ADM Aims to Keep GrainCorp Ports After A$3.4 Billion Takeover Completes

By Caroline Henshaw

SYDNEY--Archer Daniels Midland Co. (ADM) aims to retain ports owned by GrainCorp. Ltd. (GNC.AU) after it completes a A$3.4 billion (US$3.3 billion) takeover, a move that risks intensifying divisions with Australian farmers who fear being locked out of vital export infrastructure.

The U.S.-based company, known as ADM, says farmers will get higher prices and better access to fast-growing food markets like Asia and the Middle East if it becomes one of Australia's largest grain exporters.

Acquiring GrainCorp would give ADM control of seven of the eight ports that handle 90% of grain shipments from Australia's east coast, the gateway to Asia's booming food market. The deal still requires approval from regulators in Australia and China, as well as GrainCorp shareholders.

Australian farmers--already squeezed by rising costs, the strong local currency and high debt levels built up during years of drought--fear they will have less muscle in the supply chain if ADM's takeover goes ahead. Lobby group NSW Farmers has written to Treasurer Wayne Swan demanding ADM offload port assets, give other parties access to GrainCorp's 20 million-metric-ton storage network along the east coast and commit to invest in rail infrastructure as part of the deal.

"Our position is that the current arrangements are working very well, and we do not propose to change them," ADM's Grain Group president Ian Pinner, who will oversee GrainCorp if the deal succeeds, told The Wall Street Journal. "Our intention is to build on the success of GrainCorp's entire infrastructure--storage, transportation, and ports."

Australia, with its small population and vast landmass, exports around 70% of its farm produce and is the world's second-largest wheat exporter.

Global merchants have scrambled to get into Australia's grain sector the hope of cashing in on rising demand from Asia. Since the breakup of the government's central exporting agency in 2008, almost all of the country's export infrastructure has fallen into foreign hands. Three companies--ADM, Glencore Xstrata PLC and Cargill Inc.--would control nearly 60% of wheat shipments from Australia if ADM's bid for GrainCorp succeeds.

Despite the presence of such global trading houses, Australia's exporting infrastructure is struggling to meet demand after decades of underinvestment.

Alison Watkins, the chief executive of GrainCorp, told a conference this month that more than 30% of grain along the east coast is being moved by truck due to bottlenecks in the rail system. That change has driven up transport costs to as much as A$100 a ton, around a third of current wheat prices.

Mr. Pinner said Illinois-based ADM is examining how to upgrade parts of GrainCorp's infrastructure, and the outcome would be released in ADM's bidders statement soon.

But he argued that the rail networks most in need of investment belong to the government. Other parties would be allowed access to its ports under the deal, ADM's largest-ever purchase, but wouldn't be able to use its storage network, he added.

"It's a reality of our time that agriculture is now a global industry," Mr. Pinner said. "We think Australian growers will see a better deal both in relation to prices and in terms of trade and access to global markets."

One concern among investors is the deal could be held up by regulatory approval, particularly in China where GrainCorp owns assets. China's Ministry of Commerce took more than a year to approve Glencore International PLC's takeover of Xstrata PLC.

Mr Pinner said ADM has applied to all regulators concerned, but declined to speculate on how long it will take for a decision to be made.

Write to Caroline Henshaw at [e-mail]

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