Apr 30, 2004

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.

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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