Australia’s AWB Ltd. formerly the Australian Wheat Board, is talking to a major global commodities firm to team up on selling grains globally as the one-time monopoly wheat exporter scrambles to retain market share.
The end of Australia’s decades-old one-seller wheat business in July last year set off a scramble for access to supplies, silos and transport in the world’s No. 4 exporter, with AWB increasingly outgunned by aggressive rivals with global networks.
AWB is now in talks with one of those global brands to form a joint venture to help sell wheat, sorghum and barley, and is in talks to sell its 40-person Geneva commodities trading arm.
“We recognized that when the statutory marketing environment ended that over time the value of our market position would be under challenge, principally because the global grain business is truly global,” AWB chief executive Gordon Davis told reporters.
“We don’t bring enough to the table as a small Australian entity to be more than a niche player.”
A deal will give access to AWB’s Australian grain trading business, and possibly also some storage and bulk handling assets.
Global traders such as Cargill, Glencore and Louis Dreyfus are among the nine firms that have rushed into the sector, but are still only picking up the scraps in an industry where four local players – including AWB – still control around 70 per cent of the market.
Leading Canadian grain handler Viterra paid $1.4 billion last month for Australian wheat and barley exporter ABB Grains Ltd, buying a place among the top four.
In 2007, Germany’s Toepfer Grain, controlled by ADM, was one of the first global traders to link up with an Australian company, forming a venture with rural services group Elders Ltd.
“The bottom line is, if it goes according to plan, AWB will gain access to a much larger balance sheet and access to new international markets,” said James Ferrier, an analyst at investment firm Wilson HTM, saying he estimated AWB’s share of the Australian grain trade had shrunk to about 23 per cent.
“All the companies are looking for ways to grow so there will be further bolt-on opportunities and there will be further big M&A opportunities in the next couple of years, I expect,” said Belinda Moore, an analyst at RBS Morgans.
“They may be overseas companies taking over Australian ones – you can’t rule that out after Viterra taking over ABB.”