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Standing Committee on Agriculture, Resources, Fisheries and Forestry
11/05/2012

WEIDEMANN, Mr Andrew Noel, President, VFF Grains Group, Victorian Farmers Federation

Evidence was taken via teleconference

[09:30]

CHAIR: I welcome Mr Weidemann from the Victorian Farmers Federation. Thank you for your submission and your time. We are dealing with the Wheat Export Marketing Amendment Bill 2012. Although the committee does not require you to give evidence under oath, I should advise you that this hearing is a formal proceeding of the parliament and warrants the same respect as proceedings of the House. Giving false or misleading evidence is a serious matter and may be regarded as contempt of parliament. We know you have a few objections to the bill in its present form. Would you like to make an opening statement about those?

Mr Weidemann : Yes, if I could. Good morning, senators. I am the current President of the Victorian Farmers Federation Grains Group and a farmer from Victoria.

CHAIR: There are no senators here as this is a House of Representatives committee.

Mr Weidemann : Good. I would like to point out that the VFF Grains Group is currently opposing the Wheat Export Marketing Amendment Bill that has been presented. We have voiced our concerns through Grain Producers Australia which we recognise as the representative organisation for grain producers across Australia. We have similar views to them in regard to this.

Essentially when talking about this amendment bill, with the Wheat Export Authority in its current form we have an authority with a lighter touch but which provides more market signals to make sure that the market is working correctly. We are of the belief that at the moment there are some impediments to the way that trade is operating in regard to only a few having the information and not the total amount of information being available to the entire market.

In regard to the bulk handlers, at the moment they have all of the information. They understand where the varieties are grown, the crop quality and the shape. Unfortunately the rest of the market is unable to view that. We are saying the rest of the market needs to be able to see that to be able to maximise, in some way, the return to us as growers and to ensure that the true market is working.

CHAIR: One of the big issues you are concerned about is getting the market signals, information and transparency?

Mr Weidemann : Yes, that is right.

CHAIR: That is, different varieties are grown and if someone grows a particular variety that is in demand then they should get a premium. Is that the thrust of what you are saying?

Mr Weidemann : It is. The thrust is to try and make sure that as a grower we get the best price when we sell the grain to make sure that we remain profitable in the longer term, so for us it is about that. One of the things that we have also seen since the deregulation process started is the actual quality of the crop. We believe that there is an opportunity with the WEA to control the WEC. To us that is the really important part: to be able to fund a lot of the industry's good functions that seem to have drifted out since the start of the wind-down of the single-desk structure. I am not saying that we want to go back to the old structure. What I think we need to do is now move forward and look at a new way of doing things, and for us the WEC, the wheat export charge, offers us an opportunity I think to be able to fund a lot of the activities that the industry needs to function properly and provide those market signals and quality and crop information that we are talking about.

Mr TEHAN: Would you say that the system at the moment is working?

Mr Weidemann : No, I would not think that the system is working as it should at the moment. What we are seeing is that there are three major bulk handlers in Australia that basically control the stock information. Certainly they have got a major role to play in the export process to get it out of Australia, but we are saying that the rest of the marketplace needs to be able to see all of the crop information, the stocks that the ports own, the quality of the crop. For instance, if you take ASW, at the moment you would have soft varieties being delivered into that that would not necessarily end up at the marketplace performing the way the buyer would expect them to. You have got a range of varieties being co-mingled and the market needs to know what is in that stock and it needs to be able to be assured of course that the quality out the other end is performing.

One of the things that the single desk did provide, and this is the area that was allowed to provide to the market the known quality and performance characteristics of that wheat at the other end, was quite well taken care of. Now because you have got multiple buyers, they are not able to see what information is required, particularly in the stocks, to be able to ensure that when they buy the grain and give it to an end-user that it is performing the way it should. We are hearing in a number of cases where that has broken down. What we want to ensure in the future is that we can actually give the market the confidence that the varieties will perform. I think we had a meeting about three weeks ago in Sydney and one of the key aspects of that meeting that we came away with was that we needed to ensure that the crop quality and the information was made available to ensure that we actually lift the bar for Australian wheat to compete against our competitors. I think that under the single-desk process we did have a very strong international view that the quality of the Australian crop was excellent. What we are seeing now is that that is being punished in the marketplace and what we are trying to do in a free market is to be able to try to ensure that that crop quality information is well known and that we do have a way of funding the ability for an organisation to be able to manage that independently so that the quality can be verified.

CHAIR: Andrew, your submission now is that the quality of the wheat that we are growing in Australia is less than it was 10 years ago. Is that your submission to us?

Mr Weidemann : No, it is not. The crop quality would be as good if not better in this day and age than it was a few years ago. The problem is that when it is co-mingled, the actual co-mingling effort at bulk-handling means that it is not known how and where that crop was drawn from unless you have that full information. The only people at the moment in the market that would know are the bulk handlers themselves because they are controlling the stocks. We are saying that the rest of the market needs to be able to see that information.

Mr TEHAN: If the system is not working well at the moment, could it be that it is sort of half pregnant? Could it be that what we really need to do to get all the proper market signals in there and to deal with these transparency issues is to take the next step? It seems that maybe we are in this halfway house and that seems to be a problem. No-one seems to be saying that in the current way it is structured it is working.

Mr Weidemann : Yes, that is right. The Wheat Export Authority has done its job up to this point. What we are saying is that the industry has a range of functions that need to be funded into the future and, unfortunately, winding up WEA means that we lose the wheat export charge. The bottom line is that by losing the wheat export charge you lose a great opportunity to utilise a funding mechanism that could look after a lot of the concerns that we have as an industry and the ability to manage and ensure that the market signals are strong.

Mr TEHAN: Just on the wheat export charge, do you think that growers want to pay a charge? What sorts of levels do you see that they would be comfortable with?

Mr Weidemann : I guess it is a matter for the industry to work through. At the moment through Grain Producers Australia we have been looking at what is required and what needs to be funded. Certainly Wheat Quality Australia is one of the key fundamentals. We have the grains industry group that is looking after biosecurity concerns. We need to look after the market information. We need to have somebody who is independent, and the only player we see as being independent at the moment is the Wheat Export Authority, with the ability to ensure that if the bulk handlers do not agree to a stock's information they have an ability to ensure that they do provide that information to the market. In our mind, the Wheat Export Authority has a role. Significantly, I think the wheat export charge is going to be fundamental in ensuring that we have the ability to fund a lot of the aspects that I have been talk about this morning.

The longer term thing is that the wheat export charge is potentially going to provide a sustainable funding source. Potentially, it possibly should be across all grains, maybe at a lesser rate. But that rate needs to be worked out and identified by industry. I do not think we are quite at the point of being able to work out what rate it would need, but potentially it probably does not need to be at 22c. To be honest, as a grower, I do not know any grower who has an issue with a small amount of money being taken out on a broad scale across the crop to ensure that the things we are putting forward this morning are identifiable and that in the long term the market understands what it is buying and can give us a much better price, potentially, for that.

Of course, look at the trade. The trade only take a margin. They are not worrying about whether or not we get the best price, because their margins are fixed. At the end of the day a grower only gets what is left over after everything else is taken out. That is why we are pushing quite strongly to ensure that the whole market understands the complete supply chain.

CHAIR: But, if we got more buyers in the market, wouldn't that facilitate people chasing the premium markets and dealing with it in that way?

Mr Weidemann : Eventually, if the market is working properly, what you are saying would work. But we are saying that it is not working at the moment for the very reason that not everybody can see all of the information. If you are going to extract a premium from a product, you need to know exactly where that product is coming from and the qualities associated with it. The analogy that I have used before when talking to people is: if you look at all the markets around the world—you can look at the stock market, you can look at the American market, where the wheat associates work—every market has some form of regulatory process that does not impede the market. I think there is a grey area here and we are getting drawn back to thinking that people want to stay where we have been. We are saying we need to go into the future and try to ensure that we have a free market working with the signals that the preregulated market used to provide the industry.

Mr TEHAN: The ACCC can do this role. Do you not have confidence in the ACCC doing it?

Mr Weidemann : No, I do not have confidence, unfortunately, in the ACCC being able to perform this because I do not believe that they have the experience that is required to actually undertake the role that is currently needed. I guess what our members have been saying to me at the moment the industry does not appear to be mature enough to undertake this change that is being promoted and potentially we could end up really damaging with a triopoly of people that control the market and in a much worse situation than we are currently in. That is why this morning I wanted to make sure that the panel understand that it is not about trying to bring back the past. It is about to say let's move into the future but let's make sure that we understand that the market needs to know what information is available through the stocks, the quality and by the ports and zones so that we can ensure that at the other end Australian wheat is back up at the top end of the international marketplace.

Mr TEHAN: So the real fear is the perceived lack of competition in the market?

Mr Weidemann : Yes. The market is currently operating at the lowest common denominator. Everybody is now minimising the standards at the port zone by minimising the standards themselves so they are actually blending the crop to meet the bottom end of the market whereas under the old scheme they had to draw the stock and we were provided with a much better quality against we were then required to meet the contract arrangements.

That is the way things are dismantled with the contracts and letting standards and specifications. I guess what we are saying is that proper information is really important or paramount for people to make a decision and we do need some form of regulatory process to be able to manage the Australian end of the chain.

Mr TEHAN: What would you see as the limitations on a new entrant coming into the marketplace to capitalise on those premium markets, such as those in Japan? What do you see as a the physical barriers to a new entrant to start capitalising on getting more value out of the premium wheat?

Mr Weidemann : It is about crop integrity. I can speak from personal experience. We have been exporting out of Cairns for the last 10 years and that is in international fuel. We have worked through the locals. The information required is what has been applied to the crop, what has been applied to the grain in storage. So they are asking for a whole level of information. If you are putting it to the bulk handling system, I guess that information is lost. There is no confidence in that. What I am saying is that the market needs to understand the crop, the variety and the ability to attach to those premium markets that you are talking about. I can particularly see that the Asian market offers us, in the longer term, some great opportunities. Again, it comes down to the bottom line that somebody needs to be able manage independently and look after that crop information that is required by the market to ensure that when it meets its destination it performs to the level that it needs to.

CHAIR: You don' t think the exporters that go to the market want to maximise their return?

Mr Weidemann : Exporters have a margin. They are not looking to obviously extract premiums from it. They are looking to just take their margin out of it. We are saying that everybody needs to have that information to ensure that the supply change is working correctly and we have multiple buyers now. I think we always have had them but we never saw them. Now we actually see them. What we need to do is ensure that the quality that goes out meets the requirements they are asking us for.

Mr LYONS: So, to my mind, you are saying that the handlers are mixing grains like they have not done before, so they are getting a bulk price and are not concerned with the premium; there is no transparency in the market and you do not know, from the sound of it, where it is going and what price you are going to get; and you do not have confidence in the voluntary code. You seem to be saying you are happy with where we are at, but I do not seem to be hearing from you where you want to be and where it is going to be good.

Mr Weidemann : I obviously have not come across as well as I was hoping. Realistically, what I am saying is that we want to try and get the best price we can for the grain that we grow and, at the moment, we see an impediment from the farm gate to the market, and it is about information in regard to the stocks that are held. The market needs to know what is there. Currently, as a buyer out the other side I would ask a marketer to assess the grain for me because I need to know that that grain, when I receive it, is going to perform at a certain level. Through the supply chain, we need to have transparency around information, because no market really trades anywhere in the world without information. Again, I will go back to the analogy of the share market and US Wheat Associates: they all have some form of regulatory approach and information so the market knows exactly what is there and where it is from.

So I do not have confidence in the current system. I think we have moved on from that. I think what we have identified are the 'industry good' functions that need to be funded to ensure that we continue to improve the image of the Australian grain crop. I believe, based on the information I have heard from overseas markets, that they have a low level of confidence in regard to the out-turn specifications and quality in a number of areas. There are plenty of areas where that is still working fine, but it is those premium markets that we are going to try and attract a better price from that are actually asking for that higher level of information.

Mr LYONS: So how do we achieve that?

Mr Weidemann : We achieve that by having an authority that has the ability to get that information and provide it to the entire supply chain, and also to look after the wheat quality itself and provide the signals back to the breeders and researchers to ensure that we are going to continue to meet the longer-term aims and objectives of what the market requires. As most of you may be aware, it is probably a good seven to eight years lead time to get a variety from point A to point B, from the start to the end, and you need very strong information about your market. At the moment I do not see that happening.

Mr LYONS: Thanks.

Mr TEHAN: You talked about the US, wheat futures and information that is made available to the market through the stock exchange, price signalling and things like that. What is preventing that sort of market intelligence being used in our current stock exchange and wheat futures market?

Mr Weidemann : That is what I am saying needs to happen. But it needs to be funded to be able to do so; it needs to have an independent funding source. I believe Wheat Exports Australia has that ability, because it is already structured to be able to do that and to perform those tasks for the industry. I believe that, with the WEC, it provides us a great opportunity to deliver on those 'industry good' functions that will benefit the Australian grain crop. I think that those markets overseas all have, again, some form of information that is associated with the trade.

CHAIR: And you do not think the market will mature to do that?

Mr Weidemann : I think in time it will, but not until we get everybody on a level playing field. We have a distorted playing field in the current environment, where you have bulk handlers with the full suite of information but not enough of that is provided to the multiple buyers that sit there. Also, from a crop-shaping point of view, the ability to provide statistical information at the point of delivery—I am talking about information that is available, basically, the night after it is delivered, to the entire market—requires a high level of independence and transparency. Unless everybody provides that, I do not believe that bulk handlers will be in a position to achieve the outcomes that we are talking about.

CHAIR: I think that is where we should be—and you have identified the issue we need to get to—so that that information is available. It should be on a website somewhere for everybody to see, I guess.

Mr Weidemann : That is right. I think it helps. It helps the entire supply chain, from breeders to farmers. It gives the market signals that we are talking about. I do not believe in any way, shape or form that VFF want to put an obstruction in place. If we are going to have a fully deregulated market, let's make sure that everybody has a level playing field to work from, and let's not have a distortion in the market.

CHAIR: Yes. The world has developed those things in minerals at a world level. There is market information that comes forward in a whole range of world markets that people accept, and they are done but they are done by the market—pulp and paper; a whole range of those sort of areas where things are put on an international level and are accepted as the price and the standard et cetera.

Thank you for your time, Andrew. We do appreciate it. Please pass on to your executive our best wishes for doing that for us.

Mr TEHAN: Thanks, Andrew.

Mr Weidemann : Thank you. I appreciate the opportunity to speak to you this morning. I hope the deliberations are fruitful.