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

EASTBURN, Mr John, Chairman, Grain Growers Limited

SOUTHAN, Dr Michael, General Manager, Grower Engagement, Grain Growers Limited

CHAIR: I now welcome Dr Michael Southan and Mr John Eastburn. Would you like to make an opening statement?

Mr Eastburn : We did a survey when this was all put in place on the takeover. When our members came back, around 84 per cent were concerned and worried about a takeover happening. I think that covered off on what virtually everyone else is saying: stocks, up-country storage, the transparency of stocks—not just at port but stocks up-country, stocks that are being transferred through and stocks that are being transferred from state to state. That was one of the major concerns. Port access is a major concern, when you have seven of the eight ports. And it is already a monopoly, with GrainCorp having the seven out of the eight anyway. There has not been a lot of transparency in that period of time either. I will hand over to Mike.

Dr Southan : Yes, we run these surveys, which are essentially only very brief. We encourage people to answer just a few questions to get a sense of our members' thinking. When we asked them whether they thought there would be an impact on port access if one foreign company owned seven out of the eight ports on the east coast, that was where we had 89 per cent of the respondents saying yes. So there is a very strong indication there that they were concerned about the impact that a foreign company would have in potentially having control of the ports. It was very clear from our membership that there were concerns out there about the potential change.

Mr Eastburn : One of the other things was that we did not believe the voluntary codes are good enough; they have to be mandatory codes. It actually has to have rigour around it. A voluntary code is as good as the company that is a part of it.

CHAIR: Perhaps I could just say that I am surprised, from the evidence we received from the ACCC this morning, and from having a discussion with the chairman of the ACCC and others, that that actually was not in the agreement to let that proceed, because there is clearly a problem with having it voluntary, especially when your growers and your 89 per cent or whatever it is are worried. I bet they did not know. How long ago was that form sent out?

Mr Eastburn : That was done back in May.

CHAIR: That would be before they knew the corporate history of ADM, wouldn't it?

Mr Eastburn : I do not think any of them would have known anything at that stage.

CHAIR: So it is not only a foreign takeover, but it is also a foreign cultural takeover if it goes ahead without a change of culture because we are dealing—and there are people in this room who are being paid to get the words right for ADM to be able to overcome this argument—with international rogues. These guys are international rogues. If they were not international rogues, they would not have jailed the deputy chairman of the company and they would not have had all of the corporate fines and they would not have the ongoing dramas in South America and in Europe, through Toepfer, et cetera. I guess it is fair to say that you are concerned about an international company taking the place over, but it is an international company that has grown up in a world where you can bribe a government and bribe government officials and do something with whoever it was in South America. These are pretty incredible, nail-biting sorts of cultures for a takeover of a company like GrainCorp, which, to the best of my knowledge, has never been involved in that sort of tomfoolery. And which relies, by the way, on absolutely making sure other people use its facilities for its shall I say viability. This will be a complete change of culture for it. Is there anything further you would like to add before we go to questions?

Dr Southan : No, I think it is fairly clear from our end.

Senator EDWARDS: Just take me through that survey you did. Just recap it, if you would not mind.

Dr Southan : If you would like I can read out the questions to you and the feedback we received. There are only four questions.

Senator EDWARDS: Righto.

Dr Southan : The first question was, 'Do you think ownership by ADM will benefit the Australian industry in any way?' It was just a simple yes or no answer and 85.8 per cent said no.

Senator EDWARDS: 85.5 per cent of respondents?

Dr Southan : Respondents, yes. The total number of respondents was 473.

Senator THORP: Out of how many?

Dr Southan : This would have gone out to about 6,000 people. As you can imagine, getting people to respond—and we do these in a very short time frame. We issued this on 6 May; we closed it on 10 May. It was around seeding time, so growers were busy.

Mr Eastburn : It has had by far the highest response of all of the ones that we have sent out. Basically, we got about 300 for our previous highest survey, until this one.

Dr Southan : The next question was, 'Are you confident that ADM will support long-term sustainable growth in the grains industry?' and 84.9 per cent said no. The third question was, 'Do you believe ADM can manage upcountry storage and transport infrastructure in Australia?' and 74.3 per cent said no. And the final question I will repeat, which was, 'Do you believe there will be an impact on port access if one foreign company owns seven out of eight ports on the east coast?' and we had 89 per cent say yes.

Senator EDWARDS: In earlier hearings, you have said you have 22,000 members.

Mr Eastburn : No, we have 19,800 members.

Senator EDWARDS: Who pay a subscription?

Mr Eastburn : No, they pay a membership to join.

Senator EDWARDS: Cold hard cash paid to join your organisation.

Mr Eastburn : Yes. And that is a one-off.

Senator EDWARDS: Do you check the veracity of that?

Dr Southan : Yes, we do.

Senator EDWARDS: On an annual basis?

Dr Southan : It is ongoing. It is continuous.

Mr Eastburn : It actually costs us quite an amount of money to wash our database every year.

CHAIR: So once the headstone goes up, you're off?

Dr Southan : Yes.

Senator EDWARDS: Or the email bounces or—

Dr Southan : Email is the hardest thing to keep up to date. As you can imagine, email access in the country is pretty ordinary. Just trying to get—

Senator EDWARDS: Okay, so 19,800 members. You have sent out 6,000 surveys, you got an average of 470 respondents and that is where you get your figures from.

Dr Southan : Yes.

Senator EDWARDS: I just wanted to get that in perspective. With the questionnaire, did you supply any information about ADM and what was—I mean they were the questions, but what was the material that you provided with the questions and what was its slant?

Dr Southan : We do have some background information we provided, and I will read that out if you like. At the start of the survey we put:

GrainCorp has conditionally accepted a bid by US company Archer Daniels Midland. The company has one year to complete the sale pending approval by the ACCC and the Foreign Investment Review Board. GrainGrowers has not made public comment on the ADM takeover bid, given the history between GrainCorp and GrainGrowers Ltd. After a high amount of grower and member interest, including interest from members of the National Policy Group—

that is our grower group that develops policy within GrainGrowers—

the decision was made to survey the membership. The results offer feedback on aspects of the takeover bid and provide some insight into what may be the core areas of concern for growers.

Senator EDWARDS: And then you said 'answer these questions'.

Dr Southan : And then the questions, yes. So GrainCorp directors have accepted the bid—

Senator EDWARDS: So just by putting a US company on the front of that, would really have expected any other result other than 85 to 90 per cent 'no' given the sentiment that is running around the foreign investment environment around Australia right now?

Dr Southan : I would have been very surprised, but—

Senator EDWARDS: So you did not put 'a $3.8 billion bid with a 110-year-old agricultural company that has links with this, this, this and this' or even 'has had some chequered history but claims to be something else these days'? Nothing like that? Just 'a foreign company is looking to take over an Australian asset'.

Dr Southan : Yes.

CHAIR: I think if you had put the history, you would have got a higher result.

Dr Southan : Yes.

Senator EDWARDS: I know, but effectively you put 'a foreign company is wanting to take over an Australian asset; what do you think of that'?

Dr Southan : Yes.

Senator EDWARDS: I would not have expected any other result than you got either.

Dr Southan : No, I agree.

Senator RUSTON: Were you the ones who designed the questions, or did you have them professionally designed?

Dr Southan : We designed the questions.

Senator RUSTON: Not that I am trying to defend them, but you can drive a truck through that. As Senator Edwards is putting forward, the fact that the questions are a little bit leading means you would expect the answers you got.

Dr Southan : The purpose of these surveys, and we do them regularly, is to get a sense of what our members are feeling and saying and to be able to reflect that information back to within our organisation.

Senator EDWARDS: With great respect, I think you are actually putting words in their mouths with a questionnaire like that.

Senator RUSTON: You're verballing them.

Senator EDWARDS: You are telling them how they will think. You say you are not a terribly political organisation, but I think that is quite political.

CHAIR: Mind you, if you had put 'do you think a company that has paid America's largest corporate fine—

Dr Southan : I take your point, Chair.

CHAIR: and all the crap that has gone on—

Senator STERLE: Chair, you are correct, but back in May they did not know that.

Senator EDWARDS: I take your point, but not even that information was provided, which would further reinforce some of your views.

CHAIR: But not even the ACCC knew about that.

Senator STERLE: That's because Detective Heffernan—

CHAIR: Neither did Mr Pinner know that we knew until he turned up.

Senator EDWARDS: He did not even know what a shonk was, to be fair.

CHAIR: Well I don't blame him for that.

Senator NASH: Is there any intent or move to do another survey?

Mr Eastburn : We can. We run them every fortnight. And this one came from a member asking about running a survey on this, so we ran the survey.

Senator EDWARDS: I reckon it is great, but I can run a survey on my website on coalition policies in which I can evoke the same answers.

Senator STERLE: Ha, ha, ha. Oh, sorry; you're serious!

Senator EDWARDS: Yes.

CHAIR: Let us get down to business here. My difficulty is with Australians understanding the culture we are dealing with. It is a culture that is foreign to Australians. Where a company is prepared to settle a matter for $400 million, which by the way was about the equivalent of the tax they paid out of $89 billion last year, to avoid a court result that would have been dearer than this takeover bid of $3½billion, then you know you are dealing with some people who are seriously into the culture of facilitation, bribery, rookery, roguery. However they put it, with all of 'the leopard has changed its spots' and 'We're paying all of these lobbyists to use the words and change the outlook,' and crapping on as much as you like, currently around the planet this is still the culture. They still have issues with various governments and, as they say: 'We obey the law and, if we can, we use a smart accountant to go through a low-taxing regime and use the derivatives market to transfer the profit.' I think Toepfer, in Europe, charged the English people an insurance premium, which was 20 times the market reality, back to Switzerland—that was Glencore, I think—to take the profit from the insurance out of England back to Switzerland. They do all that stuff but, in the long term—forget about the grain trade—for the wellbeing of Australia I think there is a duty of care to the likes of this committee to fight tooth and nail with the people who are the lobbyists, who are well paid, to put the other version of 'nice, the leopard's changed its spots' around, because the leopard changing its spots is not a reality.

Senator STERLE: I do not think there is any argument in this room. We agree with you, and it is your fine work that brought it to (indistinct) in Canberra three weeks ago. But I think in terms of Senator Edwards's line of questioning, if it was done again imagine what the percentage of respondents—

CHAIR: At the same time, it is essential that we recognise that, to be a viable country, we absolutely need foreign capital.

Unidentified speaker: That is correct.

CHAIR: As you would know, Senator Sterle, the AA Company, Australia's largest agricultural company, said to us: 'We can't get Australian 'patient capital' to invest in the abattoir up there because there is too much of a tax advantage for foreign capital coming into Australia,' so we use it.

Senator STERLE: It is true also, with the greatest respect, that we could not guarantee the growers would send their cattle to the one abattoir that continues supply as well.

CHAIR: We will not get into the cattle argument.

Senator EDWARDS: On your website you have got priority 3 of the federal election. Priority 3 is improved trade and market access. Are you confident that the wheat task force and the ACCC are going to be able to do exactly what your aspiration or priority 3 is here:

Australian wheat producers rely heavily on export markets, with an average of 75 percent of production, by volume, heading overseas each year.

Are you comfortable that your 19,800 members are going to be well served by this process that they are going through on codes of conduct right now?

Mr Eastburn : I cannot really say that. We would hope so. But the thing about it is that we get a pretty raw deal with the ag industry and trade overseas because most of our market areas are pretty highly geared in tariffs—

Senator EDWARDS: Because we do not have free trade agreements?

Mr Eastburn : Exactly. That is the problem. We have got two free trade agreements sitting there with 99.9 per cent done. The IS DS that has held both of them up—

CHAIR: What is the IS DS?

Mr Eastburn : The international dispute resolution.

CHAIR: Which free trade agreements are these?

Mr Eastburn : Japan and Korea.

Senator EDWARDS: If you follow it, along your line, and Mr Greentree's evidence as well, that ADM will kick doors in and 'We're going to do all these things,' do you think the ADM takeover of this Australian company will add further to that ability to access more markets and to make it easier for us to trade in markets that perhaps we have not been in before today?

Mr Eastburn : No, I do not think so. We are probably giving them an opportunity to trade, with some of the advantages of our South-East Asian markets.

Senator EDWARDS: Thank you.

CHAIR: One of the worries for some of the growers is that obviously one of the tricks of the trade—and we bushies are all likeable rogues—is blending the wheat, to get it up from the bottom rung, depending on the falling numbers et cetera. You can blend the wheat and sell it as something else. That is one of the tricks of the trade. You can disadvantage the Australian market if you go about blending the wheat into another market the right way to advantage someone else.

Mr Eastburn : There are a hundred different ways you can do it; that's the thing with blending.

Senator NASH: I take on board the concerns of some of my colleagues about the wording, but is it your general belief that if it was worded differently or perhaps not quite as bluntly the result of the conversations that you are having on the ground with your growers would be much different?

Mr Eastburn : I do not think it would be any different.

Dr Southan : No. I must reiterate that this is an internal survey for our own purposes. We use this to inform ourselves and to inform our policy group to get a sense of what growers are actually thinking and saying. From that perspective it was not written to be something which we would then use as information to go out and put into a submission, for example. We do these about every two or three weeks. We pick an issue and go out and test the water. We just find out what people are thinking. One of the first things we look at is how many people respond. Guaranteed: the number of people who respond indicates the issue. The two that have been big ones have been this one and test weight. Those two surveys have been the ones where people have really hopped on and answered the questions. If it is not so important to them you will not get as many people responding. Then we actually look at the level of responses. Do not read too much into this survey; it is really a way in which we inform ourselves as to what people are thinking. Going back to your question, if we had reworded it I think we would get exactly the same information.

Senator NASH: The growers are aware that it is just for internal purposes when they do that, aren't they?

Dr Southan : Yes. They know that this is part of our process for our policy group.

Senator NASH: So they have no reason to respond to that survey with anything other than what they are genuinely feeling for the organisation, as opposed to a survey that you might take to government, or something like that, which might invoke a different response.

Dr Southan : Yes.

CHAIR: If this goes ahead and Cargill uses its right, as the chairman of GrainCorp declared this morning, to take over the entire ownership of Allied and would then have a 100 per cent supply arrangement with Goodman Fielder and an exclusive delivery arrangement with Coles, do you think your growers would be concerned that that might be what you would call a closed loop?

Dr Southan : Very much so, yes.

CHAIR: We will go in camera later, but there is some intimidation presently in and around the issues surrounding this proposed takeover, which I find incredibly intimidating.

Senator NASH: Having listened to the evidence from various players today—that ACCC and others—there does seem to be a very strong view from growers that this is not in their interest or in the national interest. Do you think that that is recognised by those who are going to make the decisions—that is, the ACCC, the FIRB, the Treasurer? It seems to be that every other component, whether you are a trader, a merchant or whatever, or a giant US multinational, is taken into consideration, but the growers, who at the end of the day this is really going to affect, are almost being ignored. Is that too extreme a statement to make?

Mr Eastburn : To me the industry is the growers. The rest are services. If you take out the growers and you and I who eat you do not have an industry. If you take out any of those services it just makes it a little bit harder for us to get it from A to B, but you will find that growers will get it from A to B.

Senator NASH: I did ask the chair of FIRB, Brian Wilson, at a totally separate inquiry several, several months ago and not long after he took over the position, what his definition of 'national interest' was, and I think his response was along the lines of: 'You know what it is when you see it.' How do we get him to see that the interest of the growers is a very significant part in what they should be considering as the national interest?

Dr Southan : If you went and talked to some I think you would get that sense pretty quickly. If you talk to any grower and you ask them what the key issues are for their business—and, at the end of the day, that is what growers are doing: they are running the business—for them it is about having enough competition so that they can pick and choose, be profitable and get the best returns they possibly can. But, if they perceive or there is a situation where they have limited access to market or to the supply chain or to buyers, they are very concerned. Really what they want—like any other business—is to have enough competition there that they can go out and they can operate in a business manner and not be at the mercy of what the industry throws at them. That is their biggest concern. They will go out and they will buy and they will get the best price they can for their inputs, but, if at the end of the day, the cost for their product is limited or severely restricted, they feel that it makes that business very difficult to be profitable.

Mr Eastburn : The think about it is we are in a pretty difficult situation. As a country we still need foreign investment to move forward, and there is a question mark on what foreign investment and where it is, in that sense.

Senator NASH: Exactly. I think that one of the issues—and I would be interested in your views on this—is that we are not having nearly a clear enough discussion about the distinction between foreign investment and foreign ownership and control in various instances, and they are two entirely different things.

Mr Eastburn : A place like Canada has foreign investment but they do not own the land; they only lease the land. That is the foreign capital that comes in. That is one of the big differences between Australia and Canada.

Senator NASH: ADM are obviously looking to increase their returns—I think two per cent what they are currently doing through the GrainCorp proposal. How do you see them doing that? We had a discussion a bit earlier about throughput and that potentially stocks are going to come up a bit and values may potentially come down a bit. If GrainCorp are not able to increase their revenue through the current infrastructure, how is ADM going to? Or do you see that they are just going to cross subsidise from some other part of their business that does not really give a proper return to shareholder investment? Do you have a view on that?

Dr Southan : I think it is going to be difficult for them to do it. They are either going to find a premium that no-one else has found in the market so far or, if there is a premium there, they are prepared to find margin to increase their profitability—or there is that cross subsidisation. I do not know how they intend to do that. But, if they can do it and if growers share in that that would be terrific. But we do not know that that is going to occur. Growers do not know that that is going to occur.

Senator NASH: I suppose if their responsibility is to the shareholders, why would they say to growers, 'Gee, we've found this really great lucrative market and this has just increased our margin'? The whole thing about trading is buying it as cheaply as you can and then selling it as expensively as you can to get that margin in between regardless of the value. So it seems that cost-cutting or perhaps shutting down those underperforming assets are things they would have to consider. Is that something GrainGrowers have considered?

Mr Eastburn : That is the total difference between a trader and a marketer. The trader is there to pick up a margin for his shareholders and the marketer is there to get the best market out there for the industry.

Senator NASH: That is a very good point.

Senator RUSTON: Earlier today, we heard from Mr Greentree that he saw the ADM proposition as an opportunity for foreign investment. If you feel comfortable in doing so, could you make a comment as to whether you think that GrainCorp are a good corporate citizen? What is the difference between that corporate or social licence that GrainCorp currently have or are expected to have and what ADM can offer? What is the difference between now and ADM as opposed to the difference between what would obviously be a more ideal situation where there was greater control for Australian growers? If we take as the starting position right now and how Grain Corp are operating—and Mr Greentree was quite critical of how GrainCorp are operating at the moment in spending their investment capital overseas et cetera—can you just bridge the gap for me between them and ADM?

Mr Eastburn : I probably would not answer it in that way. The way that I would answer it is: that is why we are talking about having mandatory codes put in place. Does that answer your question?

Senator RUSTON: But the mandatory code could be in place for GrainCorp as easily as it could for ADM.

Mr Eastburn : That is exactly right. So the mandatory code is in place to better benefit growers. It is not a voluntary code; you have mandatory codes in there so that, at the end of the day, no matter who or whatever has got the companies, the growers are not disadvantaged.

Senator RUSTON: The extrapolation of that is: get the structure right and then it really does not matter who is the operator. So, as to your concerns—especially given that you have had a major response, in terms of the level of concern, from the growers out there, even if it is only a concern about the lack of information—and the 80-odd per cent return, do you think that, if you had this mandatory code of conduct, you could allay the concerns that your growers have?

Mr Eastburn : I still cannot guarantee that. I would say that it could help, but I am not saying that it would. I am only one person.

Senator RUSTON: But you obviously have a feel for it.

Mr Eastburn : There are 19,000 others. And the thing about it is: that is why we run the surveys every fortnight.

Senator RUSTON: But you have a feel for it.

Mr Eastburn : Yes, we have a feel for it.

Senator RUSTON: What would that feel be? Do you think there would still be a large degree of concern about the ADM proposal?

Mr Eastburn : I think there probably would be, but I think the big one is that we have to have the understanding of stocks right across Australia, up-country and down country: what stocks have been moved, where they are being moved, and what has been shipped. The thing about it is: America has all these at their fingertips, yet here in Australia we have not.

Senator RUSTON: You do not have it now, though, do you?

Mr Eastburn : No.

Senator RUSTON: The information is still not available now.

Mr Eastburn : No. So it does not matter who is there. I think one of the big worries that all growers have is not knowing. And that is with our own home-grown companies to international companies. I think that is our major worry. And that is not mine—that is a feel that we get, from ringing our policy group.

Dr Southan : As to the social licence that you were asking about, it is really the devil you know as opposed to the one you do not. In the case of GrainCorp, that is the case. With ADM, yes, we do not know. It really gets back to those three areas: the ports, stocks information, and up-country facilities—what is going to happen with those? At the moment, everyone knows how they operate, be it well, badly or indifferently. But it is the unknown, as to what will happen to those under new ownership.

Senator NASH: Can I just follow up on the stocks? It became very apparent this morning, when GrainCorp was in, that they have a very, very good handle on our on-farm storage stocks, which they undertook to come back to Senator Heffernan about. Just following up on the devil-you-know principle that Mr Southan just mentioned, how would you see a scenario playing out with ADM having that on-farm stocks information that, clearly, GrainCorp currently does, and plugging that into their network—cost of harvest, cost of transport and everything else—leading to them having an ability to price at a silo just at the point to make it not worthwhile for that grower to go to the next receival site? I know that GrainCorp currently has that, but, again—just going back to the devil we know—we know how they are operating with that information. Is there a real risk that that scenario, transposed onto ADM, could provide an extraordinarily bad outcome to growers?

Mr Eastburn : Rail freights are the ones that close silos. They have done for years. That comes back probably to Grain Trade Australia or the old Macmar system where they put the price on the price of cartage from the silo. It was very easy for them to put a price a few dollars up. Blokes will drive past for 50c a tonne, and a silo closes. It is not performing, not making a profit, so they close it.

Senator NASH: And that is one of the real concerns, isn't it.

CHAIR: Obviously these guys, if they get it, would be happy to play us on a break if it were in their corporate interest.

Senator RUSTON: Chair, could I just ask one completely left-field question—and you are probably completely the wrong people to ask it to. When the grain is marketed, do the traders find a market and then come back and source the grain, or do they work out how much grain they have got and then go and find a market for it?

CHAIR: A bit of both.

Mr Eastburn : The latter—they accumulate the grain and then find the markets, or they probably know the market is there. The thing about it is that Australia is producing what it produces, enough for 60 million people. We have 23 million. We are always going to be a major exporter.

CHAIR: Although I recall that under Minister Crean in a previous government we nearly imported Karnal bunt.

Mr Eastburn : Yes, that is right. It was actually just stopped. It actually arrived here. We actually had to stop it. That is right.

CHAIR: And, you know, corporates do anything for a quid, as lobbyists will. Thank you very much for your evidence today.

Mr Eastburn : Thank you.

Dr Southan : Thank you.

CHAIR: That was a little cheerio call to you down the back there—the lobbyists, that is.