CBH flags marketing and trading ‘loyalty payment’ as it ditches operations rebates for foreseeable future

Australia’s biggest grain trader is weighing up a loyalty payment for farmers selling through its marketing and trading division as it looks to make rebates for its grower members a thing of the past. CBH Group chairman Simon Stead said the co-operative was unlikely to pay its members a rebate in coming years but declined to rule out the move entirely, saying there was no set “policy”. He said paying rebates would be “counterintuitive” and could lead to an increase in farmer fees at a time when CBH was rolling out $4 billion in investment in its network in the next 10 years. However, Mr Stead said the company was instead weighing up creating a loyalty payment through its marketing and trading division — but it would need to have “no linkage to profit”. CBH Group did not pay rebates to its grower members for the first time in nine years in 2020, after paying out more than $430 million in rebates during the 10 years beforehand. It opted to instead retain surplus cash to bulwark its business and turbocharge investment in the State’s lagging grains supply chain. “We certainly don’t have a set policy about having (rebates), or not having them,” Mr Stead said. “Given the quantum of the spend we are envisioning to have to spend on the network to handle larger crop sizes to 2033 — we are talking about spending $4 billion across 10 years. “It is unlikely we are going to be providing an operations rebate going forward.” CBH is widely regarded to be playing catch-up after years of historic underinvestment in the network, something CBH chief executive Ben Macnamara admitted in a 2021 interview. But its move to ditch rebates has divided farmers, with some agreeing the money should be spent on improving infrastructure while others believe not offering rebates is against the co-operative’s values. “It would be counterintuitive to provide rebates, we would have to increase fees to build the network that the crop size requires,” Mr Stead said. “When we look at marketing and trading, we have kicked off discussions with members . . . we can’t call it a rebate but will have to make some sort of loyalty payment.” The most volatile grain market in 50 years and a record harvest helped CBH deliver its biggest annual surplus of $497.7m to the year ending September 30. The total was underpinned by marketing and trading’s $437.9m surplus on the back of the Russia-Ukraine war, while operations recorded a $57.9m surplus thanks to record receivals. Mr Stead said any loyalty payment through marketing and trading could not be “linked to profit”. “They (marketing and trading) are not driven by profit, they are required to make a modest return on equity,” he said. “Going forward we would be looking at a loyalty payment, but that is a decision made on an annual basis as we get closer. “A loyalty payment has no linkage to profit so it is something we pay on a fairly consistent basis, based on patronage.” During the same interview, Mr Stead revealed CBH had a break-even receivals tonnage of 10-11 million tonnes and it was not expected marketing and trading would make profits “of that magnitude again”. The co-operative released the Path to 2033 plan earlier this year, with hopes to boost its existing 1.6Mt per month tonnes to port capacity to 2Mt per month by 2024, 2.5Mt by 2028 and 3Mt by 2033. He said while CBH was expecting 20Mt crops to become more of the norm, it was also expecting some low-production years. “That is where we will look at the prudent use of debt to continue to invest in the network,” he said. “We need to be able to out-turn that crop and that will take some significant investment. “That’s where we will look to use debt to continue on that path.”