CANBERRA OBSERVED: by national correspondentNews Weekly
Why GrainCorp should remain in Australian hands
, October 26, 2013
The first serious decision that the new Abbott Government will have to make, and the first real test of its fundamental philosophy and mettle, will be over the proposed sale of Australia’s largest agribusiness, GrainCorp, to a foreign entity.
There is a bitter internal debate going on within Coalition ranks over the decision, with tensions between the government’s free marketeers (egged on by bureaucrats in the Treasury) on the one hand and pro-Australian nationalists (who are not just Nationals) on the other.
In between are nervous ministers with no particular economic ideology, but who simply want to “send the right signals” to business and the international investment community about the pro-business attitudes of the new government.
The foreign entity seeking to buy GrainCorp is U.S. agribusiness conglomerate and corporate raider Archer-Daniels-Midland (ADM), whose head office is in the small city of Decatur, Illinois (population 76,000).
As a general rule, every decade ADM adds a big profit centre to its empire, be it in milling, soybeans, corn-processing or other food ingredients.
It is massive and last year pulled in $90 billion in sales.
ADM’s CEO since 2006 is Patricia Woertz, a former Ernst & Young accountant, who has worked for other multinationals such as Chevron and is on the board of Proctor & Gamble.
According to U.S. reports, Woertz is a strong Obama supporter, donating $33,000 to his campaign and to the Democratic National Convention. The CEO has been on President Barrack Obama’s Export Council.
And while the company has been by far the biggest employer in Decatur for more than four decades, Ms Woertz plans to move its headquarters to another city, possibly Dallas, Texas, to enable its executives to fly internationally more easily.
Last year, Ms Woertz slashed 1,000 jobs, or 15 per cent of ADM’s workforce, in response to fluctuating international grain prices.
In short, Australia would be just another outpost for ADM, while GrainCorp is a minnow being swallowed by a whale.
For Australia, however, GrainCorp is an important asset and a former government-owned asset. It became suddenly vulnerable to a takeover after key Australian shareholders, including James Packer and AMP, vacated its once stable share registry.
The test for the government is quite a simple one — is GrainCorp a strategic national asset that needs to be left in Australian hands?
This is not an argument over sentiment.
For decades, iconic Australian-owned companies have been sold off — companies such as Arnott’s, Vegemite and, most recently, Foster’s. Such sales to foreigners diminish national pride, are an abuse of long-time loyalty of Australian customers, and reflect badly on the venality of the major shareholders who accept the short-term cash over the contribution of a business to the community.
But the national interest is not damaged as a result.
There is a difference between popular brands and strategic national productive enterprises.
GrainCorp was originally part of the NSW Government and formerly known as the Grain Elevators Board and the Grain Handling Authority. It was privatised in 1992, raising $100 million. Over the past two decades the company has expanded and acquired other competitors, including Vicgrain (Victoria), Grainco (Queensland), and Hunter Grain (NSW).
It enjoys a near monopoly status in grain storage and handling down the eastern seaboard.
As New South Wales Liberal Senator Bill Heffernan says, the problem the government faces should never have been allowed to happen in the first place.
Farmers did not mind a monopoly in government hands that moved their grain from farm to the market, and they accepted the next transition from government to privatisation with a broad-based share ownership.
But, without any real opposition, GrainCorp grew and grew until it became the prized asset that has attracted the roving eye of raiders like ADM.
How the government moves from here is anyone’s guess.
The precedent, though, lies with the former Howard Government’s kyboshing of Shell’s $10 billion takeover of Woodside Petroleum in 2001. The final decision was made by Treasurer Peter Costello who described it at the time as one of the toughest he had had to make, when he cut out the Foreign Investment Review Board behind which all governments usually used to hide in these situations.
Mr Costello understood that the North-West Shelf was an important strategic asset and it was in the national interest for Woodside to remain in Australian hands.
Now the GrainCorp problem is sitting on the desk of new Treasurer Joe Hockey, who has sensibly decided to delay the decision till December, recognising that it is both important and fraught with political problems.
Treasurer Hockey now has a tough decision to make. But he needs to accept two realities.
The first is that blocking the sale of some key Australian assets now and then will not put off foreign investors, who will continue to come in droves, knocking on our door for opportunities.
The second is that if ADM has no particular loyalty to the Midwest home-town that nurtured its phenomenal growth for almost a century, it is unlikely to develop any particular loyalty towards Australia and Australian farmers.