The three foreign companies that control Australia’s sugar milling industry are gradually losing the political battle to
continue marketing the country’s sugar crop in a free and open market.
Singapore’s Wilmar International, Thailand’s Mitr Pohl Sugar Corp and China’s COFCO Corporation are facing the prospect of handing control of the marketing of two thirds of the sugar produced by their mills back to cane growers.
That will threaten about $3 billion of investment made over the past five years as the three companies mopped up Maryborough Sugar, Sucrogen (formerly CSR), Tully Sugar and Proserpine Sugar.
The political move against the sugar millers has the potential to cause friction with Australia’s trading partners because the proposed changes to current marketing arrangements allegedly breach Australia’s free trade obligations.
If the various Liberal, National and Katter Party forces lined up against the foreign companies are successful in their bid to re-regulate the sugar industry, Australia’s reputation as a safe and predictable place to invest will be severely tainted.
There are multiple political forces working in favour of the estimated 4400 cane growing families which supply up to 4.5 million tonnes of sugar in Queensland each year. About 85 per cent of that sugar is exported.
There is a multi-pronged attack against the sugar millers. There is a Senate Committee Inquiry into the marketing of sugar by the Senate Standing Committee on Rural and Regional Affairs and Transport References Committee. Its report is due out on June 24.
The Liberal National Party led by member for Dawson, George Christensen, has been running a Sugar Marketing Code of Conduct Taskforce. It circulated a mandatory code of conduct late on Friday and wants responses from the industry back by Thursday.
A third threat to the sugar millers comes from Bob Katter, the federal member for Kennedy and leader of Katter’s Australian Party. He believes the foreign sugar millers are trying to control the price of sugar and their ultimate strategy in Australia is to buy up as many cane farms as possible.
His son Rob, who is a member of the Queensland Parliament, has put forward a private members bill, the Sugar Industry (Real Choice in Marketing) Amendment Bill 2015.
This bill is not much different to the mandatory code released by Christensen.
His bill is gaining support from both sides of the Queensland Parliament.
Opposition spokeswoman for Agriculture, Deb Frecklington said in May she would prepare a private members bill for the Queensland Parliament to introduce pro-competition amendments to the Sugar Industry Act 1999.
“Cane growers up and down Queensland’s coast need certainty for fair competition in sugar marketing and dispute resolution with mills,” Ms Frecklington said.
That will play well in the so-called seven sugar seats of Queensland, four of which are held by Labor.
Both the mandatory code and the private members bill seek to over turn all the work done as part of de-regulation of the industry in 2006.
That de-regulation occurred at a cost of $440 million to Australian taxpayers with the funds shared between growers and millers.
In a nutshell, the deregulation put an end to the single desk for the marketing of Australian sugar exports. It was a positive move for growers because it included the first access to futures markets for capturing the value of their crops with much greater certainty.
However, there was a provision in the deregulatory package for the sugar millers to pull out of the marketing body called Queensland Sugar Ltd (QSL).
The three foreign millers have now given the three-year notice that they will be pulling out of QSL and marketing their sugar separately through their own traders.
That has caused a backlash among cane growers who have used their powerful lobbying to ensure politicians move to stop the millers from using open market forces.
The deregulation in 2006 followed years of detailed reviews. In fact, Wilmar’s Shayne Rutherford, who is executive general manager, strategy and business development at Wilmar Sugar Australia, told the Senate hearings that there were 35 independent reviews, inquiries and reforms before now deputy prime minister Warren Truss pushed through the deregulation of the industry.
The mandatory code of conduct released by Christensen would allow growers to stop any negotiations over a sugar cane supply contract with a mill and seek arbitration.
Also, the code would give growers the power to have a say over where the sugar produced by the mill is marketed.
At the moment marketing is handled by the mill with the risk on price of the sugar carried about one-third by the mill and two-thirds by the grower.
This marketing arrangement was in place before deregulation.
Millers have decided to pull out of using QSL because they discovered they could get a higher sugar price without them.
The catalyst for stopping the use of QSL was a $106 million loss several years ago caused by a failed crop and the need to pay out hedging contracts.
The shift to the free marketing of sugar by the millers would not be detrimental judging from the experience of those growers who have been supplying the Maryborough mill in North Queensland.
The foreign millers argue that the growers and the mills have the same incentives to get the highest sugar price. As Rutherford told the Senate inquiry: “We prosper together, we fail together.”
But Katter has a different view and it provides insights into the real issue. It is not about sugar pricing for growers it is about foreign ownership of assets in agriculture.
He plays the foreign card when he says cane farmers are being “left at the tender mercies of two giant foreign corporations for too long, one of them with a fairly malodorous record”.
“The irrationality of people that advocate competition and free markets and then to please their corporate masters impose a monopoly on the farmers, it knows no bounds,” he says.
“This monopoly has resulted in cane farmers realising you can’t make money out of sugar cane, so we close a sugar mill in Australia every two years now.”
Following the release of the draft mandatory code the Australian Sugar Milling Council noted that there was no cost-benefit analysis or regulatory impact statement. “The key outcome if the proposed Code was implemented would be to stifle investment in the milling sector and see our industry regress backwards towards the regulated days of pre-2006,” says Dominic Nolan, chief executive of the Milling Council.
“This proposed code would, in effect, unilaterally change the ownership of raw sugar, and change the very nature of a sugar milling business.”
Nolan rightly points out that there has been no market failure in the current sugar marketing arrangements.
Veil over funds
A global report by Morningstar gives Australia a black mark for the disclosure by managed funds.
“Australia continues to score relatively poorly for disclosure, receiving a D,” the report said.
“Australia remains the only country out of the 25 assessed without any working periodic mandatory portfolio holdings disclosure. The implementation of legislation that would lead to holdings disclosure for superannuation funds has been repeatedly delayed and does not also extend to managed funds. A meaningful number of fund managers operating in Australia do, however, provide Morningstar with monthly or quarterly disclosure. Elsewhere in the Disclosure category, a growing number of markets now either require or have as standard practice publication of portfolio managers’ names and tenures in product disclosure statements, but Australia is not among these countries.”
[“source – afr.com”]