NATIONAL AFFAIRS: by Patrick J. ByrneNews Weekly
Joe Hockey and the ADM takeover bid for GrainCorp
, December 7, 2013
The day after News Weekly went to press, the federal Treasurer Joe Hockey announced that he would block ADM’s intended purchase of GrainCorp. We nevertheless reproduce the following article online as it raises many important issues concerning foreign investment and the national interest.
Treasurer Joe Hockey would be seriously neglecting his responsibilities to the nation if he approved the proposed sale of Australia’s GrainCorp to the U.S. corporation, Arthur Daniels Midland (ADM).
Hockey is to have the final say on the $3.4 billion takeover bid and is scheduled to hand down his decision on December 17.
Politically, it may be a good time to make a controversial decision in favour of the takeover; it would run dead in the media during the “silly season” when everyone was distracted during Christmas. That would be clever politics, but it would be a disaster for the grains industry and the nation.
The magnitude of the problem that would be created for grain farmers has scarcely been appreciated by federal politicians.
Australia’s GrainCorp today controls 87.5 per cent (seven-eighths) of the east coast grain-handling infrastructure. It operates seven grain-elevators across seven ports in eastern Australia, two special terminals, and 280 elevators in the country.
It’s not just that a takeover would give the U.S.-based ADM a virtual monopoly of the east coast grain trade. ADM has a history of being one of the most corrupt U.S. companies. Here is a short summary provided from the Crocodyl.org company profile of ADM and other sources:
• 1965: ADM and 11 other firms paid fines for price-fixing in the bakery flour market.
• 1974: U.S. President Richard Nixon resigned after a payment by the then ADM CEO Dwayne Andreas was discovered in the account of a Watergate burglar, linking the President to the break-in.
• 1976: ADM pleaded no contest when charged with false grading and short-weighting exported grains.
• 1978: ADM and two other companies were convicted of conspiring to fix prices in the Food for Peace program.
• 1994: ADM paid $80,000 to the state of Florida and $1.4 million more to soft drink bottlers and others in order to be dropped from a case alleging price-fixing and market allocation in the liquid carbon dioxide business.
• 1996: ADM agreed to plead guilty to price-fixing in international markets for lysine (an amino acid used as an animal feed additive) and citric acid (a food additive), and paid a record US$100 million fine. Three former top ADM executives — Michael (“Mick”) Andreas, Terrance Wilson and Mark Whitacre — were also indicted by a federal grand jury in December 1996 and forced to serve time in jail.
• 2001: ADM and five other producers of sodium gluconate, an organic solvent, were fined $52 million in Europe for running a price-fixing cartel from 1987 to 1995.
• 2004: ADM paid $400 million to settle an antitrust lawsuit that claimed the company had conspired to fix the price of high fructose corn-syrup.
• 2010: ADM issued a revised 36-page code of conduct.
• 2013: ADM faces corruption charges under the U.S. Foreign Corrupt Practices Act and from claims made against it by the Brazilian and Argentinian governments relating to deductions worth more than US$600 million (AUD$654 million). ADM has set aside $54 million for the anticipated settlement with the U.S. Justice Department over the issue.
In the light of ADM’s history, Joe Hockey should weigh carefully the issues raised by the Senate Rural and Regional Affairs and Transport References Committee Inquiry in its interim report last August.
The committee recommended that the Australian Competition and Consumer Commission (ACCC) reopen its informal review into the ADM takeover. To date, the ACCC had claimed that the takeover was unlikely to substantially lessen competition. Similarly, GrainCorp CEO, Alison Watkins, has claimed that “it doesn’t really matter who owns the supply chain”.
The Senate inquiry also recommended that the Foreign Investment Review Board examine the implications for Australian food security and the interests of grain-growers of ADM’s past record of tax minimisation and capital market distortions. The possibility of price-gouging is an issue of major concern.
Don Seaton sold his company Gardner Smith to GrainCorp last year. Writing in The Australian last month, Seaton said that he was dead opposed to the sale of GrainCorp to ADM, even though, as he readily admitted, he personally would now “stand to profit enormously from ADM’s offer”.
Seaton was highly critical of the ACCC’s conclusion that the takeover would not affect competition. He said that the ACCC made a similar claim about the 2009 takeover of ABB Grain by South Australia’s dominant agribusiness, Viterra.
Two years late, a Senate inquiry “heard evidence that the cost of not using Viterra’s upcountry facilities for one train carrying 2200 tonnes of grain over 144km of track was $59,400” said Seaton. “The same services in other regions cost between $2300 and $6224.”
He concluded his argument against the sale of GrainCorp to ADM by saying: “Our agricultural markets have become dangerously concentrated. We must maintain Australian ownership of what little remains of our agribusiness infrastructure.
“That is why I agreed to sell Gardner Smith to Australian-owned and managed GrainCorp.
“GrainCorp is to Australian agriculture what BHP is to our mining and resources sector and we should not so readily part with our iconic local assets.”
Tax minimisation is another concern. Foreign companies can shift their profits offshore to the point where they pay no taxes in Australia. As pointed out above, ADM is currently facing charges over unpaid taxes worth AUD$654 million in Brazil and Argentina.
It has been proposed that the sale of GrainCorp to ADM would contain safeguards to stop corrupt practices.
David Richardson, an economist and senior research fellow at the Australia Institute, writing recently in On Line Opinion, points out that Australia has a long history of imposing conditions on foreign takeovers, but in almost every case the conditions have proved useless and unenforceable by the Foreign Investment Review Board.
Richardson provides numerous case studies, such as that of CRA:
“CRA, whose initials had stood for ConZinc Riotinto of Australia, had been concerned to ‘Australianise’ or reach 50 per cent Australian ownership under the then policy in order to make investments that complied with the FIRB guidelines.
“The then chair and managing director, Sir Roderick Carnegie, promised CRA would reach 50 per cent ‘as fast as we can’ and in 1979 CRA announced that the government was granting it ‘naturalising’ status. Of course CRA took advantage of its ‘naturalising’ status with investments in the Ashton diamond joint venture agreement, and the takeovers of Australian Biotechnological Holdings Pty Ltd and Techno-Proteins Pty Ltd.
“The actual agreement and the timetable for 50 per cent Australian ownership was not made public; but today Rio Tinto, the successor company, remains more foreign-owned than it was in the 1970s and has well and truly outlasted the ‘naturalising’ policy.
“As far as we can tell it never abided by any conditions and got what it wanted anyway.”
If U.S. anti-corruption laws have not been able to make ADM a good corporate citizen over many decades, how is Australia’s FIRB going to enforce conditions on an ADM takeover GrainCorp, given that the FIRB has never been able to enforce conditions of takeovers before?
And what about the interests of farmers?
Currently, if farmer share-holders of GrainCorp have a problem, they can call the company and complain. They can attend the annual general meeting and complain. They can help vote in a new board.
But, as Geoff and Pat Mills from northern Victoria point out in their letter in this issue of News Weekly, GrainCorp, if it is taken over by ADM, will be a tiny subsidiary of a very large U.S. corporation, representing about 4 per cent of the company.
Will farmers be able to call ADM headquarters in the U.S. with a complaint, and get a hearing? How many can afford to fly to the U.S. to attend the ADM’s AGM to get a hearing?
ADM will be in a position to bid not only one Australian farmer off against another, and but also Australian farmers off against their competitors in the U.S. and Brazil.
Also, many farmers holding GrainCorp shares treat their shares as part of the farm’s capital. Under tax law, if a farmer sells his shares, then reinvests in a similar Australian grains company, the shares are not subject to capital gains tax.
However, if farmers buy ADM shares or shares in a different form of company, then they may be subject to hefty capital gains tax.
The Senate Rural and Regional Affairs Committee will be recalling GrainCorp and ADM directors for further hearings scheduled for December 2 to 4.
The hearings will have many aspects of this proposed sale to consider, including questions about whether inducements have been offered explicitly or implicitly to GrainCorp board members to have them recommend the sale.
There are too many unmanageable risks in the takeover proposal.
The federal Treasurer Joe Hockey must reject the ADM takeover bid proposal.
It is neither in the farmers’ interest nor in the national interest.
Patrick J. Byrne is national vice-president of the National Civic Council and co-author of the book, High and Dry: How Free Trade in Water Will Cripple Australian Agriculture (Melbourne: Freedom Publishing, 2006).
 “Company profile: Archer Daniels Midland”, Crocodyl: collaborative research on corporations (sponsored by CorpWatch, the Center for Corporate Policy and the Corporate Research Project), June 2, 2010.