Australian Treasurer's Critics Bitter Over Sugar Buyout
IN one of his first signals to international investors since becoming Australia's treasurer, John Kerin on June 11 allowed a British company, Tate & Lyle, to buy a large Queensland sugar producer, Bundaberg Sugar Co., Limited. Mr. Kerin has approved the hostile takeover despite political opposition from members of his own Australian Labor Party in Queensland. The Queensland Labor Party was instrumental in preventing former Treasurer Paul Keating from defeating Prime Minister Bob Hawke in a recent leadership challenge.
Kerin also defied strong pressure from local cane growers, who wanted some assurance that Tate & Lyle would continue to buy sugar cane from them.
"Unless they are prepared to commit specific benefits to the community, and to growers in particular, we would oppose the takeover," says Harry Bonanno, chairman of Brisbane-based Canegrowers, which represents 6,500 growers. Local residents began a "Save Our Bundy" campaign.
Instead, Kerin ruled the $325 million (Australian; US$244 million) takeover "was not contrary to the national interest."
Under the government's foreign investment policy, proposals to buy manufacturing or other primary industry businesses are normally approved without the need to show net economic benefits. Under Mr. Keating, most overseas investments were approved by the Foreign Investment Review Board.
The Queensland government, which regulates the sugar industry, is not pleased with the merger. The Premier Wayne Goss said he could see no economic benefit for the people of Queensland in the merger. Mr. Goss's office says he has begun negotiations with at least two other interested buyers. The Tate & Lyle offer is 23 times current earnings.
Bundaberg mills about 18 percent of the sugar crop, second only to the giant CSR, which crushes about 33 percent of the crop.
If Tate & Lyle is successful, the merger will be the company's first investment in this part of the world. The company is one of the world's largest sweetener producers.
"Tate & Lyle sees Australia in the long term as a key player in sugar exports," says Bill Beerworth, the managing director of Beerworth & Partners Limited, a Sydney-based merchant bank advising Tate & Lyle.
The Australian sugar producers are among the most efficient in the world. However, they are locked out of some key markets in the United States and the European Community because of protective legislation. However, Australia is close to Southeast Asia, where the appetite for sugar is growing as per capita income rises.
OVER the past three years, the industry has not had to worry about expansion, since bad weather has caused it to ration sugar to its long-term customers. The Queensland Department of Primary Industries estimates the sugar crop this year will be about 3 million tons of raw sugar - one of the worst crops in 10 years. About 80 percent is exported. At the same time world sugar prices are low - now 8 cents a pound.
The Tate & Lyle bid is coming at a time when the Queensland government is introducing legislation to modernize the regulation of the industry.
"The basic legislation goes back to 1915, when it insured that the troops in World War I got Australian sugar," says Jim Divine, a spokesman for the Department of Primary Industries in Brisbane. However, the basic regulation will remain, including the marketing of the sugar by a central state authority, the Queensland Sugar Board.
On a federal level, sugar is also undergoing some changes. Three years ago, the government ended its ban on imports and instead added a 20 percent tariff. That tariff is now coming down.
Although Australia produces a large amount of raw sugar, it does not export much refined product.
The government of Queensland is eager to find an investor who will build new refineries and export the product. However, Tate & Lyle at the moment sees the investment as a way to get raw sugar.