Parting is such sweet sorrow

At what point does foreign investment become foreign intervention?

IT IS astounding the pace at which the Australian sugar milling industry was able to swiftly become mostly foreign owned.

From a starting point of less than 20 per cent in 2010, the level of foreign investment has soared to more than 75pc by the end of 2013, particularly following the sale of one of our largest milling companies, Sucrogen, to the Singapore-owned sugar giant, Wilmar.

It is clear how and why this industry transformation occurred.

Globally depressed sugar prices and poor climatic conditions through the early 2000s led to long term underinvestment in our milling sector. Most of the nation’s mills were at least a century old, co-operatively owned and struggling with ongoing underinvestment.

Significant annual capital investment was required to maintain production efficiency across our 24 sugar milling facilities. But, at the same time, there was strong growth in sugar consumption across Asia, which was experiencing eight per cent annual consumption growth – more than four times the global average.

Australia was regarded as supplying a consistent, high quality product. We were also the world’s third largest exporter.

There was huge opportunity and potential. It is little wonder overseas companies viewed our sugar industry with hungry eyes.

Initially, foreign investment enabled much needed capital to enter the industry and, it could be said, has allowed our sugar sector to regain its global footing following several tough years.

But at what point does foreign investment become foreign intervention?

Wilmar caused uproar within the Australian sugar industry in recent weeks after it announced intentions to exit the current QSL export marketing arrangements and set up its own commercial model, tied to its global trading operation.

While Singapore-owned Wilmar claims its business decision will only impact a handful of growers that use eight of its mills across the Burdekin and Herbert region in North Queensland, there is little doubt within industry that this proposed business model will shake the entire Australian sugar supply chain to its very core.

Wilmar’s proposal has the potential to remove two million tonnes – or more than two-thirds of all exported Australian sugar – from industry’s collective annual export pool.

It will weaken QSL’s dominant marketing position in the global sugar export business, leaving the bulk of Australia’s millers and growers worse off. Some question whether QSL could survive this scenario.

We have already seen the looming threat to the rest of the Australian sugar industry’s sales base and structure, with credit ratings agency Standard & Poor’s this week downgrading QSL from A/A-1 to BBB-, following the Wilmar announcement.

More than 1200 of the nation’s 4000 canegrowers have written letters of objection to Wilmar and Canegrowers have called on the Australian Competition and Consumer Commission to investigate, labelling the move ‘anti-competitive’ and ‘predatory.’

Even cane growers in the Wilmar controlled areas will have little option but to sell their sugar to the Singaporean agribusiness giant.

The average distance cane is transported from farm to mill is only 30km, anything further than 100km increases costs dramatically.

Even more concerning is Wilmar’s gradual purchasing of almost 6600 hectares of farmland within the Herbert, Burdekin, Proserpine and Plane Creek milling regions.

An average cane farm is about 70 hectares.

At a total of only about four million tonnes of sugar produced annually, we are a relatively small industry compared to the rest of the world.

To give some perspective, our two major export rivals are Brazil, which produces about 39 million tonnes annually (which half is used for ethanol production) and Thailand, which produces about 11 million tonnes.

However, Australia well and truly punches above its weight in providing sugar to the world, with more than 80pc of all our sugar produced destined for export.

The recent submission by Canegrowers for the federal government’s White Paper on the development of Northern Australia displays the overwhelming opportunity in coming decades, with proposals for more than one million hectares of sugarcane to be developed in West Cape York.

If this opportunity could be capitalised on, it would provide much needed national revenue at a time when global consumption of sugar is expected to almost double to 257 million tonnes by 2030.

I am of the opinion that any encouragement from Australia towards foreign investment must commit to working with trade partners and overseas businesses to achieve - as its collective objective - fair and equitable partnerships that bring mutual prosperity.

Enabling a foreign owned business to completely restructure an industry’s landscape at the expense of the remaining, largely Australian owned businesses, is not in the national interest.

By removing itself from QSL, Wilmar will instantly undermine a century of gains and prosperity for thousands of family-owned sugarcane farms. As such, I do not believe the Wilmar proposal meets the national interest test.

And I believe there are many, many people out there who would agree.

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FarmOnline
Barry O'Sullivan

Barry O'Sullivan

is a Queensland-based Senator for the Liberal National Party
Date: Newest first | Oldest first

READER COMMENTS

JL
30/05/2014 5:03:41 AM

Totally Agree. Most Cane Farmers are family owned businesses that are trying to provide for the next generation in a manner that is better not worse off.
Deregul8
30/05/2014 7:45:18 AM

Luckily for the sugar producers they have a bright future ahead of them IF they move to diversify their financial dependence away from a single commodity. Corn, sorghum, rice and soybeans are all viable crops to consider specialising into in the future and they are more easily priced on international fundamentals and being so close to port the opportunities to manage supply chain costs are immense. Ditch the sugar and learn the craft of growing grain
Simon
30/05/2014 8:08:34 AM

Totally agree. That's why Joe Hockey rejected the ADM takeover of GrainCorp.
wtf
30/05/2014 8:28:35 AM

I don't know who is backing Wilmar financially but why does the ACCC not see the use of central bank finance by companies as anti competitive. It seems they are blind to competition and are just hired guns for mega corp or central banks. why not give us access to the same finance, wouldn't that make us competitive or is that not what u want govt? why would these overseas countries buy our produce from us when they can buy the land and businesses, this is all wrong and we need to see the data on how much of this is happening
Real Farmer
30/05/2014 8:57:11 AM

Totally disagree. The handout-addicted cane growers have had many years to either diversify away from cane or - heaven forbid - invest in a competing mill or ethanol plant. Wilmar has done them a favour by buying those clapped-out mills and reinvesting in them. If they had remained in the hands of CSR, they would most likely be closed by now.
leonard corio
30/05/2014 10:41:36 AM

The big question in matters such as this is - Will it result in a transfer of Australian wealth creation/generating assets, to an overseas Country? If so, in what way has Australia extracted the rent it is entitled to for such a transfer? Every time Australia allows a transfer of its wealth creating assets to an offshore Country, it lowers our own wealth creation prospects so that we are running down our National balance sheet. If a Company runs down its Balance sheet, it is headed for insolvency.
GFA
30/05/2014 11:34:00 AM

Our markets for everything we produce today must accept prices at the lowest alternative global rate. In the case of sugar, global subsidization and dumping is rife. If Australians are prepared to import dumped product prices into Australia, we are helping to corrupt our own markets. How is it then that we are not prepared to import laborers who also offer to supply their services at much lower rates than the locally regulated and subsidized rates. If that is so wrong, then it is no less wrong to import subsidized products and/or force local produce prices down to corrupt market rates, is it?
WilmarNoGood
6/06/2014 5:56:58 PM

In short: -break the monopsonies in Wilmar's cane markets. Start by opening access to their cane train networks so rival processors can enter to encourage competition that benefits growers. HR Canegrowers office should be embarrassed for supporting CSR resist this in NQBE's application for access to the Herbert network. -do what is required to establish an ethanol industry here with multiple producers from cane, not just Wilmar (e.g. excise reduction on ethanol fuel). less supply to the sugar market helps increase prices there and reduce reliance on it. make it attractive to OUR super funds.
Bush mattersBush matters - LNP Senator Barry O'Sullivan tackles the issues facing Aussie primary producers and people across rural and regional Australia.

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