Agrexco’s fall

Do we want a sequel to the bad old days? This is something for us all to ponder.

By JPOST EDITORIAL
While street protesters heap scorn on privatization, a publicly owned icon disintegrates disastrously before our incredulous eyes, accentuating more than ever key points of contention and conflicting socioeconomic orientations.
Tel Aviv District Court Judge Varda Alshech has given the Agrexco agricultural export giant a stay of execution until September 11, while severely tongue-lashing all concerned for their part in allowing it to collapse so irredeemably.
She likened Agrexco’s fate to a Greek tragedy in which all actors contribute to the downfall.
Indeed, in its spectacular crash, Agrexco seems to be charring the ground.
Since 1956, it has been Israel foremost exporter of agricultural produce, mostly to Eurozone countries, fielding such world-famous labels as Carmel. Its troubles are partially blamed on loss of market share, Eurozone crises, a weak euro and drought at home. But the principal culprit was appalling management and waste on superfluous personnel and terminals.
More than 30 percent of Agrexco’s shares are owned outright by the state, another 58% by the Agricultural Marketing Board and the rest by Tnuva. Some 2,200 growers in Israel, exporting 400,000 tons of produce a year, depend on Agrexco.
In December 2010, the government transfused Agrexco with NIS 55 million, in a bid to restructure it and prepare for its privatization, in accordance with a 2008 decision.
That money essentially disappeared down Agrexco’s bottomless pit. No buyers vie today for the nolonger viable company, and its employees face dismissal.
The government vowed not to pour in more good money after the bad.
The firm’s bondholders demand repayment, but are offered back a mere 15% of their investment. This has been rejected as hardly better than nothing. Agrexco had issued non-tradable bonds to institutional investors, including pension funds. The balance of this debt is 32 million Euros, and the company’s outstanding financial debt is 83 million Euros, while its cash reserves are less than 10 million Euros.
Agrexco’s creditors now demand that the government compensate them for their losses, just as tycoon Yitzhak Tshuva stood behind the bonds of the conglomerate he controls. On the face of it, this is fully justified. The government should be held to standards no less stringent than those demanded of private consortiums.
Yet the government has no independent fortune. Its resources belong to the taxpayers. The question is whether taxpayers should bail out investors.
Shouldn’t investors in state-controlled enterprises be just as cautious as investors in private businesses? Otherwise, a green light would be given to sink funds into failing public-sector firms on the premise that no matter what happens, the taxpayer functions as the ultimate guarantor, obliged to rush to the rescue.
Such an approach is both irresponsible and unconscionable.
There are reasons why companies fail. Agrexco is a salient case in point. Its employees, for one, assumed that public ownership condones spendthrift ways. State-ownership was relied upon to bankroll deficits produced by overstaffing and a lack of elementary transparency.
Agrexco is too much of a basket case to resurrect, and its bookkeeping deserves thorough investigation. The damage it wrought will certainly end up borne by the taxpayers, while farm producers urgently need a substitute exporting framework. It may be private, in which case it’ll have to stand or fall on its own performance. If some public control is retained, supervision will have to be rigorously exercised.
Investment houses, especially those that handle ordinary household savings, need to scrupulously scrutinize the companies whose bonds they buy with other people’s money. Counting on the Treasury to make good what they recklessly lose is betrayal of trust.
The last thing we can afford nowadays is a return to the 1950s, ’60s and ’70s, when public-ownership automatically covered up a slew of sins and facilitated the artificial survival of inefficient and parasitic firms at the expense of the nation’s taxpayers. Absolved of accountability, these firms only hobbled on to greater incompetence and profligacy.
Do we want a sequel to the bad old days? This is something for us all to ponder, especially now when anti-privatization sentiments sweep our streets. This is too serious a matter to be left to populist hype.