Warren Truss inflates the impact of GrainCorp's sale on ports

Updated

Foreign ownership of agricultural infrastructure has long been the subject of emotional debate.

A recent bid by Archer Daniels Midland (ADM), a US multinational company, to take over Australia's largest listed agri-business, GrainCorp, has provoked key National Party members to speak out.

If the deal is to go ahead, it must first pass the Foreign Investment Review Board's 'national interest test'. The decision ultimately rests with Federal Treasurer Joe Hockey.

Deputy Prime Minister Warren Truss says he is worried about Australian ports passing into foreign hands.

"If this sale proceeds international companies will control our ports and our handling facilities therefore if we want to export grain to other parts of the world, grow the industry, that decision will ultimately be made in a foreign boardroom rather than in Australia", he said.

The claim: Warren Truss says if the sale of GrainCorp proceeds international companies will control Australia's ports and handling facilities, and decisions will be made in foreign boardrooms.

Warren Truss says if the sale of GrainCorp proceeds international companies will control Australia's ports and handling facilities, and decisions will be made in foreign boardrooms. The verdict: If the deal goes ahead the majority of wheat export ports and the handling supply chain will be in foreign hands. Presumably most big decisions for these companies will be made in foreign boardrooms, however some operational decisions will made by Australian-based management.

Australia is the world's third largest wheat exporter, behind the United States and the European Union. There are about 26,000 businesses growing wheat in Australia.

Three large "bulk wheat handling companies" dominate the nation's wheat market: CBH Group in Western Australia, Viterra in South Australia, and GrainCorp along the east coast of Australia. CBH Group and GrainCorp are Australian companies, while Viterra is owned by Swiss multinational, Glencore Xstrata.

Bulk wheat handling services include providing storage, transport, and ports for growers. Eastern states - Victoria, New South Wales, and Queensland - produce just over 50 per cent of Australia's grain.

GrainCorp is estimated to handle around 75 per cent of eastern Australian grain production. It is a multinational grain company, with a presence in Europe and North America.

Sorry, this video has expired Video: Watch John Barron present the facts (ABC News)

Foreign ownership of Australia's wheat ports

There are 19 bulk wheat export ports operating around the country. Twelve of these ports are Australian-owned, seven of them by GrainCorp.

If the sale of GrainCorp goes ahead, the picture will dramatically change. There will then be five ports Australian-owed and 14 held by foreign companies.

A new port in Newcastle, Newcastle Agri Terminal, is due to open next month.

Click or tap the dots to learn more about the ownership of wheat ports in Australia.

Wheat handling facilities

The majority of Australia's wheat passes through the bulk grain handling system, as shown in the diagram below.

In addition to the three major bulk wheat handling companies there are also two large independent bulk handling companies. The two companies are AWB and Emerald Grain. AWB is owned by American company Cargill and has operations in South Australia, Victoria, New South Wales and Queensland. Emerald Grain is an Australian company with one port in Melbourne, and handling operations in New South Wales and Victoria.

There are also a number of smaller, independent storage and handling facilities operating across the country. However, GrainCorp holds the most significant market power in the eastern states.

"The market for bulk storage and transport services is dominated by GrainCorp in New South Wales, Victoria and Queensland," a 2010 report into the marketing of wheat exports by the Productivity Commission said.

Regulations that govern Australia's wheat export industry

When the industry was deregulated in 2008, legislation was introduced to ensure competition in the Australian market.

The legislation requires wheat exporters who own ports to pass an "access test". The test was introduced in response to concerns that port operators could use their control to advantage their own wheat export operations at the expense of rivals.

The access tests are regulated by the Australian Competition and Consumer Commission. The regulation ensures port access for small players in the wheat industry, however this regulation is set to end on October 1, 2014.

ACCC chairman Rod Sims believes it's crucial the tests remain in place. "That's the only way you know that the competitors to GrainCorp and the other companies in the other parts of the country who've got monopoly wheat ports, the only way you know that they're going to give access to their competitors," he said.

A spokesperson for the ACCC told ABC Fact Check: "At present, the legislation anticipates that access regulation of wheat port infrastructure after this time will be governed by a mandatory code of conduct under the Competition and Consumer Act."

Farmers concerns about foreign ownership of GrainCorp ADM may use its market power to the detriment of Australian growers

Cost-cutting could shut down up-country storage sites

Current market failures and a lack of competition may be exacerbated

Tax minimisation strategies may erode Australia's revenue base

ADM corporate culture will introduce reputation risk Source: Victorian Farmers Federation submission to the Senate inquiry

The Victorian Farmers Federation also want regulation to continue. "Port access undertaking should remain in place beyond 1 October 2014 to ensure independent oversight of the country's ports," it said in a submission to the Senate inquiry into ownership arrangements of grain handling.

While there is heavy regulation of wheat ports, that regulation does not extend to the wider wheat industry. General competition law applies to the whole supply chain.

If the ADM takeover goes ahead, farmers want mandatory conditions to be placed on other parts of the wheat industry. In particular, the NSW Farmers and the Victorian Farmers Federation want "access arrangements for up-country storage facilities".

Growing the Australian wheat industry

ADM is listed on the New York Stock Exchange, and has a market capitalisation of approximately $US22 billion. Headquartered in Illinois in the United States, it operates in 140 countries.

In an ABC Radio National interview, ADP group president Ian Pinner said "we intend to have a CEO for GrainCorp based in Australia, and a management team based in Australia, in order to run and make decisions on day to day business".

"We are looking to invest $3.4 billion in Australia, in a grain business to grow it and see it prosper. We are not making these kinds of commitments around the world in order to destroy or be detrimental to shareholder value. So a business that grows is a business that does well," he said.

ADM has also committed to investing an additional $50 million "on strategic expenditure for the GrainCorp business", according the Senate inquiry's second interim report.

But the Victorian Farmers Federation is concerned if the takeover goes ahead, ADM may favour its own entities at the expense of third-party providers and Australian producers and consumers. One of the main concerns in submissions to the Senate inquiry is that current market failures and lack of competition will be exacerbated by the ADM takeover.

ADM would combine the GrainCorp business with its existing business in the east coast. The ACCC has examined the implications of combining these interests and concluded that the proposed acquisition would be unlikely to substantially lessen competition.

The Senate report noted that "several written submissions and witnesses appearing before the committee argued that ADM's takeover bid represented an opportunity to provide much-needed capital investment in Australian agribusiness".

The verdict

Inflated. If the deal goes ahead the majority of wheat export ports and the handling supply chain will be in foreign hands. Presumably most big decisions for these companies will be made in foreign boardrooms, however some operational decisions will made by Australian-based management. Western Australia's supply chain will remain under Australian control, as will half of the Port of Melbourne.

Foreign companies must adhere to Australian laws and regulations put in place to ensure farmers' access to ports.

Sources

Topics: wheat, government-and-politics, federal-government, business-economics-and-finance, liberals, nationals, australia

First posted