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

PAYG
8/07/2014 4:37:47 PM

Bronwyn you say in reference to my comment: - “…….magically bring about the level playing field for all farmers of the world?” – I’m definitely sure that my comment did not have any plans for - “……all the farmers of the world” - so I guess you will have to take that one back to your Pixies. You further ask: - “Please also tell us what your plan is to ensure our agricultural industries survive until you get your solution in place?” – So your Pixies want my mixed farming business plan for distribution to the collective eh ?
bronwyn
9/07/2014 7:44:09 AM

PAYG, why are you talking in such riddles? If you want people to engage with your thoughts all you have to do is talk straight. Is that too much to ask. Tell us what it is that is so great about your anti trust proposal. It may even get our support.
wtf
9/07/2014 8:01:54 AM

PAYG, I like the sound of the anti trust proposal because that is exactly how I do feel, like Bronwyn said, let us know, would love to hear more. To much trust has been given for free in ag.
PAYG
9/07/2014 9:25:57 AM

bronwyn - "It may even get our support." - Who's this 'Our' people that you say you speak for ? - "If you want people to engage with your thoughts....." – I made a comment and it was not a request for engagement. Try ‘Google’ with the search ‘phrase’ of ‘agriculture anti trust laws’ or better still, try reading Ludwig von Mises, Hayek or the father of modern economics Adam Smith.
Frank Blunt
9/07/2014 10:58:53 AM

I can't believe with the headlines Agrarian Socialism here in bold print that we have not heard one peep from Bushie Bill.
seethelight
9/07/2014 11:47:50 AM

TFO you are to be commended for your very astute observation that govt meddling in the economy invites more govt meddling to try and repair the unintended but damaging consequences of the previous meddling.This is why that in the end uninterrupted interventionism leads to full blown socialism. Such is the history of Germany between the wars or Argentina since the beginning of the 20 th century.If you are on a sinking boat bashing another hole in it is not the answer.Likewise more meddling is not the answer to the problems created by previous meddling.
wtf
9/07/2014 1:19:45 PM

U Austrians are doing my head in. Let's say the govt does not intervene and the natural realignment does not occur, a whole generation may be lost from an industry where it can take generations to educate, farming is not something u can learn from an institution, in many cases its a skill learnt over generations. Or is it a matter of the threat is greater (ie by letting them invest they will be our friend, rather than foe) than the loss? that I will concede upon
Bushie Bill
9/07/2014 2:00:19 PM

wtf, reread David's very erudite article again to search for a "reference to a racial slur about regional Australians". Couldn't see it anywhere. Would you be so kind as to quote this reference for me, you obviously having a much more sophisticated appreciation of the English language than I do?
Bushie Bill
9/07/2014 2:02:23 PM

Ah, you are a bit slow off the mark on this one, Jock. What happened? Did someone hobble your charger?
TFO
9/07/2014 2:36:42 PM

Seethelight, we are just agreeing with each other. But you have not answered the tough question. That is what are you doing to "block the holes in your boat" as you say? And until you do, what are you doing to stop the drowning of the good guys, without the protection of the life jackets, (being supplied as subsidies to the bad guys"), until you get "the holes blocked off? That is the tough question. If you do nothing about this, you are left only with the dead wood aren't you? All those carrying the economy will be gone?
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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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