The Emerald of Australia's grain empire
Jan. 29, 2013
by Michael King
As the grain industry consolidates both in Australia and worldwide, Emerald Group looks increasingly well positioned. The Melbourne-headquartered company has been on an expansion spree of late which has transformed it from a mid-sized grain marketing company into a fully-fledged integrated supply chain business offering transport, storage and port access to an ever rising number of growers. Last year, company revenue totaled some A$1.3 billion and is expected to rise to A$1.6 to 1.7 billion in 2012 due to higher grain prices.
Emerald, which was set up in 2004 in the early days of Australia’s grain industry deregulation process, is now the fifth largest and fastest growing marketing business in Australia with 10% of the market. It also claims to operate the third largest storage and handling network in eastern Australia where it has up to 25% market share in some regions.
Emerald’s ownership model has been critical to its growth. A deal with the Sumitomo Corporation of Japan in 2010 saw the trading house and commodities conglomerate secure a 50% equity stake in Emerald. Ownership of the remaining shares has been retained by some 50 to 60 directors and staff.
Chairman Alan Winney said the Sumitomo deal had given Emerald financial muscle and global reach without forcing the company to sacrifice its philosophy of working at the farm gate with growers and grower groups on price and service.
“It works really well with Sumitomo,” he explained to World Grain. “We made the decision about three and a half years ago to approach them because we could see they were a good fit for us, and they were expanding their grain business. After a year of discussion, they bought the stake. Since then, they’ve let the managers who have been here a long time get on with growing the business.”
The deal has also given Emerald access to premium Japanese buyers and emerging markets elsewhere in Asia where Sumitomo has been investing in flour milling and other grain processing assets.
“They have offices in 65 countries so we have great connections to South and East Asia through Sumitomo,” said Winney. “And they are investing in first- and second-stage food assets related to grain and oil in Asia and Australia, so that fits well with our accumulation strategy because it gives us the market access.”
In terms of access to global markets, the biggest boost from the deal became apparent late last year when Sumitomo transferred its grain logistics assets in Australia to Emerald. This included the Australian Bulk Alliance (ABA) network and its crown jewel — Melbourne Port Terminal (MPT).
“The key benefit lies in linking trains to the ABA network in Victoria and southern New South Wales with Melbourne port, to fulfill the vision of a more efficient, competitive and economical supply chain for our grower, trade and processor customers in Australia and around the world,” said Winney.
As previously reported in World Grain, port access has been one of the most contentious issues since Australia started deregulating its grain export industry. Companies with control over terminals quickly secured strong market positions in upstream markets, and there were complaints from a number of marketing rivals about a lack of shipping information and fair competition.
It is in this context that gaining control over ABA was significant for Emerald, which, with port access guaranteed, has now emerged as a third force to rival Cargill and Graincorp in offering integrated supply chain services in eastern Australia.
Emerald has invested significantly this year to enhance its rail and storage sites and train operation. Volumes through MPT are expected to rise from 800,000 tonnes last year to 1.2 million tonnes in 2012. Volumes at the terminal could then reach annual capacity of 1.5 million tonnes next year and the company is now looking at how best to increase storage areas.
“Port access is absolutely vital, and as we grow we will need more capacity in other parts of Australia,” said Winney. “We are also now working closely in Queensland in Brisbane port with Queensland Bulk Terminal where we are the biggest customer. We are also looking at private operators at the port of Newcastle.
“We need better access in New South Wales and South Australia. A merged Viterra and Glencore will soon have all the grain port assets in South Australia. We will try to work closely with them, but where we can’t work with existing operators we will look for new investments.”
With all the recent investments and acquisitions, Winney believes Emerald now has the products and infrastructure to attract more growers in the years ahead, as well as the global reach to access expanding overseas markets.
“Our investments have made it more of a level playing field in Australia,” he said. “We are now able to offer services across the entire grain supply chain – origination, storage, logistics, shipping, port access and marketing. We’ve moved from a grain marketing company to an integrated supply chain company, and we can offer multi-origin, multi-product supply chain security including GM and non-GM products.”
Last harvest, the company handled some 4 million tonnes and, according to Winney, around 4.5 million tonnes will be handled in the forthcoming season. A key aspect of boosting growth will be Emerald’s range of commercial joint venture partnerships with grower organizations. Emerald’s JVs include SQP Grain with Southern Quality Produce Co-operative in Victoria and Southern Ag Grain with Southern Ag Venture in southern New South Wales. It also recently bought a 100% stake in EP Grain in the South Australian Eyre Peninsula following a four-year joint venture partnership with FREE Eyre.
“Emerald operates in its own name in Western Australia and also has a strong alliance with WAFarmers, while in Queensland it operates as Philp Brodie Grain and in eastern South Australia as Sturt Grain,” explained Winney.
“We are different from our competitors. We see growers as our customers, not just as suppliers. We can offer them receival access and a fuller range of services since the ABA deal, including warehousing finance in more places, and we’ll add more rail services and improve port access as we go along.
“We care about grower returns. It’s important we’re supporting them so they can be financially viable and profitable. Prices put out and returns they get should be enough so that they enjoy growth. That is our philosophy, and we think it’s different to some of our competitors who don’t have the Australian link and ownership that we have.”
Winney expects further consolidation of the grain industry both in Australia and globally. As World Grain went to press, Archer Daniels Midland Co. (ADM) was poised to purchase GrainCorp to further expand its presence in Australia, where it already owns 80% of grain handler Toepfer International. Glencore, via its purchase of Canadian grain company Viterra earlier this year, and Cargill, after its purchase of AWB, have also made major splashes in the Australian grain market in recent times.
“This is not just Australian consolidation, it is global and cuts across commodities and supply chains. The takeovers in Australia are just a reflection of what’s shaping the grain industry across the world,” said Winney.