As envisaged by the Coalition prior to its September 2013 election victory, in December Agriculture Minister Barnaby Joyce announced the terms of reference for an Agriculture Competitiveness White Paper (White Paper).
Agriculture, of course, is one of the Coalition's stated "five pillars" for economic growth, and part of its intention to develop a more diverse economy that is less reliant on mining. The purpose of the White Paper will be to develop a strategy to generate jobs, farm gate returns, investment and economic growth in this key export market by leveraging Australia's agricultural assets and taking advantage of the proximity to the fastest growing markets in the world.
The White Paper will consider a range of issues, including the effectiveness of regulations affecting the agricultural sector including the extent to which regulations promote or inhibit competition, investment and private sector-led growth. The White Paper will also consider:
- the competitiveness of the Australian agricultural sector
- access to investment finance, farm debt levels and debt sustainability
- the efficiency and competitiveness of inputs to the agriculture value chain (including research and development and critical infrastructure)
- food security
- means of improving returns at the farm gate (including through better drought management)
- opportunities for enhancing agricultural exports and new market access
- the effectiveness and economic benefits of existing incentives for investment and job creation in the agricultural sector.
In the coming weeks an issues paper for the White Paper will be released which will provide greater specificity on the key issues that will be considered. This will be followed by consultation with industry and the community. The final White Paper is proposed to be released towards the end of 2014. The consultation process on the White Paper and its results could be significant for the agricultural sector in the medium to longer term and will, of course, need to balance competing interests and views (including those within the Coalition itself).
However, in all likelihood the pace of regulatory change will not be rapid.
The release follows the recent ADM rejection
Notably, the release of the terms of reference for the White Paper came just days after Treasurer Joe Hockey's rejection of the proposed acquisition of GrainCorp Limited (GrainCorp) by Archer Daniels Midland Company (ADM).
GrainCorp owns over 280 up-country storage sites and, importantly, seven of the ten grain port terminals in New South Wales, Queensland and Victoria (approximately 85% of the east coast's bulk grain exports are handled through GrainCorp's ports network). ADM's proposed acquisition of Graincorp, which was conditional on approval being received from the Treasurer under the Foreign Acquisitions and Takeovers Act 1975 (Cth), would have been one of the most significant acquisitions of an agricultural business in Australia's history and was one of the most complex cases to come before the Foreign Investment Review Board (FIRB). Mr Hockey rejected the proposal on the basis that the foreign acquisition of this "key Australian business" was contrary to the national interest, although he noted that the members of FIRB could not form a consensus recommendation for the Treasurer. Mr Hockey did not consider that any approval given subject to specific conditions would be able to mitigate the national interest concerns.
Mr Hockey's decision was, of course, subject to a significant amount of debate. While the terms of reference for the White Paper intend to establish a foundation to promote investment and jobs, the rejection of ADM's proposed takeover has highlighted the reluctance of some parts of the community to encourage significant foreign investment within the agricultural industry. Some of this opposition will become apparent as the consultation process proceeds.
It must be noted that rejection of a takeover proposal on the grounds of national interest is rare and this is the only rejection to date by the current government. Indeed, recently the Treasurer approved Canadian based Saputo's proposed acquisition of 100% of Warrnambool Cheese and Butter (which was in a three way bidding war against Australian based Murray Goulburn and Australian based Bega Cheese). Further, since the ADM rejection, outside the agricultural space the Treasurer has approved State Grid Corporation of China acquiring 19.9% of SP AusNet and 60% of Jemena, and approved the removal of certain foreign investment conditions placed on Chinese state owned enterprise Yanzhou Coal Mining Company restricting its ownership in coal mining heavy-weight Yancoal Australia Limited. Each of these is a significant foreign investment.
The year ahead
All in all, like 2013 which saw important regulatory debate and high profile M&A (such as ADM's failed bid for GrainCorp and the hotly contested battle for Warrnambool Cheese and Butter), 2014 will be an important year for the agricultural sector in Australia. Not only will the White Paper detailed consultation process occur, the thresholds for foreign investment in the agricultural sector have been flagged to be lowered (although this is yet to occur), the approach to foreign investment in agriculture post ADM will continue to be debated and free trade negotiations will continue with key trading partners (including China and Japan) following the conclusion of negotiations in December 2013 on a free trade agreement with the Republic of Korea.
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