ACTING CHAIR —Welcome. Would either of you like to make a brief opening statement?

Mr White —Yes, I will. It is a pleasure to make some remarks to the committee. Obviously, it is a little harder over the telephone, but we will try to make it as easy as possible.

ACTING CHAIR —You are coming through loud and clear.

Mr White —Sugar was excluded from the free trade agreement. For reasons that were fairly widely publicised, the sugar industry in Queensland is obviously disappointed that we were excluded from the agreement. We understand the reasons that this was the case. Because we were heavily involved in the negotiation process right throughout—with the negotiators, leading up to the negotiations and in Washington in the final stages of negotiations—we understand what transpired and how difficult it was. There is already TRQ access from Australia into the United States. The tonnage has reduced over a number of years to 87,000 tonnes in the current year, which is fulfilled by Queensland Sugar on behalf of the sugar industry in Australia. We were seeking a fairly substantial increase in access under the agreement.

As we understand it, and as we have seen first-hand from a number of visits to Washington and from our association with the US sugar industry, the US sugar lobby is very powerful. In a presidential election year, it was always going to be difficult to increase access for sugar. The US sugar lobby would regard one more tonne of sugar as more than they would want. I think it shows the strength of the US sugar lobby that, at the end of the day, they won through. Incidentally, to show the disproportionate extent of the US sugar lobby's power, the total number of sugar farmers in the US farm sector is very small but, according to the records that we have been able to see, they account for something like 17 per cent of official contributions made to the political process by the whole farm sector. That shows you the extent of their political clout.

The other thing I would like to say is that, even though the sugar industry here did not receive anything in the FTA, that was not without a fair amount of trying on the part of all concerned. We were heavily involved in the process. We had a large amount of access to the negotiators, to the negotiating team and to the Minister for Trade in the months leading up to the negotiations. While we were in Washington through the negotiations, we were very heavily involved in daily briefings, discussions et cetera. So there it is. We now believe that we need to make a lot of progress in the rest of the WTO process through the extension of the Doha meetings. This is the avenue we have to follow, given that we got nothing out of the US situation. That ends my introductory remarks.

Senator O'BRIEN —I am happy for either Mr White or Mr Males to answer my questions. What were your estimations of the benefit to the Australian sugar industry of gaining access to the US market through the FTA?

Mr White —In the present world market situation, for every tonne of increased access we would have received something like three times the current world price. So we were able to calculate, for every tonne, so much benefit per tonne in terms of the differential between what the world price currently is—the price at which that sugar would normally be sold—and the extra price that we would have received in the US.

Senator O'BRIEN —There was some work done by the Centre for International Economics. It considered a number of scenarios and hence a number of different possible outcomes. But I am interested in what your organisation's expectations were, based on the encouraging noises that were coming from the government.

Mr White —We were looking for an increase of some hundreds of thousands of tonnes. Depending on the amount of the increase, that would have amounted to millions of dollars back in value to the industry through the increase in pool prices that could have been achieved. I do not have with me the actual differential but I can certainly calculate that on a per tonne basis.

Senator O'BRIEN —That would be useful for my purposes on the committee, thanks, if you could do that. I am interested in the context, in that there is obviously a view that this could have a critical effect on the viability of the sugar industry; is that right?

Mr White —If the access were large enough, that could be the case—although we are not talking about saving the sugar industry by virtue of this access; we are talking about adding to the overall returns. If you are in a position where returns are at a critical point, given that returns were low at the time, certainly any addition would be a thankfully received increase in the returns to the industry. You have got to remember that we have an industry that produces somewhere between 4[half ] and 5[half ] million tonnes of sugar in Australia, depending on the year, and we are talking about millions of dollars going to the industry, to be put across all producers. So we are not talking about massive increases in the pool price; however, depending on the level of access that might have been achieved, they could have made some difference.

Senator O'BRIEN —I look forward to your calculations. I assume you had a number of meetings with the trade negotiators over the period leading up to the finalisation of the agreement. Can you tell the committee who you met with and the purpose of those meetings?

Mr White —Yes. We met with officials from DFAT on a number of occasions in Queensland. We were in Canberra also on a number of occasions—this is leading up to the final negotiations. Through the process there was Steve Deady, the lead negotiator, and Alan McKinnon, who was at the time heavily involved in the negotiations. In Washington we had meetings with Ambassador Thawley on a number of occasions prior to the negotiations. Whilst in Canberra we also had meetings as an industry group with Mark Vaile on at least two occasions.

Senator O'BRIEN —So you met with the minister on two occasions; when was that?

Mr White —I do not know the actual date at this point, but it would have been in the month prior to the negotiations getting into full swing.

Senator O'BRIEN —What was the purpose of those meetings?

Mr White —We would often talk to Mark Vaile on general trade matters if we were in Canberra, because we are heavily involved in the WTO process. Queensland Sugar runs the chairmanship and secretariat of what is called the Global Alliance for Sugar Trade Reform and Liberalisation, which is a group of like-minded international sugar producing industries pushing for freer trade. We would talk to the minister about a number of those aspects of trade and, of course, leading up to the negotiations about the FTA.

Senator O'BRIEN —The government was certainly making strong noises about `no sugar, no deal'. I am interested to know whether similar assurances were being given to the industry.

Mr White —From the industry's point of view, it was always recognised by the negotiators that it was going to be difficult. The negotiators were not giving us assurances that it was necessarily `no sugar, no deal'. They were more the public utterances that we had heard.

Senator O'BRIEN —You mean the government's utterances?

Mr White —Correct. There was certainly a view given to us that they would try extremely hard, that they would hope to get something in the agreement. However, it was never said—as far as I am aware anyway—in the negotiations and processes that we had that sugar had to be included.

Senator O'BRIEN —It is interesting that you differentiated what you described as `public utterances' from what was being said to the industry. Is that a fair characterisation?

Mr White —I suppose that is true. However, I think what people were saying from our point of view and what we understood all the way through was that they were going to try very hard to include sugar, and at no stage did we believe that there was any slackening of that intent.

Senator O'BRIEN —I think it was always tough—there is no question about that—from before the start of negotiations. During a long and very productive meeting with the industry in Cairns a couple of months back, Mark Latham, the Leader of the Opposition, and Gavan O'Connor, the shadow minister for agriculture, were told of negotiations for the sale of a substantial quantity of sugar to a buyer on the west coast of the United States that were well advanced in anticipation of progress on sugar in the FTA. Is either of you aware of those negotiations? Would either of you have been in any way involved in them?

Mr White —Queensland Sugar is the organisation that sells to the US. I am not aware of who was at the meeting that you refer to. We sell to a refinery in San Francisco known as CNH, who are probably the main refinery in the western area of the US. We had assurances from them that, if we were able to get increased allocation to the US, they would be more than happy to buy it. They had even sent letters to their own congress and senate people indicating the same.

Senator O'BRIEN —It sounds like an open order book.

Mr White —They import all of the sugar that they process. They like Australian sugar. They process around 600,000 or 700,000 tonnes. They take our current total. They used to take it all from Hawaii, but that industry is no longer very viable. They like the Australian product, and they would take as much of it as they could get. I think that is really the intent of what should or would have been said.

ACTING CHAIR (Senator O'BRIEN) —So can we make the assumption from what you said that there was up to 600,000 tonnes that could have been marketed there?

Mr White —They did not put a number on it, but certainly the view was that, if we were to get an increase of whatever tonnage we had, certainly we were talking about less than 600,000 tonnes in total. We even believed that we could have marketed into the US in the short term—that they would certainly have been prepared to take it.

ACTING CHAIR —I think we are saying the same thing there. What is the medium-term outlook for the industry now, from Queensland Sugar's perspective?

Mr White —Put it this way: the outlook for the industry is very dependent on what happens in the future—on what the Australian dollar outlook is and on what is called the international price of sugar, as portrayed on the New York No. 11 contract at the New York Coffee, Sugar and Cocoa Exchange. At the present time we do have an oversupply of sugar in the world and, whilst we might be moving maybe next year into a slightly better situation, given all the factors we can see, the outlook at the present time with the current Australian dollar is probably similar to the outlook we might have had through the course of the last 12 months—that is, it is not a very bright outlook for the industry.

ACTING CHAIR —So at around 70c, what is the per pound No. 11 price now?

Mr White —The sorts of prices that are able to be got with premium in the marketplace at the present time are something in the order of 7[half ]c to 8c per pound when you add premium onto those. The actual market is anywhere between 6.75c and 7.3c per pound. The pool price is somewhere in the range of $210 to $240-odd a tonne—that would be the sort of likely range at the present time.

ACTING CHAIR —And what is the viability target?

Mr White —I must admit that I am the marketer of the sugar but I would say that the industry is really looking at values of $250 and above to break even.

ACTING CHAIR —Okay. So could we fairly draw some sort of index around a viable price now—at, say, US70c to the Australian dollar—and concoct a sliding scale with which we could assess some profitability of the industry?

Mr White —You could. The issue would be that there is a wide range of cost structures and profitability ranges in terms of break-evens. It is more something that I would suggest the cane growers organisation would be better able to do, but certainly a matrix such as you talk about could be constructed, yes.

ACTING CHAIR —What happened with sugar in the Central American free trade agreement?

Mr White —There was a small amount of access given—it has not been passed yet—in the CAFTA. I might let Mr Males, who would be more familiar with the exact details, answer that.

Mr Males —The CAFTA entitled the countries that were part of it to an additional 110,000 tonnes of access to the US, but that access came subject to certain considerations. One was that the domestic market in the US was such that the sugar could enter without disrupting domestic prices and so on. So there is a provision in the CAFTA that enables a cash payment to be made in lieu of the sugar entering the US.

ACTING CHAIR —We could have got $400 million from the US.

Senator BOSWELL —Mr Males, I just missed the point you were trying to make. Could you repeat what you said to Senator O'Brien then?

Mr Males —In terms of CAFTA?

Senator BOSWELL —No, in terms of the safeguards they had.

Mr Males —With regard to the tonnage of sugar coming from the CAFTA countries into the US, if the domestic circumstances in the US are such that that sugar would depress prices or disrupt the market, the USDA is able to make a cash payment to those countries in lieu of receipt of the sugar.

ACTING CHAIR —Let us imagine that that applied to us. That would mean that there would be an amount of money going into the pool, wouldn't it?

Mr Males —If it applied to Australia it would be simply a cash injection to whomever the US government made their payment.

ACTING CHAIR —Our international marketing is through your organisation, isn't it?

Mr Males —Yes, so presumably the payment would go to Queensland Sugar.

ACTING CHAIR —Which would put the money back in the pool, wouldn't it.

Mr Males —Yes.

ACTING CHAIR —The issue of the effect of the agreement's exclusion of sugar and the multilateral round has been raised. What is your view of other sugar producers' reactions to Australia's agreement to exclude sugar from the US-Australia FTA?

Mr White —There has been a whole range of different reactions, depending on what country it is and what their view of their own circumstances is. Certainly, a lot of developing countries—who, I might add, are part of the CAFTA arrangements as well—believe that the sugar access arrangements that they have to Europe and the US are really about aid. Of course, Australia as a developed country is not in that same circumstance. A number of the developing countries saw this as basically keeping the status quo going. Their view was that there would not necessarily be any great movement in Europe or the US in the short term; therefore, their positions would be safer and they would continue to have their preferential arrangements. That includes countries such as Brazil. I could not speak for the Brazilian government; however, our colleagues in the sugar industry in Brazil were as disappointed as we are. We were hoping that we could push the trade debate even further through this sort of arrangement.

ACTING CHAIR —The implication of what you have said is that the view is that there will be no progress in the multilateral round. This is like the cap above which it will be very hard to proceed.

Mr Males —I think we all continue to hope that there will be progress in the multilateral round. It is just that I think everybody realises how hard it is to make movement in that area. We will have to wait and see what happens over the coming months as an agricultural round is put forward and people either sign on or do not sign on to that.

There was certainly a hope that, if we did start to see something occur in the US, that might start to translate into the multilateral round. We did not necessarily see it like that, because the two are quite separate. I do not think you can necessarily just link increased access for Australia into the US with a whole change in the prospects for a multilateral round as a whole. While a completely wider set of circumstances might exist there, intercountry relationships and arrangements are quite different from just an FTA. I think the comments I have made are correct. I do not think it necessarily had a major impact on other countries' views about a multilateral negotiation.

ACTING CHAIR —Going back to your description of the value we would get for extra sugar, does it work out to be for Australia about—very roughly, with my mathematics—$500 a tonne extra for every tonne of sugar that we are able to sell into the US market?

Mr White —We could just do that calculation roughly. Taking it at our numbers, say, the difference would be between about 7c and US20c per pound.

ACTING CHAIR —Yes.

Mr White —If we take the Australian dollar at 0.7, it works at about $409.

ACTING CHAIR —So it is about $409 a tonne at the current price?

Mr White —Yes.

ACTING CHAIR —So the sort of value that CAFTA would represent, if you applied it to Australia, would be 110,000 tonnes at $409 a tonne?

Mr White —It would be something like that.

Senator FERRIS —Do you think Australia should walk away from the free trade agreement because sugar was not included?

Mr Males —The sugar industry has actually said words to the contrary of that. The sugar industry said that, if the agreement is overall to the benefit of Australia, whilst it is disappointed with the outcome for sugar, it is something that it believes the government should go ahead with.

Senator FERRIS —Would you agree with the comment made by your Premier, Peter Beattie, in a speech to the American Chamber of Commerce last week when he said that he still believed that the agreement would prove positive for Queensland and Australia as a whole, citing the particular sectors in Queensland that would benefit as being beef, light metals, cleaning magnesium and, to a lesser degree, aluminium. He described the lack of a sugar inclusion as being unfortunate. It seems as if you would agree with that, but would you agree with the other comments that Premier Beattie made?

Mr White —I am not fully aware of the economics of those industries, but I understand a range of industries have said that they are happy with the arrangements, and therefore it would appear there is an overall net benefit.

Senator FERRIS —One of the other criticisms that has been made by a number of witnesses to both this committee and the treaties committee is the degree to which this bilateral agreement will affect our capacity to negotiate other multilateral agreements and also the standing internationally of the Cairns Group, which is a group of a large number of countries—I think there are 21 of them now—to try to have freer and fairer trade around the world. Do you, as an industry, have a view on the capacity of the Cairns Group to continue to operate notwithstanding this bilateral agreement with United States?

Mr Males —It is something that we are not entirely familiar with. It is an issue for all the countries in the Cairns Group to the extent that they have a common understanding or goal. Irrespective of this, the Cairns Group is more about the multilateral arrangements. At the end of the day, there probably are not too many groups that are solidly pushing for freer trade irrespective of whether we get it. As we see the Cairns Group, they are and have been a fairly effective lobby. Time alone will tell the extent to which the Cairns Group can continue to be that effective lobby. If you have been dealing with agricultural trade matters for a long period of time, as we have been in Queensland with sugar, you recognise how hard it is for countries that are part of the total trade scene to actually move their policies at all, given their own internal politics.

Senator FERRIS —And given the difficulties with the Doha Round.

Mr Males —That is correct.

Senator FERRIS —Does the sugar industry use any machinery or other manufactured goods in the production of sugar that will come into the country at a lower price as a result of this agreement with the United States?

Mr Males —I do not think that there will be very much. They obviously use machinery and I am not aware that there is going to be major moves in that regard. The other product is fertiliser, which mainly comes from countries other than the US.

Senator FERRIS —Thank you.

Senator BOSWELL —We have 87,000 tonnes in our TRQ. What is TRQ?

Mr Males —That is the tariff rate quota. That is our current access to the US.

Senator BOSWELL —Where else do we have contracts?

Mr Males —We deal with a number of other countries.

Senator BOSWELL —Where do we get a premium on our sugar?

Mr Males —In terms of preferential access we have a long-term arrangement with Malaysia, which is normally for about half a million tonnes a year. That is done on about a three-year cycle. Those amounts are generally market related. Just about all the rest of the sugar that we sell is world market related.

Senator BOSWELL —If sugar is 7c a pound and it is in a pool, why do people buy our sugar? How do you sell sugar? Is there a preference to buy a particular country's sugar if it is all the same price?

Mr Males —It is a commodity market and the commodity we sell is crystal raw sugar. However, because the industry in Queensland is organised the way it is—currently we have a single desk arrangement—we do have the ability to control the production to some extent by making sure we have quality control. We make particular brands and types of sugar for particular markets and we run the logistics as a total package. The customers in Asia in particular, which are in the Pacific rim, which is our natural market, do have a preference for Queensland sugar because we really have tried to differentiate ourselves from others in what is essentially a commodity market by quality and service.

Senator BOSWELL —Were you invited to the agreement negotiations by Mark Vaile, as a participant?

Mr Males —The industry was invited to attend in Washington in the lead up to and through the negotiations. A number of members from the Queensland sugar industry attended Washington throughout that time.

Senator BOSWELL —Were you part of the negotiations?

Mr Males —No, the industry was not part of the negotiations. The industry basically discussed with the negotiators daily what the position was and had daily briefings and strategy meetings et cetera but was not part of the actual negotiations between the negotiating teams from the US and Australian governments.

Senator BOSWELL —I know you were hopeful—everyone was hopeful—but were you expecting any further access?

Mr Males —I think the industry in Australia was hopeful that it would get some hundreds of thousands of tonnes increase in access. Once again, as I have said, we knew how difficult it would be. This was a negotiation where positions were put on the table by each side, and we certainly were hopeful that we could actually get sugar put on the table. As it turned out, it was impossible for the US to put sugar on the table, even though, from our side, our positions were put to the US negotiators.

Senator BOSWELL —We are not importing any sugar at the moment, are we?

Mr Males —There are small amounts of sugar being imported into Australia but not significant amounts.

Senator BOSWELL —Where it is coming from?

Mr Males —There are a few thousand tonnes of speciality products coming into Australia that are not actually produced in Australia.

Senator BOSWELL —Like lump sugar or that stuff that comes in from some of the French areas?

Mr Males —Yes, from Mauritius and places like that. It is the larger coffee cubes, some demerara sugar for coffees and products such as that—products that are too small in tonnes to be made in Australia, in terms of capital equipment et cetera.

Senator BOSWELL —What are they worth?

Mr Males —I am not sure of the value of them, but there would be in the order of 3,000 tonnes coming into Australia every year.

Senator BOSWELL —What would 3,000 tonnes be worth?

Mr Males —Possibly a few million dollars.

Senator BOSWELL —And there is nothing coming in from Brazil?

Mr Males —Not at this stage. Sugar could come in from Brazil, I suppose. It is always possible that it could. It is a matter of the relative freight rate and it being cheap enough to arrive here and compete.

Senator BOSWELL —But how could it come into Australia if we are selling on a world price?

Mr Males —But we are selling on a world price—exactly.

Senator BOSWELL —So you were satisfied with the position that Mark Vaile took in trying to bring you into the tent, advise you and keep you up to speed on what was happening over there?

Mr Males —Those members from the sugar industry here who attended were not at all unhappy with their treatment. They were included in daily briefings and on a number of occasions had meetings with the trade minister et cetera.

Senator BOSWELL —What was your target? What were you hoping to achieve?

Mr Males —We were hoping to achieve a 250,000 tonne increase.

Senator BOSWELL —That was a bit ambitious, wasn't it?

Mr Males —That was a level that we believed would certainly add some weight to the prices here. When we considered what access we had had in previous eras and years gone by—we had up to 750,000 to 800,000 tonnes access at one stage—we believed that it was not unreasonable. However, we always knew that that would be a difficult target, given that, as we understand it, the US sugar supply and demand situation—with the total import access that is currently granted and the production in the US from beet and cane sugar—is very finely balanced.

Senator BOSWELL —What do they import?

Mr Males —They import about 1.3 million tonnes of sugar annually, and the total US market for sugar is in the order of nine to 9[half ] million tonnes.

Senator BOSWELL —We are not importing any white sugar into Australia, are we?

Mr Males —I doubt that any white sugar is coming in; I believe it is specialty products.

ACTING CHAIR —Thank you. When the Hansard comes out, you will be given an opportunity to make corrections to it. The secretariat will be in touch with you about that.

[3.17 p.m.]