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Thursday, 13 March 2008
Page: 1773

Mr BURKE (Minister for Agriculture, Fisheries and Forestry) (4:10 PM) —by leave—Australia’s export wheat marketing arrangements are in desperate need of reform. The current arrangements are a shambles and have failed growers on several levels—the governance arrangements have failed, the management of the single desk has failed and, importantly, the arrangements have also failed growers morally.

The arrangement put in place in 1999 by the previous government—the granting of a legislative monopoly to a private corporation, AWB Ltd—was always destined to fail as it put in place inappropriate incentives without the necessary checks and balances.

The subsequent bandaids applied to the arrangements to get them through the current situation are exactly that—bandaids that have merely patched up an ineffective and inefficient system without remedying the underlying defects.

Governance arrangements

You have to ask: why do we have the current governance arrangements? A statutory authority, the Australian Wheat Board, was privatised in 1999 and the legislative monopoly for the export of wheat was handed to a private corporation. When a government entity holding a monopoly or a dominant market position is privatised it should be common practice to put in place strong regulatory arrangements.

But in this instance, what did growers get? The Wheat Export Authority (WEA), a body with few powers and which was hamstrung from the start—an organisation that Senator Heffernan famously referred to as ‘a bed of pansies, when what’s needed is a 1,000-pound gorilla’.

The WEA was limited to reporting to growers after the fact, was restricted in the information that it could obtain from AWB and was restricted in what it could report to growers because AWB claimed all information as ‘commercial-in-confidence’. It was the regulator you had when you were not having a regulator.

The member for O’Connor and other members opposite could see the flaws in the arrangements in 1999 and said so in this House on numerous occasions.

Without a strong, effective regulator it is no surprise that things unfolded as they did. The incentives for AWB Ltd to exploit its position and behave as a law unto itself were unfettered.

Moral imperative

It is growers who should be most disturbed by what has happened. Their trust in the former management of AWB Ltd was betrayed.

As Commissioner Cole said in his report:

A government grant, by legislation, of a monopoly power confers on the recipient a great privilege. It carries with it a commensurate obligation. That obligation is to conduct itself in accordance with high ethical standards. The reason such an obligation is imposed is because, by law, persons are denied choice with whom they may deal.

Sadly, as has been extensively chronicled, the former management of AWB Ltd did not live up to these obligations.

The actions of former AWB executives cost Australian wheat growers and the Australian economy enormously. The reputation of Australia as a fair trading nation was tarnished. The time to repair that damage is now.

The flaws and consequences in the current arrangements

Supporters of the single desk argue that the monopoly power extracts a price premium on the world market and this is passed onto growers.

The evidence to support this theory is lacking.

In normal years, Australia accounts for around 15 per cent of the world wheat trade, which is not enough to exert any significant monopoly power. The ACCC, in its merger guidelines, sets 40 per cent market share as the level for exerting monopoly power.

While Australian wheat does obtain a price premium in the market, this is due to its superior milling characteristics. We get a price premium because we have the best wheat.

There have been numerous studies and reports on the single desk over the years. One report, however, stands out for its independence and that is the National Competition Policy review of the Wheat Marketing Act 1989 held in 2000.

That review, by Mr Malcolm Irving, Mr Jeff Arney and Professor Bob Lindner, could not find any clear, credible evidence that the export wheat marketing arrangements were of benefit to the Australian community. In fact, they said:

On balance, the Committee came to the view that the introduction of more competition into export wheat marketing in the future would more likely deliver net benefits to growers and to the wider community than continuation of the current arrangements ... (page 7)

While some growers believe that the single desk has operated in their interests, you only have to peruse the recent reports of the Export Wheat Commission to see this has not been the case. For example, a recent report by the Export Wheat Commission estimates that growers were worse off by $14 million on ship-chartering costs because of the absence of competitive forces in the transport supply chain.

The industry needs significant reform to increase the level of competition. Competitive forces are needed so that costs in the marketing and logistics sectors are minimised. Only then will returns to growers be maximised.

And, worst of all, as Commissioner Cole noted, many growers have no option. Those in the west are tied to the single desk. At least in the eastern states growers have the option of selling their wheat into the domestic market—and in recent years have shown their willingness to use that option.

Need for legislative change

It is now time to remedy these defects.

The latest bandaid applied to the Wheat Marketing Act 1989 is about to expire. The power for me as minister to grant or refuse export permits expires on 30 June 2008.

At that point, the Export Wheat Commission will become the final arbiter on whether an export permit should be issued. The Leader of the Nationals just described this as a relief. Let us look at what will happen. Growers will face considerable uncertainty about the marketing of their wheat on issues such as who may be granted permits and how AWB will be able to manage its obligations under the act to run pools.

Worse, under the current legislation—without the government’s proposed reforms—there will be no protection for growers in the form of a probity test, and there will be no protection for growers from possible anticompetitive behaviour. But the Leader of the Nationals describes this date, 30 June this year, as a relief.

Even AWB Ltd considers this situation undesirable. As Mr Gordon Davis, the CEO of AWB Ltd, said on 6 March:

If the [draft legislation] is not approved in the Senate, wheat growers will be left in a twilight zone where AWB is expected to run a national pool without the bulk veto and bulk export permits can be issued to other marketers and traders by the regulator.

In these circumstances, AWB would have the responsibility to maximise returns to wheat growers but lack the ability to do so effectively. No responsible board of directors would agree to continue running a national pool in these circumstances and in the current US sub-prime environment.

Yet that is the situation that was described a moment ago by the Leader of the Nationals as a relief. Increasingly growers are accepting the need for change. The recent vote by A-class shareholders in AWB Ltd for reform of the company, while not reaching the 75 per cent threshold for success, did exceed 60 per cent.

Proposed reforms

Last Wednesday I released exposure drafts of the bills to implement our reforms that deliver on our election commitment.

The bills outline how the new arrangements will work. They explain the establishment of the new regulator, Wheat Exports Australia, and detail the criteria that WEA must consider in whether a company should be accredited to export bulk wheat.

There are clear probity requirements that must be met before a company can be accredited. These relate to the financial resources of the company, the skills of its management, the systems it has in place to manage risks associated with the trade in wheat and the demonstrated behaviour of the company and its executives.

We need to ensure we do not replace a single wheat export monopoly with three regional monopolies at the ports. I have therefore included a special requirement for any company that operates a bulk grain handling facility at a port terminal. On applying for accreditation they will be required to grant access to that port terminal facility to other exporters as a condition of their accreditation.

WEA will also have the power to audit accredited companies to make sure they are complying with the conditions of their accreditation and to obtain information from them.

Severe penalties will apply for exporting wheat in bulk without accreditation and for making false or misleading statements to WEA.

I have invited public comments on the exposure drafts and given all interested parties until 3 April to provide those comments. I have also spoken with a range of key stakeholders about the draft legislation, including state farm organisations, bulk handlers and potential exporters. While not all support the new policy direction, I am encouraged by their engagement in the process and their willingness to help achieve the best possible system.

I note the comments from several organisations that support our policy and the draft bills. Of particular note are the statements from the major trading companies and grower groups including the Grains Council of Australia, AWB Ltd, ABB Grain Ltd, CBH Ltd and GrainCorp. Madam Deputy Speaker, I table supporting documents.

Mr Truss —What about WEMA?

Mr BURKE —If only the Leader of the Nationals had read the release yesterday, he would know that WEMA is being wound up.

During consultation, concern was raised as to whether the changes would have an impact on the willingness of the banks to lend money to growers. To that end, I have met with the Australian Bankers Association, who have confirmed that the marketing changes will have no detrimental impact on growers obtaining finance.

As part of the reform process I have established an industry expert group to advise me on the provision of industry good functions under the new arrangements. Some of these functions were previously provided by AWB Ltd. The industry expert group is actually issuing its discussion paper today.

I am pleased to inform the House that yesterday our colleagues in the other place agreed to refer the bill to the Senate rural and regional affairs and transport committee for inquiry.

I understand the committee is working to be on the road consulting with wheat growers from 25 March.

At the request of Senator Scullion, the shadow minister, the inquiry has been extended by a further two weeks, to report back by 24 April.

I understand the committee is planning to travel to every wheat-growing state during the consultation period.

I urge all members to support the bills when they are introduced into the House. If they do not pass through parliament in time for a 1 July commencement date then growers will be faced with enormous uncertainty.

I can confirm that Labor members in this place will be voting to support the passage of this important legislation.

The opposition needs to clearly understand that if we do not change the legislation which the previous government have left us with, there will be no protection for growers from the possibility of anticompetitive behaviour, and there will be no protection for growers in the form of a probity test.

Growers need the certainty of knowing that the buyers of their wheat have the reputation and financial backing to pay for their crop. That certainty can be delivered today by the opposition declaring its support for these changes.

The opposition failed to deliver this reform in government. Should they continue to frustrate this reform from opposition then they must be prepared to stand up and accept the responsibility for the consequent impact to growers and their families.

The Australian wheat industry has a positive future under our proposed reforms but not under the existing legislation. It is imperative that these bills, once introduced, be passed by the parliament without delay—an imperative that both sides of politics today provide growers with certainty.

I ask leave of the House to move a motion to allow the member for Wide Bay to speak for 14 minutes.

Leave granted.

Mr BURKE —I move:

That so much of the standing orders be suspended as would prevent Mr Truss speaking for a period not exceeding 14 minutes.

Question agreed to.