Defending Grower’s Interests

17 June 2014

Senator O’SULLIVAN (Queensland) (21:50): I rise tonight to speak on a matter of quite significant importance relating to the sugar industry, predominantly in my state of Queensland. I do so in support of federal colleagues, the members for Hinkler, Capricornia and Dawson, and 4.000-odd sugar grower producers in their electorates spread out along the eastern seaboard of Queensland east of the Great Divide, stretching from Bundaberg in the south through to Cairns in the north.

For over 100 years—102 years in fact—there has been the equivalent of a single desk for the marketing of the commodity of sugar in this country. Given the bulk of that industry is in Queensland, I can say that there are no generations of sugar growers in my home state who have not practised the marketing of their commodities, the economic interests they have in their commodities, through a single desk. That single desk is operated through a corporation known as Queensland Sugar Limited. Queensland Sugar Limited is a not-for-profit tax-free company owned by the millers and grower producers in the sugar industry. There are seven milling companies and their canegrower suppliers in Queensland who have an interest in QSL and it supports the 4,000 sugar growing businesses that I mentioned earlier.

Within the scope of being the single marketing desk, QSL provides those growers and millers four key value offerings in the form of finance, pricing, marketing and logistics—the logistics involved with the efficient export of that commodity all around the world. The net sale proceeds and profits that are created by QSL when available are returned back to those growers and millers through the pricing pools through which they market their sugar and have done so—might I say again, to reinforce my earlier statement—for over 100 years.

Apart from those other services, QSL provides the industry with the option to conduct forward pricing through QSL’s books and offers a range of pooling options where pricing decisions are made on behalf of millers and growers within agreed risk parameters. This in turn provides both growers and millers with choices that allow them to take low risk, medium risk or high risk or any other hybrid pool for them to place their commodity for sale on the world market. It is a very efficient method; it is a very fair method; it is a cooperative method; and it is a method, might I say once again—and I will repeat myself a number of times during the course of this speech—that has lasted over 100 years.

There is a thing called the economic interest of the grower. In effect, a canegrower, when they harvest their commodity, takes their cane to a mill for processing. Very few growers have a choice of mills. The natural geographic structure of the industry is such that growers have to take their commodity to a mill. It is a commodity that spoils very quickly after harvest and the harvest has a very short concentration period. In some 11. to 12 weeks all growers within their season have to have their cane off and delivered to the mill. Those who have been through canegrowing areas would know that the commodity is transported in small light-rail networks to their local mill. It is not as if they get a choice—as we might see in grain, where they can store their commodity and wait for market conditions to change where they might get better price conditions —or have the ability to transport it by road or rail to take to, in this case, a choice of other millers. So there is a very special longstanding and unique relationship between a grower and their mill.

Historically, these mills were owned cooperatively by the growers themselves. However, for various reasons —and time does not allow me to go through these tonight—that tended to go out of trend in the eighties and the nineties. In fact, it could be argued that, during that time, there was insufficient investment in this sector by growers and millers in their own interest and it made the sector very vulnerable to investment. It in fact attracted a considerable amount of foreign investment. Those foreign investors need to be complimented. They came into our state, into our country, and invested large sums of money. There is an argument that, without them, the industry would have lagged behind best practices across the world, and there is no doubt that that would have ultimately had a negative impact on the industry and the marketing of this commodity.

But at the very heart of what I am speaking about tonight on behalf of these growers is the fact that there is a radical change at hand. In 2010 a company called Wilmar International invested about $1.75 billion in the cane industry in Queensland and, in doing so, they acquired significant control over about two-thirds of the commodity that is produced. Initially, at the time that this transaction occurred, Wilmar were familiar with the terms and conditions associated with the marketing of sugar in this country and in fact indicated to the Foreign Investment Review Board that they did not anticipate disturbing any of the significant arrangements that were in place with sugar in our state.

I do not want to make any comments that draw any inference that Wilmar are anything but a respected international corporation, to whom our industry, I think, is somewhat indebted given the timing and the extent of their investment in our country, particularly in this sector. They are a very significant company, headquartered in Singapore. They rank amongst the largest listed companies by market capitalisation in Singapore. They have operations in more than 20 nations, employ more than 80,000 staff and have some 300 processing plants around the world—not just in sugar but also in palm oil cultivation, edible oils refining, oilseed crushing, consumer pack edible oils processing, speciality fats and biodiesel manufacturing. In fact, they have made a considerable investment in ethanol processing in Sarina in Queensland—and for that they deserve our thanks and our support. However, Wilmar have decided to step away from the 100-year convention of marketing sugar in our state to go to their own direct marketing arrangements. This will truly have a significant negative impact on QSL, Queensland Sugar Limited. There are those who have expressed the opinion—and I am not equipped to determine whether the statements are accurate or not—that it will eventually mean that QSL will no longer be able to operate. Wilmar have a relationship with 1,500 of the 4,000 growers in the state, and their decision will impact directly on those growers, in the first instance, but it will then have an impact collaterally on the balance of the growers in the state.

It is at this point that the most significant note needs to be taken with respect to the core of the issue. For 102 years—I repeat, 102 years—these growers have had an economic interest in their sugar, and it has been on a two-thirds, one-third basis. What happens is that the grower takes their sugar to the mill, and it is recognised that two-thirds of that sugar, processed, belongs to them and one-third of the sugar belongs to the miller. These things have been enshrined in contractual arrangements—in cane supply agreements, which are the contracts between the growers and their mills, and in the millers’ raw sugar supply agreements; that is, the agreements between the millers and QSL.

Not only has this economic interest been recognised in these various contractual arrangements but, in 2010, Queensland Sugar Limited faced penalties of $110 million when it was unable to fill forward contracts that it had sold internationally. In line with the convention of economic interest, QSL—properly, in my view— put the burden of the $110 million penalties for failure to supply, which was a result of inclement weather conditions in my state that did not allow for the harvest to be completed, back onto the millers and onto the grower producers, the many thousands of small family-owned farms. The grower producers did not blink. They took up their share of the burden—about $66 million, I am instructed—and paid that through so that QSL could offset the penalties that it had incurred by its failure to be able to deliver on behalf of these growers and millers in the international marketplace.

So, again, just for the purposes of refreshing memory mid-speech: we have an economic interest by the grower producers; it is enshrined in their contract with their mill; it is enshrined in the contract between the mill and the marketer—in this case, QSL—and it was truly tested when the growers had to share the burden of the penalties that were incurred for the failure of supply in 2010.

For almost a year, Wilmar endeavoured to negotiate with QSL to make arrangements that allow them to do direct marketing with the growers’ interests. During that time, the matter of grower economic interest was discussed. It was on the agenda, and the parties were endeavouring to try and make a determination that would enshrine that interest in future arrangements, particularly contractual arrangements. Eventually, Wilmar took the decision to withdraw from QSL. Wilmar decided that it would take not only its economic interest in the sugar that it processed but that of the growers. There are those who are satisfied now that Wilmar is breaching all of those covenants and contractual arrangements that have existed for over 100 years.

Wilmar now refuse to even recognise the economic interest of the growers. In comments they have made, they said that this was a major decision on their part and they knew it would create community angst. They talked about the deregulated marketing system for sugar and said that they were exercising their own rights. But, in the course of this, they have declared the growers have no economic interest in their sugar. They have stated that the sugar, when delivered to their mill, belongs to Wilmar and that they will not recognise these conventions, these contractual arrangements, that have been in place now for so long.

Tonight’s speech, as much as it is about supporting my colleagues in those sugar seats, and as much as it is about supporting those grower producers—those thousands and thousands of proud small family farm operations right up and down the eastern coast of my state—is also about giving a message to Wilmar.

I believe Wilmar is a responsible, very respected corporate citizen, both in our state and, it would appear, internationally, on the matters that are before me. I am certain that we will be able, between us all, to sit down, break bread and resolve this issue.

But the message for Wilmar is very clear: there is an extremely deep political resolve, amongst federal members of the Liberal National Party who represent sugar seats and agricultural seats in my home state of Queensland, amongst at least seven members of the state parliament who also have sugar seats up and down the east coast, within QSL itself and within the peak bodies that represent these growers, and there are quite a number of them in my state—and it is consistent with statements of my state agriculture minister and encouraging statements from both the federal Minister for Agriculture and the Deputy Prime Minister, who has weighed in, in a very light way, at a very early stage—to tell Wilmar that we will continue to battle for these constituent farmers, to enshrine, in whatever form is necessary, the guarantee and security that their economic interest in the product that they produce and that, in some cases, their families have produced for generations upon generations, will remain with them. If that requires us eventually to consider forms of regulation or legislation, then that case will be taken up at a later time. In the meantime—and I know that Wilmar are watching tonight—Wilmar needs to take home the message that it will not matter how long it takes, we will continue to support these farmers and their families to ensure that their ownership rights and their economic interests in their cane remain with them in much the same way as they have for over 100 years.