There is a perverse logic underpinning Treasurer Hockey’s decision to block Archer Daniel Midland’s takeover of GrainCorp.
Its basic form is this:
– Australia needs foreign investment to allow its under-capitalised agribusiness sector to flourish;
– The GrainCorp takeover would make growers and the broader community angry, and vocally so;
– That anger would deter future foreign investment;
– Ergo, we’d better stop this foreign investment.
Hockey said at his early media conference on Friday, specifically scheduled before markets opened, that this was not the right time for the takeover.
His argument was that a series of deregulations in bulk handling of grain, but particularly the ending of the single-desk pricing regime in 2008, meant the industry was still evolving and competition was slow to grow.
And that, he said, was one of the big sticking points.
Hockey said: “Many industry participants, particularly growers in eastern Australia, have expressed concern that the proposed acquisition could reduce competition and impede growers' ability to access GrainCorp’s storage, logistics and distribution network.”
And that is where government leadership was required, but was not delivered. The community anger over reduced competition was not borne out by the Australian Competition and Consumer Commission inquiry into the deal.
In June, when the ACCC gave the deal a green-light in competition terms, it explained its decision looked at two key tests.
Firstly, did ADM substantially compete with GrainCorp through its subsidiary Toepfer (80 per cent owned by ADM), and would the loss of that competition affect the market. The answer was ‘no’.
Secondly, if the deal went ahead, would ADM control the ‘bottleneck’ parts of the supply chain – namely, the ports.
Without regulation, the answer would be ‘yes’. However, as with critical infrastructure in other sectors such as telecommunications and the bulk handling of mineral exports, the ACCC already imposes access undertakings to these ‘bottlenecks’.
In June, ACCC chairman Rod Sims said: “In forming its view, the ACCC noted the importance of ensuring access to bottleneck infrastructure where necessary. In this context, the ACCC currently administers access undertakings for access to bulk wheat port terminal services.
“These arrangements have been very important in promoting a competitive bulk wheat export industry, and in allowing Australian grown wheat to be sold to a variety of international markets and buyers.
“In an environment where regulation may be moving to the use of a mandatory code, it will be important that policy makers ensure the regulatory settings are appropriate to ensure the right market outcomes in bulk wheat export, and that access to important bottleneck infrastructure continues to be effective.” (Emphasis is my own.)
The Coalition's election slogan of “cut red tape” cannot rationally be judged to be more important than keeping current access undertakings in place to ensure a competitive market flourishes.
And who might be in charge of keeping that regulation in place? Why Joe Hockey and friends, of course.
Real political leadership “in the national interest” required Hockey to stare down National Party hot-heads such as Barnaby Joyce, and to explain to them that competition would not be affected as long as access provisions were maintained at those crucial bottlenecks.
The GrainCorp supply chain would, through ADM investment, have been made more efficient and would have put pressure on other competitors to follow suit. That opportunity is now lost.
Yes, some growers would have been disadvantaged by the takeover – as one complained, they might have to drive 50 kilometres further to a grain silo. But policy can never be made on the basis that nobody loses out. In this case, a more efficient supply chain that could compete on an equal footing in a globalised marketplace has been put second to the anger of a vocal few.
The National Party is the tail wagging this dog. The national interest is the loser. And Joe Hockey has failed an important test to live up to his own party’s slogans that “Australia is open for business” and that “grown-ups are back in charge”.