Viterra would insure Australian grain volumes

Canada’s largest grain company plans to bring its volume insurance program to the table for the Australian grain business it aims to buy.

Regina-based Viterra announced Friday it will insure against weather-related crop failures in South Australia when or if it completes its planned takeover of ABB Grain, cutting out a charge paid by growers in poor crop years.

“This new program will allow ABB to make changes to its storage and handling charges for the benefit of Australian growers if the scheme of arrangement is implemented,” Viterra said in its release.

The insurance program will allow the combined Viterra/ABB to eliminate ABB’s grain volume variation charge in South Australia, thus removing grower exposure to the charge during “difficult” crop years, Viterra said.

ABB Grain said Friday it had previously investigated grain volume insurance but had concluded it was not, at the time, economical to obtain such coverage on a stand-alone basis.

The program would begin to pay out in the event of a drop of about 33 per cent in average annual South Australian grain production levels, Viterra said. The program would fully pay out in the event of a 65 per cent drop in production, to a maximum of A$27 million.

“Viterra’s ability to extend its Canadian grain volume insurance program to include the operations of ABB Grain is a creative solution that reduces the risk profile of the combined company,” Viterra CEO Mayo Schmidt said in the release.

Viterra and ABB said they’ve also reviewed ABB’s storage and handling charges in an effort to “simplify the disclosure” and thus ensure the company is in a position to “actively compete for growers’ business on a daily basis.”

More details on that revised fee structure would be provided to ABB’s farmer customers in South Australia once the integration of the two companies is underway, Viterra said.

Viterra has had a grain volume insurance program in place since 2005, though the concept of grain volume insurance was developed in Canada by one of Viterra’s heritage companies, UGG, which introduced it in 1999 in partnership with Swiss Re Insurance Co.

The risk financing program earned international praise across the business world at the time, for its capacity to reduce volatility in UGG’s earnings in the face of weather-related shortages of grain volume, helping cover one of its major risk exposures and reducing its needs for “precautionary” capital.

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