Australia's newly deregulated grain industry is expected to undergo a period of consolidation as local players eye expansion on a global scale. The big listed grain companies, AWB Ltd (AWB.AX: Quote, Profile, Research, Stock Buzz), GrainCorp Ltd (GNC.AX: Quote, Profile, Research, Stock Buzz) and ABB Grain Ltd (ABB.AX: Quote, Profile, Research, Stock Buzz) all acknowledge that mergers would boost earnings. "Consolidation is now very likely post-deregulation and now that companies have cleaned up their ownership structures," said Belinda Moore, an analyst at ABN Amro Morgans.

 

AWB Ltd was the last of the big three to tidy-up its ownership structure, last month cancelling its farmer-owned A-class voting shares after shareholders voted in favour of the move.

 

The group, which lost its monopoly over wheat exports when deregulation took effect on July 1, now has just one class of shares, like ABB and GrainCorp. The other major locally-owned grain group, Western Australian based CBH Group, has retained its co-operative structure, being owned by it farmer members and remaining unlisted. Moore said the market expected consolidation to achieve economies of scale as well to provide more clout in the global market place.

 

"It could be any combination, there are four grain groups but there's some that make more strategic sense than others --- AWB and ABB would be a good combined business," said Moore.

 

"After years of drought the grain companies really need to diversify to have greater geographic diversity and also product diversity," she said.

 

AWB was Australia's sole wheat exporter before deregulation on July 1 while ABB was the country's top barley exporter.

 

Moore said the need for stronger balance sheets would be another driving force.

 

"Hopefully, it will happen sooner than later but pin-pointing when it will occur is difficult," she said. ABB Ltd chief executive Michael Iwaniw made it clear rationalisation was a very real possibility when releasing the company's annual earnings report on Tuesday.

 

"We think there should be rationalisation in the grain industry -- the total Australian grain industry's participants are minnows compared to international participants be they MFG, Cargill or whatever, so we think that should happen," said Iwaniw, referring to South Korea's Major Feedmill Group and U.S. commodities giant Cargill Inc [CARG.UL].

 

"We've also stated that each of the existing parties, be they CBH, AWB or GrainCorp, all have something to offer," he said.

 

"Basically you could put all the Australian grain industry into one and you might have a 4 billion dollar company, maybe a touch more, but really when compared with some of the people we have to compete with it would still be a small company."

 

He said the Australian market was also finite, so to grow Australian grain companies needed to become global players.

 

Iwaniw said ABB would consider a merger or an acquisition provided it benefited the group's shareholder. (Reporting by Bruce Hextall; Editing by Alex Richardson)