EMERALD Group chairman Alan Winney believes a new investment from Japanese company Sumitomo will allow the Australian grain marketer to continue its meteoric rise.
He said there was no reason Emerald could not aspire to accumulate 25pc of the Australian crop once it established a presence in the areas it does not currently cover.
“It may sound a lot, but in the regions we are established, we have about 25pc of the market share there.”
Emerald Group has gone from buying 800,000 tonnes of wheat in 2007-08 to 1.5 million in 2008-09 to over 2.5 million tonnes in 2009-10, after setting up just six years ago in 2004.
Mr Winney said he believed the company was growing because of its focus on its farmer customers, and that had attracted Sumitomo to invest.
He said the benefits of the Sumitomo deal to Emerald would be two-fold, firstly in terms of the physical investment, but more importantly, because of the business links it creates.
“There has been a trend within the Australian grains industry for consolidation, and we have seen the internationals starting to move in, such as Toepfer, with its deal with Elders, and Viterra.
“It’s becoming harder for us to sell into certain markets, because of arrangements through the Australia supply chain, so we were looking to build some global links.
“The deal with Sumitomo works perfectly, they are obviously Japanese-based and we do a lot of exporting there.”
As well as Japan, Sumitomo has assets in other crucial markets for Australian grain, such as south-east Asia and the subcontinent.
“Sumitomo have just embarked on a joint venture with Prima flour mills, who operate in Singapore, Sri Lanka, Vietnam and China, there are huge opportunities there for Emerald.”
Overall, Mr Winney said Sumitomo had 145 offices in 66 countries.
“We will be able to go direct to them and get preferred access into a lot of markets.”
The financial stability of Sumitomo is another boost for Emerald.
“Sumitomo’s financial strength dwarfs that of our main publically listed competitors in Australia and is likely to lead to a change in the whole dynamic of the Australian grains industry,” Mr Winney said.
Sumitomo’s stake in Australian Bulk Alliance, a network of bulk handling sites it has joint ownership together with Viterra is another synergy with Emerald.
“With ABB’s change of control, we think Sumitomo will get the opportunity to take over 100pc of ABA, and with that, the Melbourne port,” Mr Winney said.
“We are not sure what they are doing on that, but it seems a good move.”
Mr Winney said a lot of Emerald’s grain was accumulated at ABA sites.
“If we are not the largest buyer, we are close to the largest in ABA sites.”
Under the deal, Sumitomo has acquired a 50 per cent equity stake in Emerald. The remaining 50pc will continue to be owned by the existing Emerald directors and staff.
Sumitomo is a different business to Sumitomo Chemicals, which recently has purchased a stake in Nufarm, although there is a small crossover of ownership.
Mr Winney added that operationally for Emerald and its grower customers it was business as usual, with the company continuing to create market opportunities for growers, and provide them with a range of grain marketing and risk management services.
“The Emerald name, office locations and key personnel will all remain as they are today.
“Sumitomo’s investment will provide it with an aligned accumulation base in Australia and a linkage with a company that has a strong reach to the farm gate."
He said there were plenty of growth opportunities for the Emerald business.
“We only have a very light presence in NSW and we are really only represented in half of South Australia.”
He said that currently, the business was made up of two thirds wheat, but that would change as they became more involved in other commodities, in particular canola, where there are strategic opportunities through the Sumitomo alliance.
“Our growers are swinging into pulses, so we decided to start buying them,” Mr Winney said.
The business remains committed to its joint venture orientated structure.
It has arrangements in place with grower groups in WA, SA, Victoria and NSW.
Of the national accumalation, Emerald gets 1.5 million tonnes from WA, mainly accumulated on its own right, but also through alliances, 600,000 from SA, where Emerald is aligned with EP Grain and 400,000 tonnes in Victoria, where it works with SQP.
A new arrangement in the NSW Riverina, through Southern Ag Grain scored in the order of 50,000 to 100,000 tonnes in its first year.
Mr Winney said the company wanted to start up another JV this year, either in eastern SA or in southern Queensland.
“We’ve still got a lot of areas we want to get into yet.”
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