By Caroline Henshaw
SYDNEY--Archer Daniels Midland Co. (ADM) aims to retain ports
owned by GrainCorp. Ltd. (GNC.AU) after it completes a A$3.4
billion (US$3.3 billion) takeover, a move that risks intensifying
divisions with Australian farmers who fear being locked out of
vital export infrastructure.
The U.S.-based company, known as ADM, says farmers will get
higher prices and better access to fast-growing food markets like
Asia and the Middle East if it becomes one of Australia's largest
grain exporters.
Acquiring GrainCorp would give ADM control of seven of the eight
ports that handle 90% of grain shipments from Australia's east
coast, the gateway to Asia's booming food market. The deal still
requires approval from regulators in Australia and China, as well
as GrainCorp shareholders.
Australian farmers--already squeezed by rising costs, the strong
local currency and high debt levels built up during years of
drought--fear they will have less muscle in the supply chain if
ADM's takeover goes ahead. Lobby group NSW Farmers has written to
Treasurer Wayne Swan demanding ADM offload port assets, give other
parties access to GrainCorp's 20 million-metric-ton storage network
along the east coast and commit to invest in rail infrastructure as
part of the deal.
"Our position is that the current arrangements are working very
well, and we do not propose to change them," ADM's Grain Group
president Ian Pinner, who will oversee GrainCorp if the deal
succeeds, told The Wall Street Journal. "Our intention is to build
on the success of GrainCorp's entire infrastructure--storage,
transportation, and ports."
Australia, with its small population and vast landmass, exports
around 70% of its farm produce and is the world's second-largest
wheat exporter.
Global merchants have scrambled to get into Australia's grain
sector the hope of cashing in on rising demand from Asia. Since the
breakup of the government's central exporting agency in 2008,
almost all of the country's export infrastructure has fallen into
foreign hands. Three companies--ADM, Glencore Xstrata PLC and
Cargill Inc.--would control nearly 60% of wheat shipments from
Australia if ADM's bid for GrainCorp succeeds.
Despite the presence of such global trading houses, Australia's
exporting infrastructure is struggling to meet demand after decades
of underinvestment.
Alison Watkins, the chief executive of GrainCorp, told a
conference this month that more than 30% of grain along the east
coast is being moved by truck due to bottlenecks in the rail
system. That change has driven up transport costs to as much as
A$100 a ton, around a third of current wheat prices.
Mr. Pinner said Illinois-based ADM is examining how to upgrade
parts of GrainCorp's infrastructure, and the outcome would be
released in ADM's bidders statement soon.
But he argued that the rail networks most in need of investment
belong to the government. Other parties would be allowed access to
its ports under the deal, ADM's largest-ever purchase, but wouldn't
be able to use its storage network, he added.
"It's a reality of our time that agriculture is now a global
industry," Mr. Pinner said. "We think Australian growers will see a
better deal both in relation to prices and in terms of trade and
access to global markets."
One concern among investors is the deal could be held up by
regulatory approval, particularly in China where GrainCorp owns
assets. China's Ministry of Commerce took more than a year to
approve Glencore International PLC's takeover of Xstrata PLC.
Mr Pinner said ADM has applied to all regulators concerned, but
declined to speculate on how long it will take for a decision to be
made.
Write to Caroline Henshaw at caroline.henshaw@wsj.com
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