SunRice will use funds from a modest capital raising on the Australian Securities Exchange to buy milling facilities in Vietnam, which is fast becoming a big offshore grain growing base for the farmer-owned business.
Farmers contracted by SunRice in the Mekong Delta grew about 500,000 tonnes of mostly Japonica style rice in the past year to support similar crops from SunRice’s western Riverina and Murray Valley rice growing heartland.
The company hopes to raise up to $30 million from stock market investors if its farmer shareholders vote in September to support revamped plans to list on the ASX.
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The move would end a 12-year listing on the National Stock Exchange where SunRice was first floated under a dual share structure when it converted from co-operative status in December 2005.
“Given the increasing significance of our production in Vietnam, we think we should own our own milling operations there,” said managing director, Rob Gordon.
“We’re now in the advanced stages of acquiring milling assets.”
Outsourcing its rice farmers
SunRice began “outsourcing” production from Vietnamese farms two years ago to provide a backup supply for its markets in the Pacific and other export regions.
Vietnam provides some insurance against dry season restrictions on irrigation water availability – and production – back home in the Murrumbidgee and Murray valleys, where the harvest shrank to just 270,000t in 2016 and almost nothing a decade ago.
The company’s Vietnamese paddy production is currently equivalent to two thirds of the Australian crop in average years.
With help from Australian agronomic and processing guidance, the SunRice crop has increased to represent five per cent of Vietnam’s rice exports, including 70pc of Japonica-style exports.
“We’ve also been getting a premium price over the existing Vietnamese crop,” Mr Gordon said.
He said the Mekong model, which employs Vietnamese farmer co-ops growing varieties similar to those farmed in Australia, may be the basis for more offshore production in other countries to help meet SunRice’s rising international demand.
SunRice already has significant processing and marketing operations in the US and Middle East.
Our Japanese customers like what we deliver and they want more
- Rob Gordon, SunRice
Funds generated by the proposed ASX float would also be directed to other market expansion and milling improvement projects, including upgrading research and processing at Leeton to lift the value-added potential of koshihikari rice sold into Japan and Japanese restaurant markets globally.
Japanese cuisine helps
The premium value of Australian-grown koshihikari grain is well suited to the booming sushi food trend.
“Our Japanese customers like what we deliver and they want more,” Mr Gordon said.
“We, in turn, want to make sure we supply the best possible product to meet their premium market expectations,” Mr Gordon said.
“We’re selling a lot more into Japan these days, so we’ve responded with a various growth initiatives to service, not just the Japanese market, but in other countries where Japanese cuisine is very popular, including Australia.”
Health-conscious Asian consumers were also a growth market for SunRice’s branded rice foods and snacks as it continued moving away from commodity grain exports to consumer lines.
We’re really in a beautiful position to talk about taking more of our product to higher value returns
- Rob Gordon, SunRice
SunRice recently spent $11m on factory modifications to stabilise oil-rich rice bran, cutting the risk of rancidity in the milling by-product.
The new treatment process will make bran more suitable in snack products, including health food bars.
“We’re really in a beautiful position to talk about taking more of our product to higher value returns,” Mr Gordon said
ASX opportunities
“Access to more external equity will help fund SunRice’s growth aspirations.”
Moving the company to the more liquid ASX market meant a much broader equity base, rather than relying on financial capacity of farmers and others in the rice industry who currently hold dividend-paying B-class shares.
With more equity support SunRice could be more resilient to market and seasonal volatility and target higher value sales and value-adding initiatives, which subsequently could drive more dividends from its processing operations and boost paddy prices paid to growers from the marketing pool.
While SunRice acknowledged its A- and B-class share structure, which gives growers ultimate shareholder control at board level, was not always popular with ASX investors, Mr Gordon believed there was still “strong appetite for SunRice shares”.
“We’ve got a 10-year track record of strong governance standards and dividend performance on the NSX,” he said.
The ASX plan will provide a fantastic opportunity for a significant Australian company to gain a much stronger global position.”
- Rob Gordon, SunRice
“We’re not prepared to compromise the (dual class) constitution of our company.
“We are dedicated to ensuring our farmers are given every possible farmgate incentive to grow crops for us.
“Overall, the ASX plan provides a fantastic opportunity for a significant Australian company to gain a much stronger global position.”
Although an earlier plan to list on the ASX two years ago involved a more complex share structure, Mr Gordon said guidance notes from the exchange had since altered to make the current dual class structure achievable.
The “simplicity” of the model had worked for a decade and he felt it would be easier for farmers and outside investors to comprehend.
Feedback in 2016 was generally supportive of an ASX listing, but the move was put on ice because of concerns about the volatility of SunRice’s Trukai joint venture business environment at the time.
PNG had represented about 30pc of SunRice turnover, although SunRice’s total business growth has seen its the Trukai market’s contribution subside slightly, even though New Guinean sales are rising.
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Andrew Marshall
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
