Graphic by Henry Everingham As world demand for food grows, the proposed sale of SunRice - and its statutory monopoly as the single export desk for rice in NSW - is generating political concern. Questions have been raised at meetings about the sale of some intellectual property rights in rice research. The Foreign InvestmentReview Board has approved the sale, but the National Party MP for the Riverina, Michael McCormack, has written to the Treasurer, Wayne Swan, arguing the takeover is not in the national interest. Opponents fear that surrendering grower ownership exposes them to the commercial instincts of a world food player, and have yet to be convinced that the price is right. Supporters, including the board, have presented the carrot - a ''fair and reasonable'' price; and a stick - that growers will have to foot the company's precarious debt position if the takeover fails. Between now and the shareholder vote at Jerilderie on May 31, it's a roadshow to sell SunRice, which can only happen if 75 per cent of A and B shares approve the sale. Under its constitution, no person can own more than 5 per cent of the shares.

Ebro's Spanish chief executive, Antonio Herná´ndez Callej, has just arrived in Australia, where his travels through the Riverina will no doubt prompt further local newspaper headlines such as this week's ''Grain chief: no way Jose''. SunRice's chairman and rice grower, Gerry Lawson, has finished his own road trip of six meetings. ''Emotionally, I understand where we all sit but we have to look at our own long-term future,'' he says. ''It [the bid] offers people the opportunity to be linked to the biggest rice company in the world and it gives them long term flexibility.'' On the numbers side, Lawson points to an independent report commissioned by the board from Lonergan Edwards and Associates, which concludes the offer is ''fair and reasonable''. If accepted, the 800 A class shareholders will receive $50,000 per share, while the 54 million B class shares are priced at $5.025. The day before the Ebro offer in October, the B shares closed at $1.60 on the NSX. They last traded in November at $2.80. Looming large in SunRice's future, says Lawson, is its debt. In 2005 growers and shareholders through bonds and Rice Marketing Board equity provided debt of $173 million. By last October that had fallen to $31 million, and 90 per cent of debt is now funded by banks.

Servicing debt and paying dividends on grower equity for the 2010 financial year cost $30.8 million. With cashflow of $53.1 million, there's little room for error. By October the company carried more than $300 million in debt - $229 million of which is short term. As shareholders were told in the offer documentation: ''SunRice has not been able to reduce its level of gearing to align with peer group companies. The banks, which have replaced growers as its primary source of funding, have tightened borrowing covenants. ''The level of debt exposes SunRice to credit market risk, business stresses (such as drought and competing alternatives for water resources) and growth limitations.'' SunRice requires a capital injection of $73 million to get its gearing to 70 per cent, and there's catch-up capital investment of $20 million a year needed for the forseeable future to pay for underspending during the drought. SunRice, the co-op, became Ricegrowers Ltd in 2005 when it listed on the NSX, which caters for small and medium businesses. But it still has co-operative features, in its shareholding, objectives and corporate governance structures.

It has become a diversified food producer, with brands including Riviana, and it is not reliant on its shareholders' crops. With little or no water allocations during the drought, SunRice imported rice and continued to put product on supermarket shelves. In the past decade international prices paid for varying varieties of rice have doubled, and tripled. The Bureau of Agricultural and Resource Economics says the typical price for export Australian rice in 2009-10 was $US531 per tonne. Banker David Williams, whose firm Kidder Williams has advised co-operatives about market listings, expects international interest in Australian agriculture will grow in the next 18 months. He says the complication for SunRice shareholders in deciding whether the offer price is fair is its illiquid history on the NSX, and its ''co-operative set of clothes rather than company set of clothes''. ''In many ways the board of Ricegrowers might have been better off to manufacture that transparency themselves, by making it into a company and floating it on the stock exchange but still leaving significant hurdles for anyone wanting to take it over,'' he says.

The biggest question about the future of the Australian rice industry, and the value of the company, comes back to water allocation. ''Rice has some political baggage that comes with it and the biggest baggage is the amount of water it uses,'' Williams says. ''I think it depends on what you think will happen with water.'' After the rains, SunRice's second biggest shareholder, the stockbroker and agribusiness figure Colin Bell, of Bell Potter Securities, expects to produce 15,000 tonnes this year - up 10,000 tonnes on the recent years of minimal water allocations. ''Our interests are aligned. Ebro want to process as much rice as they can, and we want to grow as much rice as we can,'' he says. To his thinking, the Ebro offer has been on the table for a long time, and if SunRice was truly undervalued there would be private equity firms ''piling in'' with offers. As for calls for a float on the stock exchange, he says there is no guarantee that would unlock extra value. ''A trade sale, which Ebro is, is often a terrific way to do something with a business because a trading partner understands a business backwards.''

A fellow agribusiness baron, John Kahlbetzer, has also come on board supporting the sale. The Lonergan report values the company at $577 million to $612 million. That has since been queried by Julian Menegazzo, who commissioned a report which says the offer is not fair and claims SunRice has been undervalued by $100 million. Melbourne solicitor Adam Bisits has been the public voice for shareholders who oppose the Ebro deal, questioning the valuation, the approval processes for the sale and the inclusion of SunRice's crown jewel - its export monopoly. In a normal year, up to 80 per cent of the Riverina's rice crop is exported. ''No wonder a foreign company wants to take it over,'' Bisits says. ''It is inconceivable that a foreign company being in control of Australia's statutory single export desk is in the national interest.''

His clients say the deal should be decided by vote, but do not rule out a challenge ''because the matter bristles with legal issues.'' Another opponent, grower Lach Thorburn, who farms near Tocumwal, believes the company has been undervalued. He has run foul of SunRice's chief executive, Gary Helou. In a letter from Helou, Thorburn has been asked to refrain from public comments which defame the board and management. While SunRice encourages active debate, Helou has written, it ''will consider legal action against those who publish defamatory comments''. Thorburn is among a group of growers whose A class shares were redeemed by the company last year, through an administrative oversight on his part, he says. ''We were told for years they were only for voting and weren't worth anything, and all of a sudden we found they were worth $50,000 each and we have lost our vote.'' Compensation claims will be looked at by a retired judge if the proposal is approved.

''My attitude at the moment is more against the board than a foreign buyer,'' Thorburn says. ''I am a capitalist … and a buyer should be able to buy, but first of all a seller has to agree to sell and I don't feel I have been asked by my board, 'Do you want to sell?' ''SunRice is a fantastic company with a tremendous future. It has battled through the drought like all the shareholders have … but it is not the time to sell. It is a fantastic season and we have water this year and next.'' Loading But Jennie Hehir, who has farmed with her husband near Finley for 30 years, says now is the time to sell. Unlike SunRice, Ebro has given price certainty for the next seven years. She spells out the impact a capital raising would have on the next generation of farmers, including her son - it would be unprofitable for him to stay in rice. '

''A lot of diehard people who oppose it, or their forebears, were in rice growing in this region, and they are so distraught that it's no longer going to be owned by growers that they don't read the [financial] material sent to them,'' she says. ''They need to vote with their head and not their heart … we have moved into a changed environment.''