Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Joint Standing Committee on Treaties
17/10/2016
Trans-Pacific Partnership Agreement

CRISP, Mr Stephen, Manager, Agribusiness Forum, Australian Food and Grocery Council

DAWSON, Mr Gary, Chief Executive Officer, Australian Food and Grocery Council

[11:35]

CHAIR: I now welcome representatives of the Food and Grocery Council of Australia to give evidence today. Although the committee does not require you to give evidence under oath, I should advise you that the hearing is a legal proceeding of the parliament and therefore has the same standing as proceedings of the respective houses. The giving of false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. The evidence given today will be recorded by Hansard and attracts parliamentary privilege. I now invite you to make a brief opening statement before we proceed to wider committee discussion.

Mr Dawson : Thank you to the committee for the opportunity to appear today. The Food and Grocery Council is the peak national body working on behalf of food and grocery processors, and that is essentially companies that take the produce from farm, value-add and transform it into the consumer goods that people buy every day—so that is food and non-food groceries, and it covers most of the essentials of life. So it is a critical industry. It makes up about one-third of Australia's manufacturing, so it is the largest of the manufacturing sectors. It is growing, and the turnover is now just shy of $120 billion a year, and it directly employs more than 300,000 Australians. Importantly for this committee's consideration, it is a sector that is trade-exposed and import-competing. It receives no protection, and it is quite a dynamic sector, as you would expect in an area that is consumer-facing and responding to consumer trends.

On the export front, there has been very strong growth in recent years—double-digit growth in processed food and beverage exports in the last couple of years. Exports now total $28 billion a year, and the trade surplus in processed food and beverages is $11 billion. We contrast that with the domestic trading environment, which is very difficult. Our members are the suppliers into the major supermarkets—not the retailers or the farmers but the suppliers of packaged and processed food and grocery items. Of course, they face a very difficult domestic trading environment. We have had five or six years of retail price deflation and a very intense supermarket price war, and as a result suppliers are faced with the need to strip out costs constantly to stay competitive. It is a very difficult trading environment. The export sector is where most of the growth is coming. So for us, when we look at trade agreements, it comes down to that simple juxtaposition, really. We are seeing strong growth in the export front. We are seeing great potential in the future as those emerging markets develop in countries—massive markets, really. A rising middle class boost demand for a broader range of food and are willing to pay a premium for Australian food, as against a domestic trading environment that is very difficult.

We have been supportive and continue to support free trade agreements. We are supportive of the TPP. The 12 nations covered by the TPP, you have already heard, constitute 40 per cent of the global economy. But, from our point of view, five of Australia's top 10 export markets for processed food and beverages are involved in the TPP, with Indonesia and Korea looking on with interest.

The other important point, we think, is that the TPP sets or clearly foreshadows work around non-tariff barriers. This is an area of increasing concern. Free trade agreements, obviously, reduce tariff barriers but non-tariff barriers continue to be a constraint to Australia's export of food and beverage. We think it is a positive step that the TPP includes provisions on non-tariff measures and harmonisation of regulation. Beyond that, I am happy to take questions.

Mr CREWTHER: You talk about the regulation harmonisation. What are your primary concerns around the food-labelling laws and the potential impact of the TPP on Australia's rules, in that regard?

Mr Dawson : We have done quite a bit of work and we are working with Commonwealth agencies and other groups in the food sector, and that would be the farmers, on the problem of non-tariff barriers to trade. For our part of the food space, the range of different labelling requirements, differences in regulatory regimes, are important, but, beyond that, regulatory certainty and transparency are important.

These are not easy issues to address, because every sovereign country has the right to have its own regulation, as does Australia. But they are a real constraint to trade and we think that is a positive element of the TPP, that it includes provisions to address non-tariff measures. I note that in the China FTA there is a section referencing non-tariff measures as well, which we equally felt was positive, because regulatory risk is an impediment to companies seeking to boost their exports. To come back to your question, labelling standards is one that is, obviously, relevant in the consumer packaged goods business.

CHAIR: Mr Dawson, I note you were here for the discussion previously with the ACTU, because I saw you sitting in the corner. I assume you were paying attention. On the discussion with the Tufts paper, where the ACTU was pointing to the Tufts paper reference by the World Bank, it said that Australia will have a reduction of 39,000 jobs because of it. I have just spent the last half an hour going to the university and getting their original working paper No. 16-01. I shall read it out and get your comment on it, if I could. It says:

Under strong pressure to cut costs, increasing net exports requires the introduction of ever more capital-intensive production. … the resulting change in the composition of output in favor of capital-intensive, export-oriented products may lead to job losses and downward pressures on wages.

It appears, and I am looking at their baseline and TPP projections—table 3.3, which then leads to table 5, on the bottom line—the Tufts report is saying as we lower tariff barriers and move to more globalised trade there may be pressure to move to higher productivity; therefore there will be fewer jobs. So this 39,000 reduction over the next 10 years is, apparently, coming from higher productivity and that is apparently bad, and therefore we should not enter the TPP. The chair's summary. Do you agree or disagree?

Mr Dawson : I would make the comment that with any detailed econometric study, clearly, it is sensitive to the assumptions that you feed into it. I have not looked, in detail, at the working papers that lie behind that study, so I take your word for it that you are reading from it.

I would make the point that in the food and grocery sector, we almost have the reverse. We are experiencing that relentless competitiveness pressure in the domestic trading environment and we are seeing the growth in the export environment. It is a wealthy consumers in China who are willing to pay a premium for Australia's high standard food and regulatory system. Australian consumers are not particularly willing to pay a high price. They are more interested in the cheapest price. Obviously, this is always a bit of a balancing act because, as consumers, we like cheap prices. But it is grinding effect of that relentless competitiveness pressure that we are experiencing in the domestic environment. We actually see it in the reverse. Without greater market access, without free trade agreements like the TPP, then food and grocery manufacturers in Australia will be forever at the mercy of the major supermarket chains and that retail price deflation and a low-growth environment.

Mr JOSH WILSON: Thank you, Mr Dawson and Mr Crisp. I want to ask you about the flow-on effects of potential regulatory changes. It seems that Australia's strong suit going forward is high quality, clean and small 'g' green products. We have heard some concern expressed to the committee about the impact that these agreements and the harmonisation can have on a nation's ability to regulate in that space environmentally in terms of phytosanitary controls and other things. Do you have any concern about that from the point of view of your sector?

Mr Dawson : The short answer is no. We do not see any risk of a diminution of standards here. There is a lot of work that we are doing—and the AFGC is involved in this through the APEC channels—in lifting food safety and food regulatory standards throughout our region. We do not see a downside risk; we see a potential upside gain in getting better harmonisation, say, around labelling standards because they can be a real impediment to exports of Australian packaged goods. The other important point is that our food import safety standards are currently under review as well. We have made a submission into that, and that is done through the department of ag, I think—the regulatory review. We have very strong, risk based import surveillance in food, and that is essential. I do not think anyone is arguing for a reduction in that. We do not see a risk of that through this agreement.

Mr JOSH WILSON: A follow-up to that. This is something I have not raised before. As a particular example, in something like animal welfare, with the potential for other companies to want to come and invest in Australia in large-scale agriculture that would involve animal husbandry, are you concerned around things like ISDS? Our ability to set the highest standards when it comes to animal welfare might be interdicted by a foreign company that feels that that impinges on their ability to maximise profits or go about their business in the way that best suits them.

Mr Dawson : We do not really see a risk of that. I would point to the very long history of long-term investment of patient capital in the food and grocery sector in Australia, much of it from offshore from different countries over decades—over the centuries, really. In many ways, it provides the backbone of the food-processing sector in Australia—that long-term, patient foreign investment. It has been absolutely critical. So I do not think there is an indication there of a problem emerging through the provisions in the TPP. The ISDS provisions do provide some comfort for Australian firms investing in those TPP countries, which I think is a positive. It will provide a little extra regulatory certainty. But, in the food space, no, I do not think there is a risk, really.

Mr Crisp : I would just add that Australia has such strict licensing requirements that before you even invest in an industry you are more than well aware of the licence requirements and our standards in Australia. So, with the foreign companies that are already heavily involved in our food processing sectors, I cannot imagine that they would not be well aware of the environment that they are entering into.

Mr WALLACE: You have already answered one of my questions. But do you believe that, under the TPP, Australians will be able to identify food produced in Australia?

Mr Dawson : Yes. The origin labelling requirements, as you probably know, have recently been overhauled. In fact, the legislation to put in place the amendments to the Competition and Consumer Act to finalise those requirements is before the parliament at the moment. Those new laws do require greater disclosure in terms of the origin of the food and the ingredients. So I do not envisage the TPP will have any impact on those new origin labelling laws at all really.

Mr WALLACE: You are saying that the food labelling laws will be unchanged by the TPP and Australians will still be able to walk down the street or down the supermarket aisles and tell that something is 100 per cent from Australia or uses mixed ingredients or is totally imported.

Mr Dawson : That is correct, yes.

Mr WALLACE: If the TPP is not ratified, what will this mean for Australian food producers?

Mr Dawson : I think it would really be a missed opportunity. It covers a dozen nations. Five of those are big export destinations for Australian food and beverage, and some of them are developing nations that, in the future, will have a growing middle class who, as we know from the experience in China and Thailand and Malaysia, are willing to pay a premium for Australia food. So we think it will be a missed opportunity if it is not ratified. We are supportive of the agreement because it provides greater market access to key sectors—dairy, beef, rice, sugar—and then, beyond that, into the processed food space. That is everything from confectionery and chocolates to pasta and biscuits and jams and sauces. There are tariff reductions across multiple lines. That processed packaged food space does not get the headlines that some of the agricultural commodities get, but there are many Australian companies with a foothold in export markets who will benefit from the reduction in those tariffs. We saw this with countries like Thailand, where, when I sit down and talk to member companies who are exporting into that market, they told me that the tariff reductions meant greater presence on-shelf because they were able to price more competitively. It comes back to the competitiveness question. So I think it would be a missed opportunity, and I say again: if we do not achieve greater market access through trade agreements then the food and grocery processes in Australia essentially will be forever at the mercy of the major supermarket chains here in Australia, and that is a very difficult trading environment. There is a marked difference between a company that is selling 80 per cent of its output in export markets and one that is selling 80 per cent of its output into the domestic supermarkets in terms of being simply a price taker and under intense competitive pressure.

Mr WALLACE: Does the council have a view on the ISD provisions in the TPP?

Mr Dawson : We think they are a reasonable balance. These things always have to be a balance, because governments have a sovereign right to legislate on behalf of their population. Against that, in our sector as in most manufacturing sectors, increasingly you are looking at global supply chains, so certainty around the regulatory environment within countries within those supply chains is important. So we do need to find a balance there. In the food and grocery sector, we have got such a strong track record, over many, many decades, of foreign investment, patient capital that is invested for the long haul, that I think has been undeniably positive for Australia and supports thousands of jobs.

Ms MARINO: I am a dairy farmer, and I understand, unfortunately, only too well the influences in the domestic market, particularly in a state like Western Australia. You have spoken about the opportunities that exist. I wonder if you could perhaps expand a little on how an incremental access, an opportunity, can become far greater in the packaged food space than it may appear in its first instance?

Mr Dawson : I think the point you are getting at—but correct me if I am wrong—is that, when you move into the value-added food space, the benefit of that market access is multiplied.

Ms MARINO: Many times.

Mr Dawson : In dairy, if you are in the skim milk powder export business, it is a very difficult place to be at the moment because there is a huge global glut and a massive European stockpile hanging over the market, whereas if you are in a value-added space, exporting—I do not know—little tubs of drinking yoghurt to China or something—

Ms MARINO: Or ESL products?

Mr Dawson : Yes—you are able to extract a premium price and you have very, very strong growth potential. So I do think this is a great opportunity for Australia more broadly, if I can digress a little—in that value-adding to our high-quality agricultural produce. But to do that we need two critical things: we need to be competitive and we need the access. Of course, the two go hand in hand when you are talking about tariff reductions.

CHAIR: Thank you for your attendance here today. If you have been asked to provide any additional information, would you please forward it to the secretary within seven days. You will be sent a copy of the transcript of evidence and will have an opportunity to request any corrections to transcription errors. Otherwise, thank you for your time.