It is truly frightening to see how quickly the Abbott government’s refusal to pay SPC Ardmona a ‘structural adjustment’ subsidy has been dismissed by commentators as a case of ‘corporate welfare vs open markets’.
Even the barest scratch of the surface reveals layers of complexity in this issue, and with fuller information, it begins to look like a case of breath-taking incompetence on the part of the Abbott cabinet – a triumph of ideology over compelling pragmatic arguments.
Where to begin?
The 700 to 800 permanent jobs on the line are the tip of the iceberg of a large supply chain. Liberal backbencher, and member representing the affected electorate of Murray, Sharman Stone, says there are a “conservative” 5,000 additional jobs on the line in cool stores, trucking, packaging, orchards, pickers, pruners and packers.
Is that, in itself, a reason to give SPCA’s parent Coca-Cola Amatil a $25 million free kick? In theory no, but in practice the welfare, retraining and lost tax revenue of those workers quickly makes it a cost to the federal budget bottom line, not a saving.
Around 6,000 workers previously paying, say, $10,000 tax a year, plus associated welfare payments as they scour other regions for jobs, would eclipse the $25 million saving to the budget by a factor of three or four within a year. There just aren't the jobs in the region to allow them to get back into work within weeks.
Well how about fairness? Why should the government fork out money to prop up one company, and not others? The reasons given by Stone are extensive.
Firstly, the region has received in the order of $1.2 billion of irrigation infrastructure in recent years specifically built around the fruit growing properties. Alongside that, a $25 million grant is tiny – less than 2 per cent, in fact.
Secondly, Stone says that cabinet’s reason for scrapping the payment of “rampant union conditions and demands is just nonsense”.
Those are strong words given that they are coming from a member of the government, not the opposition.
Stone lists other factors that have put the company into the red for several years.
– The company was bought in February 2005 when the AUD/USD was at 75 cents, making today’s 88 cents still a problem.
– The mining boom years of an Australian dollar up to 105 US cents did not only make exports expensive, but encouraged dumping of cheap imports. Stone cites two recent cases of anti-dumping actions being upheld by the recently revamped Anti-Dumping Authority (now the Anti-Dumping Commission).
– She maintains that Coles/Woolies’ purchasing power, their deals with Simplot notwithstanding (See: How SPC can be saved, January 31), has pushed prices down too aggressively, just as costs are rising in gas, petrol, electricity and water.
– Emerging from years of drought, the region was hit by extensive flooding in 2011.
With all of the above factored in, the structural adjustment payment starts to look more reasonable, especially in the context of the Gillard government’s $1.8 billion flood relief package for northern Victoria in 2011.
The SPCA board is now in negotiation with the Napthine state government to at least secure its proffered $25 million in assistance. In previous discussions, the undertaking by the firm was that every cent would be spent on re-tooling its plant to produce higher-value goods.
Specifically, the firm is moving into ranges of single-serve plastic cups, squeeze tubes and new products such as freeze-dried apple and pears ideal for export.
This fits with the fact that Stone’s own party went to the election promising to facilitate large inward investment in the undercapitalised agribusiness sector. It frequently highlighted the sector as one of the “five pillars” of the economy during the 2013 election, and one that would make us the “food bowl of Asia” (see: We should be Asia’s delicatessen, not its food bowl, October 25, 2013).
However, the blocking of the Graincorp takeover by American firm ADM sent the wrong signal from a sector hungry for capital. As governments of both stripes know, attracting inflows of capital sometimes requires sweeteners – and in this case the federal money was a pittance.
This is no dying auto industry. Rather, it is a growth sector that has experienced what Stone says is the “perfect storm” of negative factors.
“Australian provenance is extremely valuable,” she says. “It says ‘clean, chemical-free, fresh’.”
Stone says there are cultural shifts in Asian markets away from sugar-based snacks to fruit-based snacks – the re-tooled plant would expand fruit-puree snacks, and fruit ‘soft-serve’, for instance.
Moreover, strong premiums can be earned on the back of Australian provenance in areas such as baby food, where perceptions of quality are paramount.
“Once the trees are bulldozed, you can’t restart this industry in six months,” says Stone. “Trees take five years to regrow. It took the industry 100 years to get where it is now.”
In short, Stone’s criticism of her own government’s decision is withering: “One has to wonder when reality is going to hit,” she says. “We can’t have the rhetoric [on agribusiness] without the reality.”
The SPCA board will meet on February 18 to decide if it will continue in Shepparton. The region already has 8.5 per cent unemployment, and Stone expects that to hit 11 per cent if SPCA closes.
If the firm uses state money, but no federal money to preserve its operations, the Abbott government will be left looking strong on the rhetoric of strengthening the five pillars, and worse than weak in its actions.
Judging by the anger expressed by Sharman Stone, this decision over a relatively tiny sum of money will open deep rifts in the party room – and appealing to theoretical notions of ‘open markets’ will not quell that anger.
As the Great Australian Reckoning starts to bite, there will be numerous instances in which the public good of employed Australians has to be weighed against the theoretical purity of letting struggling firms collapse.
Creative destruction looks best on the pages of a textbook, but can be pretty ugly on the ground. Protectionist independent Bob Katter frequently reminds journalists at media conferences that nothing less horrific than suicide haunts communities that have lost all their work.
The Nationals - often attacked as ‘agrarian socialists’ - have to take this decision back to communities such as the other Murray-Darling irrigation towns, where just a couple of years ago they joined farmers to burn copies of Labor’s Murray-Darling Basin Plan.
In the tight-rope walk of our greatest structural adjustment for decades, the Abbott government will fall if it does not bring greater pragmatism to bear on decisions such as SPCA.