Australian Financial Review, p46   Some will see the rejection of Archer Daniels Midland's (ADM's) takeover bid for GrainCorp as a triumph of politics over policy. Nothing could be further from the truth.

As someone who has had a lifelong interest and involvement in agriculture and economics, I have taken great interest in this bid from the day it was announced.

 

Greener Pastures -a major report I wrote for the ANZ Bank before I entered politics - shows that Australian agriculture desperately needs huge investment if we are to realise the full potential of the emerging global soft commodity boom.

 

Greener Pastures raises the awareness of the agriculture opportunity on our doorstep and the multi- trillion dollar requirement for new capital.

 

But it makes an equally important point about problems in our agricultural supply chains: Many of these supply chains are natural monopolies or oligopolies. In industries where costs of transport are high relative to the value of the product (because of perishability or bulk), ownership of supply chains by a very small number of relatively unregulated players poses many problems for producers. It also poses problems for supply chain players themselves. Establishing trust with growers is extremely difficult with a concentrated market structure and where producers have little control over their downstream service providers or customers.

 

In dealing with this problem, Australia has been paralysed by two ideological extremes. On the one hand, some just want to let the market rip. On the other extreme, others argue for the return to the relative "comfort" of the old statutory monopolies which have been disappearing all around the world at a rapid pace. Of course the right answer is somewhere in the middle.

 

We should look to New Zealand on this front. I spent many years working to put together Fonterra, the dairy behemoth owned by the New Zealand dairy farmers. The New

Zealanders have been far more visionary in their thinking about these problems. The Fonterra solution was to put aside ideology and arrive at a pragmatic combination of clever regulation, farmer ownership and competition. Fonterra shows that we can have good, profitable commercial agribusinesses that remain tightly aligned to the interests of farmers.

 

Ultimately, ADM's bid didn't address these all important problems in the supply. Australian agriculture needs investment but ADM never persuaded farmers they were the right people to own GrainCorp and to realise its full potential.