Australia’s competition watchdog chairman Rod Sims is concerned Australian agriculture could be hurt if the government of Western Australia offers the Port of Fremantle’s future owner the right to develop a new port to the south.
Fremantle handles most of Western Australia’s livestock and grain exports, and was responsible for $28 billion in trade last year. Australian firms IFM Investors, QIC and Hastings Funds Management, and international firm Global Infrastructure Partners, are believed to be considering investing in the port.
Sims spoke as his Australian Competition and Consumer Commission (ACCC) announced that its new Agricultural Unit is investigating anti-competitive conduct or unfair trading practices in supply chains.
“The market structure and regulatory arrangements to be put in place prior to privatisation of the Port of Fremantle should be of importance to all Western Australians, and most particularly, to Western Australian farmers,” Sims said in a speech at an Australian Bureau of Agricultural and Resource Economics and Sciences conference this week.
He said that plans to give a successful bidder monopolistic port rights would hurt competition and that “governments should use privatisation processes as an opportunity to put in place pro-competitive market structures”.
“Failure to do so will come at the cost of an effective ‘tax’ on future generations of farmers, miners and the general community.”
Rights to develop future nearby ports that would otherwise create competition for existing owners are not uncommon in Australia. In Victoria, the state government is proposing a 15-year compensation package to the potential lessee of the Port of Melbourne for not offering similar rights in the bidding process.
“This is an area of concern to the ACCC because natural monopoly infrastructure can act as a bottleneck, hindering competition and efficient investment in upstream and downstream markets along the value chain,” said Sims, adding that the current National Access Regime was not working as a deterrent.
“The argument is sometimes made that regulation to address monopolistic pricing is unnecessary, because monopolistic pricing is the simple transfer of economic rents between parties in a supply chain. However, this argument is ill-conceived. […] What is the incentive for either the upstream or downstream markets to be innovative and control costs if any gains are simply transferred to a monopoly infrastructure provider in the middle of the supply chain?”
Nearing the end of his speech, Sims concluded: “Monopolistic pricing can also lead to inefficient investment decisions and distort supply and demand. This issue is particularly relevant to the agriculture sector, which relies so much on infrastructure including rail and ports.”