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

BRADLEY, Mr Leon, Committee Member, PGA Western Graingrowers, The Pastoralists and Graziers Association of Western Australia

MURRAY, Miss Nina, Grains Policy Director, AgForce Grains Limited

NEWTON, Mr Wayne, AgForce Grains President, AgForce Grains Limited

[14:00]

Evidence from Mr Bradley was taken via teleconference—

CHAIR ( Senator Heffernan ): Would any of you like to make a brief opening statement?

Mr Newton : A lot has already been said here today on the producer side of the argument that we fully support. We certainly endorse the comments of Grain Producers Australia. Our issue is about the level playing field—or lack thereof—especially access for all merchants to our grain. To maximise the returns for Australian grain growers, we need to maximise the competition from the largest number of possible merchants that could be all out there competing equally for our grain. Currently that is very much not the case.

The marketing arms of the bulk handling companies have a huge unfair advantage over all the other non-bulk handling companies. They have issues with port access. We have heard considerable discussion about that already. We are not particularly happy with the way the code development discussions are happening at the moment—in fact they are not happening properly at all yet. We even go back to the up-country grain storages. We are constantly told of cases from both growers and the merchants about difficulties accessing their own grain that is in warehouse storage. And there is a total lack of transparency in the freight arrangements that these large bulk handling companies negotiate with some of the transport companies, particularly in Queensland.

It is interesting the bulk handling companies have all the information about their stocks by grade and quality, by depot and they have it on a daily basis. We have heard how this information is public overseas. In the US and Canada it is released weekly even including estimates of on-farm storage. As the editors of the pro farmer grain marketing newsletter recently published in their newsletter, one day soon—and it could happen very soon—Australia could find itself running right out of grain. We do not know how much is in the warehouse. We do not know what rate it is going out at. One day we are going to find that back wall—just when we are not expecting to.

We know of many cases where ships have actually left ports in Australia only partially filled or have been held up for many days, incurring massive demurrage. Whenever something like this happens, it always costs the grower. It does not cost anyone else. Some of those other people pay for it at the time, but in the end it costs the grower because the next offer, the next price, that those companies put out there will have a deduction to allow for those costs. We have seen that happen over and over.

The other interesting thing that has not really been discussed is the history of GrainCorp: the way all of that infrastructure came to be; how it was funded; the purpose and the requirements of this Australian grains industry that led to this whole network of up-country storages and port terminals. It was built to serve the grains industry. It is critical that any current or future owners of this infrastructure continue to serve the industry, not use it as some sort of milking cow. Already we know, from discussions we have had in our state, of entities that are actually looking to invest in grain accumulation and port loading facilities, and that is great because we will get competition again back in our markets. But it comes at a cost and, at the end of the day, as I have said before, the growers pay—when we already have a network there that can do the job. Thank you, senators.

CHAIR: Thank you.

Senator BACK: I think Mr Bradley wanted to make opening comments.

CHAIR: Mr Bradley, do you have any words of wisdom for us?

Mr Bradley : I think I should say something, Bill, just to establish—

CHAIR: Away you go.

Mr Bradley : I will try not to be too long. I just forgot the name of the previous speaker when you introduced me.

CHAIR: Mr Wayne Newton.

Mr Bradley : I think really he is making an argument for a return to statutory control of the logistics system, at the very least, whereas our experience in WA has been that the deregulation of the market has exposed a lot of problems, but also it has led to a lot more choice for growers and greater liquidity in the cash market. Because our state government is appreciative of foreign direct investment and is lowering the barriers to that investment, we are now getting developments that will greatly enhance competition in WA. I cite for example the port development at Bunbury, where the build is underway. There is another proposal for Albany and another one at Kwinana. All of these, of course, involve foreign investment to make them work.

We believe that foreign investment in infrastructure will encourage competition, and a lot of the problems that were raised by the previous speaker are better resolved by competition and investment rather than a return to a heavy-handed regulation that completely ignores the requirements of customers overseas. So we are very concerned that the message being conveyed to the international markets, the signals that they are receiving, is that Australia is no longer a friendly place for investment, and the signals it sends to local investors—in what will be, I believe, a very considerable loss to GrainCorp shareholders if this proposal is not allowed to go ahead—are very discouraging for the prospects of the wheat industry in Australia.

In WA, nearly all of our wheat is exported every year. We are completely dependent on global trade. To be alienating foreign direct investment is more or less a form of economic suicide. That is where we are coming from.

CHAIR: Thanks very much for that.

Mr Bradley : I will leave it there, Bill.

CHAIR: I believe one of your blokes gave me a bit of how do you do over there the other day. Can I just say that Mr Newton refutes your proposition on going back to the past.

Mr Bradley, we have taken truckloads of evidence now about serious both criminal and market distortion behaviour by some of these major global traders, including the capacity to avoid tax. One of the operators proposed over your way is going to bypass the global market and deal direct. You do not think there is any risk to the wellbeing of growers with those sorts of, shall I say, corporate advantages in terms of profit? If you are not paying tax, you can do a lot more than if you are paying tax. Don't you think that Australia deserves to be able to fund its schools and hospitals? To that end, shouldn't there be some caveats around your open-ended welcome?

Mr Bradley : Well, I thought the only caveat required was to meet the tax laws that Australia has, and, if they meet them, that is it.

CHAIR: That is my point. We and the G20 nations now recognise that unless we absolutely come to terms with the fact that it is normal behaviour for multinationals not to pay tax—there is no better example than Google, on which even my dear friend Malcolm Turnbull agreed with me on Sunday TV. If you have $2 billion turnover in Australia and pay minimal or less than $100,000 tax, there is something wrong with the system, isn't there?

Mr Bradley : I suggest there would be something wrong with rejecting the ADM takeover to fix a problem like that, because it means sacrificing the wheat industry.

CHAIR: No, that is not—

Mr Bradley : If you have an issue with the tax laws, fix the tax laws.

CHAIR: But you do not think—and I have to say that, if you do not, the chairman or the CEO of GrainCorp agrees with you—it matters if someone that takes over an Australian company is an international rogue?

Mr Bradley : I think you usually wait for the crime before you have the conviction, don't you?

CHAIR: With great respect, I do not know whether you have done the research that I have done, but I have 42 pages of criminal convictions, market distortions, price-fixing, arguments with the Brazilian government and the Argentinian government, the largest corporate fine in America's history and a $400 million private settlement instead of a $3½ billion court case. You think that somehow you should not be concerned about that?

Mr Bradley : I understand that ADM are fairly big in Queensland sugar. Are you going to drive them out of Queensland?

CHAIR: I can tell you precisely what the point is there. They have 16 per cent—right?—of Wilmar. They also have 10 per cent of Goodman Fielder. I do not know whether you are familiar with this stuff, but there is now a proposition that, if this goes ahead, Cargills will take the 60 per cent of Allied Mills that presently GrainCorp has. They have a 100 per cent relationship with Goodman Fielder. They now have formed a 100 per cent relationship with Coles. You do not think that is market power that could be abused?

Mr Bradley : We have adequate regulatory—

CHAIR: With great respect, please do not insult the committee with that. We have also had the ACCC in this morning. Before you say anything more, so you will not embarrass yourself, please read the transcript of this morning from the ACCC. They have got no idea.

Mr Bradley : I actually had a lot of dealings with the ACCC over the CBH Grain Express issue, and I found they were very professional.

CHAIR: Yes, they enjoy a glass of wine and a nice folksy yarn, but—

Mr Bradley : They stuck strictly to the law. They were evidence based. And they made a decision that was for the public good.

CHAIR: We would be grateful—rather than embarrass you—if you read the transcript of this morning, but you will be pleased to know that they learnt something this morning, because Mr Michael Eady, who is the Director of Fuel, Transport and Prices Oversight for the ACCC, who did not know what a subterminal was—even though he had to make a judgement on the infrastructure—does now know.

Mr Bradley : So this is the basis on which you are going to destroy—

CHAIR: No, facts are facts.

Mr Bradley : Facts are, but there is a very good offer before the GrainCorp shareholders that will greatly advantage the GrainCorp company and enable Australia to serve its overseas customers, and the GrainCorp shareholders will benefit substantially from it.

CHAIR: There is no question that there you are right. There is no question about that. The boss of GrainCorp this morning would absolutely agree with you that this is an excellent deal for the shareholders. She was of the view that the fact that the takeover was by a company with a long record, a lot of which is still current, of international roguery should not matter as long as it is good for the shareholders. I congratulate you on having a similar view to the boss of GrainCorp.

Senator EDWARDS: Are you involved in any way with your group in the discussions going on between the ACCC and the wheat export task force about the formulation of the mandatory code of conduct?

Mr Bradley : Yes, we are.

Senator EDWARDS: Are you confident that all of those people tasked with that job are adequately qualified and can carry out this task of ensuring that traders in the market are able to get transparency on a daily basis as to the stocks in the system?

Mr Bradley : Although we are on that committee we do not believe that it should be mandatory. Nor do we believe that farmers' unallocated stocks in warehousing should have compulsory disclosure. We think all the information provisions should be on a voluntary basis.

CHAIR: We might just get the view of Mr Newton.

Mr Newton : Our view is exactly the same as that of Grain Producers Australia. We see no reason why that information should not be publicly available. As I said before, Australia will run out of grain one day. We are not going to know when it has arrived until a couple of weeks later when, suddenly, we cannot find any more.

Mr Bradley : I think you will know when it arrives because the basis will be widening.

Mr Newton : A couple of weeks later it will, yes.

Mr Bradley : No, beforehand.

Mr Newton : It is going to be very difficult to see it coming because we do not know the stocks in Australia and we do not know the rate it is being shipped out at. Neither of those pieces of information are public information. The only people who know about that at the moment are the bulk handlers. There are a lot of other players in that space shipping out grain. Currently, we are sending some 400,000 tonnes of sorghum to China to make a very strong alcoholic spirit. That will be most of the Queensland sorghum crop this year, and it will leave very little behind for feeding livestock or anything else. Those other people have recognised that this is probably happening. It is not going through the BHCs, but it is bidding up the local price. We could have a scenario where it is not recognised and we could find Australia in a shortage of grain.

Senator EDWARDS: Mr Bradley, this morning the chair of GrainCorp in her evidence said that they did not get a market advantage and they did not know what stocks were in the system at any point in time. I put the question to her of whether she felt she had a market advantage in knowing all the stocks information. She said that with only 50 per cent she did not have any advantage at all. I found that an interesting answer, but that does not fit with your argument in any way, shape or form. Mr Newton's contention is that if there is no stocks information you are going to run out, but your contention is: except GrainCorp's. But they do not have the information and cannot act on it, apparently.

Mr Bradley : I think we are at cross-purposes here because the assumption behind your questions is that the information drives the market, but it is actually the market action that generates the information. In grain trading it is the basis that is the most sensitive signal. When the basis starts widening, and you start getting backwardation in the market rather than a contango you know that the supply of physical grain is becoming short. So I think that will be indicated a long time before it ships. The AgForce spokesman seems to be a bit confused about who he is representing—livestock feeders or grain producers. If he is representing grain producers, he is arguing that they should be getting lower prices to subsidise feeders, and I do not think that would be right.

CHAIR: And I do not think your assumption is right. And, by the way, a lot of grain producers are actually stock people as well; it is what you call dual-enterprise farming. Could I correct some of the proposition there. We do not think that the behaviour of some of these companies is necessarily going to advantage Australia's wheat growers.

Mr Bradley : So far it has, Chair.

CHAIR: But we have not come to terms with this particular proposition just yet. Obviously over your way the market is different and there are different issues at play. I will come back to you, but because of the time I will go to Senator Nash.

Senator NASH: Mr Bradley, how many members does PGA have?

Mr Bradley : I cannot tell you exactly that, but I know we produce between one and two million tonnes of wheat a year.

Senator NASH: Can you give me a rough ballpark?

Mr Bradley : 1,100.

Senator NASH: Do any of them have an interest in the eastern states?

Mr Bradley : There would not be very many. We do have a couple of eastern states members.

Senator NASH: I am curious you have such a strong view on what is good for growers on the eastern seaboard when you have not got any over here. Does the change-over from GrainCorp to ADM potentially here in the east have an impact on you in the west?

Mr Bradley : It will have an impact on us if the ADM offer is rejected, because it is sending a signal to the world that Australia is not a good place to invest in.

Senator NASH: That is a bit of a long bow, isn't it? It is one potential takeover proposition amongst many, many that we have seen in terms of foreign investment and ownership previously. I think there were 47 or so in the last 12 months. It is only one. What makes you think that is going to be such a disaster?

Mr Bradley : I just do not see the problem with it when their proposal is to the advantage of the industry. The reasons for rejecting it, from what I have heard so far, are completely political and rhetorical. There is no basis in fact for it. They come along basically looking a gift horse in the mouth and even then they cannot acquire an asset.

CHAIR: Just so I know what your depth of knowledge is on this particular takeover, are you familiar with Toepfer's operation in Australia?

Mr Bradley : Yes.

CHAIR: What is it?

Mr Bradley : It is a grain accumulator.

CHAIR: Yes, but what is its operation in Australia?

Mr Bradley : No, I do not see the relevance.

CHAIR: You do not know, do you?

Mr Bradley : No, I do not claim to have any particular knowledge. My point is that—

CHAIR: This is where I have great difficulty with your out-there proposition, because I personally think a lot of what you are saying—I will not say where I think it is coming through, but it is certainly not out the front entrance—

Mr Bradley : Are you implying something there, Bill, that I don't—

CHAIR: Not at all, old mate; you know what I am like.

Mr Bradley : I do know what you are like; that is why I am asking you what you are implying.

CHAIR: I would not be so bold. Toepfer International have serious issues in Europe, they are 80 per cent owned by ADM and they are in the market here now—and I cannot go much further than that because of the commercial-in-confidence nature of some of the issues. Do you really think they will continue to operate and bid against ADM in Australia if ADM takes GrainCorp?

Mr Bradley : I do not know, but I am not here to second-guess what the FIRB might do. I am suggesting that the FIRB—

CHAIR: But you have told us it is going to be a disaster for Australia if we do not do this.

Mr Bradley : Well, it will be, won't it? I am telling you it is sending a bad signal to the international markets and it is going to be a disaster for GrainCorp shareholders.

CHAIR: You think it sends a bad signal to the international market? It is because Australia is recognising what the G20 now recognises: that is, that these international rogue traders, somehow, to save the likes of Australia from having to redefine the meaning of 'sovereignty' or, in other words, capture them in the revenue base in a way that is fully commercial, and not having to bribe the Russian government to pull out of the market et cetera, which has been normal behaviour up until this point in time—do you think that that is not an issue that we should address in considering this takeover?

Mr Bradley : Not at the expense of wheat growers, no. If you take the full implication of what you say, you would reject all foreign investment in Australia by multinationals, because they are all—

CHAIR: Not at all, but what we intend to do is certainly to change the Foreign Acquisitions and Takeovers Act, which we, this particular committee, have reported on in recent days, where you have the chairman saying that the Foreign Acquisitions and Takeovers Act is out of date—a creature of the past—and if we are to actually protect our sovereignty we have to change the rules of operation. At some point in time you start to look at the logic behind that. Some of the arguments we have put—much to ADM 's horror, in recent days, and to GrainCorp's horror, this morning—on this issue are all about, 'Well, where do we start?' If you are not paying tax—and, magically, when ADM took over Glencore in Brazil, there was a tax history up until 2007 and then the tax history in 2007 disappeared—and you can use the derivative market, which they do, to create a losing derivative in a high tax offset by a winning derivative in a low tax revenue, you can certainly play with the market.

And, by the way, some of the biggest spikes in the grain trade have not been by the demand; they have been by a punter's position on the Chicago market. If you would like me to take you through that I can, because I have all those details in my head.

So I am not so sure that your proposition—that this is the end of the world to signal to the corporate world: 'Hang on; we think the law's inadequate. Hang on; we think you should pay your fair share of tax. Hang on; we don't think that you should close the loop of the market here by having an arrangement to take over the largest user, for domestic purposes, of flour, and closing the loop then with the largest user of that, in Goodman Fielder, and they then closing the loop with Coles'—is necessarily in the best interests of Australia's wheat growers. Do you think it is?

Mr Bradley : Well, it sounds like a formula for a command and control economy, Bill. They have one in Argentina and it is not turning out too good!

CHAIR: Well, you will be pleased to know that ADM are trying to master control of that, too—they are having an argument with the Argentinian government over tax; they do not think they should pay tax! But, anyhow, there you go. Senator Nash, do you have some questions?

Senator NASH: I just have one for Mr Newton, actually. Mr Newton, in your submission you say that you are seeking assurances that they will continue to offer these services to market in terms of warehousing. We had some evidence this morning—and I do not know whether you were here or not—from the ACCC that obviously there is no price restriction. In that comment, have you taken into consideration, though, pricing arrangements that may change which would then obviously affect the competitive nature of that provision of storage?

Mr Newton : Since our submission we have actually had discussions with a number of, I would say, middle-tier merchants in the marketplace. They were quite interested in this whole process that we are going through at the moment. They were not very complimentary of the ACCC or its processes—in fact, their opinion was that they did not think it was really worth the time of day. They felt that, when they do have a grievance, the grievance is too often dismissed and, secondly, if the ACCC decides to look at it, they will be all long dead and buried before there is any result coming out of the other end. So, basically, they just take the view that they will walk away. But they certainly do not see it as being a fair and level playing field to be operating on when they are dealing with the likes of GrainCorp.

Senator NASH: I suppose that is my point—that, potentially, there is a scenario where that is even worse, for precisely the reason you say: that the ACCC is charged with having the teeth to deal with these things, and, according to your obviously anecdotal evidence from those middle-tier people, they do not. So there is no oversight of the behaviour. I understand what you are saying that, if they provide third-party access, that is all fine. But there is no strength in oversight of any behavioural change if ADM operate differently or—

Mr Newton : That is right. If I can relate to you another example. Merchants store warehouse grain in GrainCorp facilities and then when they wish to actually remove that grain from the facility there is a process to be gone through. They give notice, fill in various forms and tell GrainCorp when they need the grain et cetera. Some of them had gone through that process many weeks before they wanted to pick up the grain, then actually had a whole string of B-doubles arrive at that depot to get the grain only to find there was absolutely no-one at the depot. Then, with phone inquiries, they found out the depot was under fumigation.

There are many ways you can actually control things and price is one way. It just messes people around and it costs those other companies thousands of dollars, in having trucks at the wrong place at the wrong time, not being able to access the grain and not being able to get their ship tied up at the right time. There are many ways you can control all that process when you are such a dominant player. So, again, from a grower's point of view, to get the maximum for the growers we need maximum competition in the marketplace. At the moment we do not have maximum competition. We have players saying they will not come into our market because it is too expensive.

Senator NASH: I completely appreciate what you are saying. But isn't there a real risk, though, that that scenario could be even worse under ADM? What certainty is there that a change of ownership will not make that even worse?

Mr Newton : Even though they have told us they are going to allow other people access to up-country storage, access to ports, there is still really no teeth anywhere in the system whereby we can guarantee that. Certainly, we do not have any confidence in the ACCC being of any value at all.

Senator NASH: Thank you, Mr Newton.

CHAIR: I guess it would be fair to say that, historically, this committee is an interesting committee. We enjoy a little bit of humour. I think the committee would agree, wouldn't it, Senator Nash, that the evidence that we received this morning from the ACCC was nearly as good as the ABF evidence we received on the statistical ownership of Australia, which was farcical? Mr Bradley, do you have any further pearls of wisdom for us?

Mr Bradley : I would like to speak in defence of the ACCC. We had a case over here where CBH had a monopoly over the transport of grain to port from up-country facilities that resulted in monopoly pricing and anti-competitive behaviour. That case was taken up by the ACCC when we and others approached them. They thoroughly explored the issues, they obtained the evidence and they made a decision. CBH appealed it and it went to the competition tribunal. The ACCC defended their revocation of the CBH monopoly privilege and the competition tribunal, when looking at all the evidence, accepted the ACCC's case and now CBH no longer has that regulated protection. We were very impressed with the professionalism of the ACCC. In our opinion, they performed outstandingly well. I think the main thing here is to fix these problems if there are real problems but, first of all, you have to have a breach and you have to have the evidence.

Senator EDWARDS: Mr Bradley, I agree that the ACCC has some very good people. Unfortunately, those very good people do such a great job that that they get transferred to other departments and you just do not have the consistency and the knowledge that is stable in the ACCC on these issues from time to time. So it is a bit of a raffle, I suspect, as to whether you get that same level of service delivery.

CHAIR: There is a breath of fresh air, I have to say, in the new Mr Wilson and Rod Sims, the new chairman of the ACCC. But in the evidence we received this morning, like you, they did not know anything about Toepfer, which is 80 per cent owned by ADM. You would have thought that the ACCC, considering the impact of an acquisition, would look at the market and everyone involved in the market—and the company that is doing the takeover happens to own 80 per cent of Toepfer, which has several tens of billions of dollars of turnover in grain trade, especially in Europe. But they did not know anything about them. It just blew us away. So there you go. We are most grateful for your evidence.

Mr Newton, have you got anything further you would like to add?

Mr Newton : I think most of it has been said.

CHAIR: Would your offsider, Ms Murray, like to put your voice on the record? Go on, say hello.

Ms Murray : Hi.

CHAIR: Thank you very much for your evidence.