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

wtf
21/09/2014 8:48:41 AM

Hoegrass u and your buddies (if u aren't all the same guy) refer to the lift in profits since the AWB demise. Surely u are familiar with the USA ethanol mandate and global food crisis that occurred at the same time? I think u attribute the increased prices to the wrong factors, but that doesn't suit your argument does it?
Jock Munro
22/09/2014 5:46:58 AM

The merchants have found a very good stooge in Deregular Bsc(ag)-a great mouth who is prepared to destroy his own industry on behalf of the rich and powerful. The key thing about dereg is that he keeps on spruicking for the merchants. If CBH is ever sold off he will be the first grower off to the coast.
Deregul8
23/09/2014 6:55:41 AM

Munro as usual playing the man not the facts. Australian high quality wheat is once again fetching record premiums with the basis the only thing delivering a profit to producer balance sheets for many with a harvest. Something that was never possible with the management of AWB pilfering hard earned grower premiums for their retirements and shareholders. What a blight on history it was! Jock fell for the spin hook line and sinker.
Dalby
23/09/2014 7:47:49 AM

Deregul8, you continue to spread fibs about the prices offered for Aussie wheat being at a premium. The facts from the USDA say the opposite. They show Australian fob bids at a discount of around US$50/t below equivalent wheat out of the US. But don't let facts get in the way.
wtf
29/09/2014 4:55:00 AM

David, rather than focusing on Ag (as bushie said we are an insignificant voting %), why don't u take on issues such as political party funding? It is obvious the proles are disenchanted with the lobbying/funding system. Perhaps if they could witness change we may re-establish individualism, loyalty to family traditions and national identification. They may feel it is possible they can make a difference. Then when offered a truly revolutionary alternative, their faith can be restored in a liberal democracy?
jingelic
6/10/2014 7:48:36 AM

So, David says that CBH is a corporate bully. Like all good Tea-Partiers, he also despises the concept of the single desk. What both have in common is that they are NOT part of the narrow vision of the economy that David favours. Cooperative ownership has served farmers well for many years and gives us a say, through ownership, in the handling marketing etc of our product. Co-ops also exclude non-farmer investors, whose interests are solely about their hip pockets and nothing to do with the long term interests of our industry. Perhaps this column should be renamed 'Investorbuzz''. .
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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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