THE URGE TO MERGEWILL 2 + 2 = 5

Workshop for

Australian Barramundi Farmers Association

and

Australian Prawn Farmers Association

Bribie Island Aquaculture Centre - 15 March 2013

A. The Opportunity• Both Ass’ns have resolved to jointly consider a merger of

entities and memberships, into a single association.

• Members in both associations wish to consider:• the strategic and operational merits of a closer relationship,• the structural options – joint back-office, colocation, JV, merger, • the advantages/disadvantages/implications of these options,• the costs and benefits for sectors and members of these options,• the optimal timing for implementing any agreed change.

• The potential benefits from the merger include:• Future viability of an association for each sector - prawn and barramundi• Growth in scope and scale of member services in the future• ~100% increase in admin economies of scale on a national basis• Stronger advocacy voice in dealing with government, chains and third parties• More efficient investment in member services, RD&E marketing, etc based on

capture of existing and potential sector synergies,

B. Key Facts - ProductionPRAWN BARRAMUNDI Est. JOINT Total 2012

Data based on industry advice and ABARES FishStats 2011

    2010-11 Est. 2011-12   2010-11 Est. 2011-12 Est. 2012 % % Barra % PrawnLICENCES       Number QLD 67 67 305 305 372 81 67 14

NSW 11 11 6 6 17 4 1 3NT 11 11 6 6 17 4 1 3WA 2 2 6 6 8 2 1 1SA 1 1 42 42 43 9 9 0VIC - -   1 1 1 0 0 0

92 92 366 366 458 100% 79% 21%

Area ha QLD 1,831 1,831 500 500 2,331 76 16 60NSW 257 257 50 50 307 10 2 8NT 199 199 50 20 219 7 1 6WA 40 40 150 150 190 6 5 1SA 10 10 10 10 20 1 0 1VIC - -   5 5 5 0 0 0

2,337 2,337 765 735 3,027 100% 24% 76%

ACTIVE FARMS      Number QLD 22 22 13 13 35 76 28 48

NSW 3 3 2 2 5 11 4 7NT - - 2 2 2 4 4 0WA - - 1 1 1 2 2 0SA - - 2 2 2 4 4 0VIC - -   1 1 1 2 2 0

25 25 21 21 46 100% 46% 54%

Area ha QLD 763 763 400 400 1,163 82 28 54NSW 77 77 10 10 87 6 1 5NT - - 40 40 40 3 3 0WA - - 120 120 120 8 8 0SA - - 10 10 10 1 1 0VIC - -   3 3 3 0 0 0

839 840 583 583 1,423 100% 41% 59%

HarvestPRAWN BARRAMUNDI Est. JOINT Total 2012

Data based on industry advice and ABARES FishStats 2011

   2010-11 Est. 2011-12

 2010-11 Est. 2011-12 Est. 2012 % % Barra % Prawn

       

Tonnes QLD 3,822 4,000 2,764 3,200 7,200 72 32 40

NSW 148 180 75 80 260 3 1 2

NT 0 0 651 900 900 9 9 0

WA 0 0 862 1,100 1,100 11 11 0

SA 0 0 250 250 250 3 3 0

VIC 0 0 150 150 150 2 2 0

3,970 4,180 4,752 5,680 9,860 100% 58% 42%

GVP $’000 QLD 55,600 60,000 21,200 28,800 88,800 75 25 50

NSW 1,732 1,900 938 1,200 3,100 3 1 2

NT 0 0 5,200 8,100 8,100 7 7 0

WA 0 0 8,392 11,213 11,213 10 10 0

SA 0 0 2,750 3,750 3,750 3 3 0

VIC 0 0 1,650 2,250 2,250 2 2 0

57,332 61,900 40,130 55,313 117,213 100% 48% 52%

RDE Investment - ABFA

$-

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

$900,000

$1,000,000

ABFA : Actual RD&E Investment 1990-2013

SCRC Actual Expenditure

FRDC Actual Expenditure

ABFA Contribution

ABFA Projects List• Discuss the handout listing ABFA projects for the last

decade

RDE Investment - APFA

2012

/201

3

2011

/201

2

2010

/201

1

2009

/201

0

2008

/200

9

2007

/200

8

2006

/200

7

2005

/200

6

2004

/200

5

2003

/200

4

2002

/200

3

2001

/200

2

2000

/200

1

1999

/200

0

1998

/199

9

1997

/199

8

1996

/199

7

1995

/199

6

1994

/199

5

1993

/199

4

1992

/199

3

1991

/199

2

1990

/199

1

1989

/199

0 $-

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

$900,000

$1,000,000

APFA : Actual RD&E Investment 1990-2013SCRC Actual Expenditure

FRDC Actual Expenditure

APFA Contribution

APFA Project List• Discuss the handout listing APFA projects for the last

decade

ABFA + APFA RDE Investment

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

$-

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

$1,800,000

$2,000,000 APFA and ABFA RD&E Investment Totals 1992- 2015

APFA Externally Sourced Funds

ABFA Total - FRDC + SCRC

APFA Actual Total - FRDC + SCRC

Sector RDE Investment Contribution

2006 2007 2008 2009 2010 2011 20120.00%

0.05%

0.10%

0.15%

0.20%

0.25%

0.30%

0.35%

$0

$10

$20

$30

$40

$50

$60

$70

$80

APFA Rate %

ABFA Rate %

APFA GVP $mil

ABFA GVP $mil

% o

f G

VP

GV

P $

mill

ion

FRDC Match Cap

C. Sector Investment Contributions  Sector Membership R&D Levy Marketing TOTAL Contributions

  Last 3 Years Current Joint Current Joint Current Joint Current Joint

    $/ha $/Tonne $/Tonne $/Tonne $/Tonne $/Tonne $/Tonne $/Tonne

Prawns                  Harvest Tonnage 4,477                Active Hectares 840                Avg Yield T/Ha 5.3                

GVP Landed Price $14.51                Selling Price / kg $18.00                

Avg Sales $/Ha $95,969                                   

Contribution Basis   Voluntary Levy Voluntary Levy Compulsory Levy Compulsory Levy nil Voluntary  Base Charge p.a.   $125.00 $25.00 $34.00 $34.00 $0.00 $40.00    

As % of Income   0.130% 0.139% 0.189% 0.189% 0.000% 0.222% 0.319% 0.550%Amount Raised   $104,956 $111,917 $152,207 $152,207 $0 $179,067 $257,163 $443,190

Barramundi                  Harvest Tonnage 4,803                Active Hectares 583                Avg Yield T/Ha 8.2                

GVP Selling Price $9.07                Selling Price $9.00                

Avg Sales $/Ha $74,151                                   

Contribution Basis   Voluntary Levy Voluntary Levy Voluntary Levy Voluntary Levy nil Voluntary Levy    Base Charge p.a.   $100.00 $12.50 $17.00 $17.00 $0.00 $0.00    

As % of Income   0.135% 0.139% 0.189% 0.189% 0.000% 0.000% 0.324% 0.328%Amount Raised   $58,300 $60,042 $81,657 $81,657 $0 $0 $139,957 $141,698

                                      

TOTAL $ Raised   $163,256 $171,958 $233,863 $233,863 $0 $179,067 $397,120 $584,888                   

Share of Total Prawn 64% 65% 65% 65% not applicable not applicable 65% 76%  Barramundi 36% 35% 35% 35% not applicable not applicable 35% 24%                   

D. Other Industry Models• Pork• Dairy• Meat and Livestock

• Look at governance and cash flow

1. APL Ltd A producer-owned Public Company limited by guarantee (incorp.

2000) , combining policy, R&D, marketing and export in one body Represents 319 producer Members. - 92% of producers (top 150 =

85% of volume). Also associated and affiliated members. 4.6M pigs slaughtered per year; Farm gate GVP $1Bn 15 staff - all in Australia Exports 50,000t (15% of supply): imports 250,000t (46% of demand)

Constitution & Articles of Ass’n: AGM Reports, Budgets, Strategic Plan

APL Board: - 9 directors; 5 producer elected + 4 specialists

Industry + Government appointments: - 3 yr term

Committees: Audit & Remuneration; Selection; + as needed

Members vote at AGM: - One vote for each dollar paid of slaughter levy

GOVERNANCE

APL Cash Flow

Levies on ProducersMarketing - $1.35/carcaseR&D - $1.00/carcaseNRS - $0.175/carcase

$11M - 63%

ANNUALBUDGET$17.2M

Gov’t Matching$4.3M - 25%

Grants$0.5M - 3%

Other Income$1.6M – 9%

Marketing$8.4M - 49%

Farming R&DProductivity & Sustainability

$3.0M – 17%

Value Chains $0.49M – 3%

Food Safety, Animal Welfare, Stewardship $3.0M – 17%

Corp. Services$2.3M – 14%

52%88%

2. DAIRY AUSTRALIA producer and processor owned company limited by guarantee that is the

national investment and services body for dairy farmers and industry ~7,200 farms and 1.6 million cows – represents state and regional bodies number of farms fallen by two-thirds in last three decades from 22,000 in 1980 $3.4 billion value at farmgate 45% of production is exported - sales of $2.4Bn – 10% of world trade Markets: Aust 425,000t, Japan 116,000t, Singapore 87,000t, China 65,300t

GOVERNANCE Constitution & Articles of Ass’n: AGM Reports, Budgets and Strategic Plans

Board of 8 non-executive Directors (minimum of 3) + Managing Director

non-executive directors selected on mix of skills and experience including

Appointed by industry (farmers + processors) and government - 3 year terms

2 permanent committees - Audit and Risk Management; Human Resources

DA CASH FLOWLevies on Producers0.321cents /litre at farm gate

$28M - 54%

ANNUALBUDGET

$52M

Gov’t Matching$20M - 37%

External Contributions$1M - 2%

Other Income$3M - 7%

Marketing$8.6M - 17%

Trade Strategy$5.5M – 11%

Farm R&DProductivity & Sustainability

$20M – 38%

Chains & Innovation$6.4M – 12%

Other$4.8M – 9%

Business Performance$6.6M – 13%

88%40%

3. MLA Cash FlowProducer + Export Levies on ProducersBeef $5/headSheep/Goat 2% of sale price

$96M - 56%

ANNUALBUDGET

$172M

Gov’t Matching$38M - 22%

Processor /Chain Contributions$25M - 15%

Other Income$13M - 7%

Non-RDE Domestic$67M - 39%

Non-RDE Overseas$21M – 12%

Livestock R&DProductivity & Sustainability

$38M – 22%

Chain +Innovation$15M – 9%

Communication$21M – 12%

Corp. Services$10M – 6%

51%

71%

E. Big Picture OptionsOPTION

1. No Change

2. Change via Big Bang

3. Change via Staged Evolution

KEY CHANGES

• 2 separate Assns• Business as usual

• Cherry pick ways to increase joint activities that create greater efficiencies

• Complete by Jan 2014• Kill APFA & ABFA• Establish new Assn /entity

/membership/constitution• Colocate offices • Launch single voice/brand

Yr1• Retain 2 Assns / entities• Colocate offices and admin• Establish new entity /m’ship /brand• Conduct review – independent lead

Yr 2• Transfer members to APBFA,• Transfer Assets per constitution• Liquidate old Assns

Ad/Disadvantages & Implications• Clarity of branding and Purity of members• Further integration possible at no cost - limited • Supports sector networks/identities outside Qld• Both Assns viability still under threat; too small• Lack of resources for growth / efficiency• Foregone synergies from RDE, Gov’ce, Admin• No capacity for new FRDC Member Services• Its done! – can capture cash benefits asap• Gets rid of existing Assn baggage• Enables greater focus on national issues• Stress /lack of trust – member/FRDC confusion• No Risk Management plan or capacity• Possible distrust outside Qld – need to

manage

• Enables Assn Risk Management – plan B• Enables greater focus on national issues• Allows time to work together, sell concept to

members, monitor progress and build support• If too slow will cause loss of momentum• Possible distrust outside Qld – need to build

national plan and governance structure

F. STRUCTURAL OPTIONSIf merger is to proceed, what is the best entity structure?

Option Advantages/ Disadvantages

1. Informal Joint Back Offices

• Ad - Minimal change and negligible cost• Ad - Colocate offices - already possible / mostly small admin savings• Ad - Keep existing entities and branding – but may lead to confusion• Dis - Limited value of real benefits–manages costs, should build revenue• Dis - Benefits of synergy and strong voice from single brand are not possible• ??

2. Formal Services Joint Venture Agreement

• Similar to serviced office concept where each Assn pays share of costs and takes share of benefits – requires formal contract between existing Assns

• Ad - Each Assn could still exist as is with existing operations and governance• Dis – requires some legal costs to set up • Dis – many of same benefits and shortcomings to 1 above – just more formal • ??

3. Formal Merger into Single Entity (Incorp. Assn – sectors not big enough for APL / MLA Co entity)

• Adv – 2 Assns already established as Incorporated Assns under Qld Law• Adv - ABFA & APFA have same Articles/Constitutions – minimal change• Adv - Both Constitutions enable and require transfer of assets to like entity• Adv – Offers strong single national voice and Captures bulk of strategic /

advocacy / representational / RDE (20%) / services / operational synergies• Adv – Structure offers capacity for service growth and improved governance • Dis – some additional once off costs to inform members and realign networks• Dis – requires rebranding and clear policies to ensure National Focus• Dis – requires recasting of governance based on membership, national needs

of members, and return on investment across membership, RDE and services • ??

Association Admin Costs• ABFA• APFA• Options for rationalisation