A changing grains industry: Where will globalisation and

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1 A changing grains industry: Where will globalisation and consolidation take us? AGIC Conference July 2010 Alan Winney Chairman - Emerald Group

2 Overview A 25 year journey to where we are today!! State based and then multi state mergers Reality check - where are we today? Recent international expansion into Australia? What will the next few years look like? What are the issues we need to manage along this journey? Is the grain position unique?

3 The Journey Marketing structures for Australian grain commenced in the 1920s and 1930s; Outbreak of WWII in 1939 saw grain marketing nationalised AWB and ABB were born; After almost 50 years of no change in the grains industry a new journey commenced in 1984; The reality was that t by the late 1980s many of the marketing boards were outdated and badly managed; They faltered so response was stick them together, or integrate with S&H providers; During 1980s and 90s small government took hold; Free trade, progressive deregulation of statutory marketing arrangements, removal of legislated storage monopolies, better information, globalisation.

4 GRAIN COMPANIES WITH GROWER HISTORY Grain Elevators Board Victoria Grain Handling Authority NSW 1992 GrainCorp 1995 Vicgrain 1999 GrainCorp Ltd NSW Barley Board NSW Oats Marketing Board NSW Sorghum Board NSW Oilseeds Board Cent Queensland Sorghum Board State Wheat Board (Queensland) Queensland Barley Board Bulk Grains Queensland 1991 NSWGB Grainco Grainco ABA SACBH Australian Barley Board Grain Pool of WA CBHWA Australian Wheat Board 2000 Ausbulk 1999 ABB Grain Ltd 2004 ABB 2001 GA Alliance CBH AWB Ltd Number of Grower Organisations Emerald Group 2010

5 Aggregation & Consolidation We have had 15 years of state and then national aggregation of grain marketing, storage and processing; For the last 5 years the four larger grower companies and a range of private companies have tried to merge together, without success; Australia has now missed the opportunity, global aggregation has commenced in Australia; Globalisation is occurring and will include marketing, storage & handling and transport; It is most apparent in terms of 1 st stage processing of agricultural products; Domestic Grain demand is being locked up; Multi origin global grain companies are forming, often as part of multi commodity groups.

6 Grain Processing Concentration Grain Processing Leading Companies Shareholders Country of Ownership 1 st stage now Processors blocked Sector foreign owned from growers Flour #1 Allied Mills GNC, Cargill USA 65% 50% Milling #2 Manildra #3 Westons Honan GWF (ABF) Australia UK Mlt Malt #1 Joe White Viterra Canada 55% 95% Processing #2 Barrett GNC Australia Burston Oilseed Crushing #1 Cargill Oilseeds #2 Riverland Oilseeds #1 Ridley #2 Millmaster Cargill Gardner Smith USA Australia Stockfeed ASX Listed Australia Manufacture #2 Millmaster GWF (ABF) UK 95% 95% 25% 0%

7 Grain Processing Concentration Grain Leading Share Country of 1 st stage Processors Processing Companies holders Ownership now foreign blocked from Sector owned growers Poultry #1 Inghams Ingham Family Australia 0% 0% #2 Baiada Family Australia Beef #1 AMH Swift Brazil 60% 40% Feedlots Various Marubeni, Mitsubishi Japan Piggeries #1 QAF Salim Group Indonesia 25% 0% Dairy National Foods Murray Goulburn Kirin Co-op Japan Australia Bonlac Fonterra NZ Burra Foods Itochu Japan 50% 0%

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9 Grain Storage Companies Storage Company Brands Shareholders State(s) Country of Ownership Grain Receivals Average % Aust Receivals Ave CBH CBH WA Growers WA Australia 10.0mmt0 28% Co-op GNC GrainCorp ASX Listed Qld, NSW, Vic Viterra Viterra ABB/ Ausbulk Canadian Publically listed Australia 9.0mmt 25% SA Canada 4.5mmt 13% AWB Grain Flow ASX Listed Qld, NSW, Australia 2.0mmt 6% MPT Vic, SA Sumitomo Private Storage ABA MPT Japan publically listed Country Merchants NSW, Vic Japan 1.5mmt 4% All Australia 1.0mmt 3% On farm Farmers All Australia 8.0mmt 22% TOTAL 36mmt 17 25

10 Grain Trading Companies Grain Company CBH Brands Shareholders Country of Ownership CBH, GPWA, Plumgrove Grain purchases from farmers % share program Cumulative share WA Farmers Australia 6 million 16% 16% AWB AWB, ASX listed Australia 5 million 13% 29% Grainflow Viterra Viterra, ABB Publicly listed Canada 4 million 12% 41% GNC GrainCorp, Allied Mills ASX Listed GWF (ABF) Australia UK 3 million 9% 50% Emerald Emerald, SQP, EP Grain, Sthn Ag Grain Private company including Staff Sumitomo Australia 2.7 million 8% 58% Japan Cargill Cargill AGA Private company including Staff USA 2 million 5% 63% Elders Toepher Elders Elders - ASX Toepher (ADM) Australia Germany 2 million 5% 68% Glencore Glencore Publically listed Switzerland 1.5million 4% 72% AACL Other Bunge, LDC, QCH, JK, Touton, MBK various various 10 million 28% 100%

11 Commercial Positioning i International companies are positioning Elders is accumulation network for Toepfer (ADM); Cargill building its own accumulation network; Allied Mills 40% owned by Cargill; Sumitomo buy 50% of Emerald and 100% of ABA; Nidera of the Netherlands buy Pentag Other companies undertaking DD today Japanese seeking entry; Gavilon negotiating with AWB; Viterra seeking other distribution and food assets; Noble & Bunge back in Australia; Listed companies like Ridley, MSF, WCB under investigation.

12 Recent Developments April 09 GNC breaks AGA accumulation alliance and sells AGA to Cargill May 09 CBH buys 50% of Daily Grain further tightening g its grip on Plumgrove and its activities. June 09 CBH provide $30m funding line to AACL in return for contracts to receive all grain supply. July 09 - AWB announce closure of their Brazil office and scale back of India office. Aug 09 - Wilmar Gavilon purchase Brisbane Sugar Terminal, announce it will be exporting grain from early 2010.

13 Recent Developments Sep 09 - AWB announce they are well progressed in discussions with an international partner re grain business including the sale of Geneva office. Sep 09 - Viterra of Canada finalise the A$1.6b takeover of ABB Grain. Sep 09 ABB sale triggers pre-emptive rights over ABA storage network, 50% holder Sumitomo has to decide ownership. Oct 09 GNC announce A$767m purchase of United Malt Holdings (UMH) which includes its Australian business Barrett Burston.

14 Recent Developments Mar 10 Emerald Group sale of 50% equity to Sumitomo Corporation of Japan. Apr 10 Sumitomo exercises pre-emptive rights over ABA storage network and moves to 100% ownership. Apr 10 - Nidera buy Pentag Jul 10 CBH withdraws funding and Glencore step in as white knight taking control of AACL grain tonnage. Jul 10 AWB confirms that Gavilon of the US is their international partner and are due to announce terms of the JV. Jul 10 Wilmar announced A$1.75 billion purchase of CSR Sugar

15 Footprint of International companies Old world 95% Australian oilseed crushing capacity 100% ABB storage & handling assets in South Australia 100% of DunavantCotton business worldwide 50% of Bulk Export Terminal in Brisbane (former BST) Purchased Brooks Grain Goodman 100% Joe White Actively involved Named as AWB Funded AACL and Fielder margarine and oils business?? Malt, #1 maltster in Australia gained purchase rights to all grain received in % of #1 flour miller Allied mills 100% AGA grain accumulation network WEA licensed wheat exporter Had 50% share of ABA storage in Vic and NSW, now lost. Continue to buy processing assets in North America WEA licensed wheat exporter in feasibility work on new ports on east coast WEA licensed wheat exporter international partner, negotiating to buy AWB assets Former Conagra Trade Group, now back by private equity WEA licensed wheat exporter Swiss based, USD116 billion turnover WEA licensed wheat exporter

16 Footprint of International companies New World Singapore s #2 listed Bright Foods is a Singapore listed agri- Significant publically company Shanghai h listed food company focused listed Japanese Chinese food industry on coffee, cotton, Trading House conglomerate nuts, pulses 50% of Bulk Export Bright buy 51% of Purchased Qld Cotton, 100% ownership of Terminal in Brisbane (former BST) now grain and oil capable Synlait milk business in NZ for NZ$82 million including its assets in Australia and USA, for $150m in 2007 ABA storage network in Vic and NSW Purchased CSR Unsuccessful A$1.65 Qld Cotton have 50% equity investment Sugar business for billion bid for CSR owned Mt Tyson in Emerald Group A$1.75 billion Sugar in 2010 Seeds since 2003 taken in 2010 World s largest palm Reputed to be Olam purchase 100% Summit Rural. oil company undertaking DD on Timbercorp s Almond Fertiliser/ Chemicals production & mkting Foster s Wine Assets assets in 2009 in WA WEA licensed wheat exporter Well developed Food and Agri presence e in Australia for 5o years

17 The Future - Grain Of the 23 licensed wheat exporters 12 are Aust owned; In 3 years I suspect that a majority of Australian wheat will be exported dby international i companies; 5 Australian storage companies today, suggest over time it will move to 3 companies, only one will be Australian owned; Some Australian companies e.g. CBH are protected by their structure, demutualisation will make them more vulnerable; Open access to essential infrastructure t is imperative for ongoing growth and true price signals to farmers; The domestic grain consumer will be taken out of play, trading companies will buy and dom premiums disappear; ACCC, WEA and others will need to be more involved and become more important if companies abuse their powers; A strong new storage network with export facilities will be created on the east coast; Pools will survive and play a key role, they need to be specialist and diversified.

18 The Future -Agribusiness Grain industry no longer operates independently, and no longer driven by S&D alone; Linked as part of world energy complex; It is also part of pharma equation, we are moving to the genetic generation, grain for food, fuel and medicines; In this environment globalisation and international aggregation of companies is occurring; These companies are normally not single commodity, they are multi commodity and integrated throughout the chain; Future is build around partnerships p and alliances; Investment from old world is declining and new world is emerging rapidly post GFC; Food and energy security are driving thinking that is 25 years forward; Get niche or get global, the middle is dangerous ground.

19 The Future is Asia World population growing from 6.8 million to 9.5 million by 2050; Growing by 65 million people a year, fastest growing region is Asia; China now #2 economy and by 2027 will overtake USA; North America and Europe hit by GFC, many years to recover; Asia is seeking food security and energy security now, to be ready for the future; Wheat, barley, canola into Asia is forecast to grow by 39% over next 10 years alone; North Asia and South Asia have different motives; Preferred investment locations are Australia and Africa.

20 A changing grains industry: Globalisation and consolidation are here today! AGIC Conference July 2010 Alan Winney Chairman - Emerald Group