GRAINGROWERS’ strategic competence has been questioned following revelations of the industry group’s consideration of a secret offer to try and buy Elders and transform into a large private agribusiness.
GrainGrowers was given equal billing as the grain’s industry’s peak national political representative organisation by federal Agriculture and Water Resources Minister Barnaby Joyce in July last year, to stand alongside Grain Producers Australia.
But at the same time it was seeking to gazump GPA for chief agri-political status, a copy of a document obtained by Fairfax Agricultural Media shows the organisation - that boasts having a capital base of $100 million - was also contemplating acquiring one of the nation’s biggest agribusinesses.
Details of the proposed transaction are outlined in a confidential discussion paper on “Project Gate” which valued Elders at just over $500m and was prepared by Austock Corporate Finance in February 2012.
It’s understood the document was also used to guide talks at a secret board meeting held in Canberra around that same time.
Current Elders CEO Mark Allison was GrainGrowers executive director when the transaction was being considered and remains a non-grower director on the board.
Mr Allison has also been an Elders director since November 2009 and was appointed Chair in June 2013 following the departure of Malcolm Jackman who he replaced as CEO.
The “Project Gate” document outlines several potential corporate structures to guide the mooted Elders take-over, including using a joint-venture bidding company with ambitious partners like giant WA grower-owned grains co-operative CBH and leading publicly listed stockfeed provider the Ridley Corporation.
It describes Elders as having been “an underperformer for some time” but the deal would provide “untapped earnings potential to be realised by GrainGrowers senior management”.
“GrainGrowers would be a natural strategic acquirer, with industry expertise, access to a new leadership team and the ability to use its existing membership and wider agri sector networks to drive significant future value,” it said.
The document says the acquisition could be partly refinanced by the divestment of Elders non-core divisions, like the now sold-off forestry and automotive business units, and its land trust assets - totalling $258m - to leave its rural services as a, “standalone business”
It said the “transformational transaction” would launch GrainGrowers into “a new sphere of size and influence” moving it from a grain co-operative to become “Australia’s largest rural services provider”.
One scenario puts the GrainGrowers investment at $250m suggesting it had the ability to fund a “significant equity component alone” while borrowing funds to maintain control of “entire future cash flows”.
The paper said CBH had made previous inquiries and shown interest in investing in Elders; having owned 5 per cent of its joint-venture with the Salim Group until 2009.
But it said CBH have “indicated their lack of trust with current Elders management” and now have their own grain accumulation team on the east coast and in SA.
It said Ridley would see Elders as a “strategic fit” in providing sales and geographic expansion and diversity and would provide sales and marketing expertise to the newly formed group “to aid in the turnaround story”.
Another potential structure included offering 64,000 combined grower-members from GrainGrowers (17,000) and Meat and Livestock Australia (47,000) an opportunity to contribute about $100m in capital, at $1500 per member, to help fund the transaction and share ownership.
With GrainGrowers providing cash/equity of up to $150m, another option suggested 10,000 farmer members could also invest a minimum of $10,000 each to raise $100m while forming a grower company partnering with GrainGrowers.
“Having ownership in key rural services provider allows members some level of control on inputs and services,” it said.
“Opportunity to invest allows Elders Rural Services to remain an Australian based company, without being controlled by offshore interests.”
The document said there was “untapped potential” to “buy back the farm” with a number of international players having recently acquired Australian agribusiness assets, like Cargill gaining AWB Marketing, Viterra taking over ABB Grain and the Agrium acquisition of Landmark.
GrainGrowers now claims to have close to 17,500 members but has suffered ongoing criticism during Mr Allison’s reign for pushing an agri-political agenda, despite the conflict of its basic commercial structures.
That push led to free, opt-out memberships being sent to growers in WA and SA to try and boost its credibility as an agri-political organisation while pursuing an expanded industry advocacy and policy formulation platform.
As part of GrainGrower’s move to try and trump GPA - which has been mostly run by volunteer farmers following the Grains Council of Australia’s demise shortly after the AWB wheat export single desk was deregulated in 2008 - it joined NFF as a grains commodity member for $200,000 per year in 2012.
However, the NFF was forced to establish a separate Grains Policy Council to try and resolve escalating tensions between GPA and GrainGrowers over the industry representation role which carries legislative oversight of the Grains Research and Development Corporation that manages an annual R&D budget of about $200m combining grower levies and government funds.
One source, who asked not to be named, said the “Project Gate” discussion paper showed that GrainGrowers had a “schizophrenic” operating strategy and was confused by its industry role, between agri-political advocacy and the provision of technical marketing and plant breeding services or other commercial functions.
Former NSWFarmers grains committee chairman Dan Cooper highlighted the contradiction of GrainGrowers pursuing an agri-political agenda while also considering such a large and significant commercial transaction.
Mr Cooper - a 37 year-old mixed farmer from Caragabal in central-western NSW - is a candidate for GrainGrowers at this year’s southern-director elections and has pledged to make strong governance and operating changes.
“The fact that ‘Project Gate’ was even tabled for consideration should raise alarm bells about the direction, governance and focus of the board,” he said.
“GrainGrowers needs to focus on core business: helping growers improve their bottom line, particularly at a time when margins a wafer thin.
“This is why I have nominated for the board of an organisation that needs to be less erratic on strategic direction and more focused on members’ needs.
“I’d like to see GGL focus on supply chain alignment, improved R&D outcomes and better collaboration with industry to ensure one voice is heard on issues affecting growers.”
GrainGrowers declined to comment or to provide an opportunity for Mr Allison to be interviewed or current board Chair John Eastburn, to answer questions; in particular why the proposal was rejected.
GrainGrowers recently appointed two general managers - Sydney-based Michael Southan and Canberra-based David McKeon - following the sudden departure of CEO Alicia Garden.
While family reasons were cited for Ms Garden’s sudden departure, speculation has suggested there was internal push-back over GrainGrowers plans to try and resolve perennial corporate governance issues.
During last year’s director elections, the organisation was criticised for using standing proxy votes to secure the ongoing tenure of director and then Chair Andrew Carberry and Mr Eastburn.
Both were re-elected at the expense of grower candidates who had polled more primary votes, prior to the allocation of standing proxies.
Subsequently, GrainGrowers promised to undergo a constitutional review with public consultation looking at governance headaches linked to that election result but has yet to ratify any reforms.
Last year’s director elections also revealed GrainGrowers executives were being paid up to $1m per year compared to the voluntary contribution of GPA directors and had also gained the lion’s share of funding GRDC funding allocated to support grower consultation activities.
In February, questions marks were again raised over internal cohesion and strategic coherence when Mr Carberry was suddenly replaced as chairman of the board by Mr Eastburn.
Mr Eastburn was Chair from 2008-2014 but said after Ms Garden’s departure that he was happy with how the company was performing.
Currently the GrainGrower non-grower directors are Mr Allison and MLA Chair Michele Allan who also holds several other senior board positions in the agriculture sector including R&D organisations.