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Boswell, Sen Ron
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- Start of Business
- QUESTION TIME
- TAX LAWS AMENDMENT (2009 BUDGET MEASURES NO. 1) BILL 2009
- HEALTH WORKFORCE AUSTRALIA BILL 2009
- RURAL ADJUSTMENT AMENDMENT BILL 2009
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QUESTIONS WITHOUT NOTICE
(Coonan, Sen Helen, Sherry, Sen Nick)
(Polley, Sen Helen, Sherry, Sen Nick)
Australian Building and Construction Commission
(Fisher, Sen Mary Jo, Arbib, Sen Mark)
(Siewert, Sen Rachel, Ludwig, Sen Joe)
Building the Education Revolution Program
(Mason, Sen Brett, Carr, Sen Kim)
(Moore, Sen Claire, Wong, Sen Penny)
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- Scrutiny of Bills Committee
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- PERSONAL EXPLANATIONS
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- QUESTIONS ON NOTICE
Wednesday, 24 June 2009
Senator BOSWELL (1:35 PM) —I associate myself with the remarks of Senator Polley on baby abandonment. Yesterday marked the first anniversary of the deregulation of the wheat industry in Australia. Usually when an anniversary of an event occurs it is time for a celebration. But for the wheat industry there is very little to celebrate. The Australian wheat industry has found it difficult to adapt to the deleterious changes that deregulation has brought with it. The National Party warned the government of the problems that deregulation would bring and, while we were berated as merchants of doom, our worst fears, unfortunately, are coming true. The cracks have started to appear in the fundamental structure of the industry. Systemic problems are creeping into the supply chain and marketing and quality control—aspects of the industry that were never an issue under the single desk. Which part of the industry is suffering the most? Of course, we find the cost of deregulation is being shifted to the grower. With the loss of the AWB National Pool and hedging programs, we have seen lower prices for producers. The stress on infrastructure and the disarray caused by a dysfunctional supply chain have seen lower prices for eastern Australian producers in comparison to their western counterparts.
There is also a concerning trend in quality control measures for export wheat. The irony is that, until two years ago, the single desk had bipartisan support in Australia, particularly from the then Leader of the Opposition, Kevin Rudd, who wrote to a constituent on 8 February 2007 saying:
The Australian Labor Party has supported the single desk wheat marketing arrangements for over 65 years since 1939. During that period Labor has been a strong supporter of the current single desk marketing arrangements and it remains Labor policy that the single desk should remain in place while ever these arrangements have support from the growers and the community as well as delivering a benefit to Australian wheat growers.
Mr Rudd even quoted a study from Econtech which stated:
… on the benchmark of Australian premium white grade of wheat, the single desk captures a premium of between $15 and $30 a tonne.
The report stated:
The total annual value to Australian growers of this premium on Australian premium white is $80 million. On all grades the average premium attributed to the single desk is $13 a tonne and the total annual value of the premium on all grades is $200 million.
If only the Prime Minister had read his own letter. If he had only believed in it, we would still have a single desk. Prime Minister Rudd said it was worth between $80 million and $200 million in premium prices for the growers.
However, despite support from the growers and the community and despite proven benefits to the industry, the Rudd government deregulated the industry and, a year down the track, it is the growers and the industry that are suffering the price of bad policy. The Labor Party deceived the industry into thinking the single desk was safe prior to the election. When they came to power they decided to throw the wheat producers to the wolves of deregulation. A year ago there was a protest outside this parliament by wheat growers. A year ago the Wheat Growers Association, which represents 90 per cent of Western Australian wheat growers, voiced their objections to dismantling the single desk. A year is a long time for the industry to contemplate what they have lost.
Wheat industry leader Bob Iffla described the government’s action by saying:
The Government is breaking up the industry in a way that the Australian wheat grower will be hung out to dry. The Bill represents the divide and conquer approach traders and our international competitors have been wanting for years …
Today his words are prophetic, because we are seeing huge cracks in the industry’s very strong reputation through the loss of the stability that single-desk marketing gave to the industry. Under a single desk, the industry had a secure supply chain, the strongest quality control measures of any industry and the flexibility to market any type of wheat that Australian farmers produced or buyers wanted. Today there is no financial security for growers at the point of sale or thereafter. There is no buyer of last resort—something that is necessary in years of large production or back-to-back good harvests or where quality is outside the normal receivable standards. There is no ability to officially blend grains to bring them up to a higher quality on a national scale and thus produce a better price for the growers. There is nobody to handle and pay for the delays in shipments and delays because of customer complaints on quality. The loss of the Golden Rewards program, which was worth upwards of $30 a tonne, has both lowered gross returns and removed an incentive to grow better wheat. The industry has lost the countervailing power against bulk handlers and freight providers, which has meant an immediate rise in transport costs from regional grain-handling monopolies.
We predicted these issues a year ago and they are now headline articles for the wheat industry. The Minister for Agriculture, Fisheries and Forestry, Mr Burke, misled the public into thinking that things had never been better when, on 4 June, he said:
… since growers were given a choice as to whom they wanted to sell to, first of all you find that on the east coast of Australia prices have gone up to close to parity with the Chicago price.
Unfortunately the reality of wheat prices is completely different. Mr Burke neglected to mention the huge loss to growers’ returns from the loss of the national pool hedging program. The loss of income from the 2008-09 pool has been estimated at $1.25 billion, which comes directly out of the pockets of wheat growers. The national pool under the single desk would have hedged the crop at historically high Chicago prices. The standard pool hedging, pre sowing, in February-March, was two million tonnes. At sowing, in April-May, it was five million tonnes. In early spring—August-September—it is estimated at eight million tonnes. Therefore, for the 2008-09 pool, eight million tonnes of wheat would have been locked in at over $400 per tonne. This equates to over $1 billion in value spread over the total pool tonnage and would have meant a significant increase in value per tonne.
We are also seeing discrepancies in prices between the east coast and west coast markets, with the east receiving $35 less per tonne due to the dysfunction of the supply chain because the infrastructure was not ready for multiple sellers. An article in the Land dated 6 February, with the headline ‘Grain off the rails’, says:
Truck drivers were forced to wait as long as 16 hours to unload at GrainCorp’s export terminal at Newcastle on Tuesday as trucks queued with grain for a ship taking 20,000 tonnes of wheat delivered almost entirely by road rather than rail.
The situation was aggravated by the fact three grain ships failed survey at the port this week, delaying loading by at least a day until they were cleaned.
The article goes on to say that:
… the incident highlighted the increasing frustration and logistic nightmares newly accredited wheat exporters are experiencing in their first year of exporting bulk wheat since AWB Ltd lost its single desk wheat export powers.
The cost burden of delays at port would firstly be borne by the transport operators, but these costs ultimately are passed on to the growers.
State based regional monopolies are controlling grain from farm gate to port as buyers in the market but also as rail transport owners. They own the rails and the silos—the lot. The new world of deregulation also has worrying signs for our export markets with a loss of confidence in our industry from international customers. The Australian Financial Review article dated 24 March 2009, ‘Logjam forces wheat customers into arms of rivals’, details how:
Asian customers are threatening to abandon Australia as a long-term wheat supplier.
The article states:
Australia’s three biggest wheat markets—Indonesia, South Korea and Japan—have each raised concerns that ships are being forced to wait for several weeks to load grain at four ports in Western Australia, the biggest grain-producing state.
Some Asian flour mills have turned to the United States and Canada to secure wheat at higher prices …
The article says:
The bottlenecks have been compounded by the deregulation of the wheat export market last year, which led to 23 exporters attempting to ship grain to Western Australia’s ports immediately after the recent harvest, the second-biggest recorded.
Under the old system, AWB held a monopoly over wheat exports and was able to better co-ordinate the timing of shipments.
The article quotes several customers on their experience with deregulation, but the saddest indictment on the state of our supply chain is delivered by the chairman of Indonesia’s Wheat Flour Association, Francis cus Welirang, who states that:
… his mills were being forced to secure supplies from Canada due to the long delays in Australia. He expected total imports from Australia this year to be far lower than the 2.7 million tonnes originally forecast.
“The first experience of deregulation has been very bad for us,” Mr Welirang said. “The infrastructure in Australia is just not enough.”
Mr Welirang, who is a director of Indonesia’s biggest flour mill, Bogasari, estimated that Australia had lost up to 150,000 tonnes in wheat sales to Indonesia, worth about $50 million at current prices.
“It is upsetting. We will see if it improves, but if this happens again our confidence in Australia will be less,” he said. “Clearly the preparations before deregulation were not good. We have never experienced delays like this before. We are used to continuous delivery.”
This year has also seen concerns from customers over wheat quality. It was reported on 3 June that Egypt had quarantined 11,000 tonnes of Ukrainian and Australian wheat over quality concerns because it was ‘spoiled and not fit for human consumption’. Historically, quality control would have been the responsibility of the single desk; however, under deregulation our reputation as a wheat-producing country is at the whim of short cuts and exporters who are rarely audited.
These are the issues that the industry has confronted during the first year of deregulation. The good news is that it is not too late to unscramble the eggs of deregulation. The AusWheat plan developed by the Wheat Export Marketing Alliance is still as relevant today as it was when it was created. This plan proposed the creation of a:
… grower owned, single share class, special purpose company … with a charter to maximise national wheat pool returns … with full and direct accountability to shareholders.
AusWheat would have taken over the functions of the single desk as a low-cost industry focused on maximising grower returns. The AusWheat option may not have been perfect; however, it would have been better than the current system, which sees cracks starting to appear in our export reputation.
I would like to conclude by giving you an idea of how a young grower has been affected by the new world of deregulation. He wrote to me:
It seems to me that growers have been badly disappointed by the new ‘deregulated’ industry. I would have liked to have seen it work in the interest of growers.
I fear what will happen if all production areas have a good year—will cash buyers just shut their books, and growers be left with mediocre pooling options that don’t reward them properly for quality and provide high percentages up front?
The first year of deregulation has seen cracks form in the fine reputation of the wheat industry. The cracks are appearing in quality, supply and reliability, which ultimately result in lower returns to the grower. Let us hope that this worrying trend can be reversed in the years to come.
Now is the time for the government to review the wheat industry marketing arrangements. I will be putting a question to the minister today asking the government to commission research to review the impacts of deregulation on the costs to wheat growers, the impacts on quality control, supply to export markets, the loss of reputation as a reliable supplier and the infrastructure needs for the industry in the future.