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Brent Esler, CEO
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The facts about grain importation
Over recent weeks a number of CRT shareholders have questioned staff over stories in the market of CRT involvement in grain importation. Understandably many shareholders, particularly those involved in the arable sector, are alarmed at the thought of a co-operative they are members of doing anything that would compete with their own farming business interests. CRT 's position can be summarised as this. CRT 's grain and seed division does not import grain to compete in the local market and does not intend to do so. CRT 's feed division has not imported grain into New Zealand and has no immediate plans to do so.
I want to take the full space of this article to explain the CRT position on grain imports, and the rumours which have probably arisen through the current development of the CRT feed business. We are very mindful of shareholder expectations of CRT, and we are constantly balancing the varied needs of shareholders from various sectors of agriculture. Maintaining a profitable feed business with a competitively priced supplementary feed offer to dairy farmers, procuring grain ingredients on the local market whilst competing with others operating on a global stage all requires a fine balance. CRT's involvement with grain spans three CRT business units –retail, feed and our seed and grain divisions. The influence of our activity extends into nearly all other areas of our business including fuel and fertiliser.
CRT - Grain and Seed
CRT's grain and seed division does not import grain to compete in the local market. That is the current strategy and there is no intention to depart from that strategy.
There may be situations that arise that would enable CRT to participate in some international trade opportunities that could benefit all shareholders, and may actually benefit arable farmers. If and when these arise, CRT would consider them on their merits. When an opportunity arises to capture benefit through some anomalies or imbalance in international pricing, these opportunities will be quickly taken by one of the currently registered grain importers.
CRT - Feed
All of the major competitors in the New Zealand rural supplies market stock and sell some feed products that not only contain 100% foreign ingredients, but are also manufactured offshore. CRT is the only rural supply company operating a vertically-integrated feed business based on a strategy of procuring grain from local farmers, adding value through a manufacturing process and then distributing the finished product back to farmers.
CRT's feed division has not imported grain into New Zealand, and has no immediate plans to do so. Since we first became involved in feed manufacturing nearly 10 years ago, we have imported significant quantities of protein and commodity ingredients including fish meal and fish oil, as do other local feed manufacturers. These products are international commodities and we must source these competitively to ensure our feed business is not disadvantaged pricewise against our competitors. You as shareholders have a significant investment in feed manufacturing and a large market share in this business. We are currently upgrading the grain input and feed output systems for our new mill at Rolleston to better cope with demand. Investments of this magnitude need to be future proofed. A significant risk to this business is a shortage of grain on the local market. This could arise through:
- local conditions, or
- a significant shift in land use away from grain production, or
- simply increased global demand
We have ensured our new facilities are MAF certified to enable them to directly receive imported grain, as I understand have a total of seven South Island certified companies. No doubt this process had lead to these recent rumours surfacing of impending imports.
We simply cannot run the risk of running out of raw material to operate these mills because we are unable to source grain in the local market. Our intention always is to contract all possible grain requirements in the local market – but there will almost inevitably be times when local grain price spikes, abnormal demand for feeds, and even speculation by growers makes it impossible for us to source grain in quantities or at prices to enable our mills to be competitive.
As an internationally-traded commodity, the price of grain is almost entirely driven by global, not local, market factors. At anytime CRT was forced to import grain this would be because the operation or profitability of the mills was being compromised by local grain price or availability. Local grain growers will be doing very well with or without CRT support in those market conditions. We have already had situations this season where it has been difficult to source grain locally.
As a matter of principle, CRT would of course always buy inputs from shareholder farmers provided that it makes commercial sense to do so. We always strive to act in the best interests of all of our shareholders. The dairy sector-driven exponential growth of palm kernel imports in recent years highlights that where opportunities exist to source proteins at a price advantage on the global market there will always be people ready to exploit those opportunities. Price and quality are the only issues for these consumers. We are competing with companies that are directly involved in these activities, and also with global players in the grain market. I stress again that CRT has not been involved in the import of palm kernel or grain.
History has shown us repeatedly that protectionism has never worked in any industry or endeavour as a long term solution.
If a commercial opportunity exists (for farmers or manufacturers), to produce or provide goods on better economic terms, in the absence of government protection, someone will take that opportunity and exploit it. They will be seen as innovators by market observers while the other market participants are left scrambling to adapt themselves to the new order.
So to conclude, CRT is not importing grain at this time, and has no plans to. We will however be equipped to do so when and if this becomes a commercial necessity for our feed division.
Anyone who wants more information or would like to discuss further, please contact me directly or call your local CRT director.