CBH leader retires

by World Grain Staff
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After 42 years with Australia’s Co-operative Bulk Handling (CBH), 15 of them as chief executive officer, Imre Mencshelyi retired on April 1.

After starting as a cadet with the company in 1967, Mencshelyi gradually worked his way to the top. Once there, he successfully managed CBH’s transformation from a cooperative storage and handling company into one of Australia’s leading logistics and marketing ventures with exports shipped to more than 20 countries each year. When Mencshelyi first joined CBH, the company’s revenue was just over A$10 million ($6.33 million). As he leaves, it totals over A$1 billion ($633 million).

The CBH Group now receives, handles, stores and outloads bulk grain at almost 200 receival points throughout Western Australia’s grain belt and boasts storage capacity of some 20 million tonnes. The company has recently been branching out of its western stronghold into eastern Australia and Asia. Deregulation of the Australian wheat export market last year has further spurred both revenue and volume growth.

World Grain spoke to Mencshelyi in March about his career, his strategic vision for CBH, and his last two years in the tumultuous Australian grain industry.

WG: What was the initial attraction of the grain business in 1967 when you first joined CBH?

Mencshelyi: Well, I was born and bred in the wheat belt, 300 kilometers from the city of Perth in Western Australia. I studied geology during Australia’s mining boom, but there weren’t too many jobs available, so I applied for a cadetship with CBH and was lucky enough to get a position. I had worked for CBH as a student while on vacation, and I understood the grain industry. I knew the farmers and I enjoyed the work.

WG: Why are you bowing out at the relatively young age of 56?

Mencshelyi: After 42 years I think it’s time to hand the baton over to a younger generation. Specifically, the deregulation of the wheat market here in Australia has had an impact on marketing, trading, logistics and finance, resulting in a changed and challenging environment. I believe that new leadership is needed for the next phase of our growth.

WG: Is one of the reasons you are retiring now frustration at your lack of progress on the reform of CBH’s cooperative shareholder structure?

Mencshelyi: If I had to express personal disappointment as I retire, then it would be related to my inability to gain recognition for the financial contribution and involvement of grain growers in the Co-operative by way of returning equity for value. I leave that challenge for my successor.

WG: What advice would you offer to your successor, Dr. Andy Crane, on this issue?

Mencshelyi: We need a formula or structure to enable us to return value to the owners of the business. At the moment, CBH is owned by close to 5,000 growers, each with two-dollar shares in the company. It’s a non-trading cooperative so we can’t return dividends or rebates to owners under the present structure. All the profits are retained in the business to grow it. My view is that the structure needs to be altered to return the value to the grower when we’re profitable. The only way they can benefit now is through the provision of additional service.

WG: Australia deregulated its wheat export industry last summer in time for the 2008-09 harvest, which looks like it will yield about 20 million tonnes. More than 23 accredited exporters, including CBH subsidiary Grain Pool, have replaced the former Australian Wheat Board. By all accounts, CBH has been one of the big winners from the process. Can you explain how you prepared the company for this momentous change?

Mencshelyi: The industry anticipated that one day the wheat single desk would be abolished. From a CBH perspective, we’d been preparing for this event. You need systems and processes in place and we worked very hard in our planning and we were ready to assist the growers in the transition process. Our merger with Grain Pool back in 2002 gave us a taste for marketing and trading in nonwheat grains so we were well positioned for competition as a consequence of wheat deregulation.

WG: You introduced Grain Express in Western Australia to coincide with deregulation. How does this system work exactly?

Mencshelyi: It’s one of the most innovative changes we’ve had in storage, handling and transport since we moved from bag to bulk. Grain Express assists growers in Western Australia by coordinating and managing the grain supply chain. This is different and separate from our marketing operation. It basically coordinates the logistics. This could have been chaotic post-deregulation if every marketing company was doing its own logistics. Grain Express streamlines the receival process, offers all growers full marketing options and improves transport utilization. All parts of the supply chain benefit. It brings together rural and international players in a way which is efficiently coordinated. We believe it was only 70% effective in the first year but we are striving to achieve improvements to meet our target of 100% next year.

WG: How does CBH’s export infrastructure fit into the picture?

Mencshelyi: We were in the position in Western Australia of having warehousing and transport facilities in place before deregulation. Through Grain Express, we worked with our competitors, suppliers and the regulators so that all stakeholders could use our infrastructure in a coordinated manner. All acquirers can access grain at any point in the network and grain growers can sell at any delivery point to whomever they wish. Our basic income comes from the storage, delivery and loading fees. Our operations have to be transparent to ensure that Grain Pool is quarantined from information flow from our storage and handling business. The government regulator monitors our operations to ensure that we are compliant. We’ll ship over 12 million tonnes out of Western Australia this year, which is more than all the other states of Australia combined.

WG: So CBH is now running the whole export system in Western Australia?

Mencshelyi: We don’t own the railway system, but we have taken control of the freight system in Western Australia. We schedule and coordinate it all through Grain Express.

WG: Apart from deregulation, over the last two years the Australian grain industry has struggled with huge highs and lows. Have you ever seen anything like it before?

Mencshelyi: There has probably been more instability in the last three to five years than I’ve ever seen. We’ve had drought, grain prices skyrocketing, then the global credit crisis, then a grain price collapse. From a global perspective, for me the amazing thing has been information transference. Not just grain prices, but weather, production, derivatives – markets react so quickly now. We’ve seen a lot of volatility over the last 12 to 18 months, and I think in part this is due to the speed by which information is disseminated.

WG: How was CBH affected?

Mencshelyi: CBH has been lucky in that we’ve been able to raise finance despite the financial crisis. When grain prices fell, the weaker Australian dollar assisted us with exports and counter-party risk hasn’t been a big factor, because we have long-term customers. Grower sentiment here is quite optimistic. We just want another big harvest next year.

WG: Where do you stand on the debate over the use of grains for fuel?

Mencshelyi: Two years ago, there was lots of hype about grains being used for fuel in Australia and a number of projects were mooted. They tended to fall by the wayside as a direct consequence of a shortage of food and also higher grain prices. These projects may return if there is a surplus of grain and grain prices reduce, but I think the focus has moved back to feeding the world.

WG: In 2004, the CBH Group established a joint venture company with the Salim Group called Pacific Agrifoods to invest in the Asian value chain. CBH now has five flour mills in Indonesia and Malaysia and a grain terminal and flour mill in Vietnam. How important are your Asian businesses, and what was the strategy behind the investment?

Mencshelyi: We invested in flour milling in Asia to create a direct link between grower and consumer. Asia is a growing market. Consumption of flour has dropped by 15% in the region, but it will rise again in the next 12 months as grain prices decline.

WG: Do you think CBH will continue to expand into Asia in your absence?

Mencshelyi: I think CBH will consolidate in Asia. But if opportunities to expand come along, then I should think CBH will consider them.

WG: What was the thinking behind the 2005 creation of AgraCorp, which then led to the commencement of operations in South Australia and Victoria as CBH Grain, with the stated aim of growing accumulation in the eastern states?

Mencshelyi: We do have an ambition to move East, and the formation of Agra-Corp was part of that strategy. AgraCorp was initially designed to set-up cash and wheat trading. We recognize that we need additional grain for our markets and some of the quality specifications demanded are simply not available in Western Australia. Following deregulation, we have been able to target grains in the East more aggressively.

WG: Will we see you move from marketing to infrastructure management in eastern Australia?

Mencshelyi: I wouldn’t discount it, but I think if commercial arrangements are available with existing providers of storage and handling, then we would utilize what is available.

WG: What are the key challenges facing Australia’s grain export business in the coming years?

Mencshelyi: The fact that we have a deregulated system in Australia means that it will all be about growers getting the appropriate market signals from the customers. A number of exporters here, but very few companies, are giving market signals. CBH is looking for a direct link between the grower and consumer. Our own mills, for example, need certain quality wheat. Buyers in Japan seek other wheat specifications. These needs should be reflected to growers to ensure production meets demand. Our vision is to be the standout choice for grain in the world by linking the grower to the customer in a unique way.

WG: What has kept you motivated over the years?

Mencshelyi: I’m lucky that I’ve been able to enjoy career evolvement within one company. There’s a wide range of skills needed within CBH — logistics, grain quality, marketing, trading, grain silo construction — and that has kept it challenging. Every five years I had a change in direction, with new opportunities and new challenges.

WG: As you retire, what would you say gives you most pride about your work at CBH?

Mencshelyi: The growth of the Cooperative within the grain industry, and the many people that I encountered both nationally and internationally who were involved in the food chain. The process of adapting to an ever-changing industry environment was both challenging and rewarding. Perhaps my highlight was the merger between CBH and the Grain Pool, which started us on our path of integrating the supply chain in Western Australia.

WG: What are you looking forward to most about retirement and do you still expect to be using your experience at all?

Mencshelyi: I’m retaining a position as independent chairman of CBH’s flour milling business in Asia. I’m involved with a small rural agricultural business, and I’m hoping to make my own olive business profitable. But most of all I really want to spend time with my family. WG

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