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Thursday, 29 May 2008
Page: 3857


Mr BURKE (Minister for Agriculture, Fisheries and Forestry) (5:04 PM) —I move:

That this bill be now read a second time.

Australia’s wheat export marketing arrangements are not working effectively.

The previous government’s wheat export marketing arrangements failed to protect the interests of growers.

First, there was no effective separation of the management of the listed company AWB Limited and the subsidiary AWB International.

Second, the export monopoly resulted in a lack of contestability in services.

This meant that returns to growers from the national pool were not maximised because the costs of operating the pool were not minimised.

And third, the body established by the former government to protect the interests of growers, the Wheat Export Authority, as well as its successor, the Export Wheat Commission, was not given the powers it needed to do its job.

Worse, the government failed to ensure it used the limited powers it had effectively.

These failures were highlighted over the years during a range of inquiries and reviews, including the Cole commission.

For example, the 2000 National Competition Policy Review of wheat marketing arrangements, the study by ACIL Tasman in 2006 and a recent analysis by ABARE all failed to find any compelling evidence that single desk marketing can deliver price premiums in the international market.

These studies provided convincing evidence that the old single desk had an inhibiting effect on both innovation in marketing and the realisation of cost savings in grain transport and handling.

The research found any price premiums were largely attributable to freight advantages or to the provision of services associated with the sale of wheat—not the single desk arrangement.

In addition to those authoritative reports, successive ‘grower reports’ produced by the Export Wheat Commission suggest that growers were not getting the best financial deal under the old single desk arrangements.

For example, the 2007 report raised concerns about the financial risk faced by growers under AWB Limited’s hedging practices relating to the 2005-06 and 2006-07 pools and chartering rates charged by AWB Chartering.

The failings of the previous government’s wheat marketing policies are well documented.

Risks to growers were increased by forcing them to rely on a single exporter. For example, by forcing growers to export through AWB International, Australian growers temporarily lost access to the Iraq market, a critically important market which has only recently resumed Australian wheat imports.

The former government’s policy reduced incentives for much needed investment in rail and port infrastructure.

It stifled innovation by restricting growers’ capacity to invest in their own marketing options.

It prevented growers from being able to take full advantage of high-premium niche export markets.

It restricted the marketing choices for growers.

And it prevented industry from working collaboratively to maximise supply chain efficiencies.

An evidence based assessment clearly demonstrates the failings of the old single desk system.

In the wake of the Cole commission, the previous government had an unprecedented opportunity, indeed a clear responsibility to act, and to act decisively.

But it failed to do so.

It failed to do so because the Liberal-National coalition was paralysed by division on the issue.

Instead, in response to Cole, the previous government put in place a series of half-hearted temporary measures which were nothing more than a patch up job.

The temporary measures, which remain in place today, not only failed to remedy the underlying defects but in fact exacerbated the problems.

Worse, the previous government politicised the complex arrangements by granting temporary veto powers for bulk wheat exports to the then minister.

We now have the absurd situation where it is the Minister for Agriculture, Fisheries and Forestry who decides who can and who can not export wheat in bulk.

Even the monopoly holder has described the current temporary arrangements as unworkable.

AWB Ltd Managing Director, Mr Gordon Davis, recently said, and I quote, ‘No responsible board of directors would agree to continue running a national pool in these circumstances and in the current US subprime environment.’

The temporary arrangements are a stark reminder of just how badly the issue of wheat marketing paralysed the previous government.

Members on all sides of the House need to appreciate that this legislation is about providing choice for growers.

This should not be considered an unreasonable step.

After all, it is their wheat.

This bill delivers on a key election commitment to establish a system that will provide Australian wheat growers and the grains industry with a structure that will maximise incentives, minimise costs, increase supply chain efficiencies, reduce risk and protect growers.

The bill will make marketing services more cost efficient, and will open new markets for Australian wheat.

In developing the draft legislation, the government has undertaken an extensive consultation process:

we have released an exposure draft of the legislation for public comment

the Senate Rural and Regional Affairs and Transport Committee has conducted an inquiry into the bills

we established an industry expert group which has consulted with industry and reported on the most effective delivery of industry development services

and I, and my department, have consulted with a range of stakeholders, including growers, grower organisations, bulk handlers and potential exporters.

The government has conducted several detailed private briefings with each of the state farm organisations.

And a significant number of non-government members and senators also took up the offer that I made of private briefings.

The government is particularly pleased with the response to this consultation process and the willingness of industry to look to the future and work cooperatively with the government to refine the legislation before the parliament today.

The government has listened to the views expressed by industry members and the Senate committee, and has accepted arguments put forward on a number of issues.

The draft legislation has been amended accordingly. 

The new arrangements will be in place by 1 July 2008 so that growers and other industry participants will know, with certainty, the arrangements that will apply for the 2008 harvest.

The government will conduct an independent evaluation of these arrangements commencing in 2010.

By then, the scheme will have been operating for long enough to allow a true indication of its effectiveness.

This review will be conducted by the Productivity Commission, and will include an evaluation of the costs and benefits of the arrangements. 

The new arrangements centre around the establishment of a new industry regulator, Wheat Exports Australia, which will control bulk wheat exports by managing an export accreditation scheme.

Wheat Exports Australia will be established as an agency under the Financial Management and Accountability Act 1997 and will be subject to the provisions of that act.

It will be comprised of a chair, and between three and five other members who will be appointed based on their skills and experience in relevant areas.

I have established a selection committee to provide me with a list of candidates for consideration.

I expect the committee will provide its recommendations shortly. 

The primary responsibility for Wheat Exports Australia will be to develop, refine and administer the accreditation scheme.

The scheme will be made as a legislative instrument under the Legislative Instruments Act 2003.

It has been done this way to make sure Wheat Exports Australia has the flexibility to manage the scheme effectively.

While Wheat Exports Australia will be given the power to make and administer the scheme, it will do so under broad policy parameters set out in the bill.

The final scrutiny will be by parliament, as the scheme must be tabled and is a disallowable instrument.

As well as granting accreditation, Wheat Exports Australia will have the power to suspend or cancel an accreditation if the exporter ceases to meet its probity requirements or is not complying with the conditions of accreditation.

Wheat Exports Australia will regularly review the financial conditions, and activities, of accredited exporters to make sure they are complying with the conditions of their accreditation.

Accredited exporters will be required to provide annual compliance reports and other relevant information to assist with this process.

Wheat Exports Australia will also be able to audit accredited companies.

There will be severe penalties for exporting wheat in bulk without accreditation, for breaching the conditions of accreditation or for providing false or misleading information to Wheat Exports Australia.

These will vary, depending on the breach.

These powers and related penalties will mean that, unlike its predecessors, Wheat Exports Australia will have the teeth to effectively perform its monitoring and enforcement responsibilities.

The bill contains an appropriate balance between the need to apply strict probity and performance tests to protect the interests of growers while not applying an excessive regulatory burden on accredited exporters.

Any company or cooperative may apply for accreditation.

The government does not believe it is necessary to extend accreditation rights to individuals, as prudent managers would operate as a company to reduce their exposure to risks associated with shipping what are expected to be high-value tonnages.

The bill sets out the criteria that Wheat Exports Australia must consider in assessing applications for accreditation.

Wheat Exports Australia will be looking at things such as the financial resources available to the company, its risk management systems and the demonstrated behaviour of the company and its executives including making sure that they are abiding by Australian law and complying with foreign laws and United Nations resolutions.

To ensure continuity of accreditation, exporters will be able to apply to have their accreditation renewed before it expires.

Wheat Exports Australia will apply the same criteria as it would with any application for accreditation.

However, as Wheat Exports Australia will already hold significant information relating to the applicant, the process should be less onerous when it comes to renewal.

While applicants will need to comply fully with some of those criteria, Wheat Exports Australia will be able to exercise some flexibility in respect to others.

There are some eligibility requirements that Wheat Exports Australia must consider, and it will have to make a judgment on whether the applicant’s record is likely to impact on its ability to fulfil its obligations as an accredited exporter.

Wheat Exports Australia has the discretion to make decisions based on the applicant’s particular circumstances and proposed export arrangements.

In determining whether an applicant is fit and proper for accreditation, Wheat Exports Australia is to have regard to a number of clauses as spelled out in section 13(1)(c) of the bill.

In reference to section 13(1)(c), I stress that the 17 clauses that follow are not of themselves the test, but are issues to which Wheat Exports Australia must have regard when determining whether or not the company, in the present, is a fit and proper company to be accredited to export wheat in bulk.

If a company does not meet one of the criteria to which Wheat Exports Australia is to have regard in determining whether an applicant is fit and proper for accreditation, it does not necessarily mean it will not be accredited.

For example, Wheat Exports Australia may also consider what action the applicant has taken to remedy the situation.

Wheat Exports Australia will need to exercise judgment as to whether the applicant is fit and proper to be accredited even though it may not pass all of the items in section 13(1)(c).

The assessment of the probity and performance of businesses applying for accreditation will go back five years.

All applicants will be treated the same under the assessment process.

However, different conditions of accreditation may be applied depending on the content of their application and their ability to deliver on their proposed activities.

AWB International will not hold any special status, and will need to apply for accreditation based on the same criteria as applied to other exporters.

These criteria are designed to make sure that growers are dealing only with companies or cooperatives of good standing and financial capability.

Growers need to know that exporters have the reputation and financial backing to pay for their crop.

I appreciate that growers will want to know as soon as possible who has been accredited and with whom they can deal.

A timely assessment of applications is essential.

I expect Wheat Exports Australia to assess applications as a priority, and I will make sure the government provides any assistance needed to help it cope with the initial flurry of applications.

One of the concerns identified during consultation was the risk of a single wheat export monopoly being replaced by three regional monopolies.

There were varying views on how to manage this risk, and the government considered a number of options to meet the principle of ensuring effective competition without imposing an unnecessary regulatory burden on business.

The government was also mindful that imposing a significant regulatory burden on the supply chain would only result in increased costs being passed back to growers.

So we have decided to impose specific requirements on accredited exporters that operate bulk grain terminals at ports, as these are the facilities with natural monopoly characteristics and are the infrastructure bottleneck in the export supply chain.

Unless all exporters can obtain access to these critical facilities on fair and reasonable terms then one of the major objectives of the policy could be frustrated.

Compliance with these requirements will be a condition of accreditation.

If Wheat Exports Australia is satisfied that an exporter has breached these conditions it will have the power to suspend or revoke its accreditation.

For the period until 1 October 2009, accredited exporters who operate bulk grain terminals at ports will be required to publish the terms and conditions under which they will provide access to other users.

After 1 October 2009, they must have an approved access undertaking with the Australian Competition and Consumer Commission.

The reason for the different conditions for port terminal operators before and after 1 October 2009 is that, according to advice from the ACCC, it is unlikely that the ACCC could receive, process and approve access undertakings in time for the 2008-09 marketing season.

The Senate inquiry also identified concern in relation to the potential for bulk-handling companies to restrict access to up-country storage facilities in a similar manner to concerns in relation to port facilities.

It is unclear from the evidence presented to the Senate inquiry whether the problem would necessarily arise, and if so, the extent of legislation that would be required to correct it.

If the highest level of regulation were to be imposed on the more than 500 up-country facilities, there is no doubt that this would create increased compliance costs which would almost certainly be directly passed back to growers.

The government will, therefore, continue to monitor the ability of exporters to access up-country storage facilities.

Let me say here, if any problems are identified then the government will take steps to remedy the situation including, if necessary, the development of a code of conduct.

Wheat Exports Australia will require an annual budget of around $4 million which will be funded through the existing wheat export charge at its current rate of 22c per tonne of wheat exported.

This will be complemented by accreditation fees which will be determined on a cost-recovery basis.

Funds left over from the Export Wheat Commission will be transferred to the new regulator on its inception.

The government recognises that these funds will be limited, as revenue from the 2007 crop has been well below expectations because of the drop in wheat exports as a result of the drought.

In addition, the funding streams for Wheat Exports Australia will not generate significant revenue until exports from the 2008 crop are fully underway.

Therefore, some additional start-up funding will be needed, particularly given that operational expenses are expected to be greater in the initial year.

The government will provide up to $5 million to help Wheat Exports Australia through the transition period.

As part of the reforms, the government established the Wheat Industry Expert Group to advise on the most efficient and effective delivery of industry development functions previously provided by AWB (International) Ltd.

For most of these services the group recommended a mixture of commercial and industry driven solutions that do not need to be set in legislation. The government agrees with this assessment.

The exception is the availability of market information.

The success of the new arrangements will depend on all industry participants having equitable access to key market information.

The government will facilitate delivery of this information by providing up to $2.52 million over three years to the Australian Bureau of Statistics to collect the necessary information and to ABARE to prepare a monthly report which will be available to industry.

This approach is consistent with the recommendation of the industry expert group.

While I agree with the group’s assessment that technical market support is a matter for exporters, I appreciate that it may take time for new entrants to develop support arrangements.

The government will therefore provide funding of up to $600,000, over three years, to help new marketers develop arrangements to deliver effective technical market support.

The government will be talking to relevant industry representatives on how to best utilise this assistance.

The IEG strongly supports the development of a code of conduct along the lines of that being developed by the National Agricultural Commodities Marketing Association, NACMA, and its members.

The NACMA code is aimed at improving clarity in prices posted at silos and thus allowing growers to make better informed marketing decisions.

Among other things, compliance with the NACMA code would mean:

first, prominent listing and use of standardised language and means of expressions for all fees, charges and statutory deductions applicable to all types of transactions in grain;

second, posting on silo boards and on the web, the transparent net return figures for all types of transactions;

and third, expression of base marketing costs charged against all types of transactions.

The government supports the IEG recommendation and will provide some funding to NACMA to help with the finalisation and promotion of that code.

There is also a need to help growers understand the proposed changes so that they may be able to take full advantage of the benefits the new system has to offer.

The government will provide up to $1.15 million for information sessions for growers and major customers right across the country starting in July.

This will include informing wheat growers about the new arrangements and associated marketing options and financial dealings, and appropriate checks and balances that will be in place to protect growers’ interests.

The government will work closely with the state farming organisations in developing and implementing this initiative.

The government is also committed to finding solutions to problems associated with grain rail infrastructure and is providing up to $6 million for taskforces in Western Australia and New South Wales to investigate ways of stimulating investment in this critical transport industry for rural Australia.

The bill is accompanied by the Wheat Export Marketing (Repeal and Consequential Amendments) Bill 2008.

This bill provides for amendments to other legislation to make it consistent with the provisions of the main bill.

This is an exciting time for Australian agriculture.

Australia’s wheat export marketing arrangements must be changed if the Australian wheat industry is to realise its true potential in the global market place.

With grain prices at historically high levels, growers are now very well positioned to directly benefit from the changes the government is introducing.

These benefits, in turn, will flow back to regional and rural communities that depend on Australia’s grain growers.

Under these changes, for the first time in more than 60 years, Australian wheat growers will be able to choose whom they sell their grain to based on the very best deal they can get.

Today’s farmers continue to benefit from the abolition of trade tariffs and the trade liberalisation reforms introduced by the Hawke-Keating Labor governments.

Today’s wheat growers also enjoy the benefits offered by the deregulation of the domestic wheat market in 1989.

Tomorrow’s farmers stand to benefit from the reforms introduced to the parliament today.

Debate (on motion by Mr Haase) adjourned.