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

JT
7/07/2014 9:22:48 PM

Although I find many flaws in the application of your stated ideology David, I would not put my life on the line to oppose it, if you could bring about absolute market deregulation. That is, after you have got it signed in blood, that there was to be absolutely no form of corruption in any market for the production and sale of Australian primary produce, I would accept it. That means, after you have removed all regulations affecting production and delivery costs, and all dumped competing products due to foreign Govt intervention or "slavery", and all social costs. Don't call me till then.
LTF
7/07/2014 9:50:30 PM

Wilmar have a large operation in (PRC) China JFT. Not only that they have tentacles deeply into many countries via joint ventures (including with ADM), and other similar arrangements. Their global size and foot print is so powerful as to intimidate national Governments and they do not have a rosy environmental or ethical record. I am not condemning them on that basis. It is just that we all need to know the details of global corporations moving into our lives, because of the power and control they may have over us, whether they use it wrongly or not.
JL
8/07/2014 5:42:28 AM

At the end of the day, the cane farmers take the most risk but will receive the least.
Meg
8/07/2014 7:26:24 AM

'seethelight' needs to go to specsavers, your so called 'free market' doesn't exist...Australian farmers and in particular cane farmers had government intervene to legislate to hand over all ownership and market power to the millers, the only FREE market that is , is a free for all from the mills and that's exactly what's happening. If you really believe in farmers operating on a free market then let them charge for their product + margin for profit as other businesses can. Instead governments legislate to keep farmers paying retail for inputs and receiving corrupt world prices for payment.
Deregul8
8/07/2014 8:08:00 AM

So Meg you get off your butt and you learn to grow other crops where opportunities exist. Rice, soybeans, corn, even sorghum. Grow crops that can be directly exported unprocessed and priced with transparency off global futures markets.
bronwyn
8/07/2014 8:20:20 AM

PAYG, please tell us how you will get your ag anti trust act enacted and how that will magically bring about the level playing field for all farmers of the world? Please also tell us what your plan is to ensure our agricultural industries survive until you get your solution in place?
GFA
8/07/2014 8:30:59 AM

I sympathise with what you say. Not sure your solution will meet with support in our crazy environment of market chaos. I think a more telling argument, would be to put the acid on all the so called free traders, to take their ideology to its absolute perfection, removing all regulation on costs and income. I am sure farmers would soon become vibrant and profitable again in such a truly open competitive environment, and all the real subsidized members in our community, (Unions/P Servants) would "hang" the free traders and be screaming their heads off for wide spread govt intervention.
Andrew
8/07/2014 9:37:32 AM

We can all look up Wikipedia David, but I note you failed to mention this from the Wilmar Wiki page - “In 2012, Wilmar was named the world's least environmentally friendly company by US news magazine Newsweek. Due to their poor environmental performance they were excluded in 2013 from The Government Pension Fund of Norway, the largest stock owner in Europe.” Some believe that Wilmar want to ditch QSL so they can sell sugar dirt-cheap to their own companies, namely its 50:50 joint venture company, Yihai Kerry Kellogg Foods Company Ltd. which makes sugary breakfast cereals for the China market.
seethelight
8/07/2014 3:22:14 PM

N.VIC,so you mean Mao,Hirohito and Hitler propelled their countries to wealth ,prosperity and happiness via careful govt 'meddling' or was it their immediate successors, such as Deng Xao Ping,who allowed their citizens the freedom to own private property and trade it? The more the government meddles in the economy the worse it becomes. There are no counter examples including yours.
TFO
8/07/2014 3:53:24 PM

Seethelight, Evidence shows you are right about Govt meddling. It can make the economy worse. What is your answer though when the Govt is meddling big time in certain sectors to the detriment of others? Do you ask for a countervailing meddling to save the damaged sectors from its other meddling? Or, in the case of business, which is in a fast rate of decline and relocation overseas, (because of protectionism in labour), do you let our wealth creation sectors die? it is clear you have no plan to deal with current destructive meddling, or you would have told us?
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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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