Co-opting the co-ops

To paraphrase Orwell, all grain exporters are equal but some are more equal than others

THE rest of the country might be embracing free market capitalism, but in agriculture the lure of socialism is never far from the surface. And for some reason it seems to appear more often on the Coalition side than Labor.

Take the latest kerfuffle over the move to further deregulate wheat export port access. Those who claim to welcome competition when the exporter is a profit-oriented business, especially if it’s a foreign multinational, recoil in horror when it is suggested the same competition rules should apply to a farmer-owned co-operative.

In 2009, when the wheat export single desk was abolished, exporters which also owned and operated wheat port terminal facilities were made subject to Australian Competition and Consumer Commission rules that required them to guarantee access to port facilities by their exporter competitors.

These compelled them not to discriminate or hinder access in the provision of port terminal services and to provide clear and transparent protocols for managing demand for access.

These rules are due to be removed on 1 October 2014, provided a mandatory industry code of conduct is prescribed under the Competition and Consumer Act. Access to port services will then be governed by the Code and general competition law. A regulation has been drafted to implement a Code, which is due to be signed off within the next few days.

Complete deregulation of port access is the logical endpoint of the process that began with abolition of the single desk. If every other commodity can be sold with no more than the Competition and Consumer Act to ensure the market operates properly, why not wheat?

But some argue the wheat export market is not yet sufficiently competitive to allow full deregulation.

While the absolute monopolies that applied in 2009 no longer exist, GrainCorp still handles 75 per cent of east coast grain (but less than 30pc of grain exports), Viterra handles approximately 80pc of South Australian produced grain and CBH handles 90–95pc of the grain produced in Western Australia. Both Viterra and CBH export around 45pc of the grain in their respective states.

The claim that a more competitive environment is needed before full deregulation can occur is at least logical, if debatable. What is not logical is the way in which the Code is intended to apply.

Despite the fact that it is now far from a monopoly, most of the argument over deregulation has revolved around GrainCorp. As I wrote a few weeks ago, its competitive environment is hotting up with a new Newcastle terminal, jointly owned by CBH, Olam and Glencore, now competing alongside GrainCorp’s terminal. Also at Newcastle, a storage facility operated by Louis Dreyfus, with elevation provided by Qube, has been established.

Further competition is set to emerge at Port Kembla, where Qube, Noble Group and Emerald Grain plan to build a 1.3 million tonne capacity grain terminal to rival GrainCorp's facility.

The same focus has never been applied to CBH in WA. While the international commodities group Bunge has a new facility at the port of Bunbury, from which it has begun exporting modest quantities of wheat, CBH continues to have virtual monopoly status.

And while you might think that WA would benefit from a more competitive environment than the east, that will not be allowed to occur. The Minister for Agriculture is to be given authority to exempt CBH from complying with the Code. In other words, the port operator with the greatest market power will have the most scope to squeeze out competitors.

The reason for this special treatment is that CBH is a farmer-owned co-operative. According to agrarian socialist dogma, that makes it untouchable. While it proudly insists it is profitable, it pays no dividends. Instead, it claims to recycle its profits into lower handling and storage costs for growers. To paraphrase Orwell, all grain exporters are equal but some are more equal than others.

The end result will be that GrainCorp progressively loses market share in the east, including to CBH, while CBH maintains its monopoly position in the west.

The Minister for Agriculture has justified this, saying: “In Western Australia they basically have a cooperative arrangement that runs a monopoly. In the Eastern States we have overseas-based entities that run regional monopolies. A co-operative based monopoly returns the best outcome for the growers; overseas-based regional monopolies don’t”.

And yet, the story being hawked around is that if CBH is obliged by the Code to give its competitors access to its ports on fair terms, those competitors will come to dominate the market. In other words, the authority of the government is being invoked to prevent grain growers from having the freedom to deal with the company’s evil multinational competitors.

In fact, there are plenty who argue CBH is evil. It certainly has form as a corporate bully. In April last year the Australian Competition Tribunal revoked the company’s permission to require WA growers and marketers who use its 'up-country' storage facilities to also use its transport services to deliver grain to port for export. For the first time since deregulation in 2008, growers and marketers became free to make their own arrangements for transporting grain to port for export.

To many WA grain growers, CBH is also a substantial financial tragedy. While it is notionally owned by wheat producers and worth around a billion dollars, their equity cannot be accessed for anything useful. In fact it is lost if they cease growing wheat or sell their property.

Hundreds of WA wheat producers with massive debts would dearly love to access their equity in CBH to get out of hock, but can’t even borrow against it. Any talk of floating the company on the stock exchange to allow its shares to be bought by those who want them and sold those who don’t is met with anguished cries about “grower control.”

If any area of the wheat export market requires protection from monopoly practices it is WA. And yet that is exactly where the government is proposing to facilitate such practices. It is ridiculous.

But there is hope. The regulation implementing the Code will be a disallowable instrument. Perhaps the Senate won’t be as enthusiastic about agrarian socialism as the Minister.

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READER COMMENTS

Grumpy
17/09/2014 5:25:36 AM

The biggest effect of free market capitalism is agriculture worldwide is declining terms of trade over forty years and transition of wealth from the rural to urban communities. Collectivism does not amount to communism, it amounts to survival. Better to be collective than collusive which is what our plutocrat Australian politicians amount to. Why is it that a growing proportion of the Australia population are voting for the least repugnant representative, purely and simply they have ignored their responsibility.
CBH Shareholder
17/09/2014 5:42:38 AM

CBH would be fine if management read the constitution and abided by the rules of a co-operative.
winston smith
17/09/2014 5:57:26 AM

here we have big brother from the ministry of truth telling us that our agsoc party slogan of selling as 1 rather than 25000 is a thoughtcrime and we should embrace the freemarket newspeak. Remember David "If there is hope, it lies in the Proles" as "until they become conscious they will never rebel, and until after they have rebelled they cannot become conscious"
JT
17/09/2014 6:25:45 AM

Very insightful comments Grumpy. Hopefully David will learn from them.
Deregul8
17/09/2014 6:40:34 AM

Spot on David. What's worse, some shareholders see a solvency test ahead for CBH as the 'evil multinationals' seek to destroy the monopoly through targeted port and upcountry investment, and cannot get their equity out. The traders need only crack open the Kwinana zone which is CBHs cash cow and the dream is over for the co-op and its agsoc disciples.
GFA
17/09/2014 6:41:34 AM

David, after you get the real economic problem of Australia sorted out in line with you free market ideology, then farmers will be happy for you to dribble on about your beloved free market. At present farmers are forced to take the lowest global price for their produce but are forced by our Government to pay highest global input and supply chain costs. Your taxpayer guaranteed parliamentary salary is part of that system. You get that regardless of your performance for 6 years plus perks. Remember that.
X
17/09/2014 6:47:42 AM

I am a CBH shareholder. I am not obliged to sell through CBH , however they have the lowest logistic and frt costs ( in Australia- like for like) and offer an exceptional segregated efficient recieval process that I utilise it for about 90% of my grain production. Under the constitution there is provision for change , ie to a listed entity- this has not occurred because the majority of Growers are happy with the status quo. . It is a demorcrstic organisation. Whilst I could take my equity share and run, given that the majority of our states grain is exported my calculations say stay CO-OP
Philip Downie
17/09/2014 6:57:53 AM

I think he writes under D8.
dunart
17/09/2014 7:32:21 AM

as a urbann person now, I can tell you, hidden here is socialism left right and center. the labour market, housing market with their hand outs from govt and I could go on. why don't you, david get rid of the real socialism in this country and that's in urban Australia. all this urban socialism cost farmers, talk about a "unfair" go!
hoegrass
17/09/2014 7:48:38 AM

x we still have 25000 WES shares in the family farm kitty thanks to corporatisation of Wesfarmers & my dear old foresighted Poppy. Some handy divvies have come in when the farm has had a skinny year or three. posters show their ignorance when they talk about 'flogging off' CBH. they also show their ignorance when they claim a co-op is saving them money, with no benchmark to compare against. AWB used to make those claims & look what happened to grain prices when we went to collect on the Lindberg spin.
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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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