Viterra’s farm input operations.
Agrium, which is also involved in the Glencore bid, already has a strong foothold in eastern Australia.
It acquired the assets of the former AWB, retaining the farm input component and selling the grain handling and bulk storage facilities to Cargill.
“As far as our business at ABA is concerned, I don’t see any major changes,” McNair said.
“But yes, there are many players in the industry that are worried about further consolidation, even though they understand that it will happen.”
ABA, which is owned by Japan’s Sumitomo Corp., procures grain through 13 collection sites located primarily in the New South Wales and Victoria. It also owns a terminal in the Victorian city of Melbourne.
Only one of ABA’s 13 collection sites competes directly with Viterra, McNair said.
GrainCorp, another one of eastern Australia’s largest grain handling companies, has already been affected by the takeover rumours.
Shares in publicly traded GrainCorp rose significantly earlier this month as investors fuelled speculation that it might be Australia’s next takeover target. GrainCorp shares on the Australian Stock Exchange closed at $8.89 Aus March 16, up 79 cents per share, or nearly 10 percent, from the previous week’s close.
GrainCorp owns 280 storage facilities in eastern Australia and seven export terminals.
Last year, it exported nearly eight million tonnes of Australian grain.
The company is also the world’s fourth largest maltster, handling 1.4 million tonnes of malt at 19 plants in Australia and overseas.
GrainCorp spokesperson Angus Trigg said the company is focused on its own operations and would not comment on market speculation related to the Viterra takeover.
Glencore’s possible bid for Viterra also has players in the Australian industry looking ahead at the critical issue of port access.
In South Australia, Viterra has a virtual monopoly over terminal space.
In addition to exporting grain that it has procured from farmers, Viterra also provides warehousing and bulk handling services to other exporters and sells excess terminal space to competing grain companies, including Glencore.
Existing legislation stipulates that all terminal owners in Australia must offer reasonable and competitive access to companies that also want to sell grain abroad.
Terminal owners must submit a plan known as an access undertaking, which outlines how port space will be offered commercially.
But in 2014, much of that regulatory framework will be replaced by a voluntary code of conduct that allows companies to regulate their own port access arrangements with much less government oversight.
CBH, a grower-owned co-op that is based largely in Western Australia, owns four terminals on the country’s west coast but it also exports grain in eastern Australia.
In the east, it must negotiate terminal space with its direct competitors.
Ross said CBH’s eastern export business won’t likely be affected by the proposed Viterra takeover.
However, when terminal access is deregulated in 2014, the owners of port terminals will control an important strategic asset.
“For us, I think it’s business as usual, certainly until 2014 when the regulations on how bulk handling entities utilize their sea port terminals (are eliminated).”
