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Tuesday, 25 November 1986
Page: 2692


Senator CRICHTON-BROWNE(5.23) —I see no relationship between the Fertilisers Subsidy Bill 1986, to which I wish to speak, and the Bounty and Subsidy Legislation Amendment Bill (No. 2), the Bounty (Ship Repair) Bill, the Navigation Amendment Bill and the Subsidy (Cultivation Machines and Equipment) Bill which are being debated cognately. In my view they are all separate and distinct. I find no justification for their being debated cognately. We on this side chose not to disagree but my view is that one is a rural matter and the others are not. I am rather curious to know why the legislation is being shepherded through the Senate by the Minister for Industry, Technology and Commerce, Senator Button, and not Senator Walsh, who represents the Minister for Primary Industry (Mr Kerin).

The Fertilisers Subsidy Bill proposes new arrangements for fertilisers. It amalgamates the nitrogenous fertiliser subsidy and the phosphate fertiliser subsidy in the one Act. The primary purpose of this legislation is to remove the subsidy presently paid on imports of nitrogenous and phosphatic fertilisers while maintaining a bounty for domestic manufacturers of those products. There has also been a slight shift towards increasing the present bounty for higher content phosphorus fertilisers. However, the various schemes to assist the production and consumption of phosphatic and nitrogenous fertilisers have operated in Australia since the early 1930s. Since 1963 assistance has been provided for the consumption of either one or both of these two fertilisers continuously, with the exception that the Labor Government in 1974 abolished the phosphate bounty which was reinstated in 1976 by the Liberal Government. Nitrogenous fertiliser consumption has been assisted continuously since 1966-including, as I recall, imports. There were some qualifications. Since 1982 the subsidy has extended to cover both phosphatic and nitrogenous imports without restriction.

Before one debates the issue of whether the new arrangements or, for that matter, the subsidy or bounty as it now is, are the most effective or efficient way of providing assistance to the rural industry, the central argument of whether assistance of any form ought to be provided to the agricultural industry has to be addressed. I respond to that question in the most categoric way. Yes, the industry is deserving and in need of a form of assistance which in some small part, in my view, will compensate for the artificial cost imposts which are cast upon the industry by subsidised and, in many cases, inefficient industries-not to mention the very significant part played by rural industry in Australia's export earnings. Added to these burdens is the cost which the Government imposes upon the industry.

As a general principle I am opposed to bounties and subsidies, as I suspect are most honourable senators on this side of the chamber. But we do not live in a perfect or pure world. We have to ask ourselves whether we want Australia under the circumstances of the world economic situation to maintain a viable rural sector. Rising costs and falling export prices, all quite outside the control of growers, have dramatically reduced farmers' net incomes. At the 1986 National Agricultural Outlook Conference it was revealed that this year 50 per cent of all farmers surveyed by the Bureau of Agricultural Economics will earn less than $5,900. Wheat farmers in Western Australia particularly have suffered seriously. Incomes for wheat farmers have fallen from an average of $41,425 per annum in 1983-84 to a minus $7,500 in 1985-86. In addition, incomes in the dairy industry have fallen on average from $21,259 to $8,000 for the same period, while the fall in incomes for livestock farmers has been from $26,519 to, on average, $4,500.

As we would expect, the Government would have us believe that the blame lies exclusively with world prices. But that is just part of the problem. Until recently, and this still happens in many cases, rising farm costs have been the main factors that have led to dramatic reductions in farm incomes. It is estimated that almost half the increase in farm costs is a result of this Government's policy of deliberately increasing interest rates. High interest rates have increased the level of farm debt by 21 per cent to $7,250m over the 12 months to June 1985. The Government's decision to abandon its original oil parity pricing policy has meant that about 40 per cent of farm fuel costs-not costs for diesel-are subject to artificially high prices. The price of fuel has increased again by 5c per litre since the August Budget. The National Farmers Federation has estimated that the latest increases in the price of fuel will add between $70m and $75m to farm running costs. This will bring the total on-farm petrol excise to about $250m a year, not to mention the many other costs visited upon farmers by this Government.

I turn to the question that I originally raised-that is, whether a subsidy or bounty on fertiliser is the most efficient or effective method of cushioning undue costs. I suspect it is not. I suspect that most honourable senators on both sides of the House would take the view that it is not the most efficient or effective form of providing assistance. In fact, the very reason that the subsidies or bounties were originally paid on fertilisers has changed. Reasons such as an incentive for increased productivity, or an encouragement to develop the less fertile or more infertile parts of Australia-in Western Australia, for instance, to the east and the south are no longer relevant. In many respects the bounty or subsidy on fertilisers has become simply a subsidy to reduce on-farm costs. Of course, its benefits vary from farm to farm and State to State. For that reason alone it could be easily demonstrated that it is not the most efficient or effective way of providing equal and rational assistance. However, until such time as governments commit themselves to reducing other farm costs incurred or imposed by distortions in the economy, the subsidy is reasonable and, in my view, legitimate.

I need not remind the Senate that the overall level of assistance to rural industries is low by comparison with all other sectors. Figures from the Industries Assistance Commission, for instance, indicate-and they are supported by other figures-that the level of primary industry assistance is 9 per cent, compared with 26 per cent for secondary industries. Of course, the farm sector suffers a cost impost of about $9,000 per annum arising from the protection of secondary industries by tariffs, quotas and other mechanisms. That has been disputed by the Government, but I think there is now consensus amongst most people that the figure is somewhere between $7,000 and $9,000 per annum.

The essential point at issue in this debate is the Government's decision to remove the subsidy from imports of fertilisers and provide it exclusively to local manufacturers. Of course, one might properly ask why the Government has chosen to exclude imports. The answer, at least as I see it, is quite obvious. The object is to assist the manufacturers and not the farmers. The Government would have us believe that the assistance of the manufacturers in no way detracts from the assistance that has been offered and has been available in the past to farmers. My view is that that will not, in the long term, be the case. We will find that the price of high analysis fertilisers will increase. The manufacturers will find themselves absorbing part of the benefits which were intended to flow to the end users-the end users, of course, being the farmers.

One of the difficulties that local manufacturers perceive is the fact that there has been a significant movement away from the use of SSP-single strength phosphate-to the high analysis phosphatic fertilisers. Of course, the reasons are simple and obvious. In my State of Western Australia, for instance, many farmers, particularly those in the wheat belt regions, have found that mono-ammonium and di-ammonium phosphates are the most suitable fertilisers with respect to soil composition and crop needs. These fertilisers are rich in nitrogen and phosphate content, and both are required as a soil nutrient supplement in those wheat belt regions of Western Australia. While phosphate can be obtained from locally produced superphosphate, a far more efficient and effective method of applying these two compounds is in combination, as either MAP or DAP. As phosphate is found in a more concentrated form in these nitrogenous fertilisers than in superphosphate, more phosphate can be bought per tonne of fertiliser, and hence cartage costs are significantly reduced. In Western Australia, cartage costs are of paramount concern to all primary producers. Of course, by applying nitrogenous fertiliser, the user is saved from having to fertilise twice. As those who have some knowledge of the rural sector know, many farmers are now converting to air seeders, which are more inclined to accept DAP and MAP than superphosphate, as they do not have the same effect of blocking up the machinery.

One reason that the local manufacturers are unable to compete with the overseas manufacturers of HAPF is that it is being produced more and more in large plants at the source of the rock phosphate rather than being established near the markets, as ours are. Of course, this is an inhibiting factor in terms of cost and the advantage which is granted to overseas producers. Because the principal product of Australian manufacturers in the past has been, as I say, SSP, the plants have been located near markets, with the material imports being transported to the plants. The distinction, of course, highlights the reason for the lack of world trade in single strength phosphates and the growth in world trade in processed phosphates. Quite naturally, where one has superphosphate, one has a low value, high weight content. It is uneconomical to transport or cart over long distances. It is not as economical and for that reason it is usually processed near markets.

In 1960 about 15 per cent of the total phosphate trade was in processed phosphate. By 1977 this proportion had risen to 23 per cent. By 1982 it had risen to 40 per cent, which gives an indication of the attraction of DAP and MAP in terms of consumption and in terms of comparable price, because one gets the high analysis content per tonne and it is more economical. IAC figures show that the consumption of the ammonium phosphates in Australia increased from 365,100 tonnes in 1980 to 414,000 tonnes in 1984, while superphosphate consumption reduced from 2,969,000 tonnes to 2,481,000 tonnes during the same period. That, of course, demonstrates the significant movement away from superphosphate to the high analysis fertilisers.

In order to meet the rising demand for nitrogenous fertiliser, imports have risen from 61,000 tonnes in 1980-81 to 361,000 tonnes in 1984-85. This represents a rise of almost 500 per cent in the volume of imported nitrogenous fertiliser over that four-year period. It ought not to be forgotten that this growth in imports has been maintained notwithstanding the significant devaluation of the Australian dollar against the United States dollar. Of course, one accepts, and it is acknowledged, that local manufacturers are required to purchase overseas certain United States dollar-related raw materials. There are other reasons for the inability of Australian manufacturers to compete with imports. If the Government were serious about assisting both local manufacturers and Australian farmers, it would direct its attention to those areas over which it has some control.

Let us look at the question of sea freight and the particular role that the Australian National Lines plays in the cost of fertilisers in Australia. We find that, in terms of coastal shipping, which is restricted to Australian registered vessels, the situation has been exploited to the extent that the Australian National Line charges $30 per tonne to carry phosphate from Christmas Island, while it is possible to ship phosphate rock from Florida in the United States to Australia for only $16 per tonne. If we were using international shipping rather than Australian shipping freight costs from Christmas Island to Australia would be reduced to one-third of their present level. Other examples abound. For instance, bauxite can be shipped from Weipa to Japan at about the same price at which it can be shipped to Gladstone. In 1984 aluminium shipped from Bell Bay in Tasmania to Perth used to cost $125 per tonne for shipping but only $100 per tonne for shipping to Japan. A South Australian trader was quoted $2,600 to ship a 20 foot container from Melbourne to Devonport but only $1,600 to ship it from Devonport to Taiwan. Now we are asking Australian farmers to bear the burden of the inordinate and excessive costs of the Australian National Line.

We are being asked to pass this bounty legislation which will have the effect of providing $20m of the $55m of subsidy to the shipping line. Almost half the subsidy we are providing will go not to the farmers but the shipping line. In 1983 the Chairman of the Australian National Line summed up the situation by saying: `We had overmanned ships, overmanned terminals and overmanned offices'. The Australian Coal Association estimates that two-thirds of the difference in cost between Australian and overseas shipping is due to manning. The statistics are well documented. Australian manning levels are far ahead of those of any other nation. And we wonder why the costs are so much higher. Of course, Australian wage rates are usually higher than those of our competitors. Finally, there is the requirement that crews work one month on and one month off. This means that Australian ships require two crews. For every position on Australian ships there are two crew members; for United Kingdom ships there are one and one-third crew members and for Japanese ships the figure is the same.

The record of industrial disputation in shipping shows the enormous cost that is being cast upon Australian rural producers. The number of man days lost in the last two or three years has been reduced and the level of disputation has improved. Notwithstanding that improvement, it ought to be remembered that the Australian National Line has one entire ship unproductive for almost half the year. So shipping rock from Christmas Island is costing an additional $20 per tonne by using ANL instead of an international line. The report of Sir John Crawford's Committee on Revitalisation of Australian Shipping shows that 50 per cent of respondents indicated that they would not use coastal shipping even if the costs were the same or less than land freight. If we were terribly serious about this problem we would be looking at the cost of shipping to ensure genuinely and sincerely that costs are reduced for the rural sector and that manufacturers also are maintained at a viable level.

I draw the Senate's attention to the very considerable conflict that has taken place in recent times in relation to the dumping of DAP and MAP. There have been many cries from local manufacturers that there was a significant level of dumping. The 1985 inquiry was precipitated by a number of Australian fertiliser manufacturers, including CSBP and Farmers Ltd from Western Australia, which have the capacity to manufacture DAP and MAP. It is not without significance that CSBP subsequently withdrew from the inquiry. The Customs assessments made-I might say, on the basis of two theoretical models rather than actual figures derived from available facts-concluded that the difference between the highest estimate of normal value and the export price was between $2 and $9. The Australian Customs Service made a judgment on its theoretical models from information provided from two American companies, which refused to disclose their names, that the difference between the normal value and the export price was between $2 and $9 a tonne.

A number of interesting factors emerged from the inquiry. Domestic production of MAP and DAP actually declined between 1981-82 and 1983-84 from 62,100 tonnes to 53,500 tonnes. The decline was due to two companies actually withdrawing from the manufacturing process, notwithstanding the fact that until April 1984 anti-dumping action applied to imports of DAP and MAP. In other words, the company withdrew from manufacturing at a time when it was insulated from dumping. Unfair price competition therefore cannot be blamed as a cause of the decline in the domestic production of MAP and DAP, where normal values were applying. It was also interesting that Australian Fertilizers Ltd, which had previously withdrawn from production of DAP and MAP during the period when normal prices applied, as recently as January of this year announced that it intended to fulfil its promise on a cost-effective increase in the production of MAP and DAP and to meet 50 per cent of domestic demand by the end of 1985-86.

One might well be legitimately moved to conclude that AFL's new-found enthusiasm for manufacturing high analysis fertilisers is due to the fact that in more recent times a number of non-manufacturing smaller companies have begun to import DAP and MAP. They have sold it at prices below the price at which the larger manufacturers have been importing and on-selling it. The domestic market share of MAP and DAP has remained at a constant percentage of total consumption over 1983-84 and 1984-85, at 21 per cent. That is, there has been no increase in market share even though dumping duties were removed in April 1984. So after dumping duties were removed there was no increase in demand in terms of market share.

What has occurred is a substantial growth in imports by independent importers and therefore there has been a decrease in the market share of imports by domestic producers. The import levels have remained static. The import market share of the manufacturers has gone down because that proportion has been absorbed by new importers. Of course, that has become an immediate threat to the local manufacturers, who up until now have been quite happy to make their profit from on-selling imports. They have not bothered to manufacture in the past. They have simply imported, on-sold and made a profit. Now somebody else has woken up and is doing the same thing. Suddenly the domestic manufacturers have a real interest in manufacturing. The quick fix solution is to provide local manufacturers with further protection, remove the import competition and recommence or expand local production.

I wonder what other reasons the manufacturers have. As I recall, CSBP advised the Industries Assistance Commission that it could not compete with imports at a figure of less than the equivalent of approximately $450 per tonne. I think that was the figure it told the IAC it would need before it would be competitive. As I understand the situation at present, one can buy MAP or DAP in Western Australia for $330 a tonne ex works. That is the price of last year's stock. There has been a decline in prices so, presumably, all things being equal, one should be able to buy imported fertiliser at a lower price than that. Yet suddenly CSBP wants to manufacture. I can only conclude that it will start manufacturing, it will receive added insulation because the imports will no longer attract the subsidy-it will now become a bounty-and in due course it will complain that it cannot compete and it will seek further and better protection.

The Government seems well-satisfied that the removal of the subsidy from importers and transferring it conclusively to local manufacturers will not be to the detriment of the end users, the farmers. My view is that the benefit will not, in full, flow to farmers and that the net effect regardless will be a guarantee of increases in prices for high analysis phosphatic fertilisers. In the moments left I conclude by reminding the Senate of two conclusions made by the IAC:

If the existing consumption subsidy were to revert to a bounty on local production, the f.o.b. price of MAP and DAP would be likely to rise by a further 12 to 13 per cent.

Finally, I quote:

Any action which would raise costs of imported fertilisers would reduce the international competitiveness of Australian rural industries, many of whose products must compete on world markets.

The IAC has said that if we do what this legislation seeks to do, the price of fertiliser to farmers, whether it be imported fertiliser or domestically manufactured fertiliser, will go up and will have a detrimental effect on farmers. Yet we are told in this legislation that there will be no increase and that there will be some sort of prices surveillance scheme as we have had in the past which, for my part, has always been an abject failure.