Monday, September 03, 2012

Cotton On: Politicians crawl through the Cubbie Hole

The war of words over the future of Cubbie Station has started. The Foreign Investment Review Board has recommended to Treasurer Wayne Swan the sale of Australia’s largest cotton grower and holder of water licences to a consortium dominated by Chinese textile producer Shandong RuYi. The sale, currently in the hands of administrators, required FIRB approval as it was in excess of the $244 million takeover trigger for investigation. While the FIRB has not made its decision public, Swan has used it as a political attack to wedge the Opposition after the State Government backed the sale while local LNP senator Barnaby Joyce said it was not in the national interest.

Swan explained his reasons for the approval in an August 31 media release. Cubbie had been on the market for three years and the joint proposal by Shandong RuYi and Aussie wool company Lempriere had given him several undertakings. These included RuYi selling down its interest to 51 per cent within three years while maintaining “appropriate” board representation, having Cubbie managed by a Lempriere sub-company and offering jobs to all existing Cubbie employees.

Swan points to the National Food Plan which is in draft form and seeking public submissions until September 30. That Plan also vigorously defends the need for foreign investment in Australia which it says is critical for the agriculture and food sectors. “Foreign investment in agriculture supports production, creates jobs and contributes to the prosperity of rural communities and the broader economy,” the Plan green paper said. The paper said foreign investments undergo a rigorous national interest test and are subject to the same laws and regulations dealing with competition, tax and governance. 

So why should anyone care about the future of a company that employs only 50 people with another 120 contractors?  It was not a simple case of xenophobia against Chinese investment (though in truth, it would be hard to imagine a similar furore if it were Seattle RuYi buying Cubbie).  It is because as Senator Joyce said today it was the loss of “prime agricultural land to an overseas interest.”  As well, the sale would involve Australia’s biggest water licence going to an overseas interest and 13 per cent of the nation's cotton crop.

Barnaby lives in St George some 80km north of Cubbie so is well aware of how big a deal it is. Its massive scale and its potential to impact on the entire Murray Darling Basin, is most impressive from the satellite image. In the middle of parched brown western Queensland landscape, lies this darker patch of fertile ground following the Murray-Darling plain. Due west of Dirranbandi, (100km north of the NSW border) is Cubbie Station a patchwork quilt of storage dams, stretching along 30km of the Culgoa River. At 93,000 hectares, Cubbie is Australia’s biggest irrigator and most of the water is used to make cotton.

Cottonseed came to Australia in the first fleet and was an early cottage industry. It took the shortages of the American Civil War to set Queensland cotton up on a commercial basis but the industry ebbed and flowed according to inconsistent 20th century demand. With the help of subsidies from the newly elected National Party government, SW Queensland got in on the act in 1960 but has been badly affected by droughts in 1995, 2004 and 2008. In 2010/11 there was a record Australian crop of 4.1 million bales showing an industry in resurgence after almost a decade of drought.

The recovery came too late for the owners of Cubbie, Australia’s biggest cotton plantation.  Cubbie had always got away with paying a pittance for its water much to the disgust of its neighbours and NSW irrigators downstream. Slack government processes allowed Cubbie to gradually suck in more of the region’s scarce water resources. As one commentator noted about other parts of the world, “water diversion on the scale of Cubbie could easily be the cause of war.”

Despite all the favourable treatment, the company still went broke in 2009. Cubbie Group chair Keith De Lacy – a former Treasurer in the Wayne Goss government - blamed the drought for the company’s woes. De Lacy said the station had only had one good season in five and the company was selling up to reduce debt and recapitalise the business to pursue other farming opportunities.  At the time SA independent senator Nick Xenophon said Cubbie going into voluntary administration proved the station was not a sustainable use of water. "What it does indicate is a failure of water policy at the Queensland Government level and it indicates even more strongly that you need to have a federal takeover of the river system," he said.

This week Xenophon spoke out again on Cubbie opposing the decision to approve the sale. “These important environmental assets shouldn't be flogged off to a foreign company that has no connection to Australia, and no obligation to act in our interests,” he said. “There’s also a concern the impact this could have on the entire Murray Darling Basin.” He also called on FIRB to make its report public so that the general public could be confident in its decision to approve the sale. “There must be a much lower trigger point for investigation,” he said. “We need much more transparency in terms of why applications are approved or rejected and we need a national register which lists foreign owned properties so that we know who owns what.”

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