tip off

Corporate welfare – a sweet deal for some

Crikey’s forthright stand on the Great Sugar bail out brought praise
and some bagging, but the situation is worse, there’s a large dose of
corporate welfare - yet again - from the Howard Government.
The $444 million sugar industry assistance package, to give it its
political name, is certainly a sweet deal for the industry, especially
all those government members in marginal seats along the Queensland
coast. But it’s also an example of corporate welfarism at its
John Howard worst.

In fact it’s the fourth lot of assistance to this industry since 1998
and takes the amount to well above half a billion dollars. The
question remains, can anyone explain why large companies such as CSR
and the Finasucre group of Belgium should have a chance to get their
hands on the money?

As details of the package are picked over, the section called
“Sustainability Grant” is the one which should be causing taxpayers the
greatest aggravation. It is the largest single area of assistance.

The Sugar Industry Reform Programme 2004
(don’t you love a handout described as “Reform”) includes grants to
millers and growers of up to $146 million to help them through the
current financial crisis, so that they can take the necessary steps to
reform and adjust.

This is what the Prime Minister’s statement said on Thursday:

The Australian Government will pay the sustainability grant in two
instalments to all operating growers and mills, with the first
instalment planned for June 2004. Industry groups will be asked to sign
up to a Statement of Intent on behalf of the industry committing to
achieving real reform and restructuring before receiving the first
Sustainability Grant payments.”

There’s no break up of the $146 million between millers or growers, or
any information on just who will benefit. Will any of the mills
close up or merge? Highly unlikely given the regional nature of the
industry and the fact that the only rationalisers, CSR and the
Belgium-controlled Finasucre would find it hard for either ACCC reasons
or Queensland political parochialism.

Around 94 per cent of Australia’s sugar is grown and milled in
Queensland so the overwhelming bulk of the $444 million will be paid
there. These are the millers operating in the Queensland Industry
according to the website of the State’s millers’ association:

  • Bundaberg Sugar Ltd
  • CSR Ltd
  • Isis Central Mill Company Ltd
  • Mackay Sugar Cooperative Association Ltd
  • Proserpine Co-operative Sugar Milling Association Ltd
  • Mossman Central Mill Company Ltd
  • The Maryborough Sugar Factory Ltd
  • The Mulgrave Central Mill Company Ltd
  • Tully Sugar Ltd
  • W.H. Heck & Sons Pty Ltd

Then there is the Hanwood co-operative on the NSW North Coast, milling
the NSW crop.

The grants do not apply to the refining side, on
the basis of the documents seen so far. In Queensland the grants will be distributed through Qld Sugar Ltd
under guidelines from Canberra. Qld Sugar will in turn make payments to
operating mills based on average production in the last three years.
These mills will then distribute these funds to their growers, based on
the division of funds between growers and mills over the previous three
years.

A similar arrangement will be made in the smaller states of Western Australia and NSW.
Complex yes, but before getting to the big guys, a point about some of
the Co-Op mills. They are owned by the growers in their respective
districts. So the growers will be getting money in two ways. From the
mills direct and money held by the mills as their share of the payments
from Qld Sugar. This fits in with the strength the growers and
their corporate entities have in some areas of coastal Queensland.

But as corporate entities, you’d have to ask why the mills are getting
money in any case? These mills are on the same footing as the big
blokes, CSR and Bundaberg (Finasucre of Belgium). Part of the
answer is that the owner-growers are quite often powerful in the
National Party in their area and in the influential Queensland
Canegrowers group, one of the best connected bodies in conservative
politics in the state.

CSR says it’s responsible for about 40% of the nation’s raw sugar
output. As well, the company has a 50% interest in refined sugar joint
ventures, which are the leading suppliers in Australia and New Zealand.

Under Queensland state legislation, sugar produced by Queensland mills
is acquired by the industry owned marketing company, Queensland Sugar
Limited (QSL). QSL sells the sugar to a range of domestic and
international sugar refiners. Major export destinations for Australian
raw sugar are Japan, Korea, Malaysia, New Zealand and Canada.

In a statement CSR CEO, Alec Brennan, welcomed the package and in part
said, “we are committed to do what we can to ensure a sustainable sugar
industry into the future and remain confident that with the support of
this program, that goal can be achieved. CSR has already announced an
investment of over $100 million to develop a renewable energy project
to support this objective.”

Well, that “renewable energy project” at one of its Queensland mills
was announced last September, so it’s a pretty long bow for CSR to link
that project to the latest rescue package. Presumably that
project stands on its own and doesn’t need any government help from the
package to justify its construction.

Of greater interest would have been CSR telling shareholders and
taxpayers generally how much money the company will receive and what it
intends doing with it. Hopefully it will not finance higher dividends
to shareholders.

Sugar is still a profitable business for CSR, earning $38 million in
the first half of the financial year ended last March. Its full year
results are due next month. At the end of September the company had low
debt and low gearing, so its not exactly in need of any government aid.

Finasucre, which owns Bundaberg is one of the world’s leading sugar
groups. You’d be entitled to ask why a company headquartered in Belgium
in the European Union, with its highly protectionist stance against
Australian sugar exports, should be entitled to any money from
Canberra. You’d also be hoping Bundaberg doesn’t lift dividends
to its parent as a result of this package.

In fact the EU is a leading player in corrupting the world market that
the Prime Minister referred to in his statement made Thursday in
Bundaberg. The irony of the bail out being made in essentially a
company town (where the major employer is an EU sugar producer) in a
marginal Queensland government-held seat (Hinkler) was obviously lost
on the Prime Minister and his advisers.

Maryborough Sugar is another listed Queensland sugar miller. Much
smaller than either CSR or Bundaberg, or the big grower-owned group,
Mackay. Again why should a listed company or any corporate participate
in a bail out designed essentially to help growers?

Mackay Sugar is owned by around 1,100 growers in the Mackay district
and operates four mills in one of the most productive parts of the
Australian industry. Why should it and its grower shareholders be
entitled to a cut of the bail out?

And even though any bail out of Mitsubishi Motors in Adelaide should be
opposed on the basis of corporate welfare, if you were one of the three
to 12 thousand employees of the company and its suppliers wondering
about your future, you’d be looking at the sugar industry package and
just plain wonder at its cynicism.

Obviously there are fewer marginal seats to protect in South
Australia. And you’d have to wonder why Peter Beattie and his
Government haven’t put their hand in their pockets. They did put up $30
million or so back in 2002, but with an $800 million plus annual petrol
subsidy and hundreds of millions of dollars a year flowing from NSW and
Victoria to the State under Grants Commission formula, you’d think the
Labor Administration could do some more.

After all, the overwhelming proportion of the $444 million will be
flowing from taxpayers outside Queensland to help the growers and the
local economies and the Queensland economy.

It’s corporate welfare at its worst and most cynical. But that’s the way of the Liberal and National Parties under John Howard.

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