Grain, grain go away: ACCC rejects Viterra’s long-term capacity agreements proposal

South Australian port operator Viterra (a wholly owned subsidiary of Glencore) has had its proposal to the ACCC for long-term capacity agreements for allocation of capacity at its SA ports rejected. If it had been approved, the proposal would have allowed Viterra to change to long-term agreements from the current auction process, by which it complies with the Port Terminal Access (Bulk Wheat) Code of Conduct.

But here’s the sticking point: the ACCC has exempted two New South Wales ports from the same part of the Code. Is this inconsistency or is there more to the decision? In this blog we unpack the decision, look at Viterra’s proposal in more detail and examine the basis for the ACCC’s rejection.

The story so far …

In March 2015, Viterra, with the support of many exporters sought the ACCC’s approval to move from an auction process for the allocation of their port capacity, to long-term capacity agreements (LTAs) (3-5 years in duration).

In its draft decision, released on 16 July 2015, the ACCC rejected Viterra’s proposal for LTAs. In contrast, on 30 July 2015 the ACCC exempted Newcastle Agri Terminal and Qube from the Code and issued a draft decision exempting GrainCorp and Quattro from the Code at Port Kembla.

Why is South Australia different from NSW?

It is a question of capacity. The SA ports are oversubscribed and the NSW ports have excess capacity.

Despite support from exporters in South Australia, the ACCC was concerned that the criteria for allocation of capacity at Viterra’s six ports was likely to favour the largest exporters and particularly Viterra’s owner Glencore, which also owns Glencore Grain, one of Australia’s largest buyers and exporters of wheat, barley and other grain products.  It is not surprising that any business would prefer to favour its leading customers but the Code expressly prohibits an entity favouring a related company in allocating access.

In contrast, Newcastle Agri Terminal and Port Kembla have significant excess export capacity. There is therefore no need for a process to allocate oversubscribed capacity.

Viterra’s proposal

The ACCC acknowledges the merit in a LTA system, such as:

  • allowing exporters to plan their export programs with certainty of access;
  • removing the cost of auction premiums so value is paid for the access;
  • exporters having the ability to transfer and trade slots; and
  • removing the risk of auctions.

The ACCC is concerned that under the proposal:

  • the largest exporters could lock-in a market structure effectively reducing the ability for other exporters to grow or enter the market;
  • short term capacity would not be accessible by exporters; and
  • Glencore would be favoured, resulting in reduced competition.

What’s next?

Assuming that the ACCC’s final determination is consistent with its draft decision regarding Port Kembla and the Newcastle Agri Terminal, Qube, GrainCorp, Newcastle Agri Terminal and Quattro will operate exempt from the application of the Code. The ACCC will monitor the business activities at these terminals into the future to ensure its expectations of increased competition are met.

Whatever stakeholder submissions were made by the end of July, it is unlikely that the ACCC’s final decision will differ substantially from the draft. Therefore, oversubscribed capacity at SA ports will be allocated by auction this year. The LTAs are the logical approach going forward; the question is how long it will take for Viterra to put together a structure that satisfies the ACCC’s concerns?