CBH plugs for co-op future

GRAIN handler and marketer CBH Group says access to competitive capital will not be a constraint on its growth after deciding to retain its existing cooperative structure.

CBH has spent more than a decade evaluating alternative ownership models and its latest review, involving three short-listed co-op models, has delivered another win for members opposed to major change.

The group said the tax exemption for its storage and handling business, upheld in a Federal Court ruling in December, was a significant factor in its decision to continue as a ‘non-distributing cooperative’ – meaning it will not pay cash dividends.

“We could not, in growers’ interests, ignore the value of the tax-exemption we retain,” CBH said.

The exemption is estimated to be worth $10-15 million per year.

“In addition, there were significant tax challenges associated with moving to the other short-listed models; for example, capital gains tax considerations for growers with a distributing co-op and the need to seek an entirely new tax ruling from the tax office for a dual co-operative type structure,” the group said.

CBH also disclosed that a public listing was not put forward as a short-listed option because 63 per cent of grain growers were directly opposed, and only 24 per cent supported it.

Most of CBH’s counterparts in other states have corporatised and listed on the ASX, and subsequently been taken over by international groups such as Canada’s Viterra Inc.

CBH chief executive Andy Crane said the certainty and stability provided by the decision would be a big plus.

“It means we can really extend that business model further than we have done before,” Mr Crane told WA Business News.

Chairman Neil Wandel is promoting CBH’s cooperative status as a competitive advantage.

“On behalf of the board, let me be absolutely clear – CBH is proud to remain a cooperative,” he said.

“Our research and independent expert advice shows that co-ops can be equally as successful and globally competitive as corporate models, provided they adapt to a changing environment and the different needs of their members. That is what we are doing.”

It cited US-based CHS, a diversified energy, grains and food group with an annual turnover of $US26 billion, New Zealand-based dairy multinational Fonterra, trans-Tasman fertiliser supplier Ravensdown and Australian fruit processor Murray Goulburn as examples of successful farmer cooperatives.

Some of these co-ops have introduced innovate capital management initiatives. CHS, for instance, has issued preference shares to outside investors, and the shares can be traded on the Nasdaq exchange.

Fonterra has introduced a scheme that enables its farmer members to trade shares among each other.

Mr Crane said CBH, which is Australia’s largest cooperative with annual revenue of $3.5 billion, had closely studied some of these options, including CHS’s preference shares, but concluded they were not appropriate.

The group would focus on delivering value to members by keeping storage, handling and freight charges as low as possible, and by investing in and upgrading the storage and handling network.

Mr Crane added that providing partial refunds of grower charges, to reward growers for use of the CBH network, would be used more in future.

The group is also assessing the opportunity for growers to participate in some of CBH’s own investments, such as its planned $175 million investment in railway wagons and locomotives.