Ref:  PH/DC/GG24001

21 January 2023

Australian Competition & Consumer Commission (ACCC)

By Email: louisa.kefford@accc.gov.au

Re: GrainCorp Limited - XF Australia Pty Ltd (XFA)

Dear Ms Kefford

AgForce is a peak organisation representing Queensland’s cane, cattle, grain and sheep, wool & goat producers.  The cane, beef, broadacre cropping and sheep, wool & goat industries in Queensland generated around $10.4 billion in on-farm value of production in 2021-22. AgForce’s purpose is to advance sustainable agribusiness and strives to ensure the long-term growth, viability, competitiveness, and profitability of these industries. Over 6,500 farmers, individuals and businesses provide support to AgForce through membership. Our members own and manage around 55 million hectares, or a third of the state’s land area. Queensland producers provide high-quality food and fibre to Australian and overseas consumers, contribute significantly to the social fabric of regional, rural, and remote communities, as well as deliver stewardship of the state’s natural environment.

The AgForce Cattle board would like to draw attention to the following points regarding the acquisition of XFA by GrainCorp. 

Yours sincerely

Peter Hall

AgForce Cattle Board President

Competition, Pricing and Supply Considerations of the Proposed Acquisition

Competition in Animal Feed Supplements:

Both GrainCorp and XFA are recognised large players in the animal feed supplement market, offering molasses-based options alongside other products. While their focus on specific niches or regional strengths may create some differentiation, they do compete for a share
of the overall market.

Impact on Price, Quality, and Service:

AgForce acknowledges the established reputations of both companies and does not anticipate quality or service disruptions solely due to the merger. However, concerns surround potential price fluctuations.  While synergies gained from the merger could lead to improved pricing for specific value-added
products, producers are concerned a ‘liquid supplement giant’¹ might create an imbalance in market access for raw molasses, beyond natural variations caused by seasonal sugarcane production and sugar mill production capacities.

Logistical Concerns and Fair Access:

The viability of molasses continuing as a cost-effective feed option hinges on fair and equitable access to logistics contracts within the merged entity. AgForce expresses concern that the merged entity might leverage its logistical network to restrict molasses supply to competing animal feed producers or influence transport costs to gain a competitive advantage.  This could involve offering preferential rates to their own value-added products while raising rates for competitors, ultimately disadvantaging them through increased input costs.  There is a direct relationship between transport distance and farmgate delivery cost. As both entities currently have contracts with major Central Queensland Mills (Mackay Sugar [GrainCorp] & Wilmar Sugar [XFA]) for the transport of molasses to mill customers, the combined entity will have significant bearing in the new market and oversight on what competing businesses are having delivered.

Background & Context

Molasses & Cattle

Queensland proudly holds the distinction of comprising of the largest proportion of Australia's national cattle herd at 44%.² The industry use of molasses can be divided into two production avenues:  grass-fed grazing and feed lotting.

Molasses plays a crucial role in both segments of the industry, serving as a valuable feed additive and nutritional supplement. However, the seasonal demand for molasses differs significantly between the two. Grass-fed producers primarily utilize molasses as a drought-feed option, allowing them to carry herds through extended dry
periods until pasture conditions improve and herbage nutrition recovers. This vital use of molasses ensures the long-term sustainability of Queensland's cattle industry in the face of climatic challenges.

The feedlot industry typically maintains a more consistent demand for molasses, driven by the number of head in the feedlot and what ration is being fed/supplemented.  Both graziers and feedlot operators may either choose to utilize straight molasses, which they value add themselves on premises, or purchase readymade pre-mixed commercially available supplementation options.  The choice between these options is typically influenced by cost, availability, and individual preferences.  Operators with existing mixing infrastructure may favour handling molasses, while others might opt for pre-mixed solutions for convenience or to access specific nutrient ratios.

Queensland Sugar Industry

The Queensland sugar industry accounts for a significant 95% of Australia's total sugar production.³ During the sugar production process, molasses is a valuable byproduct generated alongside sugar crystals.  As noted in the 2023 USDA report concerning Australian sugarcane,⁴ the Northern Queensland, Burdekin and Central Queensland (NQ, Burdekin, and CQ) sugar growing regions comprise 85% of total production. Given this dominant production share, the consolidation of companies using these mills production for feed supplement manufacturing warrants consideration. In the CQ region, where GrainCorp Liquid Feeds has a supply and shipping arrangement with Mackay Sugars and XFA has a shipping arrangement with Wilmar Sugars, the combined sugar mill logistics contracts oversight accounts for 68% of the 16 sugar mills in the Northern half of Queensland. This concentrated market share raises concerns about potential limitations in access to raw molasses for producers, third parties and any new market entrants.

Emergency Drought Market Pivots

As mentioned, molasses plays a crucial role in Queensland's cattle industry, particularly during droughts.  The Queensland Drought Assistance program has grants available for producers to increase on-farm molasses storage infrastructure.  This proactive approach has fostered investment in storage capacity, enabling producers to try and manage the seasonal fluctuations of molasses availability and price.

However, concerns remain regarding the potential impact of the proposed merger on market resilience and equitable access to raw molasses. While the current allocation system sees the livestock industry competing with export and biofuel markets, any further limitations on the domestic supply could lead to:

• Limited Access:  Coalescing the origin points on the supply chain could restrict access to raw molasses for producers, feedlots, and competing feed manufacturers; hindering competition and potentially stifling innovation.
• Increased Market Stress Threshold:  A potential monopoly could decrease market resilience and lower the threshold for supply stress.  This may lead to more frequent instances of critical shortages, impacting producers and animal welfare.

During the extended drought in 2019 AgForce connected producers in Queensland with an importer to secure 4,000 tonnes of molasses when domestic supply became impossible to source.⁵ Whilst this solution demonstrates the industry's resourcefulness in extreme circumstances, such measures are not sustainable long-term solutions.

Conclusion

AgForce appreciates the opportunity to provide this submission on behalf of our members regarding the proposed acquisition of XFA by GrainCorp. This merger does raise potential concerns about competition, pricing and fair access within the animal feed supplement market, particularly regarding molasses availability and logistics. We urge the ACCC to carefully consider these concerns and our recommendations to promote a sustainable and economically efficient molasses market, foster innovation and ensure fair access throughout the supply chain, ultimately benefiting producers, business, and the broader industry.

We are confident that, through thorough evaluation and appropriate safeguards, the ACCC can ensure a positive outcome.

Further correspondence and information can be obtained by contacting Daniel Counsell, AgForce Cattle Policy Director
by email:  counselld@agforceqld.org.au or mobile: 0429 649 881.

Thank you for your time and consideration.

 

¹ Beef Central - GrainCorp's Performance Feeds takeover creates liquid supplement giant - Beef Central

³ Department of Agriculture, Fisheries & Forestry - Sugar - DAFF (agriculture.gov.au)

⁴ United States Department of Agriculture - Sugar Annual 2023(usda.gov)