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Delivering Grain from Australia to the World: Sumitomo Corporation's Grain Business

April 2012

Wheat Consumed across the World

The world population increased from some 2.5 billion in 1950 to more than 7 billion in October 2011. This tremendous population growth has occurred over a period of only 60 years and will increase further in the future. Accordingly, demand for grain will also increase. In particular wheat, one of the major three grains in the world, is processed into a range of staple foods, such as bread, spaghetti, udon noodles, and chapatti, and a total of 670 million tonnes of wheat is consumed across the world per year, including wheat used as feed for livestock such as chickens and pigs.

Australia accounts for about 13% of the world's wheat exports. In the country, a total of about 35 million tonnes of wheat, barley and rapeseed are grown annually, of which wheat, produced across the country, accounts for about 70%. Of the wheat production, about 17 million tonnes are exported mainly to the Asian market, where the population is increasing, and exports exceed the amount of wheat domestically consumed in Australia.

The wheat harvesting season begins in around November, when summer begins in the southern hemisphere.

Recognizing the potential of Australia as the "world's kitchen" ahead of others, in January 2005 Sumitomo Corporation acquired 50% of the shares of the Australia-based grain storage and distribution company Australian Bulk Alliance (ABA) to become the first foreign company to own grain business infrastructure in the country. Subsequently in 2010 Sumitomo Corporation acquired a 50% equity stake in Emerald Group Australia and made ABA its 100% subsidiary. By establishing an upstream value chain from the collection of wheat in the inland areas through to export from the port, Sumitomo Corporation has been steadily increasing the export of wheat to consumer countries, especially in Asia. In 2012, the company has taken one more step forward: it has decided to integrate Emerald and ABA to expand its grain business.

The wheat field changes its color to shining gold in the harvest season.

Roles to be played by Emerald and ABA

The two companies are engaged in the grain business in Australia, where grain for export is handled in line with the following flow.

In Australia, there are three steps for harvested grain to be exported from the port. First, crops are collected from farmers and delivered to grain silos. In this process, the ownership of the grain is usually transferred from the farmers to the companies that have purchased and collected the grain, but Emerald has a unique system called a "pool" system, in which farmers continue to own their crops and Emerald sells the grain on behalf of the farmers. This producer-oriented system is very popular among farmers.

In the second step, grain collected from across the country is stored in silos after being graded. The quality of the grain largely depends on the weather during the harvest season and grain is classified into grades according to its quality. For example, wheat is classified into 11 grades, including a feed-use grade. ABA analyzes the moisture and protein content of the wheat and calculates the ratio of foreign matter such as other plants included, grades the crops according to the results, and stores them in silos by grade.

In the third step, preparations are made for export from the port terminal. Grain delivered to the terminal from inland silos by truck and rail is stored at the export terminal for shipment. ABA's silo located at the export terminal of the Port of Melbourne has a storage capacity of 46,000 tonnes and up to more than 20,000 tonnes can be shipped from the silo per day. The grain is stored in the silo for several days before shipment. The export operations are conducted mainly by Sumitomo Australia and Sumitomo Corporation, and about 1.5 million tonnes per year are exported.

The integration of Emerald and ABA means the completion of a supply chain from collection through to export.

The silo is connected to the adjacent parking for freight vehicles with a pipe, enabling the direct loading of grain onto freight vehicles.

Sumitomo Corporation's future aspirations

In the past, only one company was authorized to export wheat from Australia, but Sumitomo Corporation, anticipating the liberalization of the business, has long been working to build relationships with local companies engaged in the grain business. As a result of such foresighted action, Sumitomo Corporation now exports more grain from Australia than any other Japanese company.

Through the completion of the supply chain following the integration of the two companies, Sumitomo Corporation aims to enhance its competitiveness and customer service. On a medium to long-term basis, the company aspires to expand its grain business also to other countries and increase exports mainly to Asia including Japan and to Middle East, capitalizing on the experience it has accumulated in Australia. The company will thus develop its grain business on a global scale, having the core base for the business in Australia.

Recognizing its responsibility as a company dealing with food, which is indispensable for human life, Sumitomo Corporation is working to ensure a stable supply of grain for people around the world.

At the Port of Melbourne terminal used by ABA, a ship with a load carrying capacity of up to about 45,000 tonnes can be docked.

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