Features International Sugar Journal

The lure of Australian sugar companies to foreign investors

In his posthumous collection of travel writing the Unfinished Journey, the engaging and acerbic novelist Shiva Naipaul posed the question, why, with Australia surrounded by its Asian neighbours was discovered first by the British? This recalls the navel-gazing amongst the ruling and chattering classes in Australia in the 80’s, before the bicentenary of the modern nation, asking why are they not trading more with the countries in their relative locality in preference for UK, Europe and USA. Though this a total non-sequitur, the almost complete ownership of the Australian sugar industry by foreign investors, mainly from Asia, suggests that the latter were merely biding their time!!

With the imminent acquisition of the struggling Mackay Sugar by Nordzucker, 90% of the Australian sugar industry will be foreign-owned. Currently, investors from Singapore (Wilmar), Thailand (Mitr Phol), Belgium (Finasucre) and China (COFCO) have 70% of share of Australian sugar.

Wilmar, the agribusiness giant, acquired Sucrogen, previously CSR Sugar, in late 2010. It then bought the Proserpine Mill in Queensland in mid-2012. Wilmar now operates 8 of the country’s 24 sugar mills. Thailand’s biggest sugar producer Mitr Phol acquired Maryborough Sugar Factory, (MSF) early in 2012 (initially took 19% back in 2010), which owns the Maryborough, Mulgrave South Johnson and Tableand  mills in Queensland. The state-owned Chinese company COFCO, which has numerous global assets in agribusiness, bought the controlling interest in Tully Mill in mid-2011 after a fraught battle with industry stakeholders. Bundaberg Sugar Limited was sold to Tate & Lyle in 1991. T&L subsequently sold it to Finasucre of Belgium in 2000. Germany’s second-biggest sugar producer Nordzucker is currently awaiting the rubber stamping by Mackay’s shareholders of their acquisition bid – which also depends on the successful divestment of its Mossman mill to growers (Far Northern Milling Pty Ltd (FNM)

Central appeal about Australia for all foreign investors is that being a developed country, certain things can be taken for granted to support smooth operations. These include established logistics infrastructure, access to well trained work force supported by fine educational and research establishments and, transparent and independent institutions, particularly law and order, held in check by democratic oversight. Then there is also Australia’s location in the sugar-deficit Asia-Pacific region (where it has a freight advantage), its deregulated domestic sugar market and the fact that the industry is fairly efficient.

The Australian sugar industry has undoubtedly benefitted from the government supported research infrastructure which has supported its growth. Arguably, for investors from developing economies with sugar operations in other countries, tapping into and accessing this off the shelf intellectual capital is a particular draw. It’s a fact that Mitr Phol’s senior production staff from their Australian operations regularly visit the company’s other operations to train and develop their staff. Wilmar and COFCO probably do the same. It is, therefore, no coincidence that Australia’s once extensive sugar research infrastructure has been slimmed down in the recent past due to increased foreign ownership and thereby not be seen to be subsidising these foreign companies overtly.

Though when it comes to Nordzucker buying into Australia, it’s a puzzle. There is no compelling logic beyond let’s try something new beyond beet sugar. However, the formal rationale of the company for tapping its toe in Australia is that its relative access to the structurally deficit Asian sugar market is nearby, making it an attractive proposition. Australia’s most important markets are South Korea, Japan and Indonesia, followed by China and the USA where it holds a preferential tariff rate quota. But being a structural exporter, exporting over 70% of the sugar it produces, Australia is vulnerable to the vagaries of the market-place. Especially since the industry hasn’t gone terribly far down the diversification route. So, unless investing in Australia is part of a long play by Nordzucker, which involves establishing a foothold in the cane sugar sector before expanding into other cane industries, where it can certainly impart its superior management capabilities to profit from underexploited assets and resources, its foray may not pay off. Nordzucker is getting Mackay Sugar for cheap but it will have to inject a fair bit of capital into the mills. In fact, one mill will probably have to be closed to consolidate and ensure efficient operations.