Australia to Archer Daniels Midland: No
Archer Daniels Midland, a giant U.S.-based food processing company, spent a lot of the last few months trying to buy GrainCorp, the biggest grain distributor in Australia. ADM wanted to sell more wheat to noodle-hungry Asia, and it was willing to pay $3.3 billion for GrainCorp, which handles most of its country’s grain storage and transportation.
The Australian government just put the kibosh on the deal. Some Australian farmers said they worried a foreign-owned firm would force them to accept lower prices.
Christopher Barrett, an economist at Cornell University, says that’s not very likely. With perishable things like fruit, or even livestock, wholesalers can have a big advantage over farmers, who need sell before their product goes bad.
But that advantage disappears with grain. “Corn, you put it in a silo and you store it for six months, you store it for a year,” Barrett says, “and you wait for the prices to come back up.”
He says the Australian controversy was more about psychology than economics. When a foreign firm buys a big local one, people get wigged out.
“They sense a loss of control, or there’s a slight loss of national pride of ownership,” he says. “But that’s not always rational. Sometimes it’s better to sell out a business that you’re just not going to be able to compete in as effectively.”
Richard Gray, an agricultural economist at the University of Saskatchewan, says that global markets make better eating.
“I can eat avocados whenever I want to,” he says. “Or asparagus or wheat or whatever.”
More important, when there’s a drought in his area, he doesn’t go hungry.
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