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Issue #1612      September 25, 2013

Proposed Graincorp sale splits coalition ranks

The move by US based corporation Archer Daniels (ADM) to purchase Graincorp, Australia’s biggest agricultural company and grain handler, has sparked a muted but intense dispute within the federal Coalition. And so it should.

The Nationals and the NSW Farmers’ Federation want the Abbott government to block it, regardless of the findings of the Foreign Investment Review Board. The Nationals are generally in favour of foreign investment, but they fear that if the Graincorp deal proceeds, their own interests will be adversely affected because ADM has offered no reassurances regarding access to storage facilities and ports.

Garry Heath, farmer and member of the Victorian Farmers’ Federation grains council has noted, “… we want ADM to give written guarantees of open port access continuing in the long term, and they are refusing to do that.”

The government is committed to reducing the minimum level at which the Board investigates a takeover by a private foreign corporation, from the current $248 million to $15 million. However, they’ve given no commitment to block the Graincorp sale.

BHP Billiton chairman Jac Nasser has recently weighed in, stating: “Australia … does need capital and most of that capital by definition will come from the global markets. It is important that the signals we send as a country are positive and global investors will be looking for some evidence that is the case.”

As a major exporter and overseas investor, BHP-Billiton is concerned that the restriction of investment or trading opportunities in one country can lead to retaliatory action by its trading partners.

For example, a number of countries are arguing that under a proposed new international trading agreement, corporations should be able to sue the governments of participating nations over loss of profits where the government has imposed a restriction to trade, including Australia’s plain paper cigarette packaging requirements. It’s entirely possible that the Abbot government will agree with them.

For their part, advocates of the Graincorp deal claim that the company cannot grow without foreign investment. However, the biggest obstacle to the firm’s operations is the rail network. It takes 900 trucks to load the average export vessel, compared with only 18 trains, but the company has been forced to rely on trucks, because state governments are now boosting their rail infrastructure to facilitate the export of coal rather than grain.

A threat to the national interests

The Graincorp deal would in effect place the nearly-monopolised grain handling industry in foreign hands, so that Australia would effectively lose control over the movement and export of its grain.

The proposal has not only caused splits between the Coalition parties, but also within them. Although the National Party has consistently opposed the deal, some members of that party advocate acceptance.

The Liberals are tight-lipped, but treasurer Joe Hockey is said to favour the deal. On the other hand deputy Prime Minister and National Party leader Warren Truss opposes it.

Liberal Senator Bill Heffernan, who chairs a Senate committee overseeing rural and regional affairs, has pointed out that ADM “owns 80 percent of (grain trading firm) Toepfer, 16 percent of Wilmar, which has substantial sugar processing (assets) and now they want seven eights of eastern Australia’s grain ports.”

In a letter to the Financial Review, Nationals Senator Fiona Nash recently declared:

“ADM expects Graincorp to earn higher asset returns than the ADM business currently does at a time when returns may be poised to fall. Increasing handling fees or closing down assets are two obvious ways of boosting asset returns to the detriment of growers.

“ADM expects to achieve $US50 million to $US70 million of additional earnings as a result of the takeover, with half of these earnings achieved through cost reductions, meaning job losses. ADM’s bidder’s statement outlines plans to rationalise administration and corporate functions, as well as a review of the malt business. Again this may mean loss of jobs.

“But it is the impact of ADM’s takeover of the grains industry that is the biggest concern. ADM would take control of Graincorp’s extensive storage, handling and logistics services across Queensland, NSW and Victoria.

“Grain assets on the eastern seaboard would then be foreign owned and controlled.”

As might be expected, former Graincorp chairman Ron Greentree dismisses such arguments, claiming that it offers current shareholders higher yields, and that ADM’s investments in other countries would guarantee shareholders handsome profit margins during drought periods in Australia.

He also argues enthusiastically that ADM’s international operations would create new opportunities for Australian growers to expand into previously inaccessible markets in Asia, the Middle East and elsewhere, and that “the Australian grains industry sits on the cusp of an agricultural boom with the chance to become Asia’s food bowl”.

He’s referring to the rise of the more prosperous members of the developing nations, of course, not to the impoverished majority.

Wider issues

The issues involved in the current dispute go way beyond maximising returns for the firm’s eager-for-profit shareholders. For that matter, they even go beyond the need to protect Australian jobs, safeguard Australian farmers from profit gouging by overseas interests, and maintain control of key industries.

The world now faces a period in which climate change will severely threaten global food production, while agricultural corporations seek to convert to producing crops for fuel rather than food, because of diminishing accessible fossil fuel sources.

A recent report from Britain’s Meteorological Office states: “Without urgent action to reduce emissions and build resilience, climate change will challenge the safety and security of the global food system and with it the prospect of ensuring that everyone’s basic right to food can be met”.

Australia has an obligation to help meet those objectives in the coming decades, and that’s another reason why Graincorp should be retained in Australian hands. The government should also take it out of the hands of its private owners, who have demonstrated that they are more than willing to sell off this great national asset to foreign interests in the pursuit of higher profits.

Next article – Teachers’ stopwork rally in Perth

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