Bid's fail a trust issue

03 Dec, 2013 01:00 AM
Liberal Member for Hume, Angus Taylor.
Establishing trust with growers is extremely difficult with a concentrated market structure
Liberal Member for Hume, Angus Taylor.

OPINION: SOME will see the rejection of Archer Daniels Midland's (ADM's) takeover bid for GrainCorp as a triumph of politics over policy. Nothing could be further from the truth.

As someone who has had a lifelong interest and involvement in agriculture and economics, I have taken great interest in this bid from the day it was announced. Greener Pastures – a major report I wrote for the ANZ Bank before I entered politics – shows that Australian agriculture desperately needs huge investment if we are to realise the full potential of the emerging global soft commodity boom.

Greener Pastures raises the awareness of the agriculture opportunity on our doorstep and the multi- trillion dollar requirement for new capital.

But it makes an equally important point about problems in our agricultural supply chains: Many of these supply chains are natural monopolies or oligopolies. In industries where costs of transport are high relative to the value of the product (because of perishability or bulk), ownership of supply chains by a very small number of relatively unregulated players poses many problems for producers. It also poses problems for supply chain players themselves. Establishing trust with growers is extremely difficult with a concentrated market structure and where producers have little control over their downstream service providers or customers.

In dealing with this problem, Australia has been paralysed by two ideological extremes. On the one hand, some just want to let the market rip. On the other extreme, others argue for the return to the relative "comfort" of the old statutory monopolies which have been disappearing all around the world at a rapid pace.

Of course the right answer is somewhere in the middle. We should look to New Zealand on this front. I spent many years working to put together Fonterra, the dairy behemoth owned by the New Zealand dairy farmers. The New Zealanders have been far more visionary in their thinking about these problems. The Fonterra solution was to put aside ideology and arrive at a pragmatic combination of clever regulation, farmer ownership and competition.

Fonterra shows that we can have good, profitable commercial agribusinesses that remain tightly aligned to the interests of farmers.

Supply chain problems

Ultimately, ADM's bid didn't address these all important problems in the supply chain. It is true that ADM offered to make substantial and badly needed investments in the supply chain. But it did not show that real benefits would go back to grain-growers, and harm would be avoided. ADM refused to accept enforceable and lasting conditions for access agreements in a supply chain where there was little or no competition in many regions.

Some argue that there are already satisfactory access agreements and the ACCC dealt with all competition issues. However, the current access agreement concludes in September 2014, only covers ports and does not contain fee increases in any meaningful way. Meanwhile, the ACCC's public decision was necessarily narrow, excluding consideration of whether the current access agreement was satisfactory. Nor did the ACCC seriously consider the likelihood of "vertical foreclosure" – using a strong port and up-country position to push competitors out of other parts of the supply chain.

There is an extraordinary opportunity for Australian grain and Australian agriculture more generally. We should all hope that GrainCorp and perhaps even ADM will be central to capturing that opportunity in the future. But we can learn a lesson from this long, noisy and ultimately unsuccessful bid.

Agribusiness will succeed in this country when it creates significant wealth both for shareholders and farmers. Where there is potential for conflict, it is the role of both to work closely together to ensure that benefits are shared and the payback is mutual. This means establishing deep and sustainable trust-based relationships, with clear rules of engagement and remedies for legitimate grievances. Otherwise, we continue being held up and held back by the ideological clash, each time there is a proposal for foreign investment in Australian agriculture. We need massive investment in agriculture, but the benefits to stakeholders need to be genuine, and the case needs to be made early in the bid.

Then we can get on with capturing the opportunity of a generation.

  • Angus Taylor is the federal member for Hume.
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    John of Taralga
    3/12/2013 8:37:26 AM

    Well put Angus, now to run the country in this fashion and prove the labor and Green lot totally wrong! The work on getting our Australia back! The one people were wanting after 1945, not those who would make it suit them!
    3/12/2013 11:23:59 AM

    Angus, you appear to be on the cusp of real progress. Terry McCrann wrote in a similar fashion to yours in the Australian last weekend. He said we would get nowhere while extremist ideologists continued to childishly and stupidly ram the "let it rip", free market ideology down every bodies throat. When that is done, no trust will develop between farmers and service corporations. Without trust, businesses gradually collapse. Please let us in on the details of your plans as a means of you building that trust with our industry.
    john from tamworth
    3/12/2013 3:13:10 PM

    His argument is like an old man stuck between two pots.He will starve to death before he decides which one to eat from.He is scared of let her rip free markets(I am not) but realises the catastrophe of socialist,collectivist statutory marketing bodies.All he can recommend is that if things get too tough then farmers and shareholders should get together for a love in.This is country Liberals version of the communist manifesto.
    Bushie Bill
    3/12/2013 3:29:55 PM

    Not a good start, Angus. I have to mark your card "could do considerably better, given demonstrated intelligence and ability".
    4/12/2013 6:43:34 AM

    Angus, take no notice of losers like JFT and bushie. They care little for our national farming industry. BB is a closet communist labor market protectionist and JFT is apparently a let it rip market extremist who fails to recognize that people are more intelligent than machines. Go ahead and let us have more detail of your ideas. Some of us have open minds to hearing more from true believers in our Nation's future. I am hoping you are one of those.
    US money
    5/12/2013 2:55:47 PM

    Angus is in the wrong party. Ideological legislation has destroyed competition in NZ and although dairy farmers are ok today, they will rue the day with incompetent co-op decisions down the track. In Australia we will benefit from nurturing good competition in our grain market, and in our dairy we will see it was a good decision to allow Saputo to buy WCB. I think Mr Taylor has had some experience in NZ that has corrupted his education and many in the business world are shaking their heads listening to his erroneous beliefs that ADM and their 4 billion $ is not good for growers or the nation.
    Cattle Advocate
    6/12/2013 5:25:04 AM

    In 2009 Viterra bought out ABB Grain and before Glencore took Viterra some of its Canadian assets were sold to its competitors but Glencore kept 95pc of SA's grain storage and handling and all SA's export ports. In 2010 in Viterra's home province Premier Wall got the Canadian Govt to block a take over of Potash Corp of Saskatchewan, Canada's biggest K supplier by BHP Billition that has tenemants in the Saskatchewan basin, and has since been developing its Jensen mine 10m tn pa. In Nov 2013 BHPB signed a opportunities agreement with 3 Saskatchewan First Nationals to build the mine.
    Cattle Advocate
    6/12/2013 5:47:49 AM

    3 Saskatchewan FN ''This new agreement with BHP Billition will create new and inovative ways to an enviromently sustainable healthier future for our people.'' BHPB '' We're looking at a relatively straight forward agreement with potential partners who would come and take a minority share in Jensen and be very much a partner.'' BHPB thinks there will be world demand for Jensen, about $3.8B to build and PCS's production. Premier Wall on the Jensen mine ''Very very good for Saskatchewan.'' Family owned Richardson Int Canada's biggest Agribusiness bought Viterra assets in the Glencore deal.


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