Australian Financial Review
Sugar socialism could breach free trade agreements
3 December 2015
by Mark Ludlow
The forced re-regulation of Queensland’s $2 billion sugar industry could breach international trade agreements and threaten foreign investment, Queensland Deputy Premier Jackie Trad said.
Her minority Labor government suffered its first major legislative defeat late on Wednesday night when a former Labor MP turned independent, Billy Gordon, sided with the Katter’s Australian Party and the Liberal National Party to force cane growers and millers into arbitration if they can’t negotiate a commercial contract.
Critics say the move – a decade after a $444 million assistance package by the federal government to de-regulate the industry – is a return to socialism in farming.
MSF Sugar, which is owned by a Thailand-based company, said it had cancelled all non-essential capital investment until it worked how the new law would affect its business.
The Palaszczuk government has written to the Australian Competition and Consumer Commission chairman Rod Sims saying it does not support the law, which could breach 2010 the Competition and Consumer Act.
Ms Trad told Parliament the new regulation on the sugar industry – which she described as "economic lunacy" – could have grave consequences for investment.
"For the first time, this parliament has voted to re-regulate a major industry in Queensland – turning our backs on economic reform in favour of economic nostalgia," she said.
"And in doing this, it puts at risk future direct foreign investment in Queensland - which amounts to $2 billion in Queensland’s sugar industry alone over the past 10 years."
Under the changes, cane growers and millers will be forced to deal through a mediator if they are unable to reach a commercial agreement. Millers say this will delay contracts and could cost millions of dollars in legal fees.
Growers will be able to have a say in how the raw sugar is exported from mills, despite a recent Queensland productivity report saying the final product was owned by the millers, rather than growers.
Implications highlighted by Bishop
Ms Trad said Foreign Affairs Minister Julie Bishop had in June written to her LNP counterparts in Queensland to make them aware of the implications on Australia’s trading relationships.
"At a time when both sides of the federal parliament are pursuing new international trade deals, this bill is likely to put Australia in breach of our existing international trading agreements," she said.
"In fact, any or all of the international firms investing in Queensland’s sugar industry could now approach their national government and seek to initiate the Investor-State Dispute Mechanisms under provisions in the Free Trade Agreements between their country and ours. This is a matter of grave consequence."
Wilmar executive general manager Garry Mulvay said the Katter’s Australian Party win to increase the ethanol mandate from 2 per to 3 per cent earlier this week would be undone by the re-regulation of the industry.
"On the one hand we want to applaud the government and Katter Party for leading the charge on biofuels, while on the other hand, we hold our head in our hands at the prospect of being put out of the game," he said.
Treasurer Curtis Pitt said a Queensland Productivity Commission report had found there was no evidence of market failure in the sugary industry that would indicate the need for additional government intervention.
"It also found that the benefits of the additional regulation imposed by this bill do not outweigh the costs," Mr Pitt said in the letter.
"I urge you to give this matter your immediate attention as the Queensland government believes that there is a strong case for finding that the basis for the authorisations in the bill is not supported by available evidence."
A spokesman for the ACCC said they did not have a formal role in reviewing state legislation but it would be monitoring the issue.
The LNP and the Katter’s Australian Party said the new sugar laws did not amount to re-regulation but simply gave growers more of a say in the marketing of raw sugar to international customers.
They say growers have been cut out of the loop, especially with three big foreign-owned mills – Wilmar Sugar Australia, Tully Sugar and MSF Sugar – expected to opt out of long-standing arrangements with Queensland Sugar Limited to market their own sugar in 2017.
A legal quagmire
Australian Sugar Milling Council chief executive Dominic Nolan said the new laws would become a legal quagmire and backed moved to get the federal government and the ACCC to kill off the changes.
"Sugar mills will fight this unjust and damaging legislation as far as we need to. This bill will mean investment in raw sugar milling assets will cease," Mr Nolan said.
"The LNP has joined with the Katter Party to shut Queensland’s borders to investors who want to spend their money in our state."
Queensland accounts for 95 per cent of Australia’s sugar industry, which generates about $2 billion each year and employs 16,000 people. There are almost 4000 cane farms in Queensland supplying 21 mills, owned by seven different milling companies.