Monday, February 26, 2024

‘Big ag’s profits also bring value’

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Hamish Gow challenges narrative of excess profit taking by global ag businesses.
Lincoln University’s Sir Graeme Harrison chair, Professor Hamish Gow, says as the world shifts to greater transparency, farmers should consider how their treatment of bobby calves is perceived by overseas customers.
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Claims that large agribusiness corporates are making extraordinary profits globally have been challenged by Lincoln University Professor of Agribusiness Dr Hamish Gow.

The Netherlands-based Centre for Research on Multinationals, SOMO, released a report in late January highlighting how the big five agri-commodity trading companies have tripled their profits in the past three years. 

The authors of Hungry for Profits said that the gains come at a time when consumers globally are struggling with record levels of food price inflation.

The five companies are ADM, Bunge, Cargill, COFCO and Louis Dreyfuss, collectively known as ABCCD in the industry. Between them they control 70-90% of the global trade in commercial grains.

“The high degree of concentration and resulting control over the world’s most important agri-commodities give the firms enormous bargaining power to shape the global food landscape,” SOMO researcher Vincent Kiezebrink said.

He said a planned merger between Viterra and Bunge was only likely to concentrate power further, bringing the new company closer in size to ADM and Cargill.

Gow completed his PhD on the role of multinational food companies in establishing markets in Eastern Europe. He said as large as the companies are, they are intensely competitive between one another, and the increase in profits comes after covid significantly impacted upon business. 

Like airlines, the companies are now working to recover lost profits.

“These companies are experts at making money in high inflation environments. They have survived all of the market turmoil of market liberalisation in Eastern Europe and Latin America during the ’90s and recently,” Gow said. 

“They know how to trade in high inflationary environments and not only survive but thrive. They run diversified businesses and share experiences.”

In Eastern Europe the arrival of the big multinationals contributed to greater contract certainty and improved returns for farmers who had been suffering with inefficient processors not paying them.

The presence of the big multinationals in New Zealand has been more limited by this country’s strong farmer co-op processors. Foreign shareholdings and ownership of the likes of ANZCO, Westland Milk, Silver Fern Farms and PGG Wrightson are the main presence.

In an NZ context Gow maintains the agri sector still requires strong co-operatives to return profits to shareholding farmers.

“But the risk is when those co-ops get out of touch with their farmer shareholders, you end up with a whole new set of problems.”
Two large farmer co-ops, Alliance and Farmlands, have recently posted losses.

With tight capital supply and losses being experienced by some co-ops, it remains to be seen what role multinational capital may yet play in NZ’s next wave of agri sector restructuring.

“It’s starting to happen here too. Is it a bad thing? The question for farmers and consumers is do they want a locally owned option, and what impact will a locally owned option provide to them as benefits? 

“We know that Fonterra is critical to providing a competitive yardstick for farmgate milk prices. What about the other sectors?”

He said it is valuable to have farmer owned co-ops in each sector to provide a yardstick to ensure farmers are getting their best return.

“As co-ops they are there not to make a profit, but to pass the rent [return] back to those farmers.”

He said the apple industry provides a good example of a sector that more than 20 years ago had its profits captured by a set of key individual players, and only through productivity gains and property prices did growers really gain.

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