tag:theconversation.com,2011:/id/topics/archer-daniels-midland-8014/articlesArcher Daniels Midland – The Conversation2013-12-03T01:33:13Ztag:theconversation.com,2011:article/210062013-12-03T01:33:13Z2013-12-03T01:33:13ZHockey’s GrainCorp decision opens competition can of worms<figure><img src="https://images.theconversation.com/files/36727/original/mkwshzm4-1386028222.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Treasurer Joe Hockey has flagged competition issues after rejecting the ADM takeover of GrainCorp, but he failed to say how he would fix the GrainCorp monopoly.</span> <span class="attribution"><span class="source">Alan Porritt/AAP</span></span></figcaption></figure><p>When Federal Treasurer Joe Hockey <a href="http://jbh.ministers.treasury.gov.au/media-release/026-2013/">quashed</a> the acquisition of GrainCorp by Archer Daniels Midland on national interest grounds, his stated reasons were based on competition. </p>
<p>Despite it being five years since the single desk for wheat exports was abolished, according to the treasurer “it is still taking some time for increased competition to emerge”. In particular, GrainCorp controls essential bottleneck infrastructure. It owns seven of the ten grain port terminals in New South Wales, Victoria and Queensland, and the government says approximately 85% of eastern Australia’s bulk grain exports are handled through GrainCorp’s ports network.</p>
<p>From an economic perspective, it doesn’t really matter if dominant firms are listed on Australia’s sharemarket or, as part of ADM, on the New York stock exchange. However, the treasurer argued having ADM acquire GrainCorp would undermine public support for foreign investment. So he prohibited the acquisition.</p>
<h2>So now what?</h2>
<p>Unfortunately the treasurer did not answer the two follow-up questions. If there is a competition problem in Australia’s grain trading, where did it come from? And what (if anything) is the government going to do about it?</p>
<p>The competition problem is historic. GrainCorp started life in 1916 as the NSW government-owned Grain Elevators Board. It was privatised as GrainCorp in 1992. But competition for grain exports wasn’t an issue. The single desk of the Australian Wheat Board (AWB) had a legal monopoly over much of Australia’s grain exports, with GrainCorp handling the grain and carrying out some domestic trading from 1996. GrainCorp expanded, buying facilities in Victoria and Queensland. But again, there was no competition problem because competition was largely illegal.</p>
<p>Then in the mid-2000s, the oil-for-wheat scandal erupted. Support for AWB’s single desk collapsed and in 2008 the monopoly power of AWB was removed. By 2011, AWB had been acquired by the Canadian firm Agrium and become Agrium Asia Pacific Limited. But removing the AWB monopoly simply left GrainCorp in the box seat, controlling the grain ports. The death of the single desk heralded a new dominant firm and a competitive headache.</p>
<p>Policy makers moved quickly to deal with this headache through “access undertakings” for the ports.</p>
<p>Grain traders can only export grain if they can access the ports. But this may be difficult if most of the ports are owned by their competitor, GrainCorp. And, in the absence of government action, GrainCorp would have little incentive to allow competitive access. Keeping competitors out of its ports would help GrainCorp to reduce payments to farmers and maximise profits.</p>
<p>As a result, wheat export deregulation was accompanied by port access regulation. Port terminal operators such as GrainCorp are required to have an access <a href="http://www.accc.gov.au/regulated-infrastructure/wheat-export">undertaking approved</a> by the Australian Competition and Consumer Commission (ACCC). GrainCorp’s first undertaking was accepted by the ACCC in 2009 with a new undertaking accepted in 2011.</p>
<p>Access undertakings should prevent GrainCorp from abusing its control of the ports. While enforcing “fair and reasonable” access can be difficult, GrainCorp’s access undertakings are relatively uncontroversial. </p>
<p>There appear to have been few if any disputes, in sharp contrast to other industries with regulated access regimes, such as telecommunications. Indeed, GrainCorp has altered the undertakings - <a href="http://www.accc.gov.au/media-release/accc-allows-graincorp-to-introduce-long-term-port-access-agreements">with ACCC approval</a> – in the last two years to improve grain trader competition.</p>
<p>So while having GrainCorp as a dominant player in grain export terminals is a long way from a competitive industry structure, it appears that appropriate regulatory tools have been put in place and are working.</p>
<p>If the treasurer believes there are unsolved competition issues in grain exports, then he doesn’t have many choices. </p>
<h2>Limited options</h2>
<p>One alternative would be to break up GrainCorp, separating the ports from the grain trading activities. There is precedent for such action overseas, most notably with the break-up of AT&T in the United States in the 1980s. But it would require legislation and, in the absence of strong anti-competitive conduct by GrainCorp, would be politically unpalatable.</p>
<p>Alternatively, the government could renationalise GrainCorp, break it up, then resell the pieces. </p>
<p>This would be expensive, as the resale price on the bits would be less than the price the government would have to pay for GrainCorp today. A dominant firm is worth more to investors than a number of competitive alternatives. </p>
<p>A re-nationalisation may appeal to the National party, but the agrarian-socialist collective that forms part of the federal government would probably not want re-privatisation. And a government-owned port monopolist is probably worse for competition than a well-regulated GrainCorp.</p>
<p>Finally, the treasurer could do nothing. And, from his statement, this appears to be his chosen alternative. He will wait and hope for competition to emerge. Unfortunately, this option raises other questions.</p>
<p>First, the port access regime is to be replaced by a mandatory industry <a href="http://www.graintrade.org.au/node/499">Code of Conduct</a> next year. Will this move to “light handed” regulation continue if there is such a competitive problem in our grain ports?</p>
<p>Second, given that the current port access regime appears to be working, is competition really the reason behind the treasurer blocking ADM? Or did he cave into National party pressure? And if so, what does this mean for the future of the recently elected Abbott government?</p><img src="https://counter.theconversation.com/content/21006/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen King was a Member of the ACCC from 2004 to 2009.</span></em></p>When Federal Treasurer Joe Hockey quashed the acquisition of GrainCorp by Archer Daniels Midland on national interest grounds, his stated reasons were based on competition. Despite it being five years…Stephen King, Professor, Department of Economics, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/210192013-12-02T04:04:35Z2013-12-02T04:04:35ZGrainCorp must now weigh its options<figure><img src="https://images.theconversation.com/files/36606/original/jkgvry6s-1385955884.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">GrainCorp has long been a target for US interests - because it has been effective.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>A lot of the current response to Treasurer Joe Hockey’s decision to block ADM’s A$3.4 billion takeover for GrainCorp is political rhetoric and doesn’t have to be taken seriously. </p>
<p>But as <a href="https://theconversation.com/foreign-investment-and-the-popularity-test-does-graincorp-set-a-new-precedent-20992">Jeffrey Wilson wrote in The Conversation</a>, it does raise interesting questions over the criteria utilised by the Foreign Investment Review Board. And Senator Bill Heffernan <a href="http://www.theaustralian.com.au/national-affairs/heffernan-flags-grains-industry-probe/story-fn59niix-1226771770364">has flagged</a> that the decision should be followed by a Senate inquiry into the grains industry, including an examination of the powers of the Foreign Investment Review Board (FIRB). </p>
<p>So where does GrainCorp go now that it has been granted some breathing space?</p>
<p>On the first issue of the protection of the national interest, no government should have to apologise for standing up to foreign interests if a vital part of the national economy is at stake. Perhaps surprisingly that is exactly what Hockey has done in this case. To treat it as a matter of caving in to National Party interests or to “agrarian socialists” is to miss entirely the point that governments are supposed to intervene to protect national interests from being sold off to the highest bidder. Try mounting a bid to take over all the grain-exporting ports in the US or China and see how far the bid would go.</p>
<p>The fact is that GrainCorp (and similar Australian commodities organisations) have long been a target for American interests. In the negotiations over the Australia-US Free Trade Agreement (not really about “free trade” – but let that rest) the two biggest US demands were to dismantle the Australian Pharmaceutical Benefits Scheme (at the instigation of the US pharma industry) and the Australian Wheat Board (at the instigation of US grain export interests).</p>
<p>Sensible Australian blocking of these demands led to much gnashing of teeth on the US side – and the launch of further long-term strategies to achieve the same ends. Over the past decade the PBS has been systematically attacked and undermined at every turn by US Big Pharma. The AWB itself, weakened by the scandal over its “oil for wheat” deals with Saddam Hussein, did not long survive as an independent company. It was sold to Canadian commodities trader Agrium in 2011 for just A$1.2 billion. This was a sorry end to a once-great Australian institution.</p>
<p>GrainCorp now is a different entity but with a similar history. It originated as the Grain Elevator Board in 1917, formed by the NSW government as a means of protecting farmers’ interests from price-gouging private elevator operators. It continued to do its job, building a network of rail and port terminals; it became known as the Grain Handling Authority and was then privatised in 1992 and listed on the ASX. </p>
<p>It extended into other states, becoming a national entity, and then in the 1990s expanded into the US with the purchase of United Malt Holdings and into the European Union with the purchase of GermanMalt GmbH&Co. As a multinational commodities dealer it has attracted the attention of ADM. It is the closest that Australia has to a multinational commodities trading house like ADM and Cargill from the US, South American agribusiness Bunge, or Europe’s Glencore.</p>
<p>Why is GrainCorp (and the former AWB) such a target for sustained US attack?</p>
<p>The answer is: such bodies are effective. One of the reasons that Australia became a successful post-war exporter of farm commodities like wool and wheat is that farmers formed collective organisations to take responsibility for exports – protecting farm-gate earnings and leaving the farmers free to improve productivity. In the case of the AWB the body achieved monopoly control over exports (the “single desk”), in the name of protecting farmers’ incomes.</p>
<p>Organisations like the Australian Wool Board, the Australian Wheat Board along with state-level bodies like CaneGrowers, were all formed on the principle of creating collectively owned commodity houses that could build stockpiles or provide infrastructure services to even out the earnings of rural producers. This was actually an Australian commercial innovation and one of the most important of the 20th century. Bodies such as the Canadian Wheat Board were formed to emulate it. Developing countries around the world today – in sugar, coffee, and other commodities – attempt to replicate these early movers, with differing levels of success.</p>
<p>GrainCorp through its various manifestations, has continued this tradition. Had Australia capitulated to US pressure to allow GrainCorp to be sold to ADM, this would have been tantamount to the US obtaining the whip hand over Australian grain farmers in international markets – precisely the long-term goal of US grain interests.</p>
<p>But as Senator Heffernan’s intervention makes clear, all is not well with the Australian grain trade. GrainCorp has under-invested in infrastructure like rail and port terminals – giving ADM its initial point of advantage <a href="http://www.adm.com/en-US/news/_layouts/PressReleaseDetail.aspx?ID=550">in promising investment of $500 million</a>. Now that the ADM bid is (temporarily) postponed, the level of investment in grain handling and export activities will have to become a matter of public concern.</p>
<p>It is notable that Hockey’s rejection of the total ownership bid was sweetened by an invitation to ADM to keep raising its ownership level, up to an allowable 24.9%. So a further round in this ever-lasting trade war can be anticipated.</p>
<p>To ward off any further commercial interest from ADM or other US interests like Cargill, GrainCorp will have to step up with its own proposals for investing in a strong future for grain trade infrastructure. It has to turn around the negative market sentiment that has greeted the Treasurer’s decision (amplified by the <a href="http://www.businessspectator.com.au/news/2013/12/2/agribusiness/graincorp-ceo-watkins-leaves-coca-cola">unexpected resignation of CEO Alison Watkins</a>, who had clearly expected the ADM bid to succeed).</p>
<p>Investment in infrastructure does not depend solely on foreign direct investment nor on taxpayer funded programs. As the Chinese case shows, it can be pursued through government guided bank lending and access to the world’s debt markets. GrainCorp now has to demonstrate that it too can protect its own and the national interest with a credible investment program.</p><img src="https://counter.theconversation.com/content/21019/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Mathews does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A lot of the current response to Treasurer Joe Hockey’s decision to block ADM’s A$3.4 billion takeover for GrainCorp is political rhetoric and doesn’t have to be taken seriously. But as Jeffrey Wilson…John Mathews, Professor of Strategic Management, Macquarie Graduate School of ManagementLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/209412013-11-29T01:27:03Z2013-11-29T01:27:03ZHockey kills GrainCorp takeover by ADM: experts react<figure><img src="https://images.theconversation.com/files/36475/original/9794wzk4-1385685191.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Treasurer Joe Hockey has blocked the A$3.4 billion bid by US giant Archer Daniel Midlands for GrainCorp.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>Federal Treasurer Joe Hockey has <a href="http://www.scribd.com/doc/187843090/Joe-Hockey-s-statement-rejecting-foreign-takeover-of-GrainCorp">rejected</a> the proposed takeover of GrainCorp by US grain handling giant Archer Daniels Midland, arguing the takeover would not be in the public interest.</p>
<p>Mr Hockey said the deal was one of the most complex to come before the Foreign Investment Review Board, and while Australia needed to attract strong inflows of foreign investment, the level of public concern about the deal meant allowing it to proceed could risk undermining public support for foreign investment.</p>
<p>Mr Hockey also flagged the need for a “transition towards more robust competition”, and that a more competitive network was still emerging.</p>
<p>We asked the experts to respond to today’s announcement.</p>
<hr>
<p><strong>Linda Botterill, University of Canberra, Professor in Australian Public Policy at University of Canberra</strong></p>
<p>I have to say I’m a little bit surprised. I would have expected Joe Hockey to have supported the takeover, particularly in light of prime minister Tony Abbott’s comments on election night about Australia being “open for business”.</p>
<p>But the really interesting thing about this is that the grains industry – and rural Australia more generally – has got upset about the prospects of a foreign takeover of GrainCorp, but it’s not that long ago that GrainCorp itself was being demonised by the industry in the context of other wheat industry debates. So, it’s quite an interesting development to see that sector coming out quite so defensive of GrainCorp. What I’m referring to here is when the government was winding up the final regulatory structure around wheat marketing in Australia – at the end of the fallout of the oil-for-food scandal – one of the great concerns about the removal of all government controls was that GrainCorp would be in a monopoly position on the east coast.</p>
<p>Those issues would remain whether or not it was a foreign-owned company, and (Chairman) Rod Sims from the ACCC pointed out a few weeks ago that really the issue with GrainCorp is not so much its ownership, but that of market domination, and that there’s a need to ensure access to terminals and so forth. So, it’s interesting that the industry that was criticising GrainCorp for its power only a few years ago has now come out so strongly in favour of it.</p>
<p>It certainly looks like a National Party win. I know that the prime minister was a bit uncomfortable in some comments he made a week or so ago about the prospect of the ADM takeover of GrainCorp. Of course, nobody knows what goes on within the Cabinet and what trade-offs have been made in terms of future issues that might be of importance to the National Party.</p>
<p>But this early in a Coalition government after such a substantial win over Labor, it is interesting to see the National Party having such a large policy win.</p>
<hr>
<p><strong>Jeffrey Wilson, Fellow of the Asia Research Centre at Murdoch University</strong></p>
<p>The rationale given is fascinating: that the deal must be rejected to ensure community attitudes to foreign investment don’t deteriorate. To the best of my knowledge, at no point in postwar history has this ever been raised as a reason to oppose a foreign investment.</p>
<p>Of course, one could debate whether: (a) this makes any logical sense at all; and (b) whether it was the real reason for the rejection, or instead an nice way of avoiding saying that the government relented under enormous community and political pressure.</p>
<p>But either way, this sets a new precedent for the application of the “national interest test” by the FIRB.</p>
<p>At present, this test contains <a href="http://firb.gov.au/content/_downloads/AFIP_2013.pdf">six criteria</a> that defines what will be considered when assessing national interest (to do with commercial behaviour, competition policy, security and defence, impacts on Australian government policy, etc). But none of the six criteria presently refers to “the impact of an investment on community attitudes to foreign investment”. </p>
<p>While “community concerns” are considered by the FIRB, these are largely defined in economic rather than political terms (a fair return to the community, opportunities for Australian participation, the interests of employees, etc). It does not presently assess whether an investment is considered “popular”, or how it will influence community attitudes to foreign investment more broadly. It would appear the Treasurer is implicitly elucidating a new, seventh national interest criterion - community support.</p>
<p>Will this new criterion be maintained in the future, or is it just a one off for GrainCorp? Time will tell, but for the sake of argument let’s imagine it does get maintained. If so, the implication is that the FIRB will now have to assess community attitudes to investment applications, in addition to the economic assessment they already do. This has not previously been a requirement, and raises interesting questions for how foreign investment will be assessed.</p>
<p>It raises questions whether the FIRB has the institutional capacity to assess community attitudes and popularity (at present, it arguably does not). It may also make foreign investment applications more challenging, by creating a channel for community campaigns against certain deals to interface with the decision-making process. Finally, it would also significantly politicise foreign investment, and make the assessment process focus not simply on the economic benefits and costs of an investment, but their political ramifications as well.</p>
<p>While it is unlikely this will deter foreign investment overall, it will certainly send a message that the new Coalition government will be far less likely to approve complex or contentious applications. </p>
<p>In the last 12 years, only two business deals - Shell Oil for Woodside (2001) and the Singapore Stock Exchange for the ASX (2011) have been rejected by the Treasurer following FIRB assessment. Under the previous ALP governments, the typical model to manage controversial deals was ‘<a href="http://www.tandfonline.com/doi/abs/10.1080/10357718.2011.563779#.UpfhgMQW18E">behavioural conditionality</a>’ - approving the deal, but applying conditions that legally require the investor to behave in certain ways consistent with the national interest. Time will tell, but it appears from this case the Coalition may choose to reject some of these deals instead.</p>
<p>Does this rejection set a precedent for how the Coalition will handle Chinese investment? It depends on the underlying rationale for the decision. If the decision to reject ADM was largely driven by market power concerns (the fear that ADM would have too much control over the grain handling chain), then probably not. This has little to do with Chinese investment, where the key issue has been around state ownership. However, if the primary motive was political (perhaps community pressure or opposition from the Nationals), then it might reflect a change in government attitude towards foreign investment that will be relevant for Chinese cases.</p>
<hr>
<p><strong>Margaret McKenzie, Lecturer, School of Accounting, Economics and Finance at Deakin University</strong></p>
<p>On the whole it is a good decision, though a surprise decision.</p>
<p>There is the issue of whether an international company like Archer Daniels Midland would comply with Australian regulatory frameworks as they are. For instance grain handling or bulk handling is regarded as an essential facility in the ACCC framework and it might be more of an issue in terms of supporting the public interest.</p>
<p>If ADM decided it was unprofitable, during an extended drought for example, they may just sell up and the stability issue would remain for farmers over time.</p>
<p>The other side of that is capital raising issues remain in the long term. The argument is the international company might be able to raise capital in a way that’s not available to the domestic players. But that’s not clear in my view.</p>
<p>On the issue of competition, it doesn’t matter how they regulate it, it’s a network industry and it’s one that benefits hugely from economies of scale throughout the network. </p>
<p>It’s really unlikely things are going to increase competition at that level.
You could argue there might be international competition for the whole business, but that level of the grain handling business tends towards monopoly all the time.</p>
<p>Hockey thinks people will sit up when they hear the word “competition” but there’s been a good 25 years to develop that competition and it hasn’t happened and that’s because of the nature of the industry.</p>
<hr>
<p><strong>Stephen King, Professor in the Department of Economics at Monash University</strong></p>
<p>By Joe Hockey saying there’s a competition problem he’s effectively saying it’s with the ports and the current access regime for ports can’t be working. If it was working, there wouldn’t be a competition problem.</p>
<p>Theoretically all grain traders can get access to the ports, so effectively Hockey is saying that the system is broken.</p>
<p>Is this really a reason why we shouldn’t have overseas ownership of the ports? No, that still doesn’t explain his decision. There’s no reason to believe a domestic monopoly is nice compared to a foreign one. </p>
<p>It doesn’t explain why you wouldn’t let ADM take over GrainCorp other than some sort of xenophobic reaction.</p>
<p>But the more important issue is the fact Hockey has said there is a competition problem in Australian grain ports. By blocking the acquisition, he has flagged there is a problem and it’s now incumbent on the government to tell us how they will fix the problem.</p>
<p>The options to do this include requiring GrainCorp to divest some ownership of the ports, or vertically separating GrainCorp - the Telstra solution.</p>
<p>If control of ports is a problem, then separate that from the upstream and downstream activities, the grain handling and grain trading.</p>
<p>Which option is it? Hockey can’t just leave it hanging there.</p>
<hr>
<p><strong>Peter Batt, Professor, School of Management, Curtin University</strong></p>
<p>This is a complex decision that I fear will have significant long-term repercussions for the industry.</p>
<p>When a major international player seeks to diversify its portfolio by increasing its investment in Australia, its not in the national interest to reject that proposal. Particularly as so few of the Australian superannuation funds seem willing to invest in agribusiness, primarily because of the volatility in returns associated with seasonal variations in agricultural production, quality and price.</p>
<p>ADM is one of the world’s largest food companies and like the other major commodity traders (Bunge, Cargill, Dreyfus and Xstrata) it has the capacity to manage the risk and the volatility that is inherent in international grain markets. It’s the ability to manage that risk and, through a diversified portfolio, to be able to maintain a continuous supply of product to institutional buyers that brings the greatest benefits to Australian grain growers, issues that have so seldom been talked about in this debate.</p>
<p>Since the majority of the other players are already operating in Australia, it was no surprise to find that the ACCC did not oppose the bid.</p>
<p>My immediate concern is that the share price for GrainCorp will fall and when balance sheets start to head south, it will become even harder to attract the investment that is so desperately needed to improve efficiencies in transport and logistics.</p><img src="https://counter.theconversation.com/content/20941/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Federal Treasurer Joe Hockey has rejected the proposed takeover of GrainCorp by US grain handling giant Archer Daniels Midland, arguing the takeover would not be in the public interest. Mr Hockey said…Linda Botterill, Professor in Australian Public Policy, University of CanberraJeffrey Wilson, Fellow of the Asia Research Centre, Murdoch UniversityMargaret McKenzie, Lecturer, School of Accounting, Economics and Finance, Deakin UniversityPeter J. Batt, Professor, School of Management, Curtin UniversityStephen King, Professor, Department of Economics, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/204242013-11-18T19:30:17Z2013-11-18T19:30:17ZArcher Daniels Midland, GrainCorp and the liability firewall<figure><img src="https://images.theconversation.com/files/35469/original/cxdh9gg9-1384744612.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Joe Hockey has a big decision to make by December 17.</span> <span class="attribution"><span class="source">jcburns/Flickr</span></span></figcaption></figure><p>The Coalition government is split over the controversial bid for GrainCorp by American commodities trading giant Archer Daniels Midland (ADM). </p>
<p>Treasurer Joe Hockey has found himself torn between upholding his own free-market ideology and the demands of the Nationals to protect core agricultural assets used in the export of grain. Needless to say Hockey has a difficult decision to make by December 17. </p>
<p>Executives of GrainCorp and ADM have also thrown their hats into the debate about what is best for Australian export competitiveness. </p>
<p>While much of the controversy has surrounded what foreign control of our agribusiness means, few have questioned whether ADM, with its chequered history of corporate responsibility, is the type of company we want operating in Australia and how this takeover may impact the corporate responsibility of GrainCorp. </p>
<p>ADM is famous for price fixing and is mentioned in almost every textbook or article written on the subject. This is because in 1993 many of its senior executives were indicted for colluding in the lysine market. It turned out to be the biggest antitrust case in US history (and inspired the making of the film The Informant! with Matt Damon). As a result the Vice-Chairman at the time, Michael Gross, went to prison and the company was fined US$100 million. Later, in 2005, ADM had to pay an additional US$400million to settle a class action antitrust suit.</p>
<p>Ian Pinner, the president of ADM’s grains division, faced heated questioning by a senate committee in relation to this history. He told the ABC subsequently: </p>
<blockquote>
<p>“The history is there and its publicly available and people are knowledgeable of it. The ADM I work for today is a great business, we have the highest standards of integrity … the history is exactly that”. </p>
</blockquote>
<p>Mr Pinner is right. ADM’s corruption led to landmark policy changes in antitrust law and its enforcement, which has made it a lot harder for companies like ADM to offend subsequently.</p>
<p>Against this dark backdrop limited attention has been paid to ADM’s more recent run-ins with the law. In 2001, the company was the subject of a number of major US federal law suits in relation to air pollution, in which it was fined US$1.46 million and required to spend an additional US$1.6 million on control upgrades. </p>
<p>Subsequently, in 2003 ADM tried to avoid mandatory requirements to make more pollution control upgrades and had to pay another US$4.5million in penalties and $6million to support various environmental projects.</p>
<p>So what does this mean for Australia and for the proposed takeover of GrainCorp, in particular for its corporate social responsibility?</p>
<p>Unfortunately, GrainCorp has been quite slow on the uptake in relation to CSR, showing little accountability for social issues or environmental impacts. Despite its size and extensive operations GrainCorp has not published a single comprehensive or assured report on its emissions or social initiatives. </p>
<p>The perception is that large multinationals like ADM have standardised environmental control systems across countries, in which case ADM may “lift” the accountability of GrainCorp, promoting better management and reporting of its social performance. </p>
<p>But the research shows a very different picture, suggesting that under foreign ownership GrainCorp has less reason to improve its engagement with social and environmental issues and may, in fact, reduce its performance in these areas.</p>
<p>One of the issues is that under the US Tax Reform Act of 1986 firms are able to construct a liability firewall between themselves and their subsidiaries. As a result of this legal arrangement parent companies have moved their polluting activities to their subsidiaries and these have been <a href="http://onlinelibrary.wiley.com/doi/10.1111/1540-6237.t01-1-8401010/full">found</a> to have significantly higher rates of pollution than their parent companies. </p>
<p>The situation is even worse when subsidiaries operate overseas. <a href="http://www.palgrave-journals.com/jibs/journal/v43/n1/abs/jibs201145a.html">Research</a> shows that the greater the geographic distance between a subsidiary and a host company the less likely that the subsidiary will engage in corporate social responsibility. This is because these distant subsidiaries are unlikely to have positive reputational affects in the host country. GrainCorp’s social responsibility is unlikely to impress ADM’s American stakeholders.</p>
<p>Of further concern is the more recent <a href="http://amj.aom.org/content/56/2/549.short">finding</a> suggesting that, in order to appease the rising expectations of local stakeholders, parent companies transfer their more irresponsible behaviour to their overseas subsidiaries. </p>
<p>The research suggests that as a subsidiary of ADM, GrainCorp’s social responsibility will be focused on American, rather than Australian issues. It seems likely that there will be less ability for local stakeholders to influence GrainCorp in relation to its social responsibility. </p>
<p>Australia is by no means a pollution haven for companies like ADM. But the takeover may contribute to a situation in which we relinquish some of our power to pressure GrainCorp to improve its social and environmental performance and respond to the concerns of local stakeholders. </p>
<p>When Joe Hockey considers the deal, what will be the principle that guides him? Ideology, politics, or the national interest? If, as many speculate, there will be conditions on ADM as part of the takeover then surely improving GrainCorp’s social and environmental accountability should be one of these, lest it follow in the footsteps of its new parent. </p><img src="https://counter.theconversation.com/content/20424/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Max Baker does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Coalition government is split over the controversial bid for GrainCorp by American commodities trading giant Archer Daniels Midland (ADM). Treasurer Joe Hockey has found himself torn between upholding…Max Baker, Lecturer, University of SydneyLicensed as Creative Commons – attribution, no derivatives.