Farming out free will

The sugar industry has long been characterised by a loud voice ...

THE departure of fertiliser supplier Ravensdown from Queensland has prompted a lot of anguish and finger pointing. It wasn’t meant to end this way.

Ravensdown came to Queensland at the invitation of Canegrowers, the grower organisation, to lower fertiliser prices and compete with the evil corporations. It was supposed to demonstrate the virtues of collectivism over individualism.

A New Zealand co-operative, Ravensdown had sought to expand into the Australian market with operations in WA and Queensland. The WA business, first of the two, was sold to Louis Dreyfus last year.

The Queensland business was created in 2009 with the issue of non-voting preference shares, entitling holders to a rebate on their fertiliser purchases subject to buying enough fertiliser.

The business plan was based on minimum sales of 100,000 tonnes a year, when shareholders would start to receive rebates. Rebates could be paid in cash or additional shares, at the company’s discretion. Growers of cane had to be members of Canegrowers to be eligible to own shares and receive the rebate. Other crops were not subject to this constraint. Ravensdown paid Canegrowers a fee for services provided.

By all accounts the first year was good and the target achieved, leading to some investment in infrastructure. But it was all downhill thereafter, with sales failing to meet the target in any year since and falling to just 70,000 tonnes last year. Rather than continue to lose money, New Zealand opted to close it down and liquidate the assets.

The reason it failed, which the company has acknowledged, is that not enough cane growers bought from Ravensdown and, of those who did, too many bought some of their fertiliser elsewhere. The Canegrowers organisation is apparently extremely disappointed.

The sugar industry has long been characterised by a loud voice. Over the years, several Queensland coastal electorates have been vulnerable to the “sugar vote”, leading jumpy governments to deliver bailouts and subsidies during periods of low sugar prices. Even now, taxpayers are forking out for subsidies to produce ethanol from sugar.

But the Ravensdown-Canegrowers agreement relied on an assumption that cane growers are like unionists and subscribe to the ‘unity is strength’ approach. It could only work if a substantial number of them felt they were better off going along with Canegrowers, irrespective of their personal views and circumstances. Clearly, the results show they did not.

I remember reading the Ravensdown prospectus in 2009 and thinking, unless cane growers are different from other farmers, this has little chance of success. Farms are businesses and farmers are, above all, individuals. The need for co-operation is often raised by those who insist everyone else makes money at the expense of farmers, but this kind of thinking has been losing its appeal for many years. Indeed, I suspect those most enamoured with collective action are predominantly smaller producers and that their overall economic impact is a lot less than their noise.

On re-reading the prospectus it is also apparent that little consideration was given to the potential for competitor responses. In fact there were just four lines written about competition, which read “The success of Ravensdown Australia will be affected by the activities of its competitors and the potential for new competitors. Ravensdown Australia proposes to compete for market share by adopting a marketing strategy which focuses on building customer loyalty and membership of customers. However, there is no guarantee these techniques will be successful.”

I expect the main reason sugar producers did not find the Ravensdown offer all that compelling was that there were better offers available elsewhere. Many growers would have viewed a competitive price today as more attractive than the promise of a lower price after rebates down the track. I also expect plenty will have owned shares in Ravensdown, bought some of their fertiliser from it, and used the price to drive a better deal with other suppliers.

What the demise of Ravensdown suggests is that Canegrowers and its supporters ought to consider whether their complaints about fertiliser prices were ever soundly based. Given the fact that Ravensdown lost money, the evidence suggests its prices were too low and claims of growers being ripped off were fantasy.

It should also prompt them to reconsider their objections to the plan by Wilmar to bypass Queensland Sugar Limited, the export business jointly owned by farmers and cane processors.

The insistence that growers need collective control over the marketing of their produce in order to avoid being ripped off is no less a fantasy. Just as they did with fertilisers, a lot of growers prefer to act as individuals.

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FarmOnline
David Leyonhjelm

David Leyonhjelm

has worked in agribusiness for 30 years and is a Senator for NSW representing the Liberal Democrats.
Date: Newest first | Oldest first

READER COMMENTS

Dalby
27/05/2014 8:15:04 AM

Taxpayer you have been told before. Diesel rebates are not subsidies. It is the money refunded by Government up to 18 months later, on fuel tax payments at the bowser for fuel not used on road. As no road benefits are gained from the "road tax" on that fuel, it is refunded without interest. It is virtually a subsidy from the off road operator to the taxpayer.
cv
27/05/2014 8:25:02 AM

Taxpayer, I'd be more worried about negative gearings putting their hand in your pocket or the miners which are over 80% foreign owned.
deane murray
27/05/2014 11:41:27 AM

I agree with eric hunt David. I you so favor the free market, what about freeing up the market for MP's salaries and conditions? That is remove all these regulated conditions that see your salaries rise every year regardless of performance or results. And remove all the regulated perks like travel, meals, comcars, superannuation, office and mailing allowances etc and let it be decided by the market place which is the voters with regular reviews up or down. Come on lets see how your ideals are on this one?
suzanne
28/05/2014 6:06:45 PM

David, unless you put your money where your mouth is and call for parliamentarian pay, perks, and conditions to be deregulated, you will be no different to all the other MP's who you lecture. Will just go along and bury your snout in the trough without any market forces or performance criteria involved in the determination of tax payers guarantee of your salary and perks for life? And you will do all this while lecturing the voters about the evil of regulations in industry. Are you just another hypocritical politician, telling us how to run our lives one way while you do the opposite?
Meg
29/05/2014 8:48:14 PM

Gecko and Ben Jensen have an idea of the real story here...sounds like we're about to have one more senator who hasn't a clue though...how about he sets an example and takes a salary package comparable to a 3rd world country...since his free trade and deregulated market imposes a price for cane that is set at the corrupted world market price, while even 3rd world competitors subsidise the price they pay to their sugar producers. China subsidises the sugar price as well as imposing tariffs on sale of export fertiliser, which is then paid to their own farmers.
GFA
30/05/2014 7:22:15 AM

Meg, pleased to see people like you putting the real facts forward. Without your facts, commentators like David Leyonhjelm get off scott free. After all he is just blindly pushing his own narrow ideology. As they say, he is an example of "never letting the facts get in the way of a good story."
FunkyMonkey
1/06/2014 8:09:38 AM

Good article David. Ravensdown proved that you cannot sell product below cost and remain viable regardless of the emotional plea to growers. Poor business model for a volatile market such as fertiliser. If they had have been smarts out it instead of trying to be heroes they might still be here, albeit to the detriment of local Australian Ag suppliers in regional towns.
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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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