Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Rural and Regional Affairs and Transport References Committee
Ownership arrangements of grain handling

CROSBY, Mr Justin, Policy Director, New South Wales Farmers Association

HOSKING, Mr Brett, President, VFF Grains Group, Victorian Farmers Federation

HOSKINSON, Mr Mark, Chairman, Grains Committee, New South Wales Farmers Association

SHERIDAN, Mr Stephen, Manager, VFF Grains Group, Victorian Farmers Federation


CHAIR: I now welcome Mr Mark Hoskinson, Justin Crosby, Brett Hosking and Stephen Sheridan from New South Wales Farmers and VFF. Would any of you like to make a brief opening statement?

Mr Hoskinson : I would. Firstly, I thank the senators on the committee for allowing New South Wales Farmers the opportunity to provide a submission and evidence today in response to the terms of reference. As you would be aware from our submissions, the New South Wales Farmers' farming community by and large is opposed to the proposed acquisition of GrainCorp by the giant American agribusiness Archer Daniels Midland. As this proposed purchase provides a live case study by which the terms of reference for the inquiry may be considered, we have used the takeover bid as a focal point for our submission.

In examining the proposed takeover our membership is determined that it is in neither their interest nor the national interest of Australia for GrainCorp to be purchased by ADM. Specifically, within our written submission New South Wales Farmers concentrated on our concerns regarding the incentive for ADM to use the GrainCorp network in a way that would be detrimental to competition for grain farmers. The assertion from ADM before this committee that growers have the opportunity to tip down the road shows little understanding of the dominance that GrainCorp holds in the marketplace. Farmers are rational business men and women, and to deliver to the site further away to invest in long-term storages requires grain prices for these market options to include enough margin to cover these additional costs.

While it may be accurate to point to recent ACCC decisions in which it chose not to oppose the sale, New South Wales Farmers agree with the comments that have been made by several senators within the committee regarding the appropriateness of the law that the ACCC administers to farmers as price takers in the marketplace.

In addition to these points, I seek to provide further arguments with regard to the conflict between the responsibilities to shareholders and the best interests of Australian producers and consumers that New South Wales Farmers believe arise in the case of ADM's proposal to purchase GrainCorp.

New South Wales Farmers agree that direct foreign investment has played an important part in the development of the Australian agricultural industry. However, this has traditionally been where the investment has assisted in the development of new infrastructure or in the establishment of a production system necessary for producing new commodities. The proposed acquisition of GrainCorp by ADM fails to fit these established patterns. Growers more accurately view it as a purchase of existing assets that will place in it a dominant position in the east coast grains market.

In considering the proposed capital investments that ADM has indicated that it will support if it were to acquire GrainCorp, it must first be recognised that the lion's share had already been committed to GrainCorp by GrainCorp's Australian board. Secondly, public statements by ADM with regard to additional expenditure above that already allocated would appear to tie up the initial money that was to follow the operational efficiencies.

As was evident from the evidence provided by ADM's executive to this committee, ADM at this point in time does not appear to have a full understanding of the nature of GrainCorp's assets and operations. Therefore, it was unsurprising that there was little detail on how it intends to develop these operational efficiencies or on how the additional capital expenditure would be used. New South Wales Farmers sought clarity from ADM's Australian representative at the time of the announcement as to these details, to which we were informed that the only detail that would be made available was in the flyer that ADM has offered to GrainCorp, its benefit and how it would be delivered. Likewise, there is no definitive time frame proposed other than over the next few years, nor a guarantee that the amount which would be spent on infrastructure that would impact on farmers as opposed to GrainCorp's downstream processing assets. We have publicly outlined our concerns that operational efficiencies are likely to mean closing down facilities.

Thirdly, the amount to be dedicated to annual repair maintenance for ADM is not readily differentiated from the amount already spent annually by GrainCorp.

Over the long run, we are not sure that this deal is a win for both ADM and for Australia. Over the past few weeks many shareholders have been receiving the bidder's statements that ADM has been required to distribute under the Corporations Law. These shareholders have been brought into GrainCorp as part of the strategy to invest in downstream supply chains and have informed me that they have considered their shares are a good investment.

A number of these shareholders have brought to my attention section 2.7 of the bidder's statement. This section outlines that, in the instance that ADM achieves acceptance of the bid—that is, over 50 per cent of the voters' shares—it will, as far as possible, exert its control over GrainCorp including the timing, quantum and the quantum of any future dividends. These shareholders have outlined their concerns that they have felt intimidated by the way ADM has approached this obligation and that, to them, that indicates a low level of willingness from ADM to act in the best interests of GrainCorp, the company as a whole, let alone in the interests of the farmers or in the national interest.

It has generally been their observation that it may only be where the interests of ADM shareholders are tempered by legal requirements. ADM has sought to make public assurances that there will be positive and not negative impacts on farm gate prices in response to questions on how it will manage the conflict between shareholders and producers. These assurances have included maintaining access to up-country storage and abiding with any regulations at port.

In our initial meeting we proposed to ADM that if they are genuine in delivering those outcomes for growers they should offer them up as a mandatory condition as part of the foreign investment review process. It is disappointing that, as yet, ADM do not appear to have done so. Until this (indistinct) growers will not have any real choice but be sceptical about their intentions.

Recent scrutiny by this committee and the Australian Broadcasting Corporation's Background Briefing program has brought the incidences of the illegality in ADM's operations to light. It is the New South Wales Farmers' concern that this history may bring the reputation of Australian growers into disrepute, a matter for consideration in determining whether the sale is in the national interest. This was one of the reasons former wheat export licence arrangements required Wheat Exports Australia to consider the previous history of an exporter.

Given the widespread publicity surrounding these matters, New South Wales farmers believe that any communication by government with regard to Australia's foreign investment policy must specifically advert to the history of ADM. In particular, any decision should specify how ADM has addressed concerns that arise from previous illegalities that it was associated with and, if necessary, the assurance measures that the Australian government will require to ensure that it will not impact on the reputation of Australian grain and its markets.

CHAIR: Thank you very much for that. We are behind time because the evidence we have taken thus far has been pretty important and, interestingly, contradictory. We probably will only take half an hour here and half an hour with Grain Producers Australia to get back on the clock, and Mr Greentree will have to drop off. Thank you very much for your opening statement. Does the Victorian Farmers Federation have an opening statement?

Mr Hosking : We do have a brief opening statement.

CHAIR: Thank you.

Mr Hosking : The Victorian Farmers Federation grains group represents the interests of grain producers across Victoria, who will ultimately be impacted by the committee's finding and the government of the day's subsequent action—or inaction as the case may be. VFF grains group supports the need for an open, efficient and transparent market to promote competition. VFF consider there are four key failings within the grains industry which were impacted by the ownership arrangements of grain handling corporations, especially the ownership of GrainCorp Ltd within Victoria. These problems of market failure include: (1) monopoly and market power, (2) stocks information, (3) grain quality and (4) industry goods services.

VFF considered a proposed takeover of GrainCorp ownership arrangements by Archer Daniels Midland will exacerbate existing market failures and will not be in the national interest unless appropriately regulated. VFF consider that the combined vertically and horizontally integrated assets of ADM and GrainCorp will dominate the grain sector in relation to transport, infrastructure and ports along the entire eastern seaboard of Australia in what the Foreign Investment Review Board would classify as a prescribed sensitive sector. ADM will have the monopoly power to impact the efficient operations of a competitive Australian market for supply of domestic and export food commodity.

VFF are concerned that a combined ADM and GrainCorp will have the scale and the capacity that it may not provide fair and transparent access to ports, upcountry storage and/or market information. This would be at the expense of other third-party providers, such as domestic users, exporters, Australian producers and consumers. VFF consider that guaranteeing access to upcountry infrastructure and upcountry market stocks information through the ACCC and/or a mandatory code of conduct should be relatively achievable conditions of a sale that could be recommended by the Treasurer. VFF also consider that an independent industry good entity should be established to provide grain industry good functions, such as varietal classification, minimal export standards, trade access et cetera. Such an entity could be enabled by government legislation and funded by industry using surplus wheat export charge funds combined with industry levy funding. VFF believe the federal government's obligation to act is threefold: (1) to ensure foreign ownership regimes are in the national interest, especially in prescribed sensitive sectors; (2) to ensure competition is not impeded; and, (3), to ensure existing market failures are not only addressed, but to ensure the action or inaction of government does not further exacerbate this market failure. I thank the Senate Rural and Regional Affairs and Transport Reference Committee for reviewing this.

CHAIR: Thank you very much. Would you both care to table your opening statements please? I must put on the record that I will also request GrainCorp to table their statement from earlier.

Gentlemen, were you offended when Mr Pinner told this committee that if it did not suit you, then you could vote with your truck? Mr Hoskinson, you are nodding your head; you might say something.

Mr Hoskinson : We are saying that things happened in the past out there. We have seen increases where we are now paying exorbitant fees and charges for delivering our grain, and the last thing we want to be doing is putting our grain on our trucks and heading off another 40 or 50 km down the road at an additional cost to us. The time and the expense it costs us to turn our trucks around at a site—we are competing with other people as well—means the more we are forced to centralise our receivals. The more competition we are receiving there for our truck receivals during harvest, when we have big headers roaming around there stripping 60 or 70 tonnes of wheat an hour, then the last thing we want to do is send off a B-double an extra hour down the track to sit in a queue where we can only get two loads of wheat off in a day and competing with all the other cockies that are there.

CHAIR: At that point, I might add, Mr Pinner was in cultural shock, because he had not expected what he got at this committee, which was a very warm reception.

Mr Hosking : Perhaps I could add to that, too: I have young children, and they catch the school bus, and the extra trucks rolling up and down the road are not what we want to see in our communities.

CHAIR: One of the great neglects in New South Wales has been the branch line and the infrastructure. It is all very well to say, as part of the sales pitch, 'We're going to spend $200 million', and they will say, 'We'll do better than that; we'll spend $250 million', but it might take until 2020 or whenever. Does it concern you as farmers what will happen if this goes ahead? It seems, from the evidence we have received this morning, that Cargill will use its right to take over Allied Mills. Allied Mills has a 100 per cent agreement with Goodman Fielder. They have an agreement now with Coles. That looks like a closed loop to me in terms of how in God's name, if you are a provider, you can negotiate a price. Bear in mind that the largest shareholder of Goodman Fielder is Wilmar, which is why I mentioned Yancoal this morning—FIRB four or five years ago said, 'This is the deal; you've got to sell down', and whoops, you are supposed to have forgotten about that. Now they are saying, 'We're going to buy up, rather than sell down.'

I presume what is behind this is that Wilmar, which is based in Singapore and has all sorts of shareholders in all sorts of countries, are looking to capture the global plant oil market. And it would be fair to say that ADM are working hard, given even the likes of their Toepfer interests, to capture the grain market as a global monopoly? Were you surprised or disappointed that the chairman said, 'Well, it's not of interest to us that these guys are professional, endemic cheats, thieves and debauchers'? I have it all here; there are files of the stuff here, from Glencore to God knows who—dodging tax, fixing markets. Were you a bit disappointed when the chairman of GrainCorp—which has been a relatively clean, green and friendly organisation up until this point—said, 'That really doesn't concern us; it's a good deal for the shareholders'?

Mr Hosking : I would take on board what was said; from the shareholders' point of view, that probably is a good deal. From our nation's point of view and from our community's point of view and from the growers' point of view, there is a lot of threat potentially coming our way with the deal. It is that unknown. And, as has been pointed out, we do not know how ADM are going to behave if they come to Australia. I am not Tom Waterhouse, but I would give pretty good odds as to how they are going to behave.

CHAIR: But did it surprise you that the boss—who was a really good witness and did a terrific job, as far as I was concerned—did not consider past behaviour to be of great interest? And some of the behaviour is still current, with tax arrangements. Hardworking cockies will pay their share of tax, yet a company that currently has a turnover of $89 billion and, funnily enough, has made only a very small profit, a bit like Google, would take the profits out of Australia: 'Sure, mate, we'll give you, Mr Hoskinson, $50 million over five years for infrastructure'—which is the equivalent, as I said, of footy jumpers—to every town. That is not our culture, is it?

Mr Hoskinson : No, especially as this company has access to subsidised grain which they have been responsible for, and for getting their American grain into our established markets through the GrainCorp customer book. For a while, since deregulation, we have been battling with the ideas of producing clean green wheat of high quality and continuing that quality, and we now face sending our grain into these markets where American wheat could be sold alongside our grain, bringing our wheat quality into question. It really concerns me that we will be forced to grow wheat of fair-average quality, down from where we used to grow some of the best in the world, and supplying the markets. The east coast of Australia—and I am not putting any rubbish on Western Australia—is the only place in Australia where we produce the highest quality grain, the prime hard varieties of the milling quality, and we supply genuine customers who are already showing concerns that the quality seems to be dropping off since deregulation. So we are trying to hold onto those markets and the last thing we want to do is lose them through quality issues, and quality cannot be guaranteed because we now have an American company which can totally control our supply chain.

Senator STERLE: From your opening statement, do I take it that New South Wales farmers and the VFF are not too concerned who the company is; you just do not support a foreign company taking over? Is that right?

Mr Hoskinson : Our position and from the feedback from our growers—

Senator STERLE: You are not going to get into trouble—

Mr Hoskinson : No. Our position is that unless there are appropriate legislative forces at work that restrict or impose conditions on the way they operate in Australia, then we oppose the sale unless there are those conditions. Whether it be ADM or Cargill or anyone else, anyone coming in to try to purchase an Australian asset like this we would look at in the same way. We would evaluate both and the way it currently is as to whether they are fit and proper people, whether it is in the national interest, whether it is in the growers' interest, and whether there is a risk that it could be detrimental to our supply chain, to our customers and to our quality grains.

The last thing we can do as growers is to be able to afford any increase in our supply chain costs. We are already paying the highest supply chain costs in Australia, and probably the world, compared to a lot of other people. The last thing we can do is absorb any further increases.

If they are talking about efficiencies and if we see supply chain closures, we are also talking about rural and regional Australia and the effect that is going to have on jobs. We have got a lot of people out there in full-time jobs working in communities. We have people—farmers' wives and daughters and sons—who get part-time work at silos. That is going to have a detrimental effect on those people especially if we see rationalisation of the upcountry storages on the branch lines, and we as New South Wales farmers—and I am sure that VFF are doing the same thing—are fighting tooth and nail to keep these branch lines open. Any rationalisation of sites along those lines will jeopardise those lines and we will be forced by lack of investment to put our grain on the road competing with the school buses and everything else—

Senator STERLE: Sorry, I get all that, but if it were another Australian company taking over GrainCorp, you would not have the problem?

Mr Hoskinson : If they passed the checks and balances.

CHAIR: Going to Toepfer International, are you familiar with Toepfer International and the fact that Elders used them? I think that they have split their relationship now. They are 80 per cent owned by ADM, and just to reinforce the proposition that they may impose their culture on Australia, they had a serious blue—the Ukraine Business Weekly, 23 August 2010—with bribery and price-fixing in the Ukraine. They have moved into the Ukraine. This is ADM through Toepfer. Because they had a position in the market and were going to lose money, they have actually tried to influence the government by getting them to make some decisions. There is an instance where one of them also got the Russian government to cease exports, just to suit their position in the market, by bribing government officials. Does this culture worry you? This is current stuff. They said that they were all brand-new angels now but Toepfer International is no angel. Does it worry you that there is no way we could stop that happening here if these guys take it?

Mr Hoskinson : Casting back to recent history when we saw what happened to AWB over allegations made against them where they were torn apart and taken away from us, here we have a company, just on what you have provided us this morning, that has done far worse, and they are looking to get permission to buy here. They did not have a monopoly on the east coast, but that article, that picture there shows—

CHAIR: Would you care to table that?

Mr Hoskinson : Yes, I can table that. The blue dots are actually the GrainCorp sites in New South Wales. It does not reflect the sites that go into Victoria, but that is what goes out through two ports. So, when they say there is no monopoly, that shows it all.

CHAIR: Yes, I guess it is fair to say that we have some new experiences ahead of us. I noticed that the Foreign Investment Review Board chairman listened very carefully this morning. Senator Back, would you like to kick off?

Senator BACK: Yes, if I can. Just on the Victorian situation: is there no other bulk handler?

Mr Hosking : Yes, there are other bulk handlers. There is one that owns a port, and—

CHAIR: AWB's old one?

Mr Hosking : Yes—well, Emerald own the Port of Melbourne. And up-country there is AWB and ABA, or the Emerald group, and then there are private cooperatives as well. I think Viterra also have a site over in western Victoria. But, as a percentage of the bulk-handling marketplace, they are relatively minor.

Senator BACK: So GrainCorp are what—75 per cent?

Mr Hosking : They would have at least that, perhaps more.

Senator BACK: This question is for both groups. In their submission, GrainCorp gave us a figure outlining the composition of their register. From 1998 through to 2002, the shareholding was about 95 per cent retail and growers, and then from 2003 up to 2009 it dropped from 90 to 50 per cent. By 2010 it was down to 30. By 2011 it was 25, where it stayed until 2012. And now it is 20 per cent, and I think the CEO just told us that that was represented about equally by retail and growers, so my assumption is that the growers' equity is about 10 per cent in GrainCorp. I do not know whether you have had a look at the submissions of others, but it just interests me whether you could reflect on the reasons for that significant decline over that period of time in retail and particularly in grower equity in GrainCorp.

Mr Hoskinson : I know that in our case, in New South Wales, there was a 10-year drought in that same time.

Senator BACK: It has principally been those factors, has it?

Mr Hoskinson : When you have the bank breathing down your neck and you have got to—

Senator BACK: Yes, we all know about cash flow. I am just asking: does that—

Mr Hoskinson : I would say a lot of that is to do with the drought. I do know that there are a lot of growers out there reaching retirement age who have hung on to their shares, and they have found that the actual GrainCorp investment is paying a good dividend in comparison to other investments they have in their portfolios—self-funded retirees. A lot of them are facing a 20 per cent capital gains tax if they get forced to sell their shares, so they are very concerned about it.

CHAIR: It is a bit of a trap, that one, which is why I raised it.

Senator BACK: Yes. In Western Australia, we are obviously looking forward to some competition in the market over there, so it is just interesting that—

Senator NASH: They are never happy, are they?

Senator BACK: They are happy all right, Senator Nash. They are now getting a better return, but nevertheless we are still looking forward to some competition.

Senator STERLE: You just stole my line of questioning, Senator Nash!

Senator BACK: Basically, then, what you take away from this morning's discussion to date is that the FIRB have not yet come to their decision and that this committee has cast doubt on the completeness of ACCC's investigation and therefore their approval process? Your concern would reflect ours, I suppose, and that is that that approval was given without any undertakings being required?

Mr Hosking : That is correct.

Senator BACK: Good, thank you.

CHAIR: Were you surprised by the evidence provided by the ACCC?

Mr Hoskinson : Mr Chair, I was Chairman of the Grains Committee or involved in the Grains Committee when we were going through the AWB issue. With the takeover of Cargills and Agrium, nothing surprised me.

Senator EDWARDS: A perfect segue!

Mr Hosking : We put a submission in to the ACCC.

Senator EDWARDS: I want to go to that now. You were here in the room when the ACCC gave their evidence this morning. Did you make a submission to them on the proposal? You went into a discussion with the ACCC on your views? Are your views to the ACCC largely represented here in the submission that you have given us?

Mr Sheridan : Yes, we made a submission to the ACCC. We also subsequently met with the ACCC to go through it. It is largely similar to the submission that we provided you, although we did try to address the ACCC's decision criteria more than—

CHAIR: When you made your submission, were you familiar with all the tomfoolery?

Mr Sheridan : No. That was back in late May, so it was prior to—

Senator EDWARDS: In light of the time constraints, in your interaction with the ACCC did you get a feeling that they had a confident knowledge of the industry and that they had their head around all the issues of supply chain, market, market commodity behaviours, agricultural influences and things like that, which affect this type of business?

Mr Hosking : We perhaps got the feeling they were very restricted in the reach of their—

Senator EDWARDS: So it was not so much their knowledge base; it was just their terms of reference. They could not take into account the issues which you felt strongly about, because they were not part of their brief?

Mr Hosking : Yes, that would be the best—

Mr Sheridan : They kept referring to the test as substantially lessening competition and as potentially almost an evidentiary burden. So they had to be able to demonstrate the takeover of GrainCcorp by ADM would demonstrate a lessening.

Senator EDWARDS: I cannot think of an analogy quickly, but was it a case of you believing the task was this, but they were looking over here at another issue? The issues could not be addressed in the terms?

Mr Hosking : We believed the task was far broader than their scope.

CHAIR: If I could cut to the chase: with what you now know about the behaviour of these companies, which I realise you have got limited time and resources to find out about—and I have got heaps of time; like hell!—would you now write a completely different submission to the ACCC?

Mr Hosking : From our perspective and that of New South Wales farmers, the difficulty was that, when we looked at the statute and at section 50, we had to really address those terms. We did heavily emphasise the issue of: what are the incentives for behaviour and how will that play out in the change of ownership, noting the strong balance sheet of ADM in comparison to GrainCorp at this point in time, which enables them to operate that infrastructure, we believe, in a different way? With regard to that, we felt that the ACCC really did not take into account the little tomfoolery—to use a term that has been used today—about how you can have little increases in costs upon competitors or how you can increase their risk and how that impacts on competition, which is to the detriment of the price that farmers pay for their grain. I do not feel that we had a complete understanding of that. They did alter their competition analysis on the basis of a discussion that we had, but I do not feel that it was given the tenor that it should have in the decision-making process.

CHAIR: They would be greatly comforted as a group now that they at least know what a subterminal is.

Senator EDWARDS: Or a storage charge.

Mr Hosking : I do not feel any more confidence.

Senator EDWARDS: I will finish up—

CHAIR: Senator Siewert has got a question.

Senator EDWARDS: I know; but I do have one last question. The issue then is that the ACCC are working with the wheat export task force on the mandatory code of conduct. Are you comfortable that the ACCC have got a broad enough discretion to be able to come up with a good result for that mandatory code of conduct, given that you have in your representations here said that, if the Treasurer approves this takeover, he has got to ensure that there is suitable—you use the word 'regulation'; I try to avoid that word—regulation in place in a mandatory code of conduct? From your interaction with the ACCC, are you confident that they have the capability of producing a final code of conduct that will be suitable for you people?

Mr Sheridan : Our concern would be that both the remit and the powers of the task force are a bit unknown at this stage. We would be concerned that they had no real authority to impose any sort of conditions on the industry.

Senator EDWARDS: I take you back to a Senate estimates series where we asked the ACCC and Mr Pearson, for whom I have a great deal of admiration and respect. Senator Back probed him on these issues and asked if he thought the ACCC had the expertise within them to handle these issues of commodities and, by inference, dealing with a mandatory code. I guess the summation of that exchange was that they did not think so. Is that fair, Senator Back?

Senator BACK: Yes, that is exactly right. I put to him the question: did they have a grains desk? He said no. I said, 'Take yourselves forward 12 months'—this was in May last year. 'Somebody in the industry more likely to be a grower group feels there is an anticompetitive activity going on. To which party would they refer the ACCC?' I then asked that very question—would the ACCC's interest not be best served by having somebody in the industry to whom ACCC people could go to learn some more in-depth industry information? Mr Pearson agreed strongly with that, and I think we saw evidence this morning just how badly needed that was, because the people would not have given the answers they did if indeed there were somebody with industry knowledge who could have helped them on that range of issues.

Mr Crosby : We note this committee's interest in this issue. On the operational issues in export grain networks a similar question was put to, I think, Mr Wing from the ACCC at the time. He noted that the advantage they had in evaluating and filtering through concerns that members of the trade and of the grower industry had about competition issues. They had someone with a grounding and understanding of how those networks were being used and the impacts both upstream and downstream—

Senator STERLE: But you are the experts, and they would not even believe you lot.

Mr Hoskinson : I was about to say that this is not the first time growers have come to government or government departments representing the vast majority of growers and given evidence that has been totally ignored and replaced with a vocal minority's view rather than that of the majority. It is very disturbing that this is ongoing and can be allowed to happen in a democratic society. Farmers—the people who are going to be hurt the most by these decisions—are being totally ignored in the equation.

Senator STERLE: I did not mean to cut in; but, with the greatest respect to my colleagues, I think that is a crap argument myself.

CHAIR: I must advise that we are against the clock.

Senator EDWARDS: Given that this process has been gone through and this committee's interest in this issue is profound—you would have read the recommendation and been very familiar with the last inquiry into the Wheat Export Authority being closed down. Essentially your contention is that, if you were to achieve the things that were tabled in the recommendations of that last inquiry, no matter who owns GrainCorp or ADM, the system will be in some reasonable shape to proceed with some equity for growers no matter who owns GrainCorp.

Mr Hosking : I think, if the appropriate conditions are there and they are enforceable, then yes.

Senator EDWARDS: So then the message to the ACCC is that we have to get this mandatory code of conduct right; otherwise this issue of ADM and GrainCorp could bite them fairly severely on their backside.

Mr Hoskinson : That would be the minimum requirement.

CHAIR: The difficulty with all of that, of course, is that, under the present law and regulations as demonstrated by Coles and Woolies, who are buggering up the beer industry, the service station industry, any industry you like, including all the producers, who are too bright to complain publicly but have complained publicly to us, they do not have the authority or power to do anything.

Senator SIEWERT: I want to go to the issue of right conditions. We heard from the ACCC this morning that they have not required any undertakings from ADM in terms of the takeover. I want to go to the point that you made around the issues of divestments. You make a comment about maybe requiring divestments of some of their key assets—I think you say port facilities. How would you see that that would be required and implemented?

Mr Hoskinson : That chart that I supplied shows that there is a certain amount of grain in the north of the state that goes out through Newcastle. In the southern part of the state it is bottlenecked through Port Kembla. There is leakage through some ports down in Victoria. We are saying that, to break that monopoly up, the Port Kembla port should be divested in the equation.

Senator SIEWERT: I understand the argument, and it is good that you named one. What mechanism would you see being used to require that? Should the ACC have looked at that? Would FIRB look at that?

Mr Crosby : Our position on it is that we ask the ACCC to consider that, noting our concerns about different incentives for behaviour, but it could fit quite clearly within either FIRB's remit or the Treasury's remit through the Acquisitions Act. The ACCC could also use its powers of divestment under the competition and consumer law. So the reality is that, as growers, our members need to see improvements in competition. We cannot be locked into the suboptimal bottleneck infrastructure that we have. Even the ANZ's Greener pastures: the global soft commodity opportunity for Australia and New Zealandreport talked a lot about how we have not gone far enough with regard to ensuring contestability on port infrastructure and other bottleneck infrastructure.

Senator SIEWERT: When you raised the divestment issue with the ACCC, what response was there? Did you get a response?

Mr Crosby : We did not get the opportunity to meet with the ACCC per se, so we put in a submission.

Senator STERLE: You did not meet with them?

Mr Sheridan : No, with the ACCC we did not raise the issue of divestments per se. We focused on access to essential infrastructure, whether that be ports, upcountry sites or stocks information, which we see as essential to competition. Our concerns were a few, but the ACCC focus was that it is largely around port access at the moment and almost solely on accessing a shipping slot. Our concerns are that being able to access a shipping slot does not mean you have a competitive marketplace if you cannot, for example, see what stock is upcountry to acquire to load that shipment. So there are a number of other issues we think are potential barriers to competition that need addressing.

CHAIR: Do you think it is quaint that Glencore, who have knocked back a generous invitation to appear here today, pay themselves the fine if they miss the slot? I checked with the chairman the other day, and he said they still do that. How much of an advantage does it give you to pay yourself the fine if you miss the slot? You could book as many slots as you like.

Mr Crosby : I might make one further comment. It is noted in our submission that we did notice the difference between road receivals in the Victorian port zones and what we have in New South Wales. There is an additional $6.80 that is paid if you deliver grain by road in New South Wales regardless of whether it is from a GrainCorp site or an external site. That is not the case in Victoria, where we know there is higher competition because of the Port of Melbourne.

Senator NASH: It seems to me that ADM are basically saying 'trust us' on all the things we have discussed this morning and the fact that they are going to make this investment. The requirements are going to be to get a return for their shareholders. How are they going to increase their profits if they do not increase fees, shut down underperforming sites or cut costs? I cannot see how they are going to do that unless there is some massive cross-subsidisation from other parts of the business, which obviously I would assume their shareholders would not be too happy about. Is it just a case of them saying, 'Trust us'?

Mr Hosking : They have said they want competition upcountry. They have said they want competition at the ports. We do not see a problem with putting some legislation around that to ensure it does happen and it still happens in 10 years time.

Senator NASH: As we heard from the ACCC this morning, there is no price restriction, so this whole issue of competition still comes back to the point that they can—I am not saying they will—without any kind of restriction set their pricing where they want to, which in effect would take away competition. Would that be a fair statement?

Mr Hoskinson : Thus far in all the communications we have had with them, for all the questions we asked them to get assurances from them, they would not give us any assurances on anything. So, as far as costings and everything go, it is in their best interests to look after their customers, which is the growers. That does not give us any assurances whatsoever.

Senator NASH: But surely it is in their best interests to have the greater margins—sorry; I will have to put the rest on notice.

CHAIR: Yes, we are running out of time.

Senator RUSTON: I have just a very quick one: is there anything in the proposal as far as you are aware that you would think would be a positive outcome or a benefit to the growers you represent?

Mr Hoskinson : They are a big company with a lot of money behind them. That feel-good part of you would like to think they were coming to Australia and investing in our industry and creating efficiencies—which they have through vertical integration—and that they will pass that on to the grower. But the reality is—going back to being Tom Waterhouse!—that I would probably bet that they would not.

Senator RUSTON: Taking it a step further, could we put a series of steps in place, or a code of conduct—regulatory requirements, FIRB requirements or whatever—that would satisfy your organisations and your growers that it could be of benefit? I suppose I have in the back of my mind that we have, on the basis of 12 per cent of the investors in GrainCorp being growers, $360 million that is going to go back into rural and regional Victoria, New South Wales and Queensland. Can we turn it around from a different perspective and look at how we could drive this to being positive? Can you see that there is any possibility that with the right regulation or constraints or requirements or conditions on the sale it would satisfy you?

Mr Sheridan : That is where we came to the position of access of essential infrastructure. We think that if we can have some sort of undertaking—I should be careful of what words I use—to ports, to up-country silos and to marketing information, so that there is a transparent and competitive market, that will go a long way to addressing a lot of the concerns we have around the way the market is operating at the moment and potentially if ADM do take over GrainCorp.

Mr Hoskinson : We are on the record pretty much saying what we wanted from the deal. Since the announcement, what has been coming out is whether they are a fit and proper company to handle our grain. That has put a new question over the whole thing: are they fit and proper to actually be involved in Australia's grain industry?

CHAIR: I am sorry to have brought that to your attention, by the way!

Mr Hoskinson : I think we had done a Google search on that one! So, yes, it is a large concern. Since we made our original concerns known and made our recommendations about what we would like to see from the deal, other evidence has come to light that would make it very difficult to look at any successful deal, I think.

CHAIR: I do not think a leopard is going to change its spots, and the culture of global trading is a bit like not taking drugs if you are a cyclist: you lose, so you have to keep up with the rest, so they all take drugs. Did it surprise you that they would be prepared to settle a matter in the United States for $400 million that may have cost them $3½ billion if they had taken it to court? They are the sorts of numbers we are dealing with. So it would certainly be well outside the capacity of the New South Wales farmers and the Victorian farmers to come to terms with that sort of, shall I say, corporate power. And I hope it appalled you as it appalled me that the chairperson said, 'But if it's the best deal for the growers in share price and dividend, that doesn't really matter.'

This is a long way from over, but we are well behind the clock. We are going to re-call Treasury, FIRB and the ACCC later in the day, and we may have to cut people's time short or have another set of hearings, because we have been dropping off the clock. We are most grateful for your evidence. If there is anything further you would like to add, we would like to hear from you.

Mr Hoskinson : I would just like to thank the committee. If there is anything more we can do as an association as witnesses or that we can come and help the committee with, just give us a call and we will be available.

CHAIR: As you heard the chairman say this morning, there is nothing you can do or we can do if they want to double the price of warehousing. If it does not suit you, as Mr Finn has said, you can vote with your truck. You know what we say in the bush. Thanks very much.