12 January 2013

The Treasurer's decision to block, without detailed explanation, the Archer Daniels Midland (ADM) offer to Graincorp shareholders has ramifications well beyond the grains sector.
We talk much about the opportunities presented by the Asia-led dining boom. But how will we produce three times or more food with the same limited (and in some cases depleting) water, land and people resources?
The only answer is a big lift in productivity driven by a significant rise in investment. That is, investments in infrastructure, research and development, innovation, including in the areas of genetically modified crops and crops protection. It has been estimated that the investment required to fully capitalise on the dining boom could be as large as $900 billion between now and 2050. By necessity, much of that investment will come from foreign sources.
By prohibiting the ADM offer, Joe Hockey has sent all the wrong messages to potential foreign investors in Australian agriculture and local agri-businesses. Having ruled out competition issues as a key element in his decision, what do potential investors understand to be the rules for navigating applications past the Treasurer in the future? And in the absence of such clarity, will they bother?
Of course, more immediate problems also follow. The first adverse impact falls on Graincorp shareholders who now hold shares of less value, and an interest in a company which will struggle to raise the capital needed to up-grade its supply chain infrastructure. Axiomatically, that will also impact on growers who will face a necessary and inevitable rationalisation of storage and other assets.
These are the same growers who were concerned about competition issues and potential affects on charges, yet both the Australian Competition and Consumer Commission and the Treasurer have now ruled competition issues out as a reason for not approving ADM's bid.
A third potential group of losers are those relying on Australia to play its part in meeting growing global demand for food, estimated to rise by seventy percent by 2050.
Sadly, Joe Hockey's decision appears to have been made more with an eye on the opinion polls than the national interest or the interests of growers. It's an announcement which will reverberate for many years to come, not just in grains but in agriculture more generally.