Qld sugar dispute highlights constraints on minority government

The current commercial dispute between Wilmar and Queensland Sugar Limited has highlighted the constraints on the Queensland Government’s ability to prosecute sound economic policy from its position as a minority government. Wilmar is the Singaporean-based company that bought CSR Sugar in 2010, mills 60 percent of Australia’s exported sugar, and now intends to market sugar as well. This has brought it into conflict with Queensland Sugar Limited, which has traditionally been the “single desk” marketer of sugar. Wilmar and QSL cannot agree on revenue-sharing arrangements between the miller and cane growers. An agreement is needed because cane growers, whose cane is milled by Wilmar, are expected to opt for QSL to market their sugar rather than Wilmar, a choice which is guaranteed by Queensland’s “Real Choice in Marketing” law.

The “Real Choice in Marketing” law was passed by the Queensland Parliament, but opposed by the Government, in late 2015. The Government lacked the numbers to defeat the Katter’s Australian Party bill which was supported by the LNP and Billy Gordon. The Government does not have the numbers in the Parliament to overturn the law, and instead the policy agenda is being set by the Opposition, which has announced it may legislate to intervene in the dispute and force arbitration:

Qld LNP calls for end to sugar dispute

Being part owners of QSL, cane growers will receive much higher revenue if QSL is the marketer of the sugar produced from their cane rather than Wilmar (see this ABC News report). The Opposition is getting the politics of the dispute right, as it is backing local cane growers against the foreign-owned Wilmar. However, its policy position is dubious from an economic perspective. While the sugar mills effectively have local monopsony power, the right way to deal with that is not to re-regulate the sugar industry, but to rely upon existing laws against the abuse of market power.

The “Real Choice in Marketing” law has been denounced as anti-competitive and as a deterrent to foreign investment and structural adjustment by both the Queensland Productivity Commission in a Regulatory Impact Assessment and the Australian Productivity Commission in a draft report on agricultural industry regulation. The Australian PC rejected the “Real Choice in Marketing Law” noting (on p. 420):

“The Commission agrees that reregulation of the sugar industry is an inappropriate means of achieving the underlying policy goal of ensuring an equitable allocation of risk and return between growers and millers. Australia has comprehensive laws governing the misuse of market power…and the concentrated nature of the industry provides sugarcane growers with an opportunity to take advantage of the collective bargaining provisions in the Competition and Consumer Act 2010 (Cwlth).”

The Queensland Government has the right policy position, but it lacks the power to enforce it. It can only resort to weak measures such as making Freedom Of Information requests for the Australian PC’s final report on agricultural industry regulations:

Palaszczuk Government to use FOI in bid to save Qld’s sugar industry

If the Government wants to re-establish its authority over economic policy, it really ought to call an early election.

For background on the sugar marketing dispute, see Anne Hyland’s AFR article from November last year.

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4 Responses to Qld sugar dispute highlights constraints on minority government

  1. Craig Wilson says:

    Hi Gene This was in my top three most vexed policy questions when in the qld govt job.  My memory is a bit foggy, and the issue was like wading in treacle, and facts were short on the ground, and emotion was high, but are you sure growers will receive much higher returns from selling through QSL as you assert? CheersCraig

    From: Queensland Economy Watch To: craiginny@yahoo.com Sent: Monday, 20 February 2017, 1:30 Subject: [New post] Qld sugar dispute highlights constraints on minority government #yiv6650456805 a:hover {color:red;}#yiv6650456805 a {text-decoration:none;color:#0088cc;}#yiv6650456805 a.yiv6650456805primaryactionlink:link, #yiv6650456805 a.yiv6650456805primaryactionlink:visited {background-color:#2585B2;color:#fff;}#yiv6650456805 a.yiv6650456805primaryactionlink:hover, #yiv6650456805 a.yiv6650456805primaryactionlink:active {background-color:#11729E;color:#fff;}#yiv6650456805 WordPress.com | Gene Tunny posted: “The current commercial dispute between Wilmar and Queensland Sugar Limited has highlighted the constraints on the Queensland Government’s ability to prosecute sound economic policy from its position as a minority government. Wilmar is the Singaporean-base” | |

    • Gene Tunny says:

      Yes, as far as I can tell based on the reports I’ve read and claims from growers. That’s why they pushed for the choice in marketing law and why the agreement between Wilmar and QSL is so critical for them. That said, it is a difficult dispute to understand so I will look even more closely into it. Thanks for the comment Craig!

      >

  2. Jim says:

    As far as I can see, the negotiations between growers and Wilmar over the on-supply arrangement (the 2nd contract that enables growers to market their sugar through QSL rather than Wilmar) seem to be about as sophisticated as a tourist negotiating the price of a t-shirt in Bali. Both parties are simply withholding information or delaying contractual processes waiting for the other one to give in. And it looks like there are arbitration processes set out in the legislation to deal with this problem anyway. Both parties have an absolute interest in having the sugar harvested, milled and sold; so resolution will occur eventually anyway.

    Cane harvesting season doesn’t start until June. So the real urgency here is that growers want to lock into a preferred marketing pool and forward price (i.e. price certainty now). Given the fact that the current sugar price is so healthy the uncertainty for many farmers will probably be “do I get a really, really fat check for my sugar; or do a I get a really, really, really fat check.”

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