Back to drawing board at GrainCorp
Joe Hockey was well within his rights to place competition at the centre of national interest in his rejection of the Archer Daniels Midland bid for GrainCorp.
Sure, the deal doesn't change the share of GrainCorp's control in the east coast infrastructure, but it entrenches a position that is already dominant.
And while freedom of capital flows should be encouraged from offshore, the notion that there is not sufficient investment funds in Australia to match those that were on offer from ADM is a nonsense.
ADM was attracted to these assets because it thought it could make money out of them. And if there is a buck to be made there will ultimately be other buyers. GrainCorp does not need the access to ADM's customer base to sell its grain - it has done fine without this to date.
The disappointing part of the government's decision is that it did not seize the opportunity to extract some competitive undertakings from the prospective buyer. Hockey chose to let that one slip.
"Given that the transition towards more robust competition continues and a more competitive network is still emerging, I consider that now is not the time for a 100 per cent acquisition of this key Australian business," Hockey said last week.
The trouble is, to the extent that competition is emerging it is glacial. GrainCorp's ports still handle 85 per cent of east coast exports and plenty of growers are not convinced there is a well-functioning level of competitive service on offer.
Thus it was easier for the ADM lobby to characterise the Treasury rejection as anti-foreign investment and a political capitulation to the Nationals.
While there is surely an element of that as well, the fact is this doesn't really matter if the logic behind the decision is sound.
The "open for business" banner the Coalition is waving has not been tarnished by this decision. GrainCorp shareholders won't get their cash but when you invest in the stockmarket you take chances on many things, including the regulatory environment. These should have been the least of Hockey's concern.
The company, like any other, now needs to go back to the drawing board to investigate how it can improve its earnings and returns without the assistance of an offshore buyer.
The GrainCorp chairman is already talking about ways to rationalise operations - albeit without help from chief executive Alison Watkins, who is heading off to run Coca-Cola Amatil.
The chairman even suggested the bid had exposed the deficiencies in the service levels in the country. He also says there is no shortage of competition. These facts don't necessarily go hand in hand. In a general sense more competition leads to investment in service.
If the agribusiness sector is the great post-mining frontier there will be plenty of investment to be made over time, by local or offshore investors. Pregnant with possibility though it may be, over time the fact is that any business based around rural commodities has good years and bad years.
Australian companies have capitalised well in funding the development of our mineral resources - to the tune of hundreds of billions.
The value of ADM's bid was only $3.4 billion and in terms of capex we're talking about $250 million. It is a drop in the ocean and a last-ditch pitch to get the deal over the Treasurer's desk. But let's get back to the big point: competition.
Australia is overly burdened with monopolies, duopolies and oligopolies that have distorted so many markets, from supermarkets to telecommunications.
And the earnings numbers from second-tier food and grocery wholesaler Metcash reinforced just how dominant players can better entrench their position.
Metcash's food and grocery business is struggling on a number of counts - one of which is dealing with the market leaders, Coles and Woolworths, which have successfully wooed shoppers with discount petrol dockets.
The Metcash structural and performance issues cannot be laid solely at the feet of the big competitors, but the playing field does have a tilt and one of which the big boys will take advantage.
Despite Metcash's mitigation plans, there was no real sense that it has found a solution to the problem with its like-for-like sales from food and grocery operations falling in the first half of 2014, while Coles and Woolworths are in the ascendant. Where the big players are discounting food and groceries to capture market share, Metcash as a wholesaler gets additionally stung. It is not the competition regulator's job to look after Metcash shareholders, but getting a handle on sustained (if that is what it is) uncommercial fuel discounts is.
Metcash chief executive Ian Morrice said it was difficult for the company to compete against the supermarket giants, which he said distorted the market through cross-subsidisation between their grocery and fuel businesses. "The use of market distortive devices such as fuel shopper dockets, particularly at excessively high predatory levels, makes it very difficult for independent retailers to compete on a level playing field."