Ruralco enlists CHS in Agfarm venture

30 Jul, 2013 08:01 AM
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John Maher.
John Maher.

RURALCO Holdings managing director John Maher said that partnering with US giant CHS Inc will help his company compete with the likes of Archer Daniels Midland after CHS snapped up a 50 per cent stake in Ruralco's grain marketing business, Agfarm.

On Monday Ruralco announced it had sold down its 51 per cent interest in Agfarm to 50 per cent, with CHS buying the remainder of its 50 per cent stake from minority shareholders.

Market sources indicated that CHS, a farmer-owned co-operative with diversified energy, grains and foods businesses, paid about $10 million for its half share in Agfarm. CHS markets more than 50 million tonnes of grains and oil seeds annually.

Mr Maher told The Australian Financial Review that the joint venture arrangement gives Ruralco the capability to grow its grain marketing operations and remain competitive.

"Partnering with a global player like this is really significant for us. It will certainly help Agfarm with market intelligence and global reach so it can continue to compete with a GrainCorp [owned by] Archer Daniels Midland."

East coast grains handler GrainCorp is Australia's largest listed agribusiness and the subject of a $3 billion takeover offer from US behemoth ADM.

National party politicians and farmers lobby groups have urged Treasurer Chris Bowen to block the deal, which is the latest in a long run of consolidation in Australian grain that has seen larger global players like Agrium, Cargill and now ADM muscle into the local market.

"It's a global game now," said Mr Maher.

Grain contributed 5 per cent of Ruralco's $105.5 million gross profit for the half ended March 31, 2013, but Mr Maher expects it will grow faster than other parts of the business.

Agfarm has 38 employees in eight offices across Australia. Agfarm founder Bob McKay will continue in his role as chief executive officer.

Last month Ruralco walked away from talks to acquire Elders Rural Services from its embattled rival.

Ruralco is believed to have offered about $250 million for the business, while Elders' board is thought to have expectations closer to the $350 million mark.

Mr Maher said the deal with CHS and ambitions to grow Agfarm did not preclude another bid for Elders Rural Services.

"It doesn't rule it [a bid] out. We've withdrawn from Elders but this [deal with CHS] doesn't tie up our capital any more than it has previously."

Elders itself had an ill-fated foray into grains trading with Toepfer ­International, which is 80 per cent owned by ADM. Elders sold its 50 per cent stake in the venture and took a $13.5 million write-down on the operation in 2011.

Maher argues Agfarm is different because the joint venture with CHS is a marketing operation only.

Ruralco shares fell 0.6 per cent to close at $3.30 on Monday afternoon.

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READER COMMENTS

Bim Joyd
31/07/2013 8:17:35 AM

Ruralco continues to get it right! Agfarm is a first class business with a very competent CEO. Maher gets an international partner, yet only sells down 1%

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COMMENTS

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Why do they forget the small producers they are the backbone of the industry. What. Did this
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Good these guys will be able to help the farmers they are treating like second class peasants.
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Lets' hope Troy Grant doesn't Delforce's website or it will be yet another NSW