Emperor Hockey has no clothes on GrainCorp

The conflict between politics and national interest will weigh heavily on Joe Hockey's GrainCorp decision. The risk of deterring inward investment in agribusiness could tear the Coalition asunder.

One of Wayne Swan’s most battering experiences in government was the barrage of media reports, augmented by a multimillion-dollar ad campaign funded by the big miners, to tell him and Prime Minister Rudd what they could do with their dreaded Resource Super Profits Tax.

To say that Rudd and Swan were bullied into abandoning the tax would be incorrect. They were bullied, but it was Rudd’s replacement Julia Gillard who scrapped the RSPT by disappearing into a boardroom with BHP, Rio Tinto and Xstrata and giving the bullies Labor’s lunch money.

After that, they left her alone.

It wasn’t just corporate muscle that forced the backdown on the RSPT and created the Minerals Resource Rent Tax in its place. Many journalists saw the taxing of ‘super profits’ as a huge deterrent to inward investment in the mining industry.

That view was expressed extensively through Business Spectator at the time, and the then-opposition, led by Tony Abbott, made political hay by championing the miners’ cause.

Three years later, the kicking boot is on the other foot.

Yesterday, Swan wrote in Business Spectator that “capital hungry” Australia must only block inward investment when “unambiguous and unanimous advice from the FIRB” suggests that a merger or takeover would harm the national interest – the kind of advice he relied on to block the Singapore Exchange from buying the ASX. 

Swan is now using this ‘benchmark’ to discuss another big takeover: the attempt by multinational Archer Daniels Midland to buy GrainCorp in a deal worth $3.4 billion.

GrainCorp is the biggest handler of grain along the eastern states, with Western Australia dominated by Australian-owned CBH and South Australia by Swiss-owned Viterra. The now US-owned remains of AWB have a presence across the country and Australian-owned Emerald Grain has a significant presence in Victoria and New South Wales.

But ADM has spotted value in the 75 per cent of the eastern seaboard market handled by GrainCorp.  It’s clear to farmers that its attractiveness to a foreign buyer will involve some rationalisation of the firm’s bulk handling facilities.

As wheat grower Anna Dennis told the ABC last week: “A company based in America really isn't going to give a damn if a small silo in a small village closes down and the local farmers have to drive an extra 50 kilometres with their grain."

That kind of sentiment has been the political stock in trade of the National Party for many years, most recently seen in the report-burning protests over Labor’s draft Murray-Darling Basin Plan in 2010.

Barnaby Joyce, who has moved from the Senate to a higher-profile role as Agriculture Minister in the House of Representatives since the last election, was on the ground during those protests, fanning the flames.

Such mobilisation of political passion is nothing new. You simply find those adversely affected and foreground their concerns while skating over broader issues of national interest.

In the Murray-Darling reforms, Labor was trying to balance the ecological concerns of (mostly) city-based voters with the concerns of small farming communities, which feared a loss of scale that would see regional economies struggle to survive.

The problem now for the Coalition is that what works in one dispute – Joyce and others did help to alter Labor’s water buy-back plans before the draft became the final Basin Plan – can backfire in another.

This time around, the Nationals are feeling the political heat from their constituents, who may be personally disadvantaged by a rationalisation of Graincorp’s operations under the direction of overseas bosses.

But that on-the-ground lobbying is directly at odds with the Coalition’s heroic claim that Australia is “open for business”. Tony Abbott even used that line in his victory speech.

In a way, ADM wants to make ‘super profits’ by squeezing more economic return from the GrainCorp supply chain. That is exactly how free markets are supposed to work.

It’s only natural, then, that a still-bruised Wayne Swan would want to deepen the rift between protectionist-minded Nationals and free-market-minded Liberals within the Coalition.

The risk of deterring inward investment was the key reason the RSPT became the sword that impaled Kevin Rudd in 2010.

The risk of deterring inward investment in agribusiness by telling ADM (and others) not to seek better profits here has become a sword to cleave the Coalition partners asunder.

Joe Hockey has pushed back his decision on the takeover to December 17, presumably to find other goodies to offer farmers in Nationals-held electorates and to make the winds of change seem less painful. 

Given the ACCC has said the takeover shouldn't substantially lessen competition, Hockey would be courageous indeed if he sought to block the GrainCorp bid on any advice that is substantially weaker than the benchmark set by Swan. If he did, the “open for business” sign would be painted over by Bill Shorten with the words “naked politicking allowed”.

And what could be more off-putting to foreign investors than a naked Treasurer?

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