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

EASTBURN, Mr John William, Chairman, Grain Growers Ltd

QUAIL, Dr Kenneth James, General Manager, Technical Services, Grain Growers Ltd

SOUTHAN, Dr Michael David, Acting Chief Executive Officer, Grain Growers Ltd

CHAIR: I now welcome representatives of Grain Growers Ltd to give evidence to the committee. 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 a contempt of parliament. We have received your submission, which is No. 5. Would you like to make some introductory remarks? We will then go to questions.

Mr Eastburn : Thank you for the opportunity to appear before the committee. I will give you a quick overview of Grain Growers. Grain Growers is a national, membership based organisation which is independent, financially strong, has a solid technical knowledge base and drives profitability and sustainability in the Australian grain industry. We have over 16,000 members, and that number is increasing.

While we trace our origins back 50 years, last year Grain Growers launched a new strategic plan: we rebranded the company and brought together three longstanding organisations into one. But our aim remains the same—that is, improved returns to growers. We have achieved this over many years through consultation, evidence based policies and advocacy.

Grain Growers has strong investments in research and development facilities, decision-support tools, capacity building and promoting Australian wheat. In August last year, Grain Growers became a commodity member of the National Farmers Federation to ensure that grain producers were represented at the national grains decision table. After a period of absence, Grain Growers now hosts the quarterly grower forums, which bring together the state bodies, grain growers and NFF. We also have an independent group from Grain Growers called ARGA, the Agricultural Reference Group of Australia, which brings together individual growers right across the country. I will hand over to Michael now.

Dr Southan : Thanks, John. There is no doubt that Wheat Exports Australia has performed a very good role over the transition period from the single desk in the last four years in that it has provided due diligence for growers in making sure that the organisations who are out there buying their grain and selling it on their behalf stand up to certain financial tests. That has happened very well, to the point where we have seen record sales of grain to new markets internationally and no major collapse of any of those accredited exporters. So it has been a tremendous success for Wheat Exports Australia.

However, four years has gone by now, and that has provided growers with time to get to know the market, to build their confidence and to get some experience in selling grain to new players in the market. As a result, the system now, where we have a regulatory body, provides costs to growers. Even though the exporters pay the costs, those costs are moved back down the chain to growers. They are expenses to growers that they would like to have reduced.

CHAIR: It is 22c a tonne?

Dr Southan : That is right, yes. At the moment, of the money that is levied, a bit over half is allocated to the accreditation process. So it is an expensive process to run. Certainly growers now have had time to adjust and, just like any of the other grain types, they can freely trade to whoever they like. So growers have had time to get used to the market place and are now successfully operating in the market. The industry has certainly successfully moved on. We think that now there is an opportunity for growers to be able to stand on their own two feet in the industry and to be able to operate and trade as they would with any other commodity that they might produce.

CHAIR: Thank you for that. So you feel that the market is maturing enough to allow us to go to where the bill takes us—that is, to a situation where we work out a code to deal with some of the issues? Some of the issues are transparency and information. Information is an issue that has been raised with us—people having access to information in the market, the signals et cetera—and another issue is having information to know how to get the premium by growing wheat specifically for a specific market. Has that grown much, or is it growing, or are there other opportunities that you see there?

Dr Quail : I think that we have not seen a lot of growth in that market. While those opportunities exist, it is really up to what the market will pay and buy. I think that we have a number of exporters now looking for opportunities in the market and where they can develop them, and we have not seen buyers prepared to pay significant premiums. It is a constant challenge in the export market to do that.

Importantly, I think we are hanging on to most of what we would consider our existing premium markets, with some losses recently in Japan but mostly attributable to drought. It is ongoing work to maintain those markets and ongoing work to try to attract premiums in new markets. There are certainly opportunities there, but they are best left up to market forces.

CHAIR: The claim is that all the wheat comes in and that, at export, some exporters with their bulk supply just mix it all up, and somebody that produces a certain grade of wheat is paid a lesser price than they may have been if there had been somebody—a government regulator to say 'that's A-grade and that's B-grade, and by mixing it a grower's losing out'—looking at it. You do not see that occurring?

Dr Quail : We do, and we see that, most importantly, growers should be paid for the quality they are producing and that that price needs to be driven all the way through to the market. That is not happening adequately at the moment, but I do not see how regulation will achieve that. It really has to be a market driven solution, and there are ways to achieve that. I think that the industry is still going through a lot of change and that we are probably working towards some of those solutions, but I do not understand how regulation would force buyers to pay for certain qualities or how regulation would even identify those qualities.

CHAIR: And that is so also for the information that people would seek? Will we get to the stage where that information is on a website or somewhere where people know what the price is for a certain quality? Do you think that will occur like it does in some other industries?

Dr Southan : I think so. Certainly growers have access to a lot of information now, and, where they seek prices, there are places where prices are available. But, if growers want that information, there are organisations out there that can provide a whole range of services and information to assist growers to know what they have and what the potential value of the product might be.

CHAIR: I see that you as an organisation are really getting into the research and development and that you see it as an opportunity to find out what the market wants and also to find the links between nutrition, food and health. I think that people are going to have a growing perception of these issues, and they will certainly affect markets and what we grow. I think soil health will also come into those things. I see you have your own bakery—your own labs and things. Perhaps you could just give us a quick insight into that.

Dr Quail : Our technical services group is based on an organisation that has been in existence for over 50 years working with the domestic market and the international markets in the areas of providing technical services and technical development, both in linking wheat quality to end product quality and helping markets to use Australian wheat more effectively and develop new products. We are continuing to develop that. You mentioned understanding what markets want. Last year we completed a study called What the world wants from Australian wheat. We interviewed customers to identify their requirements and provide that feedback to the Australian industry and public forums as much as possible to open up that level of transparency of information.

We have recently undertaken a new project using the techniques of choice analysis to take that a step further to get to the bottom of the actual technical requirements of markets more specifically so that we can feed that information back to the Australian wheat breeders so that they are developing wheats more specifically for future market requirements, to growers and to the grain trade, so that Australia is better positioned to meet those targets in the future. We want to be part of that higher-value component of the market. We cannot necessarily get premiums, but we want to be in the top end of the market. We want to avoid trading against the Black Sea and those sorts of competitors, where you are looking at an absolute price floor.

You mentioned health and nutrition. It is interesting: food supply and food safety are the two biggest concerns that markets generally express, and then nutrition comes up a bit further down the list. There is a growing interest, but it is still very small. This year we are producing a crop quality report which will describe the quality of the national crop. That is very much around functionality of the crop. That is an activity the AWB used to do nationally but has not been done for some years.

Mr LYONS: Is that on a regional basis?

Dr Quail : It is on a state basis. So it will be the major grades by state and also significant varieties by state. For the first time in that report there will be some nutritional data. We are working with another organisation, which has a specific mandate around nutrition, to combine with them and express some very base-level nutritional data, because we believe that down the track people are going to become more interested in it.

CHAIR: Tasmania is growing some really old wheat types now, and grinding it in a wind-driven windmill, which is a bit of a niche market. I do not know whether we will have a lot more windmills in Tasmania, but we may.

Mr TEHAN: In terms of the bill, you say in your submission:

GrainGrowers believes that continued support and partnerships with industry and government is required if Australia is to truly realise a profitable and sustainable industry.

Are you happy with the legislation as it is? That is, you do not see that any adjustments need to be made to it? And what do you mean by 'partnership'? Do you want to see that through getting market access and those types of things? Is that how you see the role of government?

Dr Southan : Certainly the importance of information cannot be understated. We would always support that there be good information provided to growers so that they can make the best decisions in their business. So while the act might be repealed it is still very important that growers have access to good information with which to operate. This would mean having a system that allows that information to be made available and ideally having an audit completed of the important functions to the industry: what should be maintained, who currently has the capability to do those functions and who is paying for them—or who should pay for them. We see that as being a very important component of the industry successfully moving into the future.

Mr TEHAN: When you say 'who should pay for them' and an 'audit' of these important systems, what have you got in mind? This is something else that has been raised. Is there no-one at the moment to provide this sort of information to a grower or to the market, for instance, at a price?

Dr Quail : There are some companies that are set up to provide that information of price, yes.

Mr TEHAN: Is that not working? Or are growers not aware of it? What is the problem?

Dr Quail : They do not have all the information, I guess. There are some restrictions on what information is available under those positions. There is a question as to whether it is adequate or not. I do not think that has been completely resolved.

Mr TEHAN: Is there any market we can point to where it is working—where it is mature, where that information is available, where the price signals are all there?

Dr Quail : I think the domestic market operates very effectively, and that sets a good example for how the trade has operated for many years, since the eighties, in a deregulated format—and it has worked.

Mr TEHAN: So, if it is working in the domestic market, what is holding this back in the global market?

Dr Quail : I think it is a lack of experience and maturity, and that applies both to our buyers, who we have had quite a lot of interactions with, and to the sellers. Buyers of Australian wheat were very used to dealing with the single desk. There was, in a sense, a format and behaviour to how they operated. They were very used to being serviced in a particular manner, and they are going through an adjustment period on how to work with the deregulated market in Australia and coming to terms with that, coming to terms with the new players. And the new players are having to learn a lot about how to operate in an export market, which certainly has differences from the domestic market.

Mr TEHAN: Is there a role for government in this information-providing?

Dr Southan : Certainly from a funding perspective there could be. A lot of the information is out there and, through having the right levels of collaboration across the industry, that information can be made available to industry and to growers. We would like to think that industry would be mature enough to be able to ensure that the right levels of information are made available. Certainly there is a lot of information that is accessible, but you have to know where to go to find it.

Mr TEHAN: So should this be a key component of the code of conduct, for instance?

Dr Quail : My understanding is that the supply of stocks information has been volunteered as part of the code of conduct. That is where you are talking about managing the relationships between government and industry. I think government has a role to play in negotiating that and helping that code of conduct form. If that information is included in the voluntary code of conduct, it will largely become available and continue to be supplied. The point is that it is voluntary, and that is why it needs industry and government to work together in the future.

Mr TEHAN: Currently the cost to the grower is 22c a tonne. If it were seen that the government would play some role, do you want that cost completely abolished? Would you see a small levy? What is your general view about a levy of this kind?

Dr Quail : We would say that it is an inefficient model at the moment and that we need greater efficiencies in the grain system to make sure that we maximise returns to growers and that we are also being competitive in the marketplace. The model of a regulatory body is inefficient. We mentioned that 45 per cent of the funding is currently spent on administration. Regarding reducing that and working with a smaller group, in a regulatory framework I am not sure about the efficiencies that would be gained. It would be something along the lines of an ombudsman's model, such as in the telecommunications industry. Where the industry pays for it directly against any issues that are dealt with seems to be more sensible model. It applies much more pressure on the parts of the industry to do the right thing and avoid the cost of dispute resolution, but it drives the cost of that resolution to the companies that are actually involved in it. That seems to make a lot more sense. It will not all be directed to growers then. In the current framework it is a cost borne by growers.

Mr TEHAN: We are getting a diversity of views from grower organisations. That is not unusual. Your body has 16,000 members. Correct me if I am wrong, but there are 22,000 or 23,000 growers in Australia. The grower pays to be a part of your group? How does the membership base work?

Mr Eastburn : They join up. The latest lot of members, to help us clean our database, was put in place, and they pay $50 every three years to be a member. That costs us more to administer than we get out of it.

Mr TEHAN: How do you fund your organisation?

Mr Eastburn : Regarding our history, we came out of northern New South Wales, and that was focused on prime hard wheat. We got segregation in the late 50s. In 1980, we acquired GrainCorp. In February last year we sold our last shares in GrainCorp. We use that money to fund the functions that we do in the industry.

Mr TEHAN: So you are a self-sustaining entity?

Mr Eastburn : Yes.

Mr TEHAN: In terms of growers being a part of what you do, you are not dependent on a financial contribution from them?

Mr Eastburn : No.

CHAIR: How to growers have input? You are a private company, so—

Dr Southan : We have what is called the Agricultural Reference Group of Australia. We have growers there that come from right around the country who are growers that have been identified as understanding their regions well, relating to their peers well and being able to bring the issues and the thoughts of their peers to the table. It is certainly here where we ask for their input. They provide input on driving the types of services and products that grain growers provide and also what the issues are that they consider are important for them. We use that committee extensively to give us input into these areas. Also, through the national quarterly grower forums, which we have just started running, we get input from the state farming organisations. That is where other agenda items can be brought to the table.

Mr Eastburn : But at this stage not all states have come on board.

CHAIR: Do some of your grower groups work on specific areas in their region, such as what is the best wheat to grow, or do research to improve that? Do they get into their own research group or anything like that?

Dr Southan : They would probably have their own grower groups where they are based. They would generally be production focused. They may have particular varieties that perform better than others in their regions. It is dependent on where they are. They would have different production systems and different crop rotations and crop types.

CHAIR: Do they lock into the R&D Corp to give them some help in that? Do you know if they work in that area?

Mr Eastburn : They are virtually all members that go along to the research and development—

Dr Southan : Regarding the research advisory committees, they would certainly have input into those as well. They are not just involved with grain growers. They are involved in other industry sectors.

CHAIR: So it is the whole industry, and people have an understanding of the industry and where it is going in the future.

Dr Quail : It does not work perfectly. This is a fairly new development that we have been putting together over the last couple of years and as it has come together in the last 18 months we have seen it move forward in leaps and bounds with getting on board and with the direction that we are going in. We are getting a lot of buy in and it is really positive, but the industry has a long way to go.

Mr TEHAN: Following up, you obviously provide services as well. One of the issues that we have had put to us today is that farmers are worried about what is happening—they are not getting maximum value for quality of crop. If I am grain producer and I produce a crop, can I get you in to give me an independent assessment of that crop before it heads to the depot? Would the validity of your assessment stack up if there were a dispute with the bulk handling about the quality of that crop?

Dr Southan : In the past we have acted as the independent assessor even for AWB when there were disputes. So we are very comfortable and have for a long time performed in that role of providing independent assessment and information.

Mr TEHAN: If there were a concern amongst growers in this particular area is it because growers do not understand that they can get that done or is there a cost factor here that is why they are not doing it? Why are we not getting that type of assurance from farmers in other evidence we are hearing given that these services are there?

Dr Southan : I think it is a combination of those two. I think that not everybody is aware of what is about in terms of quality. Therefore, if they do not understand quality, they do not know what you can test for and what is important in the market. And, of course, there is a cost factor. Ultimately, there is an important role in education for a lot of growers in understanding what is important with what they produce and how that impacts on markets.

Dr Quail : We are seeing an increase in the demand for those services. Growers are gaining awareness of the value of them. Cost and awareness were factors. As they realise the value of that and gain awareness there is an increasing demand for the service.

Mr TEHAN: How many other providers of that type of service would there be?

Dr Quail : Approximately half-a-dozen, some of them out of the state departments of agriculture and some other private providers.

Mr TEHAN: Okay.

CHAIR: There are old wheat varieties and new ones coming on. Are you constantly looking at that? Is there any connection to the international bank of wheat varieties?

Dr Southan : Yes, certainly. We follow varieties very closely. I sit on the Australian Wheat Variety Classification Panel independently and also we have done a lot of work with breeders over many years. A lot of the work we have done in the markets is in identifying what the quality parameters are that those markets require. They are very different for different parts of the world, different countries and different food products that the wheat ends up in.

CHAIR: They keep telling us at all international stuff that we go to that we have to feed nine billion people in the future and that will take a lot of grain. Can we step up production with less water and less fertiliser?

Dr Southan : It is challenging. The first challenge we have there is our environment which is extremely volatile. On top of that there is the challenge of how you get the year-on-year greater than three per cent increase in yields—that has been declining for some years now. For Australia, it certainly is challenging but while there is always going to be demand people will find ways to produce grain. We have seen other countries starting to increase their levels of production. I think the opportunity for Australia, as Ken mentioned earlier, will be in identifying where we can best produce quality types that will suit particular markets to get the best return overall for our growers.

CHAIR: Thank you very much for your time and for your submission. We do appreciate it very much.

Dr Southan : Thank you.