Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Joint Standing Committee on Foreign Affairs, Defence and Trade
07/08/2017
Australia’s trade and investment relationship with the United Kingdom

BARDEN, Ms Tanya, Chief Executive Officer, Australian Food and Grocery Council

KEOGH, Mr Peter, Director, Economics and Sustainability, Australian Food and Grocery Council

Subcommittee met at 11:14

CHAIR ( Senator McKenzie ): I declare open this public hearing of the trade subcommittee of the Joint Standing Committee on Foreign Affairs, Defence and Trade. This is the ninth public hearing for the subcommittee's inquiry into Australia's trade and investment relationship with the United Kingdom. These are public proceedings, although the subcommittee may agree to a request to have evidence heard in camera or may determine that certain evidence should be heard in camera. I remind witnesses that in giving evidence to the subcommittee they are protected by parliamentary privilege. It is unlawful for anyone to threaten or disadvantage a witness on account of evidence given to a committee, and such action may be treated by either house of parliament as a contempt. It is also a contempt to give false or misleading evidence to a committee. In accordance with the subcommittee's resolution, this hearing will be broadcast, and the proof and official transcripts of proceedings will be published, on the parliament's website. Those present here today are advised that filming and recording are permitted during the hearing. I also remind members of the media present or listening on the web of the need to fairly and accurately report the proceedings of the subcommittee.

Welcome. Thank you for your submission. If you have a brief opening statement, we will hear that, then we will go to questions.

Ms Barden : Thank you very much for the opportunity for the AFGC to appear before the committee today. The Australian Food and Grocery Council is the leading national organisation representing Australia's food, beverage, drink and grocery manufacturing industry. We have a membership of approximately 180 companies, subsidiaries and associates that constitute in the order of about 80 per cent of the gross dollar value of the processed food, beverage and grocery product sectors. With an annual turnover in the 2014-15 financial year of approximately $126 billion, Australia's food and grocery manufacturing industry makes a substantial contribution to Australia's economy and is vital to the nation's future prosperity. International trade is of increasing importance to the future growth of the sector, and in 2015-16 Australia's total exports of food, beverages and groceries increased by 14 per cent to $32 billion.

While Australia's recent trade focus has been on Asia, taking advantage of the geographic proximity to the region as well as some faster growing developing economies, the UK remains an important trading partner. The UK was ranked as Australia's sixth-largest two-way trading partner for the food, beverage, grocery and fresh produce sector in 2015-16. While the implications and opportunities arising from Brexit are uncertain, the AFGC is generally supportive of Australia entering into free trade negotiations with the UK. Given the vast distance between Australia and the UK, there are significant freight costs in sending products over to the UK, which puts Australia at a competitive disadvantage in some areas. As a result, Australia tends to export premium agricultural and food products to the UK. Australia used to export greater volumes of agrifood products to the UK prior to their joining the European Union. However, since the formation of the European Union, the UK imports a considerable amount of food from Europe, and Australia sends a lot more of its exports closer to its Asian markets.

Depending on the new trading terms between the UK and the EU, there could be opportunities for Australia to be an alternative supplier into the UK. While there are opportunities for Australian exporters, there is competition from other major agribusiness trading nations endeavouring to take advantage of an independently trading UK and possibly changing tariff and quota levels. It's therefore vital that the Australian government seek to maintain or improve our current levels of access to the UK market and to guard against the falling international competitiveness of Australian products in the UK. Lastly, I'd like to make a comment about the AFGC's general concern about the rise in protectionism globally and the importance that therefore needs to be placed on Australia's continuing advocacy of free trade on the global stage, including entering into free trade negotiations with the UK.

Mr PERRETT: Thank you, Ms Barden and Mr Keogh. Ms Barden, I remember I met you.

Ms Barden : At the winemakers, I think

Mr PERRETT: I didn't want to put it on the Hansard, but yes, at the winemakers. You were working.

Mr SNOWDON: What were you doing?

Mr PERRETT: I was consulting with stakeholders, obviously. Speaking of stakeholders, do you believe there may be any early-mover advantage from rushing in to negotiate a trade agreement with the UK before others, compared to waiting to see what concessions other bigger trading countries may negotiate?

Ms Barden : I think Australia has an advantage of great cultural ties with the UK, and that is an important backdrop for these negotiations. It is important that Australia be an early mover. We already see the high tariffs and non-tariff barriers in entering into the EU market, so I think it's important that we have early discussions with the UK to seek to reduce those sorts of barriers for Australia entering into the UK.

Mr PERRETT: You feel that because we speak the same language, because of this cultural connection, we should jump in? Is that what you're saying?

Ms Barden : No.

Mr PERRETT: Do you have any economic analysis of why there might be advantages to moving early rather than hanging back?

Ms Barden : No, other than to say the international competition for food, beverages and groceries is very intense. Any reductions we can get on tariffs into a market, and an early advantage, can give you an edge on your competitors trying to seek access to the same markets.

Mr PERRETT: Is this a political rather than economic analysis? As in, Theresa May might be looking for a piece of paper to wave in the air to the people of Britain as they pay 60 billion euros to exit?

Ms Barden : I'm coming at it from an economic perspective. When you think about trade with China, for example, New Zealand got in early and had a free trade agreement with China, which saw them gain an edge on Australia and other countries and improve their international competitiveness. Off the back of that, exports from New Zealand to China rose steeply. I would envisage, similarly, if you're able to be a first mover into an economy and get an edge on your international competitors then that puts you in good standing.

Mr PERRETT: They look at our supply chains while the Ashes are on—or something like that—see our product and all the advantages and other benefits that come from having strong connections with another country?

Ms Barden : Yes

CHAIR: With the Chinese-New Zealand example, when you essentially have only two things to sell—sheepmeat and dairy products—it's a lot easier to be the first mover.

Mr PERRETT: And wool.

CHAIR: It's a lot more complex, I would suggest, for us, when we have a little more—

Mr PERRETT: Premium products.

Mr Keogh : One of the advantages of going early is that any free trade agreement is about quotas and tariffs on one side, and non-tariff measures on the other. The quotas and tariffs may take time to work out until they sort out what's going on with Europe, but certainly interventions around the non-tariff measures are something that can be ironed out a lot earlier. That's a very important component of the trade negotiations, particularly in perishable goods. Those can start very early without a lot of knowledge of what's going to happen with Europe.

CHAIR: What are some of those non-tariff trade barriers?

Ms Barden : Generally there's been a big increase in agrifood non-tariff barriers around the world. Some of the examples are things like product registration processes, which become very lengthy and very costly. It can in some markets take many months to get products registered. Other non-tariff barriers include things like label changes. Some of our competitor nations have different domestic food laws, which will require some differing labelling requirements than what we have domestically. Where there are differences, that can form a barrier to trade as well.

CHAIR: In the UK?

Ms Barden : I don't have specifics yet around the particulars.

Mr Keogh : But for Europe, yes.

CHAIR: For Europe, what are some of the specific non-tariff trade barriers you'd like to see not included?

Ms Barden : In the UK, one of the biggest non-tariff barriers is around quotas. You would've seen in submissions from the meat industry that there are limits on the volume of meat that can be sent into that market, and certainly we have meat processing members as well, and we'd be keen to see greater quotas, or indeed no quotas at all, in being able to enter the UK market.

Mr Keogh : A recent study showed that for a company to deal with a non-tariff measure, the transaction cost is two to three times what the tariff would've been. Any gains of tariff reductions are completely mitigated and offset by these tariff barriers.

Mr PERRETT: Two to three times as a rule of thumb?

Mr Keogh : Yes, it's a New Zealand study.

CHAIR: For your members could you provide us on notice any specific examples of labelling laws within the EU that could then be part of any potential regime in the UK.

Mr Keogh : Yes, we could get that on notice.

CHAIR: I'd really appreciate that. Everyone comes and says we need these. At a generic level we all agree. We want that next level of detail for your industry.

Ms Barden : Certainly we can take that on notice.

Mr SNOWDON: I don't quite understand how you can anticipate an opportunity when you don't know the potential details of arrangements for extracting out of the EEC. I've said this before, but I used to work in the Department of Trade here in 1968 and 1969, when the Common Agricultural Policy was an issue for Australian producers. The British didn't give a rat's arse about us. They went into Europe, and we had to adjust our trade accordingly. No doubt the British producers want to have the same access to European markets—and the Europeans want the same access to the British markets—as they currently have. That means staying within the framework of the European Economic Community. If that's the case then it's hard to imagine how they could contemplate having bilateral trade agreements which are going be preferential to us against the EEC. Do you have a view about that?

Ms Barden : Undoubtedly it is uncertain. No-one can say what the final arrangements between the UK and EU will look like. We can say, though, that the export sector is important to Australia's food, beverage and grocery industry—as I said, something like a 14 per cent increase in exports globally compared to about a four per cent increase internally from the domestic markets.

Mr SNOWDON: How much do we sell currently in the EEC?

Ms Barden : For food, beverage and grocery? I don't have a figure with me. We don't have the statistics on that. We can provide on notice the total amount that we sell to the European Union.

Mr SNOWDON: The reason I'm asking is that market potentially won't change for us, except the British will be dropping out of that part of the market. What do we currently sell into Britain as a subset of what we sell into Europe?

Ms Barden : The big categories are very much wine and beef, but within our sector there are our exports of some of the premium value-added goods. Because of the distance and the costs of manufacture in Australia, we're looking at niche products.

Mr SNOWDON: I know; I appreciate all that.

Mr PERRETT: Is wine and beef one where the UK are not sending beef or wine our way, so it wouldn't take much to sort out a boost?

Mr SNOWDON: My daughter's boyfriend just arrived back from Devon, and he bought some Devon wine.

Mr PERRETT: I was wondering about other products. Do the UK export any dairy products?

Ms Barden : A lot of their export to Australia is things like whiskey and some other alcohol. I think they export some meat, but we don't have the figures on that. The general point is that we don't know exactly what the opportunities look like in the UK. We're generally supportive of free trade arrangements with our trading partners.

Mr SNOWDON: That's why I'm asking the question. I don't have an argument against getting in early, but what are we getting into?

Mr Keogh : We get in before Argentina and China.

Mr SNOWDON: I understand that aspect. I understand that side of it. My question is more rhetorical than anything: what are we getting into? We have no idea.

Ms Barden : Australia generally has low tariff barriers entering into this country. Bilaterally, though, there's the opportunity for us to be able to get lower tariffs and non-tariff arrangements than you would get exporting into the UK via the EU arrangements.

Mr SNOWDON: Potentially.

Ms Barden : Potentially.

Mr SNOWDON: Depending on what the exit arrangements are.

Ms Barden : That's right, but you certainly wouldn't want to go backwards, so we want to at least maintain the products we export.

Mr SNOWDON: No, that's why I asked what subset what of we sell into Europe goes into the UK.

Mr Keogh : Dealing with issues around sanitary, rules of origin and food safety will take a while. So getting in early and addressing those issues would be a significant advantage.

Mr SNOWDON: Yes, getting those regulatory issues addressed.

Mr Keogh : Yes, harmonisation in particular.

Mr PERRETT: We have heard regularly that, when we talk about European exports, people don't how much goes through a British port, under a UK umbrella almost, before it flows on to Europe.

Mr SNOWDON: And vice versa—so getting a grasp of what it is.

Ms Barden : Yes.

Mr PERRETT: You said our major competitors are Chile and Argentina.

Ms Barden : Yes. It depends on the sector.

Mr SNOWDON: South Africa potentially.

Mr PERRETT: Wine?

Ms Barden : We have competitors in South-East Asia, the EU and New Zealand and others. It depends on which category you are talking about.

Mr Keogh : It is important to remember that Chile and Argentina have a similar history to Australia. Vestey had big interest here and they also had the same interest in Argentina. They still have just as much of a cultural advantage. Vestey had big investments in Argentina—bigger than Australia—before it went to the European Union.

Mr SNOWDON: In your eyes, getting in early has advantages because we can address the regulatory stuff in particular.

Mr Keogh : I think that is important because it will take time.

Mr SNOWDON: Are there any product sectors that you think we can get into right away that might have a particular attraction in the UK market that we do not currently have?

Ms Barden : If we were able to build on those areas where there are quotas that restrict the amount we are able to sell—particularly around beef—that is certainly an area where we would be looking to pick up the volumes. With other products it is about building on the credibility of Australian product and the recognition of a quality, clean, safe product, and niche products where companies are able to provide British consumers with a premium product that has some attraction to it.

Mr SNOWDON: We will be competing directly with the Kiwis in all of these spaces.

Ms Barden : We will be competing with New Zealand primarily on dairy and meat—

Mr SNOWDON: Veggies.

Ms Barden : but with a lot of other Asian, European and other nations on processed goods.

CHAIR: How do you see the Irish situation playing out given that they sell so much of their dairy product to the UK?

Mr Keogh : We do not supply very much dairy; I think Ireland supplies 98 per cent of the UK's dairy.

CHAIR: Yes, they do. Do you imagine that will continue?

Mr Keogh : The UK joined the EU when the NEXUS had been broken with Australian and New Zealand, so I suspect they would have invested in supply chains for the last 40 years. I suspect they are not going to give up that investment in those supply chains. We do very little dairy into the UK. The dairy submissions recognise that too.

Ms Barden : But the UK is a growing market. Ireland is a big supplier into the UK. But as the UK market grows over time, they will be looking for increased suppliers to meet that increasing demand as well.

Mr Keogh : I do not think we would compete on bulk milk. But there are certainly markets for high-end mature products—cheeses or highly processed stuff. And that is not necessarily into the grocery stores; it is into other sectors of the market, such as hospitality and those sorts of areas, where we have good products and good niche.

Mr PERRETT: We are a Federation. I think there is a Queensland House over in London. How do your manufacturers go in terms of coordinating their pitch to the UK? Do you think the federal government might have a better role, or is it every person for themselves?

Ms Barden : We have always been supportive of a national food brand and coordination as a minimum between the states. We see various trade missions from individual states. That will continue but we at least need to have some coordination and cohesion around the messaging. There is some work that industry started to do in that space, as well as following on from some work that Austrade has previously done, trying to get some research to underpin what those common messages are. It is still an evolving space, but I think it could be—

Mr PERRETT: Do you think we should grow that pie rather than be protective of our slices? For example, in New Zealand there is one brand, not North Island or South Island.

Ms Barden : Generally speaking, I think having one national brand has a lot of strength and merit. But it should be a brand within which individual states, industry and individual company brands can sit so that you have consistency between what it is that everyone is seeing. It does not mean you cannot still have individual state or company approaches, but we just need some consistency in what ties it all together.

Mr PERRETT: When I go to a supermarket, am I buying national products or am I buying something with a state based focus? Even a company like SPC tends to de-regionalise.

Ms Barden : It depends. A brand often sells on its strongest selling point. In some cases, brands on their own are very strong and they can push their brand internationally because they already have recognition around that brand. In other instances—

Mr PERRETT: Is that the case for many brands? Are there some brands that transcend or have weight because of their geography or whatever?

Ms Barden : I think we are starting to see some brands where the brand alone speaks very strongly because they already have a good level of exports. In other situations, some brands are looking at the provenance story around the local region within which they are made.

CHAIR: Can that get a little confusing if you are out of Bordeaux? We have Gippsland, we have—

Mr PERRETT: Yes, we had this discussion at our last meeting.

CHAIR: At what point does it get ridiculous—brand Australia versus this cascading—

Ms Barden : I think it is important that brand Australia is an umbrella and complements—rather than replacing—individual companies or regional or state brands. It is all about what your selling proposition is. In some instances, some brands will want to leverage the fact that they are from a local region. Food tourism is tied into that. They have a story they can tell about the origin and roots of that brand. As long as that is promoted in a way that is consistent with the general story we are trying to tell about Australia being clean, green and safe, then that is where I think you have merit in a national brand.

Mr PERRETT: But selling mangoes might push the tropical rather than the Tasmanian or whatever. Because we have such a spread of geography, you need the top brand in the top identifier but then you need to identify the product.

Ms Barden : Yes, it is about consistency of message. New Zealand's campaign is around 'New Zealand Pure'. What is it that we want Australian food to be seen as? Clean, green and safe is what comes up all the time. But getting some consistent messaging and language around that—

CHAIR: And we haven't got that yet?

Ms Barden : It is something that still needs some additional resourcing to pull together.

Mr Keogh : The other point to realise is that a lot of the food-purchasing decisions are made at the wholesaler level, where they are a little bit more educated than at the retail level. They are making a decision to buy a product from Australia, and that's what ends up on the retail shelf.

Mr PERRETT: This is what you were saying—into the restaurants and the food manufacturing—

Mr Keogh : Yes. In particular, Harrods and the upper end of their premium foodie—

CHAIR: Is that where our product needs to go—that high end?

Ms Barden : Yes, we're looking more at the premium end of the market because of the costs of getting to market.

CHAIR: Can we do anything about the cost of getting to market?

Ms Barden : Australian manufacturing is under enormous challenge at the moment around rising input costs—in particular, rising energy costs. That does potentially constrain your competitiveness in international markets. We see addressing that as a really important issue.

Mr PERRETT: You haven't mentioned labour costs. Are they not as significant?

Mr Keogh : Wages have been flat. If you look at the Australian Bureau of Statistics on productivity in the manufacturing area, the biggest issues that have been detrimental to productivity are energy and transport and warehousing, which is a subset of adding on energy cost. Labour has not been a big detriment to productivity in food manufacturing; energy certainly has been.

Ms Barden : The other area we have raised recently is freight and infrastructure, domestically as well, and improvements to regulation and investment in those areas to improve the competitiveness of Australian product to port.

CHAIR: Can you give us some specific examples?

Mr Keogh : Of freight? We put in a submission to the freight inquiry. We can forward that to you if you want. That has specific examples.

CHAIR: We hear the generic in every submission and from every witness. We want to hear from you the specifics of how it impacts your members accessing markets and growing and developing.

Mr Keogh : We are happy to forward you that submission. It has specific things—which roads, which rail networks, which ports.

CHAIR: I would appreciate that.

Ms Barden : Particular urban congestion areas—

Mr Keogh : Yes—and planning and regulation.

CHAIR: The committee has received some evidence saying we should tread water on the UK and pursue a free trade agreement with the EU as a priority over a free trade agreement with the UK. Do you have a view on that?

Ms Barden : Australia has managed to negotiate multiple free trade agreements in the past—with China, Korea and Japan—so I would see it as a priority to negotiate with both the UK and the EU simultaneously.

Mr PERRETT: Do you see any risks or opportunities coming from having London as a centre for Australian food exporters who are looking to be operational across Europe? It is my understanding that many have used London as a stepping stone or connection.

Ms Barden : Do we have any concerns with London being a central port and going through there to—

Mr PERRETT: Yes.

CHAIR: London as the gateway to the EU.

Mr PERRETT: As the Brexit process occurs, you would think barriers would be put up to businesses if they are coming via London.

Ms Barden : Not that we are aware of.

CHAIR: Do you have a view on the strength of the UK's bargaining position over time? Do you believe it is stronger now than it will be post Brexit?

Mr Keogh : Other than the fact that 40 other countries are probably trying to deals with them at the moment and they can pick off?

CHAIR: But my understanding is that they do not have a lot of capacity.

Mr Keogh : To negotiate?

CHAIR: In their public service.

Ms Barden : I think that is fair to say. Given that they have been part of the EU, a lot of the negotiating team was done out of the EU. So the UK will be developing up its capacity in that area.

Mr Keogh : I think we would have significant experience with negotiations—after China, Korea and all that—that would give us a knowledge of which issues to put in a free trade agreement and which ones to leave out.

CHAIR: Do you have any views on people movement, visas, skill sets?

Ms Barden : I have had comments recently from a few of our members about the fact that, in the Australian market, there is a lack of depth of experience among executives, marketing and food technologists—a whole range of skill areas. Sometimes they need to bring out people from a parent company in the UK or people who have worked in a similar market over in the UK. There can be limits around the amount of time people are allowed to come and work here on a temporary visa, so that may make it hard to attract people. So it would be worth considering whether, as part of the negotiations with the UK, there is opportunity to allow freer movement of people coming over to work in industry in Australia—as a way to build capacity and capability within the Australian industry as well from markets that have a bit more depth of experience.

CHAIR: From the food manufacturing industry's perspective, what are the top three priorities you would like to see achieved in any free trade agreement?

Ms Barden : As Peter already indicated, a free trade agreement that includes non-tariff barriers is particularly vital—and we will come back to you with some more detail around that. We would like to see a reduction in tariffs for the products we export. As I said, we do not have the detail on that yet because it is very early. As this progresses, we are happy to look more into those product categories that are already exported and where we would be needing specific tariff reductions.

CHAIR: Are you able to give us a bit of an indication, on notice, of where that could be?

Ms Barden : Yes.

CHAIR: I suggest that, for our starting proposition, we should already know what our strength is and where we are going to get the most bang for our bucks.

Ms Barden : Certainly, I'm happy to have a conversation with our members that are exporting to the UK on where there are some specific areas they are looking to continue their current market access or increase it. The third area is that examining people movement and whether there is more flexibility that could be given to bringing people from the food and grocery industry to Australia.

CHAIR: Do you have any comments around the investment regime and foreign investment?

Ms Barden : Nothing specific, just the general comment that foreign investment in the food and grocery industry is really important to the future growth of the sector. It's one that does need additional investment. We've had declining capital investment since before the GFC, and increased investment is needed to boost productivity and scale, so we would welcome foreign investment and be generally supportive of arrangements that are conducive to increased foreign investment.

Mr SNOWDON: I imagine that these are people from the department—

CHAIR: It's the entire department.

Mr SNOWDON: but their submission gives us that information I asked of you, that is, the breakdown of what the value of our exports are as a subset of the EU exports. They have given us theirs in their submission, so you don't need to worry about giving that to us.

CHAIR: Thank you very much. We look forward to getting that information on notice as part of our consideration.

Ms Barden : Thank you.