04/03/2003 - 21:00

New player aspiring to add competition to the State’s fertiliser industry

04/03/2003 - 21:00

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ELEVEN years ago, a small group of WA farmers shook up the State’s fertiliser market when they started undercutting the big players with cheap imports.

New player aspiring to add competition to the State’s fertiliser industry

ELEVEN years ago, a small group of WA farmers shook up the State’s fertiliser market when they started undercutting the big players with cheap imports.

That group has evolved into United Farmers, a cooperative that is now one of the big three suppliers in WA’s $450 million to $500 million fertiliser market.

An Albany agronomist is now trying to shake up the market again, with an ambitious plan to import low-cost fertiliser.

The established players are dismissive of Agronomy Fertilisers and the man behind it, Wayne Smith.

“There are glaring holes in what he is saying and I think his credibility will take another blow,” said United Farmers general manager sales & operations, Phil Nixon.

“He has seriously simplified and understated what is involved. His prices are totally unrealistic.”

This type of criticism has not deterred Mr Smith, whose business model is fundamentally different from the established suppliers such as Wesfarmers CSBP, Summit Fertilisers and United Farmers.

Agronomy is essentially a buying club for farmers and it plans to sell urea for $250 to $270 per tonne (ex GST), well below the current market price of $365 per tonne.

Mr Smith said Agronomy had achieved big savings by requiring farmers to pay up-front, buying in bulk, and cutting out the “middle men”.

“We spent all of 2002 setting it up. It’s been a hard road. It’s probably the hardest thing I have ever done,” he said.

Mr Smith declined to name his supplier, but said it was a major international manufacturer.

“Everyone will know about them in a few month’s time,” he said.

Mr Smith said he had bypassed the “big club”, comprising companies such as Cargills, Agrium, ConAgra and Jossco.

“Other people buy from the big conglomerates that take large commissions. They set the price and other people just accept it,” he said.

Low profit margins had also helped Agronomy to offer low prices.

Mr Smith and his co-director, WA farmer Graeme Smith, will earn a total margin of $6 per tonne.

Mr Smith recognises that Agronomy is not a fully-fledged competitor with the big suppliers.

It offers a limited product range, requires up-front payment, and farmers must pick up the fertiliser from Bulkwest at Kwinana and store it on-farm.

However, he hopes the venture will grow once he has proven it can work.

“We’re talking very long term. We have already prepared a five year business plan,” Mr Smith said.

Farmers could learn as soon as this month whether Agronomy’s plan has any substance, with Mr Smith saying his first 25,000 tonne shipload is about to start sailing for Kwinana.

If the ship does arrive, and farmers take delivery of the low cost urea, the big players will have to pay more attention to the new upstart.

The market share of the established players in WA’s fertiliser market is a point of some debate.

The biggest supplier, Wesfarmers CSBP, has a market share of 55 per cent to 60 per cent according to its competitors.

CSBP managing director John Gillam suggests the figure is in the “high 60s” but even he acknowledges that market share estimates are fraught.

CSBP’s main competition comes from Summit, owned 50-50 by a group of WA farmers and Japan’s Sumitomo, and United Farmers, a cooperative with 3,000 farmer members.

Summit’s market share is believed to be about 22 per cent to 23 per cent while United’s market share is estimated at 13 per cent to 20 per cent.

Mr Gillam believes CSBP’s market share has stabilised over the past two years and may even have increased.

Its WA sales increased by 4 per cent last year to 916,000 tonnes and CSBP is currently budgeting for increased WA sales in 2003-04.

In contrast, it anticipates that interstate sales will shrink from 88,000 tonnes to zero as a result of the drought.

Any increase in CSBP’s WA market share would be a reversal of a decade long slide – a slide that has encouraged market watchers to speculate that Wesfarmers’ will at some point try to offload its fertiliser manufacturing business.

A Wesfarmers’ spokesman said “the chemicals and fertilisers business is delivering significantly improved returns, despite the impact of poor seasonal conditions”.

“Over the past 12 months, return on capital employed increased from 10.7 per cent to 15.8 per cent, well on its way to reaching the divisional target of 18 per cent,” he said.

“We expect CSBP to remain part of the Wesfarmers group over the long term.”

As well as being highly competitive, the fertiliser market is increasingly complex.

The number of products is growing. Liquid fertiliser is becoming more widely used, and farmers are demanding customised products to suit their specific needs.

Mr Gillam said he believed CSBP’s combination of locally produced fertiliser, which accounts for half its sales, and imported fertiliser, as well as specialist services such as its soil and plant testing laboratories, gives it a unique market advantage.

“We are very focused on growing farmer profitability,” he said.

“We are not driven by market share.”

CSBP’s main competitors say their ability to import the best products adds to their competitive clout.

“We work off the basis of what does your soil actually need rather than what we have in stock,” Mr Nixon said.

“Custom blending has been our real growth area. And that only comes about because we are getting results [for our members].”

Summit has claimed a succession of innovations over the past decade.

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