GrainCorp chief executive officer Alison Watkins tells Alan Kohler, Robert Gottliebsen and Stephen Bartholomeusz:
Alan Kohler: Alison, do you know whether the takeover of GrainCorp by Archer Daniels Midland is on the new treasurer’s desk yet?
Alison Watkins: I’m pretty sure that the new treasurer would be really flat out at the moment trying to come to terms with his role, so look, the regulatory process has still got a way to run. We do expect it to take a number of months because it’s not only about the Foreign Investment Review Board, of course – it’s also about other countries’ regulators including [China's] Ministry of Commerce. And probably the Chinese approval from MOFCOM is the most uncertain.
AK: So do you know what the FIRB timetable is in Australia though?
AW: Well, FIRB has defined timelines, of course, and then it’s for the treasurer to sign off, so I think that process won’t be on the critical path. As I said, I think it’s more likely to be the Chinese approval.
AK: Just on the Australian approval, it’s not a good time to try to get a takeover up that’s opposed by the Nationals and appears to be opposed by the farmers in general. During an election campaign it’s probably not the greatest timing, is it?
AW: Well certainly there’s a lot of debate and I think that that’s all a healthy part of our process. We certainly knew that it would be something that’s very important and near and dear to the hearts of particularly rural and regional Australian constituents, so what’s playing through I think is really an important and healthy debate we’re supposed to be having, but we’re confident based on our advice that the approvals should proceed.
SB: Alison, the theme of the commentary from the Nationals – Fiona Nash, Barnaby Joyce – has been fundamentally that within ADM, GrainCorp would just be a tiny cog in a multinational engine. Given that it is a multinational with the ability to source elsewhere, is that a legitimate risk that GrainCorp’s interests may not be at the forefront of their thinking?
AW: Steve, I can understand those concerns, but I think actually it understates the significance of Australian grain and particularly east coast Australian grain. Australia is actually a really important origin for world traded grain. We account for something like between 10, 12, 15 per cent, that sort of region typically of world traded grain of our types of grain. So we’re quite significant as an origin, and east coast Australian grain, certain parts of it have particular qualities that are really sought after by certain types of customers. So wheat is not wheat, grain’s not grain and Australian grain has particular characteristics and a particular role at a particular time of the year that makes me pretty confident that that won’t be an outcome.
SB: The objections to the takeover attempt tended focus on the threats as opposed to the opportunities. Within ADM, would that not create opportunities for GrainCorp which wouldn’t exist if it were independent?
AW: Absolutely, and there are many opportunities that will come for GrainCorp and for the growers who very much rely on GrainCorp as a result of being part of ADM. There’s no doubt about it, ADM has a very extensive network right around the world, so better pricing information which will translate back to the growers in the country and also better access to customer relationships, and just a broader portfolio to play in. So I think being part of a global organisation will undoubtedly be a positive for growers.
Robert Gottliebsen: Alison, I want to take you on a slightly wider journey. What is the difference between the grain handling costs in the United States and in Australia, and are we competitive?
AW: Well, it’s a little hard to compare it of course, Robert, because there are always a lot of differences. But I would say that the logistics here in Australia can be quite expensive, particularly the rail component, and that’s a lot because of our subscale trains and the poor condition of some of our tracks. So there’s certainly quite a lot to be gained from understanding how North Americans do their rail transport and the components there. But generally speaking, the North American assets tend to have a lot more throughput, so that does translate to lower costs per tonne. I’m very confident that with ADM’s experience in grain handling in the US there’ll be quite a number of good practices that we can bring back here to Australia as well that should be of benefit to our growers.
RG: So, let’s take this separately. You’ve actually mentioned that prior to the takeover you were hampered by bad infrastructure, particularly on rail and other things as well. You know, why don’t you go out there and do it yourself and look at yourself as an infrastructure company – as they no doubt will – and make the productivity improvements? Why do you have to sell it and then other groups get the benefit?
AW: Well, as far as actually being an infrastructure company, Robert, I’m not quite sure if I’m 100 per cent understanding your question but certainly we are doing it ourselves as far as rail goes. We do take a lot of risk on rail. We take quite a number of trains, about 20 trains on a take-or-pay basis, long-term contracts where we’re taking all the risk on utilisation and we’ve managed to drive significant productivity increases. We also own and operate branch line trains ourselves. And we can do so much, but we do need a lot of that government owned rail infrastructure to be invested in and that’s something that we can co-invest with governments. We’ve had some successes with the Victorian government, for example, where we’ve co-invested to get a piece of track improved. But to actually make meaningful improvement, we do need state governments to commit to that as a priority. So, Robert, I’m not sure if that answers your question.
RG: No, you did answer the question. But then, you’re saying you would co-invest. Well, why don’t you go out there and say to the Queensland government, or the New South Wales government, let’s make this a major infrastructure play? And that’s what the Americans are going to do. They will do that. You can imagine Barnaby saying, "Hey, my farmers are under quite considerable threat because already American farmers will have tremendous advantage over Australia, over fertiliser costs. Now I’ve got to upgrade my transport to try and match that."
AW: Well, I hope absolutely that is what happens because the competitiveness of our supply chain is absolutely vital to our long-term competitiveness. We do have an advantage to the fast growing markets – the Asian markets. We’re closer than the US, for example, so that gives us an edge. But it’s not a big edge and it’s an edge that we can lose if we don’t get that investment right.
RG: And the Americans are going to have a tremendous advantage on fertiliser costs because of the cheap gas.
AW: Yes, and that’s certainly the way the gas markets are playing out here in Australia. I think it is of concern for a number of industries in Australia, and to what extent we can continue producing fertiliser here in Australia, I think, is a question.
RG: There’s no question that for the producers here, it’ll be so costly that Australian farmers are going to be hit pretty hard by the low cost gas in the States and the complete mess-up that we’ve made here in Australia. So you can imagine why Barnaby would be absolutely fuming that there is now a danger that the very people who are going to kill us on costs via fertiliser will get some sort of advantage by opening our transport infrastructure.
AW: Look, there is a lot of competition in the system. I think that it’s easy to see, and people use emotive words like monopoly when they talk about GrainCorp, but actually if you look at each stage of the supply chain, whether it’s up-country storage, whether it’s the rail and road transport or whether it’s at port, there is significant and growing competition at each stage and it’s different competitors at each stage as well. So I wouldn’t understate the ability of the market to work and attract new investment if the owner of the GrainCorp business is not doing things right by growers. I have absolutely no doubt, and we’re seeing that. It’s a deregulated environment and there is a lot of new money and new investment that’s come in at each stage of the chain and that certainly keeps us on our toes, and it keeps us very motivated to provide a great offer to our growers to attract as much grain as we can into our network. And I think that any owner of our network will have exactly the same incentives, so I’m not as worried as you are about that point.
AK: Alison, there’s a lot of talk in Australia about taking advantage of the growth of Asia and in particular with food and for Australia to become sort of the food bowl of Asia. Every second week there seems to be a conference on that subject. Do you think that’s a fantasy given the sort of things that Bob’s just been talking about? And what does Australia need to do in order to take advantage of that future?
AW: No, I definitely don’t think it’s a fantasy. I think it’s definitely a reality. We already have a substantial export surplus of food of different kinds, whether it’s exporting beef or whether it’s exporting grain. We do export a lot and we’ve got an opportunity to continue to grow our production. In the grain industry, we could I think readily grow the amount of grain that we produce by, say, 50 per cent and that would allow us to maintain our share of global traded grain if we were able to do that by, say, 2050.
Now, that’s not just going to come easily, but if you look at the opportunity for best practice transfer between different categories of farming enterprise, there’s a significant uplift in that. So just better skills, better application of the technology of fertiliser to get productivity out of existing land. And then of course there are important opportunities and an important debate to be had about new varieties, whether those are advanced breeding techniques or GMO-bred grain that can also offer substantial improvements in yield. So we’ve got to be willing to have that debate and get over that particular emotional barrier which I think has slowed us down in that area.
AK: Do you mean genetically modified…?
AW: Yeah, I do. But those are the sorts of things which the experience of many other countries, for example in soy, in corn, our own experience here in cotton, with canola in Canada – there are substantial productivity gains to be had and substantial reductions in input costs as well. So, I think we’ve got to start having that discussion more actively if we really want to be serious about participating in that opportunity that lies to our north.
RG: Alison, are you selling because you think that there’s higher risk we won’t do that? And we can buy that with the fertiliser to be advantaged, so that the potential won’t be there, so therefore it’s a good idea to sell GrainCorp?
AW: No, not at all, Robert.
RG: Well you are selling, so if this potential is there, we’re a bit silly to sell, but you’ll sell us because you don’t think it’ll be realised.
AW: Look, we’re selling because we’ve had a very good offer and we’re recommending actually that our shareholders sell, of course. It’s not for the directors to make the decision on behalf of shareholders. But our shareholders would be I think rightly concerned if we’d not put that offer to them. When we received an offer that’s close enough to 50 per cent more than where our share price was trading at, an offer that an independent expert has come in and said is a fair and reasonable offer, clearly that’s an offer that we need to put to our shareholders. It’s a very good outcome for our shareholders and I’m an absolute optimist about the future for Australia and I think we will get it right and you know why? It’s because I think we have shown a lot of courage in the past.
We have deregulated agriculture. We’ve removed tariffs. We’ve opened up our economy. We’ve shown a great preparedness to welcome foreign investment in our industry and that has turned Australian farmers into some of the most innovative and least subsidised in the world. And I think it’s that kind of leadership and innovation that will continue to stand us in good stead. And look, I’ve got no doubt that we will make the right decisions and there will be a lot of debate and there’ll be a lot of agonising and that’s agriculture for you, and that’s also what I love about agriculture is that it does have a lot of people who are very passionate and care a lot. But we usually make the right decisions and I have no doubt that we will this time round as well.
SB: Alison, a moment ago you talked about the potential to improve agricultural productivity and outlined a series of things that could be done. Why hasn’t that happened yet? And what are the obstacles to lifting productivity?
AW: Well look, I think if we step back and look over a period of, say, 40 years, we have grown productivity quite significantly in this country. The last 10 years is really where it’s flattened out and we’ve had a couple of droughts in there, so it hasn’t been a really straightforward 10 years to analyse, but we have taken big-step changes over a period of 40 years or so. We’ve pretty much close to doubled yield over that period, so that’s come because we’ve brought new varieties in, better farming techniques, no till, use of fertiliser, more science and so forth. So I think in the last 10 years there have been some special circumstances, which have been part of the problem, but also we haven’t yet fully confronted the wave of farm succession that will happen over the next 10 years.
As older farmers sell their holdings, I think that will encourage a wave of consolidation that will also assist better practice and better farming techniques on larger scale enterprises. More professionally run, if you like. So I think there’s another opportunity there as well. And there is a lot of good work going on around advanced breeding and GMOs and I think we’ll see the benefit of those probably not in the next five years, but certainly towards the end of the next decade we will start to see productivity improvements from those technologies as well.
AK: Alison, do you know what your future holds personally? Has ADM offered you a job?
AW: Look, I’m not focussed on that at the moment. I’m really focussed on making sure we do a great job with the exciting set of initiatives that we have in front of us, and which ADM are very, very keen through this period to see us continue to implement. I’m spending a lot of time out and about at each of our businesses and I’m really enjoying working with them to make sure we deliver this financial year with a good strong finish and that we’re setting this business up for success for the long term.
AK: I’m sure that’s true, but have they offered you a job?
AW: Look, like I say, I just haven’t really thought about it at all, Alan. At the moment the regulatory approvals are going to take some time and I’m very committed to making sure that we see through this critical next period for the business as well as we possibly can.
AK: So, you’d rather not answer the question, is that what you’re saying? Have they…?
AW: I’m saying, I’ve got a job to do and a board that are expecting me to do an outstanding job handing this company over in great shape and that’s my absolute focus for now.
AK: Ok. I think we’re done.
AK: Thank you very much, Alison.
AW: Thanks very much Stephen, Alan and Robert.