The Rice Marketing Board FOR THE STATE OF NEW SOUTH WALES

Transcription

1 The Rice Marketing Bard FOR THE STATE OF NEW SOUTH WALES 5th Annual Reprt t NSW Rice Grwers Octber 2016

2 Intrductin The Rice Marketing Act 1983 ( the Act ) directs that all rice prduced in New Suth Wales ( NSW ) be vested in the Rice Marketing Bard fr the State f NSW ( the Bard ). A Prclamatin by the Gvernr f the State f NSW utlines the bjectives f the Bard as: T encurage the develpment f a cmpetitive dmestic market fr rice; T ensure the best pssible returns frm rice sld utside Australia based n the quality differentials r attributes f Australian rice; and T liaise with and represent the interests f all NSW rice grwers in relatin t the Bard s functins and bjects. 1 Sectin A f this dcument reprts n the perfrmance f the Bard against these bjectives while Sectin B prvides an assessment f the perfrmance f the Sle and Exclusive Exprt Licence ( SEEL ) hlder. Sectin A The Bard's perfrmance against stated bjectives (a) The Bard cntinues t encurage a cmpetitive dmestic market fr rice by facilitating participatin in the market in the fllwing ways: - There are currently ten licensed Authrised Buyers; and - The Bard has issued licences t all parties wh have applied fr an Authrised Buyers Licence, have met the required cnditins, and have signed the Authrised Buyers Licence Agreement. (b) Ensuring the best pssible returns n rice sld utside Australia Again this year the Bard has cmmissined a reprt which has independently verified the exprt price premium as calculated by the SEEL hlder Ricegrwers Limited trading as SunRice ( RL ). On the basis f the infrmatin prvided by RL, the independent verificatin reprt and its wn bservatins, the Bard has cncluded that RL, and the single desk arrangements, cntinue t prvide substantial benefits t NSW rice grwers. (c) The members f the Bard liaised with NSW rice grwers ver the past twelve mnths, in relatin t its bjects and activities, thrugh the fllwing means: - Attending the Ricegrwers Assciatin f Australia ( RGA ) branch meetings; - Spnsring and attending the RGA Annual Cnference; - Visiting the Nrthern Rivers area t meet with lcal Authrised Buyers; 1 NSW Gvernment Gazette N. 75, 22 May 2009, p. 2310

3 - Prviding infrmatin n the Bard's website, including Annual Reprts, regular news updates, Authrised Buyers cntact details, Capital Equity Rllver Scheme rules, Bard plicies; - Cmmunicating with the President and Executive Directr f the RGA n issues relevant t the rice industry; - Prviding regular articles in the RGA newsletter, Rice Matters ; - Inviting all NSW rice grwers t the Bard's Annual Meeting held every Nvember; and - Being available t all grwers, thrugh its sle emplyee, the Bard Secretary. Sectin B Summary f RL s Perfrmance as SEEL Hlder (a) Independent verificatin f the Exprt Price Premium Grant Thrntn Australia Ltd was engaged t perfrm an independent review f the exprt price premium and freight scale advantage fr the year ending 30 April Based n the findings f this review, and its wn mnthly review f RL's peratinal and financial results and psitin, the Bard finds that RL as the hlder f the SEEL, cntinues t deliver substantial benefits t NSW rice grwers. The Bard can als cnfirm the existence f ther substantial benefits t grwers as a result f RL hlding the SEEL. The Grant Thrntn review highlights the fllwing: - An exprt price premium delivered t grwers f $70.7millin; 3 - The average medium grain exprt prices achieved by RL have been greater than thse achieved by Califrnian exprters fr the majrity f the past three crp years (see graph n page 38); - Psitive trends generally in key markets and market share; - Paddy price premium includes efficiency scale advantage; - Freight scale advantage f $9.2millin ( : $14.3millin) delivered t grwers, in additin t the exprt price premium; 4 - RL delivers ther substantial benefits t grwers. Fr example, the ability t respnd t changes in market cnditins, prduct research and develpment, buyer f last resrt, histry f reliable sales and payments, crp finance, rice crp insurance, prvisin f strage and purity f seed; and - Sund financial perfrmance f RL, including: Revenues f $1.3 billin (up 1.9% n ); Net Prfit After Tax (NPAT) f $52millin (up 5.8% n ); and Debt t equity f 46.6% (up frm 43.9% in ). 5 2 RL's financial year is frm 1 May 2015 t 30 April Grant Thrntn Australia Ltd. Verificatin f the exprt price premium and freight scale advantage reprt, 2016, Cmmercial-incnfidence, p Ibid, p Ricegrwers Limited Annual Reprt 2016, Grup highlights, pp. 8-9.

4 (b) Assessment f RL in relatin t stated bjectives 1. Delivery f exprt price premiums t NSW rice grwers i. Value f exprt price premium fr year An exprt price premium f $70.7millin fr the year was achieved by RL as the current hlder f the SEEL. 6 The exprt price premium is calculated fr each f the five majr exprt regins in which RL perates, and als acrss all f these regins. These markets cmprise the Pacific Majrs (Papua New Guinea (PNG) and Slmn Islands), the Middle East, Wrld Trade Organisatin (WTO) Markets (Japan, Taiwan and Suth Krea), New Zealand, and the Pacific Islands. The premium is calculated as the difference between the average lcal RL sale price, less the average weighted lcal cmpetitr sale price, multiplied by the vlume sld. While the reprted exprt price premium f $70.7millin has decreased frm the premium f $82.4millin, the premium per tnne has increased slightly t $ per tnne based n the rice crp prductin f 693,000 tnnes ( : $99.40 per tnne). Grant Thrntn Australia Ltd stated in its verificatin reprt that the ttal premium has decreased $11.7millin due t further declines in PNG vlumes sld, due t a lwer Australian dmestic crp and the cntinued release f cheaper rice blends in the market. ii. Three year trend f the average Free n Bard (FOB) Price The fllwing graph displays the three year trend f the average FOB price achieved by RL Medium Grain rice in exprt markets (fr exprted Australian rice) cmpared t the average FOB Califrnia medium grain price and Thai lng grain price 7. The graph shws that RL medium grain has cnsistently traded abve Califrnia medium grain since early It als shws that medium grain cntinues t sell at a significant premium t lng grain n the wrld market. 8 6 Grant Thrntn Australia Ltd, Op. Cit., p Ricegrwers Limited, SEEL Annual Review Respnse, September 2016, Cmmercial-in-Cnfidence, pp The January 2014 price spike fr Califrnian rice reflects the sharp increase in United States medium grain asking prices as a result f the Califrnian drught and the anticipated restricted future paddy supply.

5 iii. Summary f trends r develpments in key markets as reprted by RL Due t brand strength, RL remained the dminant market player in the Pacific regin and the Middle East, and als saw strng vlume grwth in Asia during A new RL subsidiary based in Singapre was pened in 2015, t build and facilitate sustainable relatinships with custmers, marketers and suppliers in Asia. An RL ffice was als pened in Dubai t prvide representatin fr high ptential reginal areas. 9 iv. Demnstratin f Freight Scale Advantage t Rice Grwers Freight scale advantages arise due t the benefit f delivering larger vlumes int exprt markets thereby lwering delivery csts fr NSW rice int exprt markets. These benefits prvide a further advantage against internatinal cmpetitrs and wuld nt be available in the absence f the scale delivered under the SEEL arrangement. RL prduced a ttal freight scale advantage f $9.2millin ( : $14.3millin) in , which equates t $13.33 per tnne ( : $17.27 per tnne). 10 If vlumes were lwered as a result f ther exprter participatin, the scale advantage that is passed back t grwers wuld be significantly reduced. The calculatin by RL f the freight scale advantage was estimated based n discunt ranges/indicatins f the vlume discunts prvided by fur freight cmpanies, and is nt based n a specific analysis f actual discunts received. Grant Thrntn stated in its verificatin reprt f 7 9 Ricegrwers Limited Annual Reprt 2016, p Grant Thrntn Australia Ltd, Op. Cit., p. 7.

6 September 2016 that this is the nly practical way f estimating the savings given smaller scale cmpetitr rates are cnfidential. 11 v. Demnstratin f the Advantages f Scale t Rice Grwers A cmpnent f the paddy price fr rice grwn in NSW and purchased by RL is derived frm the degree f efficiency in rice-milling. RL cntinues t reprt mnthly t the Bard n its milling capacity management. Current NSW milling capacity n a 24/7 basis is 880,000 tnnes. This represents a theretical utilizatin f 27.6% f New Suth Wales milling capacity, based n the C16 crp size f 243,000 paddy tnnes Assessment f the nging delivery f ther secndary benefits prvided by the SEEL hlder t NSW rice grwers i. Ability t successfully cmpete with imprted, typically lng grain, rice. RL s ability t cmpete against imprted lng grain and jasmine rice is directly related t the size f the Riverina grwn crps f this type. Due t its brand strength in the retail channel, RL is able t cmpete against private labels and cmmand a substantial shelf premium. ii. iii. iv. Demnstrated ability t respnd t changes in cnditins and cntinue t perate prfitably. Thrugh the adptin f their 2012 strategic plan, RL has seen the demand fr prducts increase significantly. Net prfit befre incme tax f $73millin in represents at 3.6% increase n prfit. Cntributin t Research and Develpment. RL cntinues t prvide significant funding fr rice research and develpment t its subsidiary, Rice Research Australia Pty Ltd. New seed varieties are currently being trialed that are expected t deliver a tw week shrter grwing perid and are cld tlerant. 13 RL is a cntributing partner in the Rice Breeding and Grain Quality Partnership. Cllabratin cntinues with CSIRO, Universities, and the NSW Department f Primary Industries amngst thers, fr prduct and prcess develpment research. Buyer f last resrt and track recrd f gd returns. A cnditin f the Sle and Exclusive Exprt Licence agreement between RL and the Bard, is that RL be the buyer f last resrt. This prvides certainty fr grwers that their NSW crp will be sld if it is f merchantable quality. RL has an unbrken recrd f paying the indicated returns, r better, t grwers n r befre scheduled payment dates. 11 Ibid, p Ricegrwers Limited, SEEL Annual Review Respnse, September 2016, Cmmercial-in-Cnfidence, p Ricegrwers Limited Annual Reprt 2016, p. 20.

7 v. Operating a transparent pl and regularly updating grwers n price trends and payment dates. vi. vii. viii. ix. Regularly exceeding pl price expectatins. Financing f crp at cmpetitive interest rates. RL des nt prfit frm frward finance arrangements as happens in ther industries and it currently underwrites these financial arrangements. Prvisin f rice strage. Paddy strage is prvided by RL thrugh its subsidiary, Australian Grain Strage Pty Ltd. Pure Seed prductin and supply t rice grwers. RL perates a quality assured Pure Seed Prgram t supply registered seed fr all cmmercial rice varieties t grwers. Its subsidiary, Rice Research Australia Pty Ltd prduces breeder s seed f all varieties fr the Pure Seed Prgram. x. Strength f prducts and related brands t drive nging demand. RL cntinues t invest in its brands, thrugh prduct innvatin, and cnsistent abve and belw the line supprt t its branded prducts t cmmand the premiums achieved in the market. 3. Impact f changes in the availability f water Reduced water entitlement as a result f the Murray Darling Basin Plan has had and will cntinue t have an impact n rice prductin. RL has indicated that the impact is twfld: irrigatrs have less water t grw crps and temprary water prices have escalated in sme seasns t make water purchase fr rice prductin unviable. Additinal cmpetitin fr water frm ther crps, such as cttn, is adding t the impact Market Psitin Rice cnsumptin in Australia is grwing, being driven by sales in traditinal fd service channels such as restaurants and sushi chains, and als by favurable immigratin trends. RL s Australian rice is the market leader in the Australian retail sectr. There has been n material change in the business segments f Ricegrwers Limited during Ricegrwers Limited, SEEL Annual Review respnse, September 2016, Cmmercial-in-Cnfidence, page 15.

8 5. Financial Perfrmance f RL 15 Overall, the RL financial statements reflect a cntinued strengthening in financial psitin ver the 12 mnth perid t 30 April RL had a strng trading year, milling and marketing the 2015 crp f 693,000 tnnes. Grwers received $ per tnne fr medium grain Reiziq, an increase f 2.3% cmpared t the previus year ( : $394.62). i. Incme Statement Revenue frm cntinuing peratins ttaled $1.27 billin in , an increase f 1.9% n ( : $1.25 billin). Expenses increased, particularly raw materials reflecting higher csts f paddy. Net Prfit After Tax was $52millin ( : $49.2millin), an increase f 5.8%. Results by segment indicate all segments were prfitable in Dividend paid t B Class sharehlders was 33 cents per B class sharehlder, an increase f 6.5% ( : 31 cents). Earnings per share was 88.0 cents in cmpared t 77.9 cents in the prir year. ii. Balance Sheet Net Assets were $390millin in , an increase f $26millin ( : $364millin). Retained earnings increased t $254millin in , frm $219millin in Current Rati (current assets t current liabilities) fell t 1.5 (1.6 in ). Debt t Equity (external financing t all surces f capital) was 46.6%, up slightly frm 43.9% in Gearing percentage (debt t debt plus equity) was 31.8% cmpared t 30.5% fr Return n capital f 15.1% in was dwn slightly cmpared t the prir year ( : 15.8%). iii. Cash Flw RL s net cash increased by $61millin during the year ( : $3millin reductin). iv. Other relevant financial matters fr the year t 30 April Net debt has increased as a percentage f current earnings. The increase in gearing was due t higher net wrking capital, including higher internatinal inventry levels and lwer Riverina grwer payables due t the smaller crp. Debt levels are in line with industry peers. RL s currency expsures are managed under its Treasury plicy. The cmpany is cmpliant with the requirements f the plicy. 15 Detailed infrmatin is cntained in RL s Annual Reprt April 2016 including audited Financial Statements.

9 Capacity t pay grwers fr paddy: syndicated seasnal brrwing facilities are negtiated n an annual basis t meet grwer payments. Capacity t pay debt, seasnality f debt, and interest cver: Ability f RL t meet financial cmmitments is tested regularly. All bank lan cvenants have been met. Interest rate expsures are managed under RL s Treasury plicy. RL is cmpliant with the requirements f the plicy. Capital Raisings: RL has nt undertaken a capital-raising during the year, and n capital raisings are planned fr the immediate future. A prpsed capital restructure was being cnsidered by the RL Bard, t prvide pprtunities t enable grwth. This restructure prpsal has been delayed due t a jint venture partner reviewing its arrangements with RL. Fixed Asset Management: Capital investments by RL during ttaled $24millin ( : $39millin). 6. Changes f Bard and senir management persnnel f RL During the year, Mr Ian Glassn was appinted as an independent directr fllwing the resignatin f Mr Peter Margin. Mr Tm Hward replaced retiring General Manager Grwer Services, Mr Mike Hedditch. Mr Gerard Wds, General Manager CpRice and Australian Grain Strage Pty Ltd, left RL in Ms Alisn Salmn jined RL in as General Manager Human Resurces. 7. Risk management - cmpetitin frm ther agricultural prducts RL mnitrs cmpetitin frm ther summer and winter crps and fcuses n a range f initiatives t make rice prductin as cmpetitive as pssible and t encurage Riverina irrigatrs t make rice their first chice summer crp. Cnclusin The Rice Marketing Bard fr the State f NSW cntinues t deliver against the bjectives f the Rice Marketing Act 1983, t the benefit f all NSW rice grwers. The Bard is cnfident its administratin f the SEEL, and the appintment f Ricegrwers Limited t perate this licence, results in bth exprt price premiums and substantial secndary benefits t rice grwers. The Bard will cntinue t wrk with the NSW Gvernment and all rice grwers t mnitr the benefits accruing frm the current arrangements.