Michael Gorey's Updates

The collapse of Great Southern

May 23 2009, 1:18am

For anyone reading this from outside Australia, Great Southern is an agribusiness company which recently went into receivership. Along with another failed company, Timbercorp, it owns a lot of land in the Green Triangle region of South East South Australia and Western Victoria. I am angry with the failure of these companies and the lack of action from governments and authorities to investigate. Again for the benefit of overseas readers, Great Southern and Timbercorp relied on Managed Investment Schemes (MIS) to buy land and plant trees. Many investors were attracted to these schemes because they offered an immediate tax deduction and a long-term return. A fascinating article in The Age today, cutely headlined “Once upon a time in the woods” makes some damning revelations. These include the fact Great Southern’s harvest yields were lower than expected, but not disclosed to the market, and the Australian Securities and Investment Commission dismissed concerns about the Ponzi scheme nature of the company’s operations. A Ponzi scheme is a fraudulent investment operation that pays returns to investors from their own money or money paid by subsequent investors rather than from any actual profit earned. It’s an apt description of how Great Southern operated, certainly in the last few years. Who now will investigate the investigator, given that ASIC said there was “insufficient evidence” to substantiate the Ponzi scheme claims? A couple of parliamentary inquiries are planning to examine some of the issues surrounding Great Southern, Timbercorp and MIS, but more is needed. The Federal Government should establish a Royal Commission with wide-ranging terms of reference. Without such an inquiry, I suspect the white-collar criminals who committed this fraud will walk away, many of them to get involved with dodgy schemes elsewhere. It’s obscene the managers of Great Southern granted themselves significant pay rises months before the company collapsed and after they failed to achieve bonus targets. ASIC appears to be saying that Great Southern’s behavior was not necessarily misleading or deceptive if the company had disclosed potential risks to investors. It’s now known the company misled investors regarding the size of its harvest yields and its capacity to predict them. Why do I feel so strongly? Managed investment schemes have tied up significant amounts of land in this region and changed rural society immensely. Fertile farming land was bought at inflated prices to plant trees. You can’t blame farmers for selling out, but with them went the fabric of small communities. This year was meant to be the beginning of the bluegum harvest. With it was meant to come hundreds of jobs, better roads and an economic boom. We were sold a lemon. The global economic situation is being blamed at the moment for every business failure, sometimes unfairly. Chances are Great Southern and Timbercorp would have failed anyway. The National Association of Forest Industries (NAFI) is still proclaiming the virtue of MIS. In a media statement this week NAFI said: “MIS plantation management companies that have diversified their business across a range of forest and timber activities, such as processing and other value adding projects as well as plantations, have insulated their company and investors from these events and will continue to expand as demand for timber increases. “MIS taxation arrangements are key to the ongoing expansion of plantation forestry as they recognise the long-term nature of the investment – often 10 to 30 years – and provide tax deductibility for upfront costs in a similar way to other agricultural crops.” Of course, plantation forestry became necessary because state governments reduced the area available for native forest logging. But there is something fundamentally wrong with allowing tax deductions in advance. The system artificially attracts investment in a speculative endeavor. Financial planners and accountants were getting kickbacks to entice investors. Nobody can tell me they cared about the towns they bought up land around or the land itself. As we are now discovering, the returns from Great Southern woodlots won’t be as high as the company promoted. And at any stage in the growth cycle the trees could be burnt, or maybe someone will discover a rare parrot or frog in the plantation and logging will be disallowed. Instead of producing food in the Green Triangle we’re growing trees. How does that benefit society? There are fewer people living on the land, producing less, and the underground aquifer is being sucked dry. This has been a wandering rant. It can be condensed to say:

Investigate and prosecute the perpetrators of the collapse of Great Southern; End MIS and come up with a sustainable way of encouraging agricultural investment; Stop social engineering; disallow the purchase of farm land to grow trees.