Will Hockey sow the seeds of an agribusiness boom?

If, as appears probable, Joe Hockey becomes the next federal Treasurer of Australia after tomorrow’s election he will, apart from wrestling with the difficult fiscal challenges, have a very sensitive decision on his plate.

Two-and-a-half months ago Archer Daniels Midland and GrainCorp agreed the terms for a recommended $3.4 billion bid for the last of the major listed Australian agribusinesses. Since then there has been fierce lobbying from sections of the grower community and very strong statements against the bid by senior National Party politicians.

GrainCorp, of course, dominates the east coast grain storage and logistics infrastructure, operating seven out of the eight export ports. The arguments against the ADM bid range from concerns that it might rationalise GrainCorp’s silo infrastructure, forcing farmers to have to ship their grain further, to concerns about it raising prices, to fears that Australian grain might be disadvantaged in Asian markets if ADM favours its North American operations.

Underlying the specific issues that have been raised in opposition to the takeover, of course, is a more general unease about foreign ownership of agricultural land and businesses, even though (or perhaps because) AWB and ABB have previously been taken over by foreign competitors.

Kevin Rudd sought to exploit that unease in his Rooty Hill debate with Tony Abbott last month, saying he was “anxious” about an “open slather” approach to foreign purchases of agricultural land and saying Australia needed to adopt a more cautious approach to foreign investment in agriculture. He would have been well aware that Bob Katter has been using the antipathy to foreign investment in rural and regional Queensland to gain political advantage.

If Hockey were to make the decision on ADM’s bid – the Treasurer, in theory, has the sole discretion on foreign investment decisions, with the Foreign Investment Review Board providing advice rather than rulings – one suspects it would be a straightforward approval.

With Nationals’ leader Warren Truss, Barnaby Joyce and other senior Nationals expressing severe reservations about allowing GrainCorp to fall to ADM, however, there are some significant internal political issues for Hockey to manage.

It should be said that the bid has been cleared by the Australian Competition and Consumer Commission on the basis that, because GrainCorp and ADM aren’t competitors in this market, there would be no substantial lessening of competition.

The ACCC also regulates access to GrainCorp’s ports, so an ADM-owned GrainCorp wouldn’t be able to use its dominant position to gain competitive advantage or exploit its customers.

GrainCorp’s Alison Watkins has addressed the discrimination issue by saying that Australia is a significant source of world traded grain with particular and sought-after qualities and proximity to the growth markets in Asia (KGB INTERVIEW: GrainCorp's Alison Watkins, July 8).

She has also said that becoming part of a global organisation with an extensive global network, with better access to pricing information and with better access to customer relationships, would be a positive for Australian growers.

ADM has said it will invest $300 million in GrainCorp’s infrastructure and then between $40 million and $60 million to maintain it if it is successful.

The bid has wider significance. It will be the first test of the Coalition’s attitude towards foreign investment in sensitive sectors.

Rejecting the bid would (apart from denying GrainCorp shareholders an extremely attractive price for their shares) send a message to the world about Australia’s attitude towards foreign investment, particularly in the agricultural sector, generally.

ADM is a $US24 billion ($26.23 billion) listed company in the US, the most significant source of investment in our agricultural sector. If we reject North American investment it sends a very strong message about Australia’s attitude towards foreign investment, a message that other countries – like China – won’t miss.

There is, potentially, as massive long-term opportunity for Australian agriculture as the middle classes across Asia, but particularly in China, continue to expand (Australian food needs a Chinese flavour, April 19).

To take advantage of that opportunity in the post-hard commodities boom environment will require massive amounts of capital and a significant and continuing lift in agricultural productivity. Watkins has said Australia could increase the amount of grain it produces by 50 per cent by 2050 with improved productivity.

The amounts of capital potentially involved – an ANZ-Port Jackson Partners report estimated it at about $600 billion – will require substantial amounts of foreign capital. If the opportunity is to be properly exploited, it will also probably require significant co-investment from customer nations to secure access to their markets.

There is no doubt that there is a latent antipathy to foreign investment in the community, particularly in rural and regional communities – rural protectionism with a tinge of xenophobia – but generally the record of Australian governments towards foreign investment has been mature and welcoming.

There has been the odd populist, politically-motivated piece of rhetoric and tokenism like the Coalition policy of lowering the FIRB threshold for scrutiny of agricultural land purchases or the bi-partisan approach to creating a register of foreign land purchases, but there have been very few rejections of foreign investment proposals.

Hockey will, assuming the Coalition does win, have a chance to put some of the messy messaging that has emerged during the election campaign and the phony campaign that preceded it behind the new government and send a strong signal to foreign investors, and prospective investors in agriculture in particular, that they remain welcome and indeed wanted.