SunRice offers big money to stop irrigators growing cotton

SunRice paying growers big money to secure export supplies


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National rice exporter and processor, SunRice, will pay forward contracts worth almost double the special prices offered last harvest

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SunRice has fired the first shot in the battle for irrigated cropping space in thirsty southern NSW this summer, offering farmers big prices of up to $1500 a tonne to plant rice instead of cotton, corn or sorghum.

Hungry for grain to fill gilt-edged orders in Japan, Saudi Arabia and elsewhere in the Middle East, the national rice exporter and processor wants to lock in forward contracts worth almost double the special contract price it paid this year, or recent season pool price values.

Farmer-controlled SunRice, which listed on the Australian Securities Exchange in April, also wants to ensure sufficient fresh seed is produced for planting needs in 2021.

The limited hectare-based deals promise to pay $750/t for medium grain variety, Reiziq; $950/t for long grain, Koshihakari, and $1500/t for organic rice.

Growers who planted rice last year get first choice of 2020 contracts.

We hope we can mop up quite a bit of the available water for rice ahead of cotton or cereals this year - Laurie Arthur, SunRice

While drought is likely to cut general security water allocations in the Murray and Murrumbidgee valleys to almost nothing for the 2019-20 summer, SunRice is still confident it can lure farmers to grow paddy rice with bore water or carryover allocation entitlements from past seasons.

In recent years other summer cropping options, particularly attractively-priced cotton, have absorbed significant water volumes previously destined for the rice industry.

"We hope we can mop up quite a bit of the available water for rice ahead of cotton or cereals this year," said chairman, Laurie Arthur.

Less risk to returns

"Last summer's extreme heat produced some disappointment in corn and cotton yields, but rice has proven a pretty solid and consistent crop as far as production risk goes."

However, the drought had shackled SunRice's plans to double its revenue by 2022.

Despite making several acquisitions in 2018-19 and using its expanding international processing and trading business to back fill the gap left by the Riverina's second smallest crop on record, Mr Arthur told last week's Jerilderie annual general meeting, tough domestic production conditions had restrained revenue growth.

The SunRice group, which includes Australian and overseas milling and trading businesses, several domestic food brands and the CopRice stockfeed division, had total revenue of $1.2 billion last financial year - up just 1.3 per cent on 2017-18.

Group profits after tax fell 27.3pc to $32.8m after drought cut last summer's harvest to just 54,000 tonnes in Australia's rice growing heartland in the Murrumbidgee and Murray valleys.

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During the previous six years Riverina yields ranged from 244,000t to 1.1m tonnes, but global demand for the SunRice brand is now closer to 1.4m tonnes a year.

Managing director, Rob Gordon, confirmed while doubling revenue growth remained the company goal, a "normal" crop in southern NSW would generally contribute about $400m towards that target.

Growth plan slows

"It is unlikely we will be able to close this gap in the time frame available, unless we see a return to more normal seasonal conditions," he said.

Rob Gordon

Rob Gordon

However, given the strong global demand being encountered, even a return to normal Australian conditions would be insufficient to meet SunRice's rising buying orders, including new markets opening up in Europe and revived business opportunities in the Middle East.

Mergers and acquisitions have been a key focus for our company and will be in the year ahead - Rob Gordon, SunRice

"New supply chains will still be required to service this increased demand," Mr Gordon said.

"We continue to evaluate further acquisition opportunities.

"Mergers and acquisitions have been a key focus for our company in the past 12 months and will be in the year ahead."

Vietnam model success

The company's new milling operations and contract growing arrangements in Vietnam had set a new standard for rice processing in that country and the model could be replicated internationally.

"The model we built there is one which SunRice is looking to explore in other countries to build stronger market positions for our company," Mr Gordon said

Chairman, Mr Arthur, said the company was open to opportunities to raise extra capital from the share market to fund any expansion.

We could do more to outsource our production needs to meet our strict Australian quality and export market requirements - Laurie Arthur

However, while the big dry had eroded revenue, there was no current need to raise fresh capital.

Laurie Arthur

Laurie Arthur

The balance sheet was strong and year-end gearing (debt to equity) was 19pc, compared to a peak around 300pc a decade ago.

"Our five-year growth plan has a clear merger and acquisition agenda, but the opportunities must fit well with our business - and we still have a couple of years to fulfill our current growth agenda.

"There's quite a lot happening in Vietnam and we're looking at replicating what we've achieved there.

"We could do more to outsource our production needs to meet our strict Australian quality and export market requirements.

"We know a lot about where rice is grown around the world and its quality, and we know world markets.

"Some markets, particularly in Asia, are very tough to break into from Australia - even when we have trade agreements with these countries."

On the domestic front SunRice's Riviana consumer foods division recently acquired the Roza's Gourmet, giving it access to chilled food channels, while stockfeed business, CopRice, bought Feedrite, re-purposed the former Coleambally rice mill as a big ruminant feed plant, and reported a 61pc profit lift to $8.5m.

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