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

JL
26/05/2014 3:08:21 AM

While David has some reasonable comments in this article, there are a number of mistruths. At the end of the day we all have a right to have an individual opinion and that includes "to work as a collective is better for our interests" There is good evidence that the introduction of Ravensdown into the Australian market influenced the other companies pricing. David has it totally wrong about loyalty. That is exactly why some farmers did not move to Ravensdown, Loyalty to their locally owned supplier that they were always dealing with. "Unity" created the loud voice of the sugar industry.
boris
26/05/2014 7:05:45 AM

It rings true across all agricultural industries - farmers say one thing and then do the complete opposite. It might be less costly for society and industry to just ignore them!
Gecko
26/05/2014 7:14:25 AM

Pure fantasy? When the CEO of a major fertiliser company admits their pricing structure was based on the ability to pay, clearly indicated that the fertiliser companies simply going for what they can get. Also they adopted "world parity" pricing even though the Gibson Island plant was making urea much, much cheaper. Wilmar? Well, QSL obtains a premium when selling into Asia. If Wilmar takes the sugar produced at the mills in Queensland to its own refineries in Asia it wont be applying the premium to that sugar. Who misses out? The growers. David Leyonhjelm a Senator. Now that is really scary!
lego fella
26/05/2014 8:59:16 AM

But david what happens if the sheeple realise they are being feed a margin by the monopoly which is all around them? if they "come together", start to PROTECT their industry and navigate around these monopolies, fields of greener pasture await. The features of the AWB allowed this, by tweeking its design so that the monopolies cannot breach its walls we can grow an industry, do you have a problem with that? so smaller producers have less importance than big ones do they? stop comparing sizes
eric hunt
27/05/2014 6:39:25 AM

David, you are seizing upon only the weaknesses of the collective bargaining model and using your deregulation ideologies to say the only way forward is as individuals, without rules or regulations. Much of your comments about farmers acting as individuals is accepted. However, you still overlook the problems of your system, which when left alone results in only the biggest surviving. That is fine for the biggest but not much good for the nation and majority of its people. Show us the Country which has flourished or even survived under your zero regulation philosophy. Deregulate MP's Pay????
Deregul8
27/05/2014 7:07:19 AM

The problem with the sugar industry is it is clothed in a single desk which stifles innovation, averages returns and beholdens investment based on politics rather than good business acumen. Luckily for the average sugarcane grower with any get up and go in him/her, there are other deregulated crops that can be grown like rice, corn, sorghum and/r soybeans. There will be a significant swing to these grains in the coming years at the expense of cane and growers will be thankful the free market system allowed them to deliver sunset infrastructure to naive Asian investors. The future is grain
ben jensen
27/05/2014 7:10:18 AM

David, if your total deregulation model is so perfect for farmers, please tell us why the world's bastion of Free Trade and deregulation needs to pay over billions and billions in subsidies and support payments to its farmers annually. I speak of the USA of course. Australia of course has never been in that league.
Hydatid
27/05/2014 7:14:15 AM

Gecko..."pricing not on cost but the ability to pay..." Didn't the Banana growers do exactly the same thing after cyclone Yasi ?...remember $14/kg bananas ??
Taxpayer
27/05/2014 7:18:36 AM

jensen Australian farmers are subsidized through FMDs, diesel rebates, landcare/fencing grants, drought relief, generous tax benefits, research (GRDC co-contribution)! You are naive if you think you aren't subsidized. You are a cost to me the taxpayer.
ben jensen
27/05/2014 7:43:21 AM

Taxpayer, I did not say Aussie farmers get zero benefits from Government. I said they are not in the same league as USA or most other nations for that fact. If you really want to focus on Government handouts, have a look at our Industrial Awards system. Based on global free markets it is an horrendous burden on the taxpayer via artificially inflated costs for everything we buy from products to services. If it was globally freely traded, like our wheat, our products and services costs would drop by hundreds of billions. Compare that with a few million to Aussie farmers.
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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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