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Joint Standing Committee on Treaties - 25/08/2015 - Treaty tabled on 17 June 2015

RUTTER, Mr Matthew, General Manager, Marketing and Business Development, Geraldton Fishermen's Co-operative, on behalf of Seafood Trade Advisory Group

CHAIR: I now welcome a representative from the Seafood Trade Advisory Group. As you would know, this is being broadcast. Do you have anything to say about the capacity in which you appear today?

Mr Rutter : I am representing the Seafood Trade Advisory Group as an employee of a member of the Seafood Trade Advisory Group, that being the Geraldton Fishermen's Cooperative.

CHAIR: Although the committee does not require you to give evidence under oath, I should advise you that this hearing is a legal proceeding of the parliament and warrants the same respect as proceedings of the House and the Senate. The giving of false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. If you nominate to take any questions on notice, could you please ensure that your written responses to questions reach the committee secretariat within seven working days of your receipt of today's transcript. Over to you.

Mr Rutter : Thanks for the opportunity to present to you today. I know it has probably been a long day for you. As I said, I am here representing the Seafood Trade Advisory Group, STAG, as well as my organisation, the Geraldton Fishermen's Co-op, which has the unfortunate acronym GFC, but I will refer to it as GFC. We said that we claimed it first!

First of all, I will give you a brief introduction to STAG. It comprises abalone and rock lobster exporters. The objectives of the group are very focused on the subject of the proceedings here today, which is to work with the Chinese and Australian governments to facilitate support and export direct trade of our products into China. STAG was formed about five years ago to specifically address these market access issues for our products into China—that being one of the main export markets for seafood worldwide.

Rock lobster and abalone fisheries are amongst Australia's most valuable fisheries. Annual exports total around $650 million. Combined contribution to the GDP, by our calculations, is about $1.25 billion. We support 8½ thousand jobs in regional and coastal communities around Australia. I will probably focus mainly on the rock lobster industry because that is my area of expertise, but I am representing, obviously, as well, the abalone fisheries. So looking at the rock lobster fishery, Australia exports anywhere between 50 to 57 per cent of world trade in live rock lobster. That obviously makes us the largest shareholder in the live trade of rock lobster. Western Australia alone exports between 53 and 63 per cent of Australia's exports in rock lobster, which is unique to Western Australia. My company owns and controls 63 per cent of that, and so that makes us the world's largest exporter of rock lobster.

Some brief statistics on my organisation, Geraldton Fishermen's Coop: we are a cooperative owned by 272 fishermen members. We were founded in 1950; we have annual landings of rock lobster of around 3600 tonnes and an annual revenue of just under $300 million; we are actively exporting to around 10 countries at the moment. We have grown our market share over the last 10 years significantly through our cooperative member base which is generating and delivering returns to the members to the point where we are now 63 per cent market share of western rock lobster catch, and the vast majority of that is shipped live. That makes us the largest user of air freight out of Perth, exporting an average of 10 tonnes a day, but in the busy high-catch periods we can export anything up to 35 tonnes a day out of Perth. It is obviously a highly-perishable product; it moves very quickly from catch right the way through to our end consumers. The WA rock lobster industry—to focus just on my industry but it is representative of the other members—is a very well run fishery. It is a quota run fishery, with an annual quota of 6000 tonnes, valued at over $400 million a year. It is under-exploited, it is sustainable and it is under an environmentally responsible management scheme. We fish all year round; we have very healthy fish stocks and very good catch rates, which give our fishermen the ability to fish to market. That means they have a certain amount they can catch each year—when the prices are good they will fish; when the prices are not good they do not fish. That gives them a lot of power, given that they are the biggest exporters in the world.

As I said, the WA rock lobster industry is similar to the southern rock lobster and the abalone industries. A lot of work has gone into establishing ourselves as a force on the global stage to the point where our industries have a very strong domestic foundation from which to leap. That is represented in our quality assurance system and our reputation for supplying premium product. We are now poised to capitalise on all that work and generate extra value further down the supply chain. That is obviously where the China free trade agreement comes in. That will be a watershed for our members; it will add significant value to both the rock lobster and the abalone fisheries out of Australia and in turn it will help support those jobs and generate more jobs and more export income. Abalone and rock lobster are two of China's most prestigious food groups—right up there with sea cucumber and other premium foods that the Chinese really enjoy—and have great cultural significance.

The free trade agreement will essentially give us direct access to that market and to the end users of that market. It will give us greater branding control, greater direct control over our product into the premium markets and a wide distribution through all the premium markets in China. Because it is such a premium product it is targeted towards high-demographic groups. In anticipation of the free trade agreement, our company has secured a bonded warehouse at Baiyun Airport, Guangzhou, which has a direct link from Australia—an eight-hour flight with direct connections to all major cities within China. We are also setting up a Chinese company in China and we are going to have a local representative who will, potentially, be an expat from here. We are also investing in the development of a Chinese brand for our product. None of this would be possible without the free trade agreement. For our company, and for our colleagues in the southern rock lobster industry and the western rock lobster and abalone fisheries, it is a significant agreement.

I think that summarises our position, who we are and why we are so interested in this. It will obviously benefit all the way from fishermen through to the coastal communities, as well as helping to support Australia's brand as the food bowl of premium product into the world.

CHAIR: Thank you. That was really good. There is a lot of public discussion around the China free trade agreement and there is a lot of noise in that public discussion. One of the things that I think would be very useful for our purposes and for the committee's role is a very succinct, plain-English version—the dinner table conversation version. What do you think the China free trade agreement means for your industry and particularly what does it mean for the economy and jobs?

Mr Rutter : I think it means value. The growing middle and upper classes in China are on a scale that the average Australian cannot comprehend. For us to be able to access that value, market our product direct and manage the quality of that product right through to those Chinese consumers is significant. If you look at the export dollar value of what we are exporting versus what the Chinese consumers are paying within China, we see a significant up-kick in value, which will directly flow back through the export dollar.

CHAIR: And jobs? You said you employ 8½ thousand people already.

Mr Rutter : Yes. That is the coastal communities. Obviously the extra jobs—the potential value-adding and the supporting of those coastal communities—are for my organisation, as a cooperative, paramount. We are very focused on making sure that we are going to invest back into supporting those coastal communities and those fishing communities.

CHAIR: I think you called it 'a watershed moment'. Do you really feel that this is taking it to a whole other level? It has got to be your words.

Mr Rutter : Yes, definitely.

Mr WHITELEY: If going forward with the free trade agreement is a watershed, how would you describe the free trade agreement in the unfortunate circumstance that it was not passed by parliament?

Mr Rutter : It is obviously status quo. I think that we are very exposed to disruption of trade in our current markets. It limits the potential size of our market quite significantly. China is the largest importer of seafood in the world, and our two products are considered in the top five, so, if we did not have direct access to that, it would be a significant loss of value.

Mr WHITELEY: If tariffs were to be retained in the future, with that growing Chinese market, our share of that market would diminish?

Mr Rutter : I think it would. New Zealand have a free trade agreement and they are currently exporting and gaining significant premiums over and above what we can achieve in there.

Mr WHITELEY: So we would be giving them a free kick, if we haven't already?

Mr Rutter : Yes. They have had a free kick, but I think we have got time to catch up.

Mr WHITELEY: Tackle them to the ground!

CHAIR: You have got a 15 per cent tariff on rock lobster and a 10 to 14 per cent tariff on abalone. In the unfortunate event that the agreement was delayed, what would happen, particularly when you have already made investment? Let us say, the agreement was not ratified until next year.

Mr Rutter : I think that would ultimately stall any strategic moves that anyone is willing to make. We have obviously considered that scenario. We would have to slow things down and look at other uses for those facilities, which we think that we may have, but it would not benefit Australia.

CHAIR: What is the imperative for us to ratify it this year?

Mr Rutter : The imperative is to access the value and to give certainty to Australian exporters so that they too can have confidence to invest down the supply chain. We are fortunate in that we are a larger organisation, but a lot of other organisations, without that certainty, are just not going to take the risk until they see something signed. So it is critical.

Mr WHITELEY: Can I get some clarity on the catch and the quota. Did I hear you say it was the GFC that was responsible for the 3,600 tonne?

Mr Rutter : That is correct.

Mr WHITELEY: That is an annual value of $300 million in 10 countries. But the quota is 6,000?

Mr Rutter : Yes, out of WA.

Mr WHITELEY: So you represent basically 60 per cent?

Mr Rutter : Yes, I think it works out to 63 per cent this season.

Mr WHITELEY: So there are obviously more players than the GFC, but in the whole sector together are you reaching the quota?

Mr Rutter : Yes. This is where we are very sustainably managed. We could catch more, but taking that amount we think is sustainable. So there is the replenishment of stocks. It means that there is plenty of biomass out there. The fishermen can catch when they want based on the market. The cost to them is lower and the environmental impact is lower because they go on fewer fishing trips. There is more lobster per catch—all those sorts of things.

Mr WHITELEY: You are talking about the sector, not just GFC?

Mr Rutter : Yes.

Senator LUDWIG: You cannot have growth in the export to China if you have current domestic regulations on what you can harvest?

Mr Rutter : That is exactly correct. That is another reason that we are so focused on the free trade agreement, particularly for us as a cooperative. We are a wild caught fishery, so irrespective of whether or not we have a quota there is only a certain amount that you can catch each year. So the only way to generate extra value is through market activities.

Senator LUDWIG: In the export of lobsters, do they go through Hong Kong or do they go through China at the moment? In other words, are you paying the 15 per cent tariff?

Mr Rutter : No—

Senator LUDWIG: If it is going through Hong Kong, you are not.

Mr Rutter : No.

Senator LUDWIG: So the product goes to Hong Kong at the moment?

Mr Rutter : The product goes indirectly into China at the moment.

Senator LUDWIG: So you are paying the 15 per cent.

Mr Rutter : No, we are not paying it. Well, let me be clear. We are not—

Senator LUDWIG: Not you in that sense. Sorry, I will rephrase it. Someone else is paying the 15 per cent, but it is a 15 per cent challenge to your business because New Zealand has a zero tariff and you have a 15 per cent tariff.

Mr Rutter : Yes, that is correct.

Senator LUDWIG: Do you have facilities in China for holding and storing lobsters?

Mr Rutter : We are in the process of building it now.

Senator LUDWIG: How do the lobsters get into China at the moment? Normally they go in ice boxes?

Mr Rutter : No, they go in sawdust, actually. This is another reason that we need the product to get there quickly, because they can only survive for so long. They get packed into polystyrene containers in very soft, fine woodchips. It is not really sawdust.

Senator LUDWIG: How much product goes into Hong Kong instead?

Mr Rutter : Hong Kong is a very small market.

Ms PARKE: What sort of market is it in China that is consuming the lobster? Is it a high-end market?

Mr Rutter : Yes.

Mr WHITELEY: Would you call it 'white table'?

Mr Rutter : It would be white table. It depends on the region. We grade our lobster according to size. The southern provinces in China prefer the large lobsters for big banquets, so they would have a large lobster in the middle of the table. In the Fujian region, which is central eastern China, it is for the wedding market and they prefer the smaller lobsters. Then further north, into Shanghai and Beijing, it is a mixture of both. So the food service market is the predominant market that it goes into and it tends to be the very high end market.

At the moment, through not having direct access to the market, there are issues with identity of the product into China, which means that a lot of product gets mislabelled as Australian. The chain of custody becomes very difficult into China, which is where we think that, if we can get a brand and a chain of custody further down the supply chain, there is value to be gained.

Ms PARKE: That is why I was wondering about whether the fact that we have got this tariff on at the moment that that is not necessarily a disincentive, if the brand is well respected. If it is at the high end, then it is not so price conscious. If people are willing to pay for the premium product, which is Australian, then—

Mr Rutter : Yes, but there will always be the competing products, because the restaurants will only buy if it is at a level that they are comfortable with that they will make money. They are obviously going to make as much money as possible so, if they can get a substitute product close enough at a cheaper price, then they will.

Ms PARKE: Did you hear Larry Jorgensen from the wine industry who was here as a witness earlier?

Mr Rutter : No.

Ms PARKE: He was saying that they have an idea of combining products in order to gain access into the Chinese market, say, with premium chardonnay and lobster from Western Australia.

Mr Rutter : That is something that we have looked at as well: premium beef, lobster, wine—there is definitely an angle there, I think.

Ms PARKE: Can I just ask for a clarification: when you said that lobster go to China in a box—is it with sawdust?

Mr Rutter : No, woodchips.

Ms PARKE: Are they alive or are they not—

Mr Rutter : Yes.

Ms PARKE: Really? Don't they need water?

Mr Rutter : No, they do not. They are an amazing animal actually. They can survive—

Ms PARKE: Would they prefer water?

Mr Rutter : Surprisingly not—

Mr WHITELEY: Send them an email and ask them.

Mr Rutter : It is more difficult to transport them in water and get rid of waste; whereas they just go into hibernation.

Ms PARKE: They go into hibernation.

Mr WHITELEY: There is moisture in woodchips.

Mr Rutter : Ours are dry.

Ms PARKE: How long can they survive just in woodchips?

Mr Rutter : We prefer to try and get them to the end market within 24 hours. Anything past that—and obviously, it is a marine animal—is a problem.

Ms PARKE: Thank you.

Mr WHITELEY: So woodchips are the equivalent of business class; sawdust is economy.

Mr Rutter : You don't want sawdust.

CHAIR: Is everyone happy?

Mr WHITELEY: Melissa isn't; she is worried about the lobsters and the woodchips.

CHAIR: Other than that? We wish you well.

Ms PARKE: One more question: what is the expected increased production to China then from this agreement?

Mr Rutter : Increased production—

Ms PARKE: I know you cannot get any more lobsters out of the ocean.

Mr Rutter : I think the increase in value is what we will get. So there is the value of the tariff—

Ms PARKE: So not having the tariff on?

Mr Rutter : Not having the tariff on and having control of the product, branding—

Ms PARKE: The chain of command.

Mr Rutter : So we think that, by direct branding, we can get extra value again, and by targeted marketing and distribution, because it works out to roughly eight million lobsters that are company does. The trick is to try and get that into the top restaurants all throughout China as a premium branded product with an Australian chain of custody that the consumer can see all the way back. We think that there is value there as well aside from the pure tariff side of things.

Ms PARKE: Thank you.

CHAIR: We will go in camera now.

Proceedings suspended from 15:33 to 15:41

Resolved that these proceedings be published.

CHAIR: I declare this public hearing closed.

Committee adjourned at 15:41