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Joint Select Committee on Trade and Investment Growth - 27/07/2015 - Experience of business in using Australia’s free trade agreements

COOTE, Mr Michael, National Manager, Export Development, AUSVEG

RAZDAN, Mr Steve, Economist, AUSVEG

[11:56]

CHAIR: Welcome. These hearings are a formal proceeding of parliament. The giving of false or misleading evidence is a serious matter and may be regarded as a contempt of the parliament. The evidence given today will be recorded by Hansard and attracts parliamentary privilege. I now invite you to make a five-minute opening statement before I go to questions from the committee members.

Mr Coote : AUSVEG is the national peak industry body representing the interests of approximately 9,000 vegetable and potato growers who pay the national vegetable and potato levies. We thank you for providing us with the opportunity to address the matter of business experience in utilising Australia's free trade agreements.

Establishing market access is key to further developing export markets and providing the vegetable industry with the best possible opportunities to capitalise on free trade agreements. The recent outcomes from Australia's FTAs with Japan, South Korea and China are very favourable for the vegetable industry. Liberalising trade through the reduction of tariffs and quotas can only be beneficial for the future of vegetable exports, and the industry stands to benefit in the future from these valuable foundations. Some practical examples of the vegetable industry benefiting from FTAs include the 2005 Thailand-Australia FTA, which served to eliminate tariffs on most fresh Australian vegetable exports by 2010. This has led to exports increasing by over 110 per cent from $4.3 million in 2004-05 to $9.1 million in 2013-14. The 2015 Korea-Australia FTA has seen tariff reductions on a range of vegetables. In the first half of this year, exports have already increased by 78 per cent compared to the first half of last year. Japan is the largest market for vegetable exports and was valued at over $46 million for our industry last year. Since the FTA came into force in January this year, exports for a number of vegetable commodities started increasing. AUSVEG anticipates that as time progresses there will be further growth in export trade with Japan for a range of commodities.

However, while the elimination of tariffs on vegetable commodities can only be beneficial to the industry, it is important to note that for vegetable commodities with poor or no market access to particular countries or entire markets where Australia's access is poor, the elimination of tariffs is fundamentally of limited value until market access is approved. Taking China as an example, Australian vegetable exports totalled only $2½ million in 2013-14, which is only about one per cent of total vegetable exports. So, given the scale of China and the obvious opportunities that exist, the current trade figures are very low, and this is solely due to Australia not having market access for the majority of vegetable commodities.

AUSVEG has concerns about how export related information is communicated to industries. Currently, the Department of Agriculture maintains the Manual of Importing Country Requirements, MICoR, database, which sets out the requirements that agricultural exporters must meet for their commodities to be accepted into foreign markets. The database is also intended to convey where market access is and is not available. We are concerned with the accuracy of this database as well as delays in updating its content, which can cause commercial detriment to exporting vegetable growers.

AUSVEG notes the federal government's recent allocation of $24.6 million to promote better business understanding of recently concluded FTAs. We now understand that DFAT intends to develop an online FTA dashboard tool which will incorporate tariff and rule of origin information. We have concerns that, if a separate FTA database is created in addition to MICoR, similar issues may arise which we have experienced with MICoR database. Tariff information is difficult currently for many growers to identify and having to use multiple online resources increases complexity for our growers to successfully utilise FTAs.

Additionally, achieving new market access can be difficult and often takes a number of years. This can only be attributed to the [inaudible] partners. Growers are at risk of losing export opportunities if competing countries attain market access before us and secure market share. This emphasises the need for adequate resourcing in the Department of Agriculture. This would assist the department in achieving new market access and processing foreign import requests, leading to better results for the industry and agriculture more broadly.

Australian vegetable growers battle rising production costs and decreasing profits in supplying the domestic market. Australian vegetable exports are worth approximately only seven per cent of domestic production. Given this, industry has increased its focus in investment on growing vegetable exports and is seeing heightened interest from growers who are wanting to take advantage of profitable new export markets. So, whilst the free trade agreements are an important step, market access remains the biggest hurdle and needs to be addressed to drive growth in vegetable exports and sustain the economic viability of the vegetable industry.

In summary, the benefits of FTAs cannot be fully realised unless there is improved market access. Provision of tariff and market access information needs to be accurate, timely and easy to navigate by vegetable growers. To alleviate this issue, we believe that the department needs to devote greater resourcing to market access generally. This means ensuring the capability within the department is adequately equipped to pursue new market access for Australian commodities overseas, as well as addressing import requests in a timely manner. This would ultimately benefit the Australian vegetable industry as well as our government and regional trading partners.

Mr Razdan : Additionally, we would like to seek the permission of the committee to table a document produced by AUSVEG entitled 'Exporting Australia's vegetables to the Middle East and Asia'. This document was produced earlier this year in light of recent free trade agreements with South Korea, China and Japan. It basically asserts that FTAs are beneficial; however, market access is also important.

Mr Coote : We are now happy to take questions at the wish of the committee.

CHAIR: South-East Asian countries normally have subsistence farmer type operations. They have been in the past, but they were going through radical changes, as we all know. Have you evaluated the markets in China? Is there big demand? Obviously, there is not, with only 2.5 million so far, but is there room to expand in China and other Asian countries? Do you think the demand is there? Or are they buying it already from other countries?

Mr Coote : Absolutely. It is definitely a competitive global environment in which we trade. There are huge opportunities. China especially is the market on a lot of people's lips at the moment and we are hoping to, in the near future, get market access for some specific vegetable commodities in there. AUSVEG represents about 150 different individual vegetable commodities, which means that, if we are going to pursue new market access for a certain commodity country, we need to ensure that it is one of our commodities that has the capacity in the industry to service that demand, if we achieve access. For example, if we try to get carrots into China, we need to be sure that our carrot producers have the capacity to really scale up production quickly. They may be able to, whereas some of the smaller commodities may not. We see opportunities in a number of markets to grow exports generally, but there are also some specific examples. We had not exported Australian broccoli into Japan for 10 years and, as result of the FTA, this year's reduced tariffs and the Australian dollar coming off, we are finally a bit more competitive. That, combined with some supply issues out of the US, we have seen Australian broccoli back into Japan for the first time in a decade. So there are opportunities that exist across a range of Asian markets and that is what we are driving for.

CHAIR: With the 155 different varieties of fruit and veg and so on and so forth, will you be tackling them one by one or would you like to see them in a bigger group?

Mr Coote : It has been one by one, to date. I guess the problem is around the different pests that affect the different types of crops. So, if you need to build a whole range of supporting data to back up any access requests or any negotiations, we typically end up focusing on some of the large-scale commodities, because that is where we have greater amounts of supporting evidence, which has already been utilised for these types of things.

CHAIR: Would that be things like potatoes?

Mr Coote : Potatoes, yes, and even carrots have issues with certain pests that are of concern to some of our trading partners. Even some vegetable commodities are affected by fruit fly as well. As I am sure you have heard, that is an issue.

Mr TAYLOR: Is the MICoR database widely used? Is it important information because of the amount of detail that you have to be across as an exporter?

Mr Coote : Absolutely. It is nearly our first port of call. If I get a call from one of our growers that grow one of those 150-odd commodities—

Mr TAYLOR: Across however many countries—so there is a matrix from hell.

Mr Coote : Yes, a hugely complex one in our organisation, and it is a bit harder to get your head around than some of the single commodity industries. That is why having access to really accurate information in MICoR is important. If I get a call from an artichoke grower or a kale grower, we do not necessarily know off the top of our heads exactly what markets they can and cannot get into at any single point in time. So we need to have that tool there to help us.

Mr TAYLOR: At the moment, it is only tariff information, is it? It is not market access?

Mr Coote : No, the opposite: it is market access. So it is phytosanitary requirements, protocols et cetera.

Mr TAYLOR: But your concern is that, if the extra work is done on this information and it does not link to the MICoR database, it will get terribly confusing?

Mr Coote : A number of our growers in regional areas might not have access to the latest technologies or be completely tech savvy, so it is difficult enough for them to go to one source of information—MICoR—to find out whether or not they can get commodity in. If we have to introduce another system to use, overall complexity will increase. Ultimately, I think that we will be in the middle of that and my phone will ring more often. If people do not know where to go, do not know what information they need to find or cannot trust the information from a certain source, because they have been burnt before, they will come to us. So we need to be confident that this information is accurate.

Mr TAYLOR: What is missing that needs to be there now?

Mr Coote : In terms of MICoR, obviously it does not cover things like tariffs. What would be useful, if there were going to be another system in place, is that it would be somehow linked or integrated so that growers could potentially—

Mr TAYLOR: A single interface?

Mr Coote : Yes. In our industry, for communications, fax is king. I had not seen a fax machine for a number of years before I came back into this organisation. Interacting with those sorts of communication media is a reality for us. So, if we have a more complex online offering that growers have to get their head around, it contributes to people thinking: 'Exporting is all too hard. It is too risky. I do not know what I am doing.'

Senator BULLOCK: Full marks for consistency: I have heard AUSVEG a number of times, and you always have a lash at MICoR. By the way, I have, on your behalf, taken up that matter at Senate estimates, without much success. I think that Mr Taylor may have thought that you were advocating putting the tariff information onto MICoR, but what I thought you were doing was wanting to get MICoR into a new system or, more particularly, get it accurate?

Mr Coote : Yes, get it accurate. If MICoR could cover off all of that information in one place, that would be a good outcome for us. But, yes, the accuracy of the data in there and how frequently it is maintained are most important to us. This is a complex and shifting landscape, and we get access either withdrawn or temporarily put on hold quite often, so we need that information to be very much up to date.

Senator BULLOCK: We have heard a bit about the delays in Australia processing applications from other countries perhaps having implications for other countries' delays. But this morning I heard something about what I think they call four by four, where commodities are offset against each other and it is 'you do ours; we do yours', mixed. Can that work? Could we be doing more of that—saying, 'Righto, here's the list of things we want to progress. We'll do yours first and then we'll do ours and then you'll do your second one and we'll work through the list.' Can that work?

Mr Coote : It can probably work. I think it is the way the department has been going about it to date—the list of four.

Senator BULLOCK: Can that work fast enough to satisfy all the mouths that need to be fed?

Mr Coote : I do not think it can necessarily work fast enough to satisfy all the mouths that need to be fed or the competing industries that are wanting to be one of those four or the top of the four.

Senator BULLOCK: So therefore what should we be doing? This business of negotiating access after free trade agreements are finalised seems to be where the real benefit is to be gained. You have to cross the first bridge first but then, to get benefit for Australia, we need to do this stuff better. So how should we be doing it?

Mr Coote : If there is any way to enhance the level of resourcing in the department that is devoted to market access specifically—that is something I have been—

Senator BULLOCK: Would you see that as having significant benefits to the Australian economy?

Mr Coote : I would, in our industry especially. We are starting to see such an increase in interest in exporting from growers. I said before that we represent about 9,000 growers. Currently we estimate that only about four per cent of those are involved in exporting. The vegetable industry is starting at a very low base, I believe: seven per cent of our production gets exported. But if you can harness that interest as well as some of the non-tariff barriers to trade getting broken down we are in quite a good position to take advantage of access once we can get into new countries. If there is a model whereby the department can either increase resourcing to devote to this or look at opportunities to utilise industry's offers to provide technical subject matter input or support, then hopefully that would expedite access.

Senator BULLOCK: There has been a fair bit of praise for DFAT's negotiation of free trade agreements but, when people are asked to compare, that often does not flow across to the Department of Agriculture. Do you think that the next step in negotiations beyond the free trade agreement might better be handled by people other than the Department of Agriculture?

Mr Coote : I think the Department of Agriculture would need to have a level of involvement but, if that could be supplemented with, for example, trade people within DFAT and other relevant technical subject matter experts, that could be a model that should be explored. We are not being critical of the department; we are just acknowledging the challenges they face to effectively undertake both export and import related work in a complex and changing environment.

Senator BULLOCK: Witnesses, you are so nice.

CHAIR: Which way is the industry heading with export? Is it fresh fruit, or frozen, or canned or in any other form you are selling it?

Mr Coote : To date the majority of our $256 million—last year—worth of vegetable exports is fresh. However, we have seen increasing interest from innovative growers looking at packaged, value-added, processed or semi-processed types of products. The economic climate has not been right in Australia to process vegetables for a number of years, so most of our growers focus on fresh. But there are a couple of strong examples where growers have invested in innovating into new processed type products that have been solely focused on the export market.

CHAIR: With your fresh products how are you looking at it, given that we are in there? Do you see issues in Asia—a 48-hour turnaround or whatever?

Mr Coote : The cold chain is going to be our biggest issue. Obviously we can control it quite well at this end but once you have something land in a foreign market and lose control of it then that can be a massive problem. It does not take much of a temperature shift in a container for a perishable product to go bad before it lands at its final destination.

Mr Razdan : In addition to what Michael said, export value has remained relatively stable the last few years so it is something we are trying to improve and increase. Regarding demand from Asian countries, we have noticed there is a lot of demand for Australia's premium produce. So I guess an advantage that Australian vegetable growers have is that our produce is a lot better quality than other countries. But again, it is just that issue of market access, especially to China and similar Asian countries.

Senator WANG: What about organic produce? What is the process for getting a certificate in a market country like China for example? Is our own organic certificate good enough for that market?

Mr Coote : I think our organic certification is one of the most stringent in the world. I cannot comment on what the process is to get certified to be organic within China. But I do know there has been an increasingly high demand for Australian organic produce. For example, in Hong Kong, our growers get about 40 per cent higher prices for their produce if it is certified Australian organic. So there are some significant opportunities for organic growers. They still represent quite a very small portion of our industry but there are a number of those growers that are becoming quite active in the export space.

Mr TAYLOR: My sense is, and I might be wrong about this, that at the moment these markets are not all that big. It would be interesting to see what sort of numbers they are. How big is the opportunity here if we get this right in vegetables? I am thinking of it from the point of view of a grower, where the primary focus historically has been the domestic market because everything changes as you get a big, fast-growing export market. Is there a chance we could see that very significant shift if we get this right?

Mr Razdan : I think there is. We do not really have numbers on potential profits.

Mr TAYLOR: Even revenue is fine. Do you have a sense of that?

Mr Razdan : I can take that on notice and find out. I could give you an approximate if you like. But there is huge opportunity. As I mentioned before, there is a lot of demand for our premium produce, which Australia really does have the benefit of exporting. Other countries know about it and they want to get it. With increased wealth in China and Asian countries, they tend to demand a wider range of vegetables and some that we can provide. They are willing to pay more for them. So I am happy to take that on notice.

Mr Coote : Steve said that our export values have remained reasonably consistent so it was about $250-odd million last year. We are a net importer of vegetables so we imported nearly three-quarters of $1 billion last year—that is, mainly processed vegetables. There has been some marked growth in certain markets over the last three or four years.

Mr Razdan : In terms of export markets, New Zealand used to be our biggest market but Japan has taken over recently. There is a lot of potential there. A lot of our top 10 export markets tend to be Asian countries. I guess the proximity of Asia to Australia helps a lot. We are only seeing a fraction of the possible benefits with our export markets. I guess on the domestic side of things, profits have been decreasing. You would all know about high labour costs and so on, which are typical of the industry. I want to reassert that export markets are a huge opportunity for us. If we can get it right, although I do not have the numbers, there stands to be a huge benefit to the industry.

Mr TAYLOR: And presumably that takes a lot of pressure off the negotiations that happen for purely domestic markets. When you are in a difficult position, you have suddenly got an alternative if you are a producer.

Mr Razdan : That is right. If they have a few markets to sell to in to in addition to wholesalers or retailers, it diversifies their risk as well. So yes, it can only be a good thing.

CHAIR: Australian farmers do not have any high risk? We have got some imported fruit and veg coming in but you do not see it as a concern? I know trade is a two-way thing but do you see any real pressures for Australian veggie growers?

Mr Razdan : On the import side of things, we tend to import a lot of processed vegetables, frozen veggies and so on. Australian growers supply our domestic fresh market. We export fresh but we do not really import much fresh at all.

Mr TAYLOR: And the export opportunities are, as you said earlier, in the fresh market?

Mr Razdan : Absolutely, yes.

Mr TAYLOR: Which could include clever packaging and all those sorts of things?

Mr Razdan : Absolutely, that is right.

CHAIR: Thank you very much for your submission and for your time today. It was much appreciated. If you have been asked to provide additional information, would you please forward it to the secretariat by 10 August. If this committee has any further questions before we do our final report, we will send them to you in writing through the secretariat.

Proceedings suspended from 12:21 to 13:38