Companies granted Bulk Wheat Port Code exemptions

Final determinations that exempt Riordan Grain Services and Semaphore Container Services from having to comply with certain parts of the mandatory Bulk Wheat Code have been issued.

The Australian Competition and Consumer Commission (ACCC) has decided that the code would present both companies with “significant competitive constraint” at their respective Port of Geelong and Port Adelaide facilities.

“GrainCorp and Viterra are the dominant providers of bulk wheat port terminal services at the Port of Geelong and Port Adelaide respectively,” said ACCC Commissioner Cristina Cifuentes.

“In the absence of full regulation under the code, Riordan and Semaphore will continue to face strong competition.”

The code, which was rolled out in September 2014, regulates bulk wheat port terminal service providers to ensure that exporters have fair and transparent access to terminal facilities.

Where appropriate, the ACCC may reduce regulation at a specific port terminal by exempting the relevant port terminal service provider from certain provisions of the code.

The exemptions mean that Riordan and Semaphore will not need to comply with Parts 3 to 6 of the Port Terminal Access (Bulk Wheat) Code of Conduct at their respective facilities.

These include obligations to provide non-discriminatory access, resolve access disputes through prescribed processes, get ACCC approval for capacity allocation systems, and publish certain information.

Exempt service providers are still obliged to deal with exporters in good faith and publish information about how capacity is allocated and the current state of the shipping stem.

Exempt service providers must also comply with general competition law. The exemptions follow public consultation by the ACCC on its draft determinations proposing to exempt the Riordan and Semaphore facilities.

The ACCC received two submissions in response to its determinations. Grain Producers Australia supported both exemptions, while Grain Producers SA, which commented specifically on Semaphore, supported Semaphore’s exemption.

Consistent with its approach to exemptions, the ACCC will continue to undertake monitoring of the bulk wheat terminals in Victoria and South Australia.

“The ACCC considers that it is appropriate to reduce the level of regulation that will apply to these relatively smaller scale, new entrant service providers,” Ms Cifuentes added.

GrainCorp Foods to upgrade processing facility in Victoria

GrainCorp Foods will upgrade its processing plant in West Footscray, Victoria, to deliver extra capability including retail spreads, bakery fats, and shortenings.

The project is part of a wider initiative by GrainCorp Oils to integrate its edible oils and spreads manufacturing operations, which will increase its overall competitiveness and reduce carbon emissions by around 25,000 tonnes per year.

The wider initiative will involve relocating GrainCorp Foods’ processing and packing operation in Murrarie, Queensland, to its existing operation in West Footscray, Victoria, as well as GrainCorp Oilseeds’ existing operation in Numurkah, Victoria. In turn, these operations will be expanded and upgraded to accommodate the additional capacity.

The move will ensure greater integration of processing and packing operations from Queensland, to Victoria and New South Wales, where oilseed is already largely grown and crushed.

It will also reduce the trucking distance of the final product by 550,000 kilometres per year to customers mostly based in Melbourne and Sydney.

Wiley business operations director Simon Spittle said: “Based on GrainCorp’s brief, we created a design for the West Footscray upgrade to align with the company’s wider integration objectives.

“A major outcome of the project will be improving environmental performance by reducing carbon emissions by around 25,000 tonnes per year, thanks to the disuse of coal-fired equipment currently used to generate steam at the Murrarie plant.

“GrainCorp’s investment in its West Footscray and Numurkah sites will eliminate the need for the coal-fired equipment, providing GrainCorp with the opportunity to invest in more efficient and environmentally-sustainable technology.

“We look forward to working with GrainCorp on the upgrade to the West Footscray operation and seeing its completion in September.”

GrainCorp Oils group general manager Sam Tainsh said: “The project delivers a logical and more efficient focal point for the sourcing, crushing, refining, and distribution of GrainCorp’s locally-produced edible oils and food ingredients.

“We’re pleased to welcome Wiley on board to assist us in the design and construction of the upgrade to our West Footscray facility.

“GrainCorp has successfully worked with Wiley on a previous project. Their expertise in complex food manufacturing facilities made them the right fit to undertake this project.

“The increase in efficiency will ensure we are able to continue producing Australian-grown canola and other oilseeds, and therefore continue supplying associated retail products, which are increasing in demand.”

 

GrainCorp granted a regulation reduction

The ACCC has granted an exemption for GrainCorp’s Carrington terminal at the Port of Newcastle under the Code on bulk wheat terminal access.

The Australian Competition and Consumer Commission (ACCC) has granted an exemption for GrainCorp’s Carrington terminal at the Port of Newcastle under the new mandatory Code on bulk wheat terminal access.

The Code commenced on 30 September 2014, replacing the previous regime of access undertakings administered by the ACCC. It regulates monopoly bulk wheat port terminal operators to ensure that exporters have fair and transparent access to terminal facilities.

The exemption began on 1 October 2014, and means that GrainCorp’s Carrington facility will continue to be subject to a minimal level of regulation under the Code, providing regulatory certainty for GrainCorp and industry. The exemption is in line with the ACCC’s decision in June to approve a variation to GrainCorp’s previous 2011 access undertaking to reduce regulation for the Carrington terminal.

“The ACCC considers that a more competitive market for the export of bulk wheat serves the interests of farmers and reduces the need for regulatory intervention. The level of regulation applied to bulk wheat port terminals should depend on the incentive and ability of the service provider to exert market power to damage competition,” ACCC Commissioner Cristina Cifuentes said.

“Granting the exemption for GrainCorp’s terminal at the Port of Newcastle is appropriate because there is competition at the port and across the supply chain in upstream and downstream markets, limiting GrainCorp’s market power.

“The ACCC is keen to reduce regulation where it is not necessary, such as where competition has developed. The ACCC expects to assess a number of other exemptions over the next year,” Cifuentes said.

The wheat ports Code represents the next stage in the deregulation of the bulk wheat export industry. The ACCC enforces the Code, and also has other specific roles, including granting exemptions under the Code.

 

ACCC issues draft decision on GrainCorp’s wheat port access undertaking

The Australian Competition and Consumer Commission has issued a draft decision proposing to consent to GrainCorp Operations Limited’s (GrainCorp) application to extend and vary its 2011 Port Terminal Services Access Undertaking.

GrainCorp’s 2011 Undertaking governs third-party access to port terminal services at GrainCorp’s East Coast Australian bulk grain ports. The undertaking is currently set to expire on 30 September 2014 with a mandatory code of conduct anticipated to commence on 1 October 2014.

GrainCorp has applied to extend the operation of the 2011 Undertaking for a year in the event that the code does not commence as expected. Under GrainCorp’s application, the undertaking remains virtually unchanged except for the inclusion of an early expiry clause to eliminate the possibility of duplicate regulation.

“The ACCC considers that the combination of a 12 month extension and an early expiry clause is a practical and appropriate response that provides certainty to industry about GrainCorp’s bulk grain port arrangements,” ACCC Commissioner Cristina Cifuentes said.

The ACCC’s draft decision is that GrainCorp’s proposed extension and variation of its 2011 Undertaking is appropriate. The ACCC’s draft consent is subject to GrainCorp incorporating reporting provisions on key service performance indicators to cover the period of the extension of the undertaking.

The ACCC is seeking any views from interested parties on its draft decision by 5 September 2014. Submissions received in response to the draft decision will be considered by the ACCC prior to making its final decision.

 

GrainCorp announces new managing director and CEO

GrainCorp have announced the appointment of Mark Palmquist to the position of managing director and CEO.

Palmquist currently holds the position of executive vice president and chief operating officer at CHS, a global agribusiness specialising in energy, grains and food, and will commence his position at GrainCorp on 1 October 2014.

Previous CEO, Alison Waters resigned from the position in December last year and now holds the position of group managing director at Coca-Cola Amatil. Waters resignation followed the failed takeover bid of GrainCorp by US giant Archer Daniels midland in late November last year.

Executive chairman and interim CEO of GrainCorp, Don Taylor said that the board was ‘delighted’ to announced the appointment of Palmquist.

“We are confident that Mark’s skills and extensive experience will be invaluable to the ongoing growth of GrainCorp as a global agribusiness and food ingredients company," he said. "The company remains focused on building shareholder returns through the program of strategic initiatives we have been implementing since 2012.

“Mark brings a valuable combination of deep industry knowledge and global management experience to GrainCorp. We are all excited about working with him as he leads GrainCorp into its next phase of growth, enhances our customer offering and grows value for our investors.”

Palmquist said that he was looking forward to commencing his new position with GrainCorp.

“I have worked around the world and GrainCorp is by any measure an outstanding company. GrainCorp’s board, management team and people have transformed the company into a leading agribusiness with a strong international reputation. It is a privilege to be joining at such an exciting time,” he said.

 

ACCC reduces regulation at Graincorp’s Newcastle Port Terminal

The Australian Competition and Consumer Commission have accepted GrainCorp’s application to vary its Port Terminal Services Access Undertaking at its Newcastle bulk grain facility.

GrainCorp applied to the ACCC to vary its undertaking to allow its Carrington terminal in Newcastle to be subject to less access regulation. GrainCorp submitted that it now faces competition from two other bulk wheat export facilities, which are not subject to access regulation and argues that it is at a competitive disadvantage as a result.

 “The ACCC considers that a more competitive market for the export of bulk wheat is in the best interests of farmers. The variation will provide GrainCorp with greater flexibility to compete against the two bulk wheat export operations at the Port of Newcastle,” ACCC Commissioner Cristina Cifuentes said.

After examining the port of Newcastle and the surrounding port zone, the ACCC’s view is that there is a sufficient level of competition and capacity, such that the current level of regulation on GrainCorp is no longer required at that port.

“This application has allowed the ACCC to react to the market situation at Newcastle in a flexible way. The reduction in access regulation at GrainCorp’s terminal is an appropriate regulatory response to the more competitive market at Newcastle, and reflects the ACCC’s view that regulation should be fit for purpose” Cifuentes said.

The ACCC received submissions from the NSW Farmers Association and Cooperative Bulk Handling in response to its draft decision. Concerns raised by these parties have been considered in the decision to accept.

GrainCorp’s undertaking will continue to apply the existing level of access obligations at its six other port terminals.

The ACCC approves access undertakings for port terminal operators who also have bulk wheat exporting operations. Such operators must submit access undertakings to the ACCC in order to meet the ‘access test’ in the Wheat Export Marketing Act 2008 and be entitled to export bulk wheat.

For more information on the ACCC and wheat export, click here.

 

GrainCorp cuts 80 jobs as part of restructure

GrainCorp has today announced that it will be closing some of its regional receival sites before this year’s harvest, as well as cutting 80 jobs as part of a $200m overhaul of its country network in Victoria, NSW and Queensland.

GrainCorp Executive Chairman Don Taylor said that inefficiencies within the rail network are increasing GrainCorp’s costs and that the restructure, titled Project Regeneration, will seek to return one million tonnes of grain to rail through reduced train cycle times and more reliable operations.

“Rail freight performance has been in decline for some years,” said Taylor. “Slow loading and short sidings mean grain trains are shunted across multiple sites and cycled slowly, creating both cost and complexity. Furthermore poor track conditions limit wagon weights and track speed, adding to inefficiencies.

“We estimate rail costs in eastern Australia are $10 per tonne higher than best practice, reducing returns to growers by around $180 million in an average season. GrainCorp’s investment will significantly improve our network’s interface with rail and help reduce rail costs by $5 per tonne.

Taylor added that in order for the network to run to run efficiently, further investment by track owners in the government-owned rail infrastructure is essential.

In reference to the staff layoffs, Taylor said that the 80 affected staff will be redeployed where possible, and that all affected people will receive their full entitlements.

 

GrainCorp posts profit drop

Australian grain giant, GrainCorp has posted a net profit of $50m for the six months up to 31 March, $38.2m less than the previous corresponding period.

The drop in profit is said to be the result of a smaller east coast grain harvest, as well as $11m in costs relating to the company’s network optimisation project within its oil division. The company also said that costs associated with the failed takeover bid from US giant Archer Daniels Midland last year has affected its balance sheet, The Weekly Times reports.

GrainCorp’s executive chairman, Don Taylor said that the company has performed well despite a lacklustre harvest on the Nation’s east coast.

“GrainCorp Malt and GrainCorp Oils have both delivered consistent results, with Malt continuing to operate at high capacity and GrainCorp Oils performing well despite continuing pressure on refining volumes,” Taylor said in a statement.

“Our Storage & Logistics business’ earnings were affected by a below average carry-in and the smaller crop in northern regions. This translated to lower grain receivals and increased demand from domestic end-users, limiting the amount of grain available for export.

“While the intense competition for a smaller crop also means that GrainCorp Marketing’s result was lower year-on-year, it is pleasing that this business has reported a positive result in an environment that has been extremely challenging.”

GrainCorp’s board declared an interim dividend of 15 cents per share, representing a payout ratio of 56 percent of NPAT before significant items.

Taylor said that the company expects full year 2014 earnings to be heavily weighted to the first half as a result of low residual levels of grain in the network and a busy export program. He also said that the company will be maintaining the full year earnings guidance that it provided in February.

“Looking further ahead, some good pre-planting rains have been recorded in many areas of our catchment with canola planting substantially underway in many areas and good starts for wheat and barley. However, it’s a long season and, as always, favourable conditions and good finishing rains will be critical to the delivery of a good crop in eastern Australia,” he said.

 

GrainCorp CEO heads to Coca-Cola

Alison Waters is the new group managing director at Coca-Cola Amatil, and will join the company on 3 March, 2014.

CCA chairman, David Gonski, said “Alion has a highly successful operations and management background across many industries, having delivered impressive results across the food and beverages, retail and finance sectors and has significant experience in developing and managing businesses and people.

“I believe Alison’s skills and background will assist CCA to deliver strong performance outcomes from our existing operations and progress the strong development opportunities in our emerging businesses.”

Earlier today, Watkins announced her resignation as CEO of Australia’s largest publicly-listed agribusiness, GrainCorp – a position she’s held for three and a half years.

“I am excited by this opportunity. I believe my career and experience to-date puts me in an excellent position to lead CCA in its next chapter of growth, building on the successes achieved under the leadership of Terry Davis,” she said.

Watkins has experience across alcoholic and non-alcoholic beverages, food processing, agriculture, retail, consumer goods and financial services. Prior to GrainCorp, her roles included CEO of Berri Limited, non-executive director of Woolworths Limited and she’s currently a non-executive director of Australia and New Zealand Banking Group Limited, however Watkins intends to resign from this position in April 2014 as a result of her new appointment at CCA.

 

Foreign investment and the popularity test: does GrainCorp set a new precedent?

At any other time, Friday’s decision by treasurer Joe Hockey to reject Archer Daniels Midland’s (ADM) A$3.4 billion takeover bid for GrainCorp might have been just another controversial foreign investment decision.

Indeed, were it not for a widely reported split in the Coalition over the proposal, the decision may not have made it out of the business section of the national press.

However, inserted within the ADM-GrainCorp decision was a never-before-seen rationale for rejecting a foreign investment: the tenor of community attitudes and level of popular support. This seemingly minor caveat may radically change the way in which foreign investment reviews are conducted by the Coalition government in coming years.

Australia’s foreign investment framework

Debate about Australia’s foreign investment policy was catalysed in 2008, with the highly contentious “dawn raid” by Chinalco on Rio Tinto.

Since then, an ongoing series of high-profile foreign investment deals has attracted both intense public and regulatory scrutiny: these include the takeover of OzMinerals by China’s Minmetals; the acquisition of Felix Resources by Chinese state-owned Yanzhou Coal; the failed Singapore Stock Exchange bid for the Australian Stock Exchange, SAB Miller’s acquisition of Fosters, and the current takeover bid of Warrnambool Cheese & Butter by Canadian dairy group Saputo.

Australian foreign investment policy presumes in favour of foreign investment, and generally does not enforce local ownership requirements. However, investments in a small minority of cases are screened by the Treasurer to ensure they are consistent with the national interest.

This screening process is conducted by the Foreign Investment Review Board (FIRB), and must be undertaken if an investment: a) is from a foreign government investor; b) is a business investment over 15% of the targeted firm and valued at over $248 million; c) is in real estate; or d) is in a defined set of “sensitive” sectors (such as banking, airlines, airports, shipping, media and telecommunications). All other foreign investment applications receive automatic approval.

Reviewed applications are subject to a six-point “national interest test”, administered by the FIRB. This considers:

  • Impacts on national security
  • Impacts on competition
  • Impacts on Australian government policies
  • Impacts on the Australian economy and community
  • The character of the investor
  • [For state-owned enterprises] The commercial orientation of the investor

Following its enquiries, the FIRB makes a (confidential) report to the treasurer, who may either approve, reject or conditionally approve the investment.

The overwhelming number of screened foreign investments are approved. Over the five years to 2011-12, 38,590 applications were approved (valued at A$860 billion), while only 63 were rejected. The bulk of these were in the real estate sector, and prior to the GrainCorp decision only two major business proposals had been recently rejected: the 2001 Shell takeover over Woodside Petroleum, and the Singapore Stock Exchange’s 2011 bid for the ASX.

GrainCorp: a new populist precedent?

Friday’s decision is significant because it may set a new precedent for how foreign investment is screened. It would appear the ADM-Graincorp decision is implicitly adding a new, seventh criteria to the FIRB’s national interest test: community attitudes and popular support.

In explaining his decision, Treasurer Joe Hockey outlined two reasons for rejecting the proposal: that there is limited competition in the grains handling industry (presently dominated by GrainCorp), and that there was a “high level of concern from stakeholders and the broader community”. He also argued that “allowing it to proceed could risk undermining public support for the foreign investment regime and ongoing foreign investment more generally”.

Several analysts have argued the competition policy rationale is relatively weak. The Australian Competition and Consumer Commission (ACCC) had already approved the deal in June on the grounds it would be unlikely to substantially lessen competition, and ADM had made significant commitments to improve bottlenecks in the grain handling chain.

Thus, it would seem political concerns have loomed large. One consideration appears to be opposition from the Nationals, who had campaigned hard against the application being approved. But another was widespread community opposition to the deal, with Hockey instructing the FIRB to consider the “wider ramifications” of the deal – including public attitudes – mid-way through the assessment process.

Until now, community attitudes have not been part of the FIRB’s national interest test. While “community concerns” are considered, these are defined in economic terms – a fair return to the community, opportunities for Australian participation, the interests of employees.

The FIRB has not assessed whether an investment is considered “popular”, or how it will influence community attitudes to foreign investment more broadly. Moreover, no recent decision by the treasurer – whether approval, rejection, or conditional approval – has made reference to public sentiments. Until now.

The implications of community attitudes

The ADM-GrainCorp case is of course a single decision, and it is not clear whether this will be a one-off, or will be followed by the Coalition government in future cases. But it raises questions over how community attitudes should be assessed, and whether the FIRB even has the capability to assess them.

Community attitudes are a nebulous and difficult to measure concept. For example: if the majority of the country supports an agricultural investment, but a majority of rural residents oppose it, whose views should dominate? Moreover, the economic policy-focussed FIRB has no experience in assessing community mood, nor the resources or capabilities to do so at present.

Whether this would be a robust test, or simply a “get out of jail free” card that allows the Treasurer to reject controversial cases, remains to be seen.

Secondly, it would significantly reduce legal certainty for foreign investors in Australia. At present, there is a clear set of national interest guidelines, which have been applied in a transparent and consistent manner. A foreign investor will have a good idea as to whether their proposal ticks the boxes before committing, and can be confident the goalposts will not be moved part-way through the process.

Introducing volatile and contested community attitudes into the process may deter investors out of fear their proposals will be decided at the whim of populist politics.

Third, it will “politicise” the foreign investment assessment process. Rather than approving investments based on their economic merits, popular attitudes will also become a key criterion. A number of worrying outcomes may result.

Investment proposals could become an issue for party politics, determined more by the electoral fortunes of the government of the day rather than sound policy criteria. A business’s competitors may try and sabotage a deal by stirring up community opposition, transforming the FIRB process into a politically-contested commercial battleground. Vested interests with something to lose may also use popularity arguments to sink deals, even when they bring net national benefits.

If the example set in the ADM-GrainCorp decision becomes common practice, Australia’s supposedly “open for business” approach to foreign investment may change radically.

Jeffrey Wilson does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

The Conversation

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Should Australia sell GrainCorp? : poll

Food magazine wants to know your thoughts on the pending sale of GrainCorp,  Australia's largest publicly listed agricultural company.

US agribusiness giant, Archer Daniels Midlands (ADM), has made a $3.4 billion bid for the company, Australia’s biggest grains handler, and Treasurer Joe Hockey is due to make a decision on the bid by 17 December.

The potential foreign takeover of GrainCorp has generated heated conversations on both sides of the argument.

The NSW Farmers’ Executive Council says farmers are concerned that the investment needed in GrainCorp’s assets may be passed over in favour of expenditure on the remainder of ADM’s international network, while one of the oldest farm organisations in the US, the National Farmers Union says it’s seen the negatively effects of foreign takeovers in its own country and advised Australia to reject ADM’s offer.

On the other side of the coin, the Australian Competition and Consumer Commission (ACCC) has given the Treasurer a green light on the acquisition, claiming that the deal was unlikely to substantially lessen competition due to the presence of other competitors in the market.

Paul Howes, the Australian Workers Union boss is supportive of the sale, arguing that without foreign investment, Australia's agribusiness will "never become the food bowl for Asia that we talk about'.”

Food magazine wants your opinion! To the right of your screen you’ll see our poll question, with four responses for you to choose from. Please get involved! We’ll publish the results once the poll closes on 8 December.

 

Deputy PM wary of GrainCorp sale

Australia must control its food security, says Deputy Prime Minister Warren Truss, who is concerned that the sale of GrainCorp to ADM could see Australia's agricultural future determined by foreign businesses.

The federal government is currently considering whether or not to approve US grain giant, Archer Daniels Midland's $3.4 billion offer for GrainCorp, Australia's largest grains handler.

According to SMH, the Australian Competition and Consumer Commission approved the deal in June, but Treasurer Joe Hockey said the government needs more time to consider all the issues surrounding the sale, as well as advice from the Foreign Investment Review Board. A decision is expected on 17 December.

If the sale goes ahead, most of Australia's grain infrastructure will be owned by foreign bodies.

The Nationals oppose the sale, and Truss said if it goes ahead, decisions on the Australia's grains industry could be out of our hands.

"On top of that, GrainCorp is the largest listed agribusiness in Australia and if we lose this business to foreign ownership, then we will lose the potential to have an international-standard agribusiness trading around the world," he said.

Truss said both sides of government have identified agriculture as a key part of the country's future, but this would be control to achieve if Australia doesn't own any of the supply chain.

"It's very important for Australia to maintain control of its own food security that we have control of our own destiny in what is an important pillar of our national economy," he told ABC television.

 

GrainCorp and the thorny issue of foreign ownership

No other product category generates as much emotion as food. This should come as no surprise as nations have fought to protect and to provide a reliable supply of food for their burgeoning population since the very dawn of civilisation.

These very same emotions are being triggered now as agribusiness in Australia struggles with the challenges and opportunities that foreign ownership presents. The latest chapter is the proposed takeover of Australia’s largest agribusiness, Graincorp, by US giant Archer Daniels Midlands (ADM), one of the world’s largest integrated grain handlers.

Now the government is in caretaker mode, any takeover deal will have to be approved by the Foreign Investment Review Board, and ultimately the Treasurer, following the election. The Nationals are opposing the deal, although they have stopped short of publicly calling for their Liberal coalition partners to announce their position.

The benefits of foreign ownership, which are well documented, include access to capital, superior technology, superior management and marketing skills, as well as reduced costs (in part through the economies of agglomeration) and improved market access.

But at the heart of the negative response to the takeover bid lies a perception that foreign ownership will potentially reduce or restrict the supply of product to the domestic market. However, with an agribusiness sector worth in excess of A$46.7 billion and a population of just 23 million, Australia is a net exporter (A$36.7 billion) of food, primarily to Asia.

Even in the worst-case scenario, there is very little likelihood of Australia facing a grain deficit, for in what is largely a free market, any company, irrespective of the country of ownership, will endeavour to sell its goods for the highest returns. Market forces will ensure that sufficient grain remains in Australia to meet the domestic demand.

The other and perhaps more sinister issues relate to transfer pricing and anti-competitive behaviour. Transfer pricing enables multinational firms to sell the goods they have produced in Australia to themselves or to an overseas subsidiary company at predetermined prices which minimise tax. These goods are subsequently resold in other markets at significantly higher prices where tax rates are lower.

In this instance, as grain prices are largely determined on the Chicago Board of Trade (CBOT), there is an element of price transparency. Farmers know what they should be getting at the farm gate, minus the costs of storage, transport, grain assessment and receival costs, freight to port, storage and fobbing and currency hedging.

As trading is very much a numbers game (the more grain you handle the cheaper it becomes), ADM’s costs will be lower, so it should therefore be in a better position to pay higher prices to Australian grain farmers. However, to expect ADM to pay any more than they need to in order to remain price competitive is unrealistic, just as it is to ask the supermarket duopoly to pass on more of their profits to producers, or the banks to pass on the full rate reduction to borrowers.

Concerns around anti-competitive behaviour centre around ADM’s potential ownership of the port facilities, sparking fears that it may exclude other users. However, with as much as 70% of the grain on the East Coast being handled by other exporters, it is not in ADM’s best interests to exclude other parties.

Furthermore, ADM have recognised the need to make a substantial investment in these same grain handling facilities. After years of neglect, transportation and logistics systems in rural Australia require an immediate investment to improve the efficiency of transport, especially rail – an investment that both State and Commonwealth governments will struggle to make in the short to medium term.

While we have welcomed such investments from the private sector in the mining industry and indeed, in the construction of toll roads in the major metropolitan cities, there is a reluctance to support parallel private investments in our food logistics system.

In any event, government has the power to ensure that any public-private infrastructure investments – especially at the ports – are available for anyone who wants to use them. How these facilities might be shared and the costs apportioned to those third parties who want to use them should not detract from the need to encourage that investment.

Peter Batt does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

The Conversation

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Retrenchments at GrainCorp

GrainCorp is retrenching 20 percent of the workforce at its Carrington grain terminal.

According to The Herald, GrainCorp is saying the jobs are being cut because of a substantial reduction in business over the next few years, not because of its pending takeover by US commodities giant, Archer Daniels Midland.

Graincorp has 31 operators and eight tradespeople at Carrington and is retrenching seven of the operators.

A spokesperson for the company said in recent years the Carrington terminal had done solid business of between 1.2m and 1.5m tonnes a year, but for the coming year its bookings are only 450,000t.

 

Australia has lost control of its agribusiness to foreigners: Truss

Nationals leader Warren Truss has warned Australia has lost control of its agribusinesses and declared a new takeover bid poses a critical test for the Foreign Investment Review Board.

Mr Truss told his party’s federal council in Canberra today it was a great shame that foreign interests valued Australia’s land, its food producing capacity and the businesses associated with driving growth in agriculture far more than Australians did.

He said the FIRB – of which the Nationals have been very critical – had never said “no” to a foreign takeover of Australian land or agribusiness, he said.

“It now faces another critical test. The government must deal with the proposed takeover of Australia’s largest listed agribusiness, GrainCorp, by Archer Daniels Midland (ADM) – a US giant that is the second largest grain business in the world.

“This bid would mean that every grain export facility in Queensland, NSW, SA and all but half of one in Victoria, would be foreign owned.”

The takeover would hand ADM 280 storage sites in the eastern states, 19 grain trains, three container loading facilities and vital stocks information.

“The owners of these vital assets have the ability to decide whether eastern Australia has a grain industry or not.

“ADM is not offering new investment or any new commitments to Australia – just new owners at above market value. What is in this deal for Australia?”

Grain storage and handling charges would rise for farmers to pay for the purchase and the profits would be transferred to the new American owners, Mr Truss said.

“This purchase, along with the dominant buyouts of Australia’s sugar industry, meat works, dairy industry, grain marketing, oilseed crushers, food processing, wine industry – mostly over the past four years – raises serious questions about the future decision-making in our agricultural industries”, he said.

“We dream of becoming the food bowl of Asia but whether that can happen will increasingly be decided in boardrooms in the US, Europe, Asia and even New Zealand.

“Over the last four years or so, we have lost control of our nation’s agribusineses.”

The issue of foreign investment has previously produced tensions within the Coalition with the Nationals in particular concerned about investment in land.

This led to the Coalition producing new guidelines that it would introduce in government, including requiring FIRB to review any proposed foreign acquisition of an agribusiness where the investment represents 15% or more in an agribusiness valued at $244 million, or exceeds $53 million, whichever is smaller.

Dries within the Liberal party are concerned about checks that would discourage foreign investment.

Mr Truss said: “We support genuine forein investment that strengthens out economy, which promotes growth and fosters confidence, but investment must not be contrary to our national interest”.

Michelle Grattan does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

The Conversation

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GrainCorp profits slide

GrainCorp, set to be acquired by US commodities giant Archer Daniels Midland, has suffered a 34 percent profit drop for the six months to March 31.

The grain company reported $227m in earnings and a net profit of $88m, arguing that the profit drop was due to a return to nomal size grain crop after the recent years' drought-breaking rains.

GrainCorp's has declared a fully franked interim dividend of 25 cents per share (cps) including a special dividend of 5cps.

According to SMH, grain receivals fell to 9.3 million tonnes from 11.6 million tonnes a year earlier, with export volumes dropping to 4.3 million tonnes from 5 million tonnes. For the full year, grain receivals are expected at 10-10.5 million tonnes.

Despite the declines, GrainCorp managing director and chief executive officer, Alison Watkins, said she was pleased with the results. "Another positive first half performance demonstrates the benefits of GrainCorp’s diversification strategy, as grain receivals returned to more normal levels following two very large harvests," she said.

Watkins added that the company's outlook remains positive.

"FY13 country receivals are expected to be 10-10.5 million tonnes, building on the above average carry-in of 4.3 million tonnes," a GrainCorp statement reads.

"The strong export program should see grain elevations of between 8 – 8.5 million tonnes, which would contribute to the expected network carry-out of approximately 2 million tonnes.

"GrainCorp Malt is expecting sales of around 1.3 million tonnes with an EBITDA margin of $75 – $80 per tonne, while GrainCorp Oils forecasts crushing and refining sales of approximately 530,000 tonnes, in line with expectations."

 

ADM’s GrainCorp bid to come under pressure

 

Ron Greentree, Australia’s largest wheat farmer, plans to lobby politicians to ensure that GrainCorp’s storage and port assets remain open to rival traders if Archer Daniels Midland (ADM)’s takeover bid of the grain handler is successful.

As The Australian Financial Review reports, Greentree wants to ensure that GrainCorp’s 280 storage sites remain open to rivals.

“I want to make sure that all the [storage] sites are open so anyone can buy from them,” Greentree told the AFR.

"I'll be ringing a few politicians to make sure that happens. I want to make sure one of the criteria that FIRB and the ACCC signs off is making sure it's a public swimming pool. Once you've paid your entrance fee, you are in."

In addition, GrainCorp controls seven out of eight grain export terminals on the Eastern Seaboard. Under arrangements enforced by the Australian Competition and Consumer Commission (ACCC), these must be open to third parties.

ADM’s due diligence of the bid will conclude on Thursday, at which time the company is expected to put a formal offer to shareholders. However, approval must also be received from the ACCC and the Foreign Investment Review Board (FIRB).

Given that ADM does not already own similar assets in Australia and would not lessen competition, this approval is likely to be given.

Meanwhile, The Australian reports that, depending on ADM’s strategy, the GrainCorp takeover bid may not be in farmers’ best interests.

If ADM is interested mainly in short -term profit rather than long-term sustainable growth, more remote and less economic infrastructure may not be upgraded and farmers will suffer.

 

GrainCorp happy with new offer from ADM

 

GrainCorp has recommended that shareholders accept the most recent takeover offer by Archer Daniels Midland (ADM). This follows the addition of a special dividend.

As AFP reports, GrainCorp shareholders will receive $12.20 per share, with a further $1 per share to be paid in dividends.

Back in October, ADM was knocked back by GrainCorp after it offered $11.75 per share. Then it increased its offer to $12.20 and was again rejected.

But, as GrainCorp Chairman Don Taylor said, the addition of the $1 dividend per share made the deal acceptable.

"The GrainCorp board believes the ADM offer highlights the strategic value of our business and unique assets, the programme of strategic initiatives being undertaken and GrainCorp's enviable proximity to the fast growing Asian markets," he said.

"GrainCorp will work with ADM to ensure that ADM's confirmatory due diligence requirements can be satisfied, following which a takeover offer would be made on the terms agreed."

ADM has signed a takeover bid implementation deed and now has a week to complete due diligence.

ADM’s chief executive Patricia Woertz said in a statement, “We are pleased to have reached agreement with GrainCorp to conduct due diligence and, subject to that due diligence, put a recommended offer before GrainCorp’s shareholders.”

She said that ADM and GrainCorp have complementary geographies with little overlap and that the two organisations are culturally compatible.

‘‘The addition of GrainCorp to our global network would fit our strategy and help to further connect Australia’s growers with growing global demand for crops and food, particularly in Asia and the Middle East,’’ Woertz said.

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