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Rural and Regional Affairs and Transport References Committee
16/07/2013
Ownership arrangements of grain handling

GREENTREE, Mr Ron, farmer

CHAIR: Welcome. Would you like to make an opening statement?

Mr Greentree : I am a farmer from Mungindi in New South Wales. Thank you very much, Chair and the committee, for the opportunity to come and speak. Firstly I would like to declare an interest in that my wife has approximately $15,000 worth of shares in a self-managed superannuation fund. I hope that everyone else has declared if they also have an interest regarding this. I do not think that ADM are a white knight at all. What I am here for today is to say what I think is best for my business as a grain farmer into the future.

The capital requirements are ginormous to be able to keep our business farm going and even more so outside the farm gate. The farmers have spent their capital on trying to get their crop off and get it under store very quickly—the size of our headers, our augers. We have all spent it, but unfortunately outside the farm gate the amount of capital has not kept pace. Elevator capacities at GrainCorp silos on average have not changed over the last 20 or 30 years. If they have not kept up with us, we can see that our cost of storing and transport has doubled in the last seven years on the east coast of Australia. My worry is that I do not believe that GrainCorp under its present structure and ownership will have the means to be able to keep up with that investment in storage and handling going into the future.

GrainCorp as a public company will announce each year the amount of capital they spend on things and they come up with these great big numbers, but to me that does not mean anything. The only capital I am interested in is what they are going to spend on storage and handling and the ports part of their capital spending. If you look over the last five years—I have no expertise; I am a farmer, so I have only tried to work this out from the annual reports—

CHAIR: Welcome to the club.

Mr Greentree : They say that in 2012 they spent $102 million. Storage and logistics were $64 million of that; the malt business was $38 million. If you go back to the year 2011, they spent $224 million of capital. Storage and handling was only 51 per cent, so less than 25 per cent was spent on storage and handling. GrainCorp have said that they want to make sure they spend on the malt business and then on the oil business and the crushing business to try to spend the money to take-over-proof their business. That is well and good, but their core business is still storage and handling and that is what is being left behind. They are just not spending the capital there.

What I am worried about in the future is: what are they going to do with their capital? They said they might spend $200 million this year or next year; where is it going to go? Is it all going to be spent overseas? They have the right, now, to spend all that capital overseas, and they might not spend anything here. Any of these businesses that might own GrainCorp now or in the future—it is only what they say they might do. I am saying: a company like ADM has potential more to spend the money on the infrastructure that affects farmers. In the drought years we have seen in Australia, GrainCorp have been running at a loss. So there is no capital that can be spent. They have had to go and do rights issues. They have had to go and raise more capital to keep the show going. And what have they done with that? They have gone and spent that money overseas. I cannot see how that is going to stop happening, because they freely admit they want to takeover-proof themselves. If they stay like they are now, they may continue to do that. That money might never come home. They seem to think that storage and handling is not trendy, but that is what is affecting us as growers and I am very concerned.

The other concern I have is—and on this I agree with nearly everyone I have heard here today—about the stocks information. It is absolutely crucial that we get better stocks information. I do not care under what ownership it is. We are having a real problem with all the grain companies in Australia. They think it is their right to have it. It makes it very difficult for anyone else to compete against that. So I can only concur with everyone else that said, about the stocks information, that it does not matter who owns it; it has to be opened up, because it makes it hard for any of us to try and trade and to get involved with, maybe, the potential we have in Asia. Thank you, Chairman.

CHAIR: Thanks, Mr Greentree. I do not know whether you were here for the evidence of GrainCorp this morning.

Mr Greentree : No, I was not.

CHAIR: That is a shame. Were you here for the evidence of the ACCC?

Mr Greentree : No.

CHAIR: That was even more embarrassing. So, with regard to the spend in Australia—and I take your point—would you like to highlight to the committee the money that they have spent overseas? What was that on?

Mr Greentree : I do not know the figures, but they have spent money on a malt business, and I believe that some of that is in North America and some in Western Europe. That does not mean that they will not go and spend that money on purchasing more of those types of businesses or branch into something else. As they keep saying, they want to takeover-proof themselves.

CHAIR: And, as the former chairman of GrainCorp, you would be, I suppose, not surprised, if the takeover continues, if the board were wiped and their people were on the board of the new entity—ADM, that is.

Mr Greentree : That is right. Well, there will be no board in Australia; that is dead right, Bill. It will be the board of ADM, and that is it. I do not believe that agriculture can grow, unfortunately, without foreign investment.

CHAIR: I absolutely agree, and I think this committee does not have any dispute with that. It is just a question of capturing it in a commercial way and making sure it is in the revenue base and the things I have been talking about for ages. So, Mr Greentree, in terms of guidance for this committee and guidance for the ACCC and the Foreign Investment Review Board, from your perspective, do you think there could or should be a way that we could put into the agreement that the likes of the $250 million, including the $50 million for the footy jumpers, has to be spent on infrastructure in Australia and cannot be diverted somewhere else?

Mr Greentree : I think that we should expect it under the current management of GrainCorp. Why aren't they saying what they are going to spend it on? I can assure you that I do not think you would get any company to say where they are going to spend their capital. GrainCorp has had a huge year. Their year will finish on 30 September, and they make a lot of money out of carry. That is where GrainCorp makes their money—out of carry. Well, there is going to be no carry going on in this next year, and, as to what they are going to spend on capital in the future, I do not believe it will be very much, from what they have got. But if you can get any company, Australian or overseas, to say where they will put it—I do not think they will, and, even if they did, I believe that then they would have the right to change it to whatever conditions.

CHAIR: They have an ASIC obligation, obviously, to maximise the profit for the shareholders.

Mr Greentree : True.

CHAIR: So it is whatever it takes.

Mr Greentree : That is right.

CHAIR: And, as the chairperson or the boss said this morning: 'We don't care about the affairs of the company that has taken over. If it is a good deal for the shareholders then it is a good deal for us and we recommend it.' The culture of the company that is taking over did not seem to be of consequence. So, given the culture, the questions and the issues and concerns you raise are quite alive and well.

Mr Greentree : I suppose my other concern is that, hypothetically, if the deal did not go ahead, we would know what the share price was before the offer. I do not know the figure, but maybe 40 or 50 per cent of the shareholders' money could be held in overseas funds. I believe that those people could then, hypothetically, pull out—this is just my personal opinion—and the share price could crash. Then we would have less confidence in overseas capital investing in agribusiness in Australia. That really scares me. If they lose that confidence in GrainCorp then they will not have the backing. If they have to go out and raise more money then they are going to spend less money on capital, because they can only do it from profits and they might have to use that capital just to keep the show going.

CHAIR: In reality, those who have invested money in a show like GrainCorp in the last couple of years will have lost money anyhow, because of the currency.

Mr Greentree : They are here for the long term, and they will make that money. But they might be happy to keep seeing the money invested overseas.

CHAIR: Which is why we need to see patient capital invested, which Australian capital can compete against and not be disadvantaged in a tax sense because it has come from the Cayman Islands or somewhere else.

Mr Greentree : I am a farmer and I am here trying to work out what is best so that the cost of storing, handling and transporting our grain does not go through the roof. I and every other farmer is sick of spending all this money inside the farm gate when no-one is keeping up with us outside the farm gate. It is because they have become more inefficient that they keep putting their prices up to store and move our grain.

Senator BACK: It is an interesting point that you make. This morning, someone said that, if a header is ripping off 60 to 70 tonnes an hour, they have to put it on a truck and then that truck sits in a queue for the rest of the day, what is the point of having the capital in the first place? I am probably just following on from Senator Heffernan's question. I am a little bit nonplussed now as to what advice or recommendation you are making to this committee, Mr Greentree. We have already had the ACCC say to us this morning that, from their point of view—and I guess it is advice to the Foreign Investment Review Board—they had, to use their words, no undertakings of the possible takeover in approving the merger. The Foreign Investment Review Board has not yet come to a final determination. You make the good point that the last thing we want to do is to scare off foreign investment because it is not coming domestically—

Mr Greentree : Unfortunately

Senator BACK: Unfortunately—but it isn't. Therefore, what is your recommendation? Is your recommendation for this committee to urge the Foreign Investment Review Board to be more cognisant or to do something—or what?

Mr Greentree : I think they should not stand in the way of this deal, because, as far as I am concerned, GrainCorp is a multinational because it has interests overseas. I am saying that for the future of grain farming in Australia their present structure will not allow it to ride along with our business. I believe that ADM has more potential because of their capital base and because they are able to be drought-proof from things overseas. I believe that, at this present time, they will be better for us as farmers.

Senator BACK: Evidence from others earlier in the day is that they buy an operation that is ongoing. They pay a big quid for it. Clearly, they are not Father Christmas, so they are there to make a dollar. So they make a dollar by increasing charges, by downsizing or by removing the network in some way, diminishing the network et cetera. So what you are really saying is that it is an inevitability of business.

Mr Greentree : I think so. They are going to be very careful. I would rather have someone come in and have a bigger debt. Obviously, they might have funded it from cash or some of the $3.4 billion. GrainCorp in its present structure has not got too much debt percentage-wise in their assets. They are going to come in and, if they are not going to look after all these silos—and we have seen the huge increase in on-farm storage, and that will keep happening—if they do not look after the customers, mainly the farmers, they are only going to increase the level or the expansion of on-farm storage. That also gives these other competitors in the boardrooms a better reason to actually build some more infrastructure in Australia. So, if all of us do not look after farmers, the investment is not going to give them the return they want, and they are going to ask, 'Why do we do it?' It has to work. And we have shown them: on-farm storage does work in Australia. It is going to keep going, and if they do not look after it the investment is going to go downhill and they are not going to get a return on that $3.4 billion. But, as I said, debt is a great reason for people to perform better in business. The less debt you get, the more lazy you get.

Senator BACK: Timing, to me, does seem important. I asked Mr Wilson, and he said, 'We can just keep applying for deferments.' I think Ms Watkins said that ADM's offer is on the table until 31 August, and they have withdrawn their application from the scrutiny of the Foreign Investment Review Board. It is now the middle of July, so we are talking about six weeks for them to submit a new proposal to the Foreign Investment Review Board and for the Foreign Investment Review Board to consider it—all in the next six weeks. The potential is, of course, that they might, come 31 August, not proceed.

Mr Greentree : That could happen, and I think the message that would send to the world about investing in agribusiness in Australia would be a bad outcome and could potentially stop or very much slow down that stream of money.

Senator BACK: Or it could make GrainCorp a very, very attractive proposition that heavily discounted prices for someone else.

Mr Greentree : Well, it will have to only be domestic money, because no-one will take the risk. They will not want to go through all the trouble and see if they can get it.

CHAIR: GrainCorp have traditionally enhanced their business, and part of their critical mass has been the storage and cartage—

Mr Greentree : It is still core business.

CHAIR: But with ADM of course it will not be that way.

Mr Greentree : Sorry—how do you mean?

CHAIR: They have an $89 billion global turnover of trade. So, the price of grain—and you talked about the cost of storage and transport—the price of the actual grain itself, could be influenced by ADM in the global market, depending on what deal they have done in what country they have done it. If they are prepared to persuade the Russian government to take a position in the market to suit their position in another market, wherever it was—it is all in here—do you think the game is going to change because they are a huge grain player as opposed to infrastructure user?

Mr Greentree : They are huge. We will get something you can really relate to here, Bill. I am going to use the analogy of Woolworths and Coles. This analogy is all around the world. We have the great process companies of the world, and the food manufacturers of the world—the Nestles of the world, the McDonalds of the world and all that. All those businesses had a relationship with one of these multinationals. My understanding is that Cargill has the relationship with McDonald's—it's the flour, it's the beef; they do most of that all the way around the world. These multinational food companies are getting bigger and bigger all the time, and they are hooked on to each of these major companies. ADM has not been a player in Australia. ADM has to have that relationship with one of those companies. I think it may be Nestle, but I do not really know.

CHAIR: But it is a player in its Toepfer arrangements.

Mr Greentree : It is, but Toepfer, I believe, is a trading company; Toepfer is not the relationship it has with these food companies. I stand to be corrected on this.

CHAIR: Toepfer is 80 per cent ADM.

Mr Greentree : That is correct, but it is the relationship: Toepfer is just trade—'throw in your mother for another 5c a tonne', like a lot of trading. But these bigger companies want to have this long term: if we are going to be set ourselves up around the world, we have to have all these multinational companies in Australia that are going to have the relationships with these mega food companies. And at the moment we do not have them here. As I said, I hold ADM in the same regard as I do Cargill and Glencore and all of them. As I said, they are not white knights, but unfortunately they are a bit like Coles and Woolworths: they are here and they are going to stay, and they are the ones we have relationships with. And they can still trade. GrainCorp are still going to trade other-origin grain. But the fact is that there will still be a certain amount of wheat that is going to be traded by someone into the world market, and we want as many people who can do it as possible.

CHAIR: We have seen what Yancoal and Yanzhou can do after they have FIRB approval by completely going against what they were asked to do under FIRB. You do not suppose that Cargill, for instance, having 100 per cent of Allied—which has alluded to this morning, who then have a 100 per cent relationship with Goodman Fielder, who then have a unique position with Coles—takes competition out of the market?

Mr Greentree : It does, but ADM do not have it. We have got a player that does not have any relationship at all with these major food companies.

CHAIR: ADM have not acceded that they are going to give up their 60 per cent if they ever take over Cargill.

Mr Greentree : Fifty per cent of Allied, yes.

CHAIR: ADM and Cargill in other court cases overseas have jointly been corrupt and fined together for price fixing.

Mr Greentree : Yes, nearly all the majors, including our own one here—AWB.

Senator NASH: Mr Greentree, you initially—and correct me if I am wrong—had some concerns about whether or not the infrastructure would remain open to third parties, and you have now changed your view on that. What caused you to change your view?

Mr Greentree : I spoke to some of the people from ADM. I spoke to Ian Pinner. He has spoken to quite a few farmers.

Senator NASH: Did you go to them or did they come to you?

Mr Greentree : I saw them once in Sydney here for—

Senator NASH: Did they request a meeting or did you?

Mr Greentree : They rang me. I then invited them to come to the farm and get some other growers so that they could put their view across.

CHAIR: Was that before or after they appeared before us?

Mr Greentree : I do not know when they appeared before you. I think they were home about three to four weeks ago approximately.

Senator NASH: What was it that they said that changed your view?

Mr Greentree : We had about seven or eight growers there and I think it was more that we said that if you do not have a third party you are not going to be able to have one price and have your price at the silo and expect people to deliver. Louis Dreyfus tried this in Moree. They were going to have their price at the silo for one grade APW. They had some bunkers. When they bought Donovan's cotton gin, they put some bunkers there—about two kilometres away from GrainCorp and Manildra and you could only deliver there. They did not get any grain at all. They probably got two or three thousand tonne when they thought they would get 50,000 to 60,000 tonne. I said, 'You will not be able to compete in this market. People will not go to you if they can't sell to other people. It is just ridiculous that you think that is a concept.' It may work in North America or Western Europe—

CHAIR: Player's leap you are talking about.

Mr Greentree : Yes, where there is a competitor's silo within a range where you can drive your truck to, but it does not happen here.

Senator NASH: What I am struggling with is this issue of continued investment by ADM even in difficult times—as you said, perhaps drought years. To me, it would seem that any investment they make as a corporate entity they would want a return to their shareholders. So you are actually saying that they will cross subsidise from another part of their business if the returns are not there through the Australian investment. Is that what you are saying?

Mr Greentree : No. What I am saying is that GrainCorp in their present structure will not be able to do that because the majority of the income will come from the east coast of Australia and there could be a drought here. I am saying that there is potential for a company like ADM, if they wanted to, to still have other places of income where they could put into Australia where GrainCorp could not. What I am on about is more about what GrainCorp are not doing for Australian east coast farmers at the moment and trying to get that better.

Senator NASH: As you say, though, it is if they wanted to. There is no guarantee, though, that they would do that, is there?

Mr Greentree : No, and I am saying that. I am just saying that they have the potential more than GrainCorp have.

Senator NASH: So you are saying that GrainCorp will not do it now; they have a shot at doing it; we do not know if they will or not, but it is better than the current arrangement?

Mr Greentree : Yes.

Senator NASH: Wow! That does not seem to be a very convincing argument. When you look at instances where, for example, ADM have now shut down their cocoa business because it was underperforming, why would they not use the same rationale if, during a drought year or whatever, there were underperforming parts of the business here? Why wouldn't they use the same rationale? Why would you expect them to invest financially at that point in time when they have got an example currently where they have done exactly the opposite?

Mr Greentree : I am not here to convince you, Senator; I am here to give my views on what I think. I am not here to convince anyone about anything. You are here to make your own mind up. I am just relaying my thoughts and the way that I have come up with my decision.

Senator NASH: That is fine. That is why I am asking. My question was: did you know that they have done that with their cocoa business?

Mr Greentree : I know nothing about their cocoa business.

Senator NASH: So that has not contributed to your—

Mr Greentree : All I am saying is that those companies may have more potential, or they may not; they might fall out after a few years, but I am saying that you cannot exist under the structure now. We are going to go backwards. There has been no media. Up until this happened, every farmer has had frustration with GrainCorp about not spending and how slow they are and how long the silo lines are. That has not gone away. That is going to stay until they start putting more capital into the storage system.

Senator NASH: But there is no guarantee it will be better. Could you just clarify for me something you said early on: did you say that GrainCorp was running at a loss?

Mr Greentree : No, I am saying that if they have droughts they could run at a loss or, if they invested more overseas and had a drought, they could run at a loss. You cannot spend capital from losses. Capital can only be spent from profits.

Senator NASH: Okay. GrainCorp already have access to debt and equity markets and are in a strong position so why are you saying that ADM would be better than the current arrangement if they have already got that?

Mr Greentree : Because they are spread in more parts around the world. They are trying to do a Sidney Kidman.

Senator NASH: I take your point—these are just your thoughts. But I am not convinced with the argument that just because it is different from what we have got now that ADM would be any better when there is no guarantee—

Mr Greentree : I am not asking you to agree with me. I am just giving you my thoughts and, I tell you what, it would not be the first time they were wrong, and it will not be the last, Senator.

Senator NASH: As goes for all of us, Mr Greentree. Just one other thing, you made a comment that there will be access to markets with ADM that currently we are not accessing. Of those markets we currently do not access, why is that? What will ADM do and will it increase any value to growers?

Mr Greentree : I believe that it is the tie-ups or the contracts with these food companies that will make the difference. I am hoping that that player will come into Australia the same as the other majors have. We need to have more processing in Australia.

Senator NASH: Hear, hear to that!

Mr Greentree : I know that we are not going to send flour overseas. It is uncompetitive and it is easier to transport the wheat. But if we are going to take advantage of this potential in Asia, we have got to value-add and we have got to get smarter. The only people who are going to have the capital are these large multinationals, unfortunately, those who do the frozen doughs, the parbreads. Every Subway in the world has to have frozen dough. We can do that in Australia better than they can probably do it in Asia and that is where we are going to get the expansion; that is where we get smarter. But without the capital and the R&D, unfortunately it is not going to happen and we will just continually be a price-taker.

CHAIR: Because it is not automated and we do have a 25 to 1 labour disadvantage in Australia in some of places—

Mr Greentree : Do you know what Nestles' Australian wage component of their product is—10 per cent, because of this technology. If we can get into that we can compete in Australia when it is as low as that.

CHAIR: We are about to conclude. Does it trouble you that a relationship is proposed to be formed by one of these major global grain traders and Monsanto with regards to GM seed supplies? Do you think there would be a danger if the likes of ADM formed a partnership with Monsanto who then had a monopoly—

Mr Greentree : To get back in what you are going to close—the real closed-loop marketing—

CHAIR: Having gene patents and the qualities that give benefits to growers. That is the next thing that is coming down the tube.

Mr Greentree : That could happen. That could be any of the majors—

CHAIR: It could be one of them.

Mr Greentree : If they can come up with a way that makes us more competitive to value-add in this country and make more exports and we get a better price, it will not be too bad.

CHAIR: But do you think it is a danger, though, for a company like Monsanto to have a global monopoly on seed.

Mr Greentree : Yes.

CHAIR: Thank you. That is what is coming. I think we are just about on the clock. I just hope that you do get rain at Rowena and Mungindi and that things keep going.

Mr Greentree : Thank you.