IT IS a fairly big deal when a semi-monopoly grain handling company looks like changing ownership. The devil you know becomes a devil unknown, with the potential for bigger horns and a longer tail.
And if the sky does fall? What is the worst that can happen?
Rather than join those predicting doom and ruin, I think it is more useful to consider exactly how bad the situation could get for eastern states grain producers.
GrainCorp handles at least two-thirds of the NSW and Queensland grain crop in its silos, trains and port facilities. It also markets about half in its own right. Given the potential to make life difficult for competitors, the ACCC requires GrainCorp to provide access to its facilities to other grain marketing companies at acceptable prices.
Thus a grain grower can deliver wheat to a GrainCorp terminal which is transported in a GrainCorp train to a GrainCorp port facility, but have no direct relationship with the company. Many organisations buy and market grain but use GrainCorp’s facilities. It is a similar situation to phones, where there is a wide choice of suppliers but only three mobile networks and a single fixed line network.
One scenario regularly mentioned is that a new owner of GrainCorp might seek to freeze out competitors, locking logistics customers into its marketing services. This would probably lead to higher profits at the expense of returns to growers.
For this to occur, the ACCC would need to relax its rules or the company would have to find a way around them.
Neither is at all likely.
In any case this does not require a change of ownership; if it was an option GrainCorp would have done it already. Having a new owner makes no difference.
Another scenario is that a new owner will close silos or reduce collections in locations that are less profitable. Again, this is something GrainCorp could have done already (and has done to some extent), and controlling costs is something every company must do. But it is possible Archer Daniels Midland (ADM) might take a more strict approach.
The point here is that forcing growers to transport their grain further is not a formula for peace and harmony. Annoyed growers will inevitably look for someone else to market their grain. GrainCorp cannot afford to antagonise its supplier network if it wants to remain a major player in marketing.
The same applies to fears about short-term profits versus long term sustainable growth, which in practical terms means cutting costs to boost immediate results without regard for the long term impact.
Again this is not something that a foreign owner is any more likely to do than one owned by domestic shareholders. Short-term thinking is common everywhere.
Moreover, commercial vacuums never last very long. If a business drops the ball, another always picks it up. Thus if ADM were to slash and burn at GrainCorp, this would merely attract more competitors.
Similarly, if GrainCorp were to offer lower prices for grain or apply bigger discounts for quality or moisture, competitors would outbid them. In the end, the market deals quite effectively with shenanigans like that.
Perhaps the most serious risk to grain growers is the potential for ADM to completely screw things up. By that I mean, assume something that works overseas will automatically work in Australia merely because we look and sound similar. Plenty of foreign companies have made that mistake, American firms in particular.
But even if the silos were to all rust, the trains seize up and the ports stop, markets for Australian grain would still exist both domestically and globally. Others, probably ADM’s global competitors, would happily step in to take on the marketing and operate trains and ports. It would not be long before things were flowing freely again.
After all that, perhaps it is also worth considering the best that can happen. ADM might decide GrainCorp has seriously underinvested in infrastructure and there is a need to upgrade the company’s facilities, thus helping growers get their grain to market more quickly.
Perhaps it might manage the company better, reducing costs and charging less for handling. And being a global company with access to more markets, it might be better at marketing and able to generate higher returns to growers.
It all looks a lot less devilish when you get down to specifics.
NOTE: David Leyonhjelm will be taking a break for the rest of this month and will return in June, as will his regular columns.
David Leyonhjelm has been an agribusiness consultant for 25 years. He may be contacted at firstname.lastname@example.org