Joe Hockey announced on Friday morning that he had decided to block the sale of GrainCorp to US food giant ADM. The deal threatened to drive a wedge between the Coalition, with the Nationals stridently opposed to the deal. Conversely, the Labor Party had offered strong support for the takeover.
This decision should be seen as a win for small- to medium-sized grain farmers, already struggling to come to terms with the deregulated export wheat market. In fact, the most surprising aspect of this is that a major government decision was made that favours smaller grain farmers.
The attempted takeover of GrainCorp is not an isolated occurrence. Investment in the Australian bulk handlers and exporters from foreign companies has increased significantly in recent years.
South Australian company ABB, which had previously been grower-owned and operated, was taken over by Viterra in 2009. In 2011, Cargill bought the grain handling, storage and trading arm of AWBI. According to the Rural Industries Research and Development Corporation paper Foreign Investment and Australian Agriculture, this purchase was “motivated in part by a desire to gain access to the expanding market for quality food in Asia”.
Similarly, the president of ADM grain, Ian Pinner, has indicated that through purchasing GrainCorp, ADM would have had increased access to lucrative markets throughout Asia.
After the Victorian and New South Wales bulk grain handlers were privatised, GrainCorp came to control 7 of 8 port terminals, and 69 per cent of the bulk handling facilities (280 separate storage sites) in the eastern states of Australia.
If GrainCorp's assets and infrastructure are so vital that they cannot be sold to foreign interests, then why was the infrastructure was privatised in the first place? The anger arising from the sell-off still simmers in grain producing communities. In many cases, the development of this infrastructure was financed by growers who now pay to access these facilities.
Perhaps it could be argued that at the time of privatisation, the system was outdated and required investment. Nonetheless, privatisation has not solved these issues.
The key sticking point in the debate concerning the potential ADM takeover has been ownership — or more specifically, control.
Winthrop Professor Tim Mazzarol, of the University of Western Australia, told New Matilda that the privatisation of bulk handlers (which were eventually amalgamated to form GrainCorp) has reduced grower control over the way their products were marketed. What agency they retained would have been further undermined by the takeover from ADM.
“When GrainCorp was a series of government owned enterprises the farmers had some ability to influence its strategic direction," Mazzarol said. "As a publicly listed company the growers have less ability to influence things”.
“I do think that over time the lack of voice and influence by the farmers in these issues will matter."
He points to the success of Western Australian grain cooperative, Cooperative Bulk Handling (CBH), in which 4500 grain growers have ownership. According to him this provides growers with “the ability to influence its investment and strategic direction much more than a farmer in NSW, Victoria or Queensland does now with GrainCorp”.
Recently, Independent MP Andrew Wilkie called for the re-establishment of the single desk for wheat exports, which was scoffed at by Colin Bettles, writing for rural publication The Land.
However, as Mazzarol points out, “The heavily regulated systems we had prior to the 1980s had many flaws and needed reform. Yet the completely deregulated market system is unlikely to be of much value to farmers in the long run and with them the regional and rural communities who depend on them”.
Keeping this in mind, many who might otherwise advocate free market ideals suddenly turned protectionist where GrainCorp was concerned. In his “Australia: Open for Business” speech, delivered in New York to the American-Australian Association on 16 October this year, Joe Hockey stated:
“Increased investment in the non-mining sectors will be key. Australia does not save enough to fund all of its investment needs and foreign investment is crucially important."
How the GrainCorp decision fits within the context of this statement is not particularly clear. What makes more sense is the Labor Party's support for the sell-off. Major agricultural reforms have often taken place under Labor's watch.
In 1973 the newly elected Whitlam government introduced the influential Industries Assistance Commission. In the 1974 they released the Green Paper on Rural Policy, which contributed strongly to the shift in agricultural policy towards a focus on competition and the free market. With regard to the wheat industry, the deregulation of the domestic and export markets for wheat in Australia was undertaken by Labor governments.
Shadow minister for agriculture, Joel Fitzgibbon, told New Matilda that this legacy of investment should be continued.
“It has been estimated that we will require up to half a trillion dollars of investment in the agricultural sector to 2050 if we are to fully capitalise on the opportunities of the Asian Century. Therefore and by necessity, much of that investment will come from foreign sources," he said.
This may be the case. However, for Labor it is a much easier position to argue from. Traditionally centralised around the metropolitan centres, their base does not have to directly contend with the adverse impacts of rural policy.
For the Coalition (with the exception of the Howard government) Coalition governments have traditionally supported government intervention in agriculture. None more so than during the prime ministership of Robert Menzies, when leader of the Country Party, "Black Jack" McEwen was the Minister for Agriculture and staunch advocate of “protectionism all round”.
The potential sale of GrainCorp had been strongly criticised by numerous farming organisations, such as the Victorian Farmers Federation and NSW Farmers. For the Nationals, and a number of Liberal MPs occupying electorates in the wheat belt, the sale of GrainCorp in the face of such opposition would have been very difficult to explain to their constituents.
The rejection of the sale of GrainCorp by Joe Hockey provides an opportunity to reflect on the current position of the grain industry, the success of the deregulated export wheat market, and how the needs of growers can best be served. The security once provided by the Australian Wheat Board has disappeared, exposing growers to the volatile global wheat market and undermining their sense of control.
“Co-operative entities that are owned by farmers offer them with ownership and control over the business in a way that they cannot achieve via normal means," Mazzarol told NM. If grower control has slipped with the privatisation of infrastructure, and subsequent deregulation of the export market, then the development of wheat marketing co-operatives within the eastern states could offer a solution to this problem.
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