CBH fights to protect monopoly

The head of the country’s biggest grain handler will appear before a competition watchdog hearing in Perth next week to plead a case for preserving his company’s monopoly on grain transport in WA.

CBH Group has warned that the Australian Competition and Consumer Commission’s proposal to strip it of its Grain Express monopoly would result in a “logistical nightmare” in getting grain from the co-operative’s 200 up-country storage sites to ports for export.

Under the Grain Express system, in place since the deregulation of wheat exports in 2008, growers who use the co-operative’s storage facilities must also use CBH’s transport system to move their grain to port.

But a shakeup — flagged by the ACCC in a draft decision last month that is open for submissions until Wednesday — would open the way for third-party operators to bypass CBH’s services and seize control of farmers’ grain at the start of the supply chain.

CBH, which has almost 4700 grower shareholders across WA, controls about 90 per cent of the State’s up-country storage facilities and owns and operates four port export terminals.

Analysts say any move to revoke CBH’s approval to operate Grain Express system could also represent a major threat to its profitability if it loses the scale needed to offset the high fixed costs of its infrastructure.

But the proposal has been welcomed by major east coast competitors such as rail haulage operator Asciano and AWB. AWB claimed in a submission to the regulator that it had been approached by farmers who had built on-farm storage in anticipation of bypassing CBH. However, it would be uneconomic to do so while CBH still had the “massive advantage” of scale.

CBH chief executive Andy Crane is expected to address an ACCC hearing in Perth next week in a bid to dissuade the regulator from formalising its draft decision.

Industry sources have warned any move to unwind the monopoly without an adequate transition period could generate further uncertainty in an industry reeling from a drought-ravaged season.

CBH is waiting on final deliveries of one of the smallest harvests in years, with the dry conditions poised to leave a $2 billion hole in the State’s economy.

A late surge in quality has led CBH to revise its estimates for the State’s crop to 6.5 million tonnes, from the 5.5mt tipped at the start of harvest, but the figure pales in comparison to the 11.1mt harvested in WA last year.

But MarketAg director Richard Vincent said there was light at the end of the tunnel for farmers who managed to get a crop out of the ground, with prices for premium APW wheat sitting around $100/t higher than at the start of the season.

WA is typically the biggest grain-producing State, with WA wheat accounting for 54 per cent of the country’s wheat exports in 2009-10. NSW is on track to produce the country’s biggest crop in 2010-11.