Agrarian socialism's sticky end?

Fear of foreigners, particularly big multinationals, is never far from the surface in rural Aus ...

THE sugar industry is notorious for attaching itself to the public teat. Concentrated in several marginal seats along the Queensland coast, it has a long history of extracting taxpayer subsidies when prices are down, coercing governments into mandatory use of ethanol in fuel, and blocking imports of both sugar and ethanol.

Most famously, a decade ago it received hundreds of millions of taxpayer dollars to help it restructure in the face of low prices. Prices bounced back soon after the scheme commenced and, apart from the impact of abolition of the single desk in 2006, not a lot of restructuring occurred. They kept the money though.

A major controversy has now erupted as a result of the decision by the sugar processing company Wilmar to sell all its sugar direct to international customers rather than via the grower-owned marketing organisation, Queensland Sugar Limited (QSL), beginning in 2017. This has prompted another processor, Thai-owned MSF Sugar, to suggest it may follow suit. True to form, there are numerous calls for regulators and governments to intervene. A horde of politicians, including the Queensland Minister for Agriculture, is taking a close interest.

Wilmar is a Singapore-based agribusiness firm involved in palm oil, edible oils, specialty fats, oleochemicals, biodiesel, fertiliser and grain processing, as well as sugar. It operates in over 50 countries with 450 manufacturing plants and a workforce of 90,000 people. Its business model is based on integration from origination to processing, branding and distribution, based on lower cost due to economies of scale and integration. A relative newcomer to sugar, it is now among the top ten global raw sugar producers as well as the largest raw sugar producer and refiner.

MSF Sugar, based in North Queensland, is Australia’s third largest producer of raw sugar and part of Mitr Phol, the largest sugar producer in Asia and one of the world's largest sugar producers.

A legacy of the single desk, QSL manages most of Australia’s raw sugar exports through a system of pools. Typical throughput is 3.5 million tonnes of raw sugar with annual revenue of $1.5 billion. It employs about 160 people.

What QSL offers sugar processors is economies of scale through pooling. These include logistics, quality management, funding and managing price risk, which Wilmar and MSF obviously consider they also have. For growers, QSL offers a range of price and risk options for selling their sugar along with market transparency to help choose between these options.

What QSL and its supporters are arguing is that if Wilmar proceeds with its plan, growers will lose these options for marketing their sugar. In many areas Wilmar is the only processor, which means producers will have to accept its offers. What they want is to retain the ability to sell via QSL.

Wilmar says its system is transparent and that growers will lose nothing in comparison with QSL. Indeed, it proposes to offer pooling and pricing options which it says will deliver better outcomes for growers, and suggests the QSL approach is no longer needed.

Given Wilmar’s international networks, it is quite improbable it will generate lower prices than QSL. Sugar is an international commodity actively traded all around the world, and the prices received by Australian producers are all driven by the same international market. For producers who like to play the market in the hope of catching the top price, the only question will be whether they have all the information needed. This is a matter of transparency rather than who is doing the marketing.

The key to understanding opposition to Wilmar’s plan can be found in the fact that QSL is an Australian cooperative while Wilmar is foreign-owned multinational company. Fear of foreigners, particularly big multinationals, is never far from the surface in rural Australia. In conjunction with the ever present assumption that everyone is out to rip farmers off, it is a formula for conspiracy theories and high anxiety.

Such concerns are being stoked by QSL, which is probably fighting for its very existence, with its arguments stoking lingering agrarian socialist sentiments surrounding the fate of profits.

In the end, this is a matter for the market to sort out. If Wilmar turns out to offer inferior service or prices to QSL, the market will deal with it by attracting new competitors. If growers think they need greater control over their marketing, they will either compel Wilmar to cooperate or find a way to avoid using it. If it turns out Wilmar is pointing the way of the future, QSL will be gone within five years and the industry will have finally restructured.

Whatever the outcome, governments and regulators need to keep their noses out of it.

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David Leyonhjelm

David Leyonhjelm

has worked in agribusiness for 30 years and is a Senator for NSW representing the Liberal Democrats.
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READER COMMENTS

pepper
7/07/2014 9:38:51 AM

With any meaningful manufacturing in Australia gone.....hold on to your hat agriculture you're next. At least with government regulation and some sort of community consensus within any industry the community has some voting control.....how does the community of farmers have an input into a dictatorial corporate monopoly. More importantly how did such a circumstance be allowed to arise.....someone has been asleep at the wheel.
Gecko
7/07/2014 10:42:42 AM

David Leynonhjelm certainly does need to gets his facts right before engaging his mouth. Already seen a couple of serious issues he has spoken about on national television. He might also make reference to the deliberate exclusion of sugar from the US FTA. Sugar was sacrificed to get other trade-offs in that US TradeOff Agreement. The then Federal Government, acknowledging that, provided the funding for a restructure of the industry that allowed growers to exit. Has he asked how many millions milling companies received?
mango
7/07/2014 11:24:36 AM

Drongo. Talk to a cane farmer. Unlike most commodities, market forces cannot sort this out. With deregulation cane growers lost all ownership of sugar, cane growers grow cane which is a perishable product. They can't just pick and chose who mills their cane. Once QSL loses sugar throughput they will not remain competitive. Talk to grower before printing this rot.
wtf
7/07/2014 2:52:38 PM

STL so your agreeing that they (et al = and others)said govts should not intervene in markets? that's what I was saying was my interpretation and I was questioning why David does not see Chinese state backed money as govt intervention in the free market? I don't think they had any idea what a communist govt with the right to print the worlds currency would mean, as I don't either. However if that source of funds enters the market it will distort the market from realigning with earning potential (a problem we have all across our society, not just farmland, due to our blind expansion of credit)
john from tamworth
7/07/2014 4:15:08 PM

Not really WTF both Von Mises and Hayek supported government intervention against monopolies,abuse of market power,price fixing and the like.Now exactly how did the Chinese work their way into this article?As far as I can see it is about 2 foreign investors,one from Singapore,the other from Thailand deciding to market their own sugar direct to their own customers.Neither of them print the world's currency.
Chouette
7/07/2014 5:21:01 PM

John Newton does well to raise the issue of USA and corn subsidies. Not only is it a great example of agrarian socialism but is now a health issue. How? Current research shows that there is a molecule in corn products.. oil, sugar flour etc that prevents the satiety neuronal switch from working. There is a lot of causal evidence that the widespread use of these is a probable cause of the 'obesity epidemic'. Yes we should beware of what and how much we put in our mouths, BUT how many would know the difference between good and bad sugars?
wtf
7/07/2014 5:41:07 PM

That's exactly what im saying jft, the govt needs to step in as state backed is a monopoly and market distorting, David does not recognise that, if he is TRUE to Austrian thinking he would. I'm saying that it is wrong that a govt can use printed money to displace future farmers, there is no free market if that happens. This article was not just about sugar, its about the broad issue of foreign investment, stop trying to divert my argument, its my comment space.
PAYG
7/07/2014 5:48:15 PM

Agriculture commodities are the most corrupt markets known to man, from the largest of manipulators in the form of the US’s farm bill thru the EU’s production subsidies to the local agriculture commodity protection guaranteed by tariffs and of course not forgetting the ever present commodity ‘Speculator’. Australia’s answer to all this corruption is to establish crony controlled quasi-statutory authorities that are little more than domestic ‘regulators’ pushing up the cost of production. – dump the lot. It’s time to get serious and introduce an agriculture specific anti-trust act.
The Serf
7/07/2014 7:55:58 PM

Agrarian socialism is well and truly alive in the cattle industry as well David; we are forced to contribute through a Tax on cattle to prop up meatworks and their foreign owners and paid the lowest cattle prices in the world to boot. The processors have a superior status over the live exporters and MLA is spending the tax derived from the producers of Live ex cattle to market and promote beef over Australian cattle in Asia, to our financial detriment. What is your party proposing to do to help us rid ourselves of this bureaucratic structure?
N.Vic
7/07/2014 8:10:50 PM

Govt investment doesn't work sez 'seethelight', ha ha ha, go tell that to the Chinese, Japanese and Germans, all of whom build huge manufacturing industries via careful govt 'meddling'. Even the yanks aren't pushing the neoliberal deregulation line these days, now they've got over 40mil people on food stamps.
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Agribuzz with David LeyonhjelmCommentary, news and analysis with agribusiness consultant David Leyonhjelm. Email David at reclaimfreedom@gmail.com

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