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Horticulture Marketing and Research and Development Services Bill 2000
23-09-2010 10:53 AM
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Horticulture Marketing and Research and Development Services Bill 2000
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THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
HORTICULTURE MARKETING AND RESEARCH AND DEVELOPMENT SERVICES BILL 2000
(Circulated by authority of the Parliamentary Secretary to the Minister for Agriculture, Fisheries and Forestry, Senator the Hon Judith Troeth)
HORTICULTURE MARKETING AND RESEARCH AND DEVELOPMENT SERVICES BILL 2000
The Bill is one of two Bills designed to create a horticultural industry services company to provide marketing and research and development services to the horticulture industry. The new company will replace the current statutory authorities, being the Australian Horticultural Corporation, the Australian Dried Fruits Board, and the Horticultural Research and Development Corporation.
The new company will be a not for personal profit company operating under Corporations Law that has industry representative bodies and voluntary funding contributors as its members, with voting rights allocated according to the amount of funds provided. The company will provide marketing and research and development programs to industry, based on the advice of industry advisory committees. The company will be accountable to shareholders for the effective use of funds provided.
The Bill provides for companies to be declared as the industry services body and the export control body, allowing for the same company to be declared as both. The industry services body uses funds to provide marketing and research and development programs to the industry. The export control body administers export control powers on behalf of industry, issuing licenses and charging fees for this purpose. The Bill allows for the industry services body to receive funding from the Commonwealth and requires both the industries services body and the export control body to act in accordance with a Deed of Agreement. The Deed of Agreement imposes obligations on the body and contains details about the body's accountability to the Commonwealth.
In order to ensure accountability to the Commonwealth for the use of industry levy funds, matched funds for research and development and the administration of export control powers, the Bill and the Deed of Agreement provide consequences for breach of the Deed. These include ceasing to be declared, being subject to an injunction, or, in the case of the industry services body, suspension or recovery of funding. The text of the Deed is not included in the Act but it is publicly available from the company.
The second Bill, the Horticulture Marketing and Research and Development (Repeals and Consequential Provisions) Bill 2000 abolishes the Australian Horticultural Corporation, the Australian Dried Fruit Board and the Horticultural Research and Development Corporation. It also deals with matters arising from the transition to the new bodies, such as transfer of staff and assets from the statutory authorities and a 2 year period to phase in the new export control system provided for in the Bill.
FINANCIAL IMPACT STATEMENT
The Bill provides for the transfer of assets and liabilities of the Australian Horticultural Corporation, the Australian Dried Fruits Board and the Horticultural Research and Development Corporation to the new company. The Bill also provides for an Australian Dried Fruit Trust to be established to hold the dried fruit industry reserves. Funds can be released from the Trust to meet the marketing needs of the export of dried fruits.
The net value of assets to be transferred is approximately $20m, principally involving funds held in accounts on behalf of industry levy payers. It is estimated that the company will achieve annual operational savings of approximately $550,000 per annum from moving to the new single company arrangement.
The regulation of export control powers under the new company will be similar to the way they currently operate under the Australian Horticultural Corporation and the financial impact will be similar, with exporters paying a licensing fee on a cost-recovery basis.
REGULATION IMPACT STATEMENT FOR EXPORT CONTROL POWERS
1. It is intended that the new horticulture marketing and R&D services company will be able to administer export controls that are currently available to the Australian Horticultural Corporation and Australian Dried Fruits Board.
2. These export control powers were the subject of a review by an industry-Government Working Party in December 1999, with a view to assessing their effectiveness under National Competition Policy principles.
3. The conclusion of the review, which was assisted by analysis by an independent consultant, was that the use of the powers by the horticulture industry allows net public benefits to be generated and that these benefits would be substantially eroded or lost if the powers were removed.
Use of Export Control Powers in Horticulture
5. A number of Australian horticulture industries have utilised the export control and Product Board powers of the AHC under Part V of the Australian Horticultural Corporation Act 1987 . The objectives of those powers, as explained in section 116 of the Act, are “ to enable the [AHC] and Product Boards to be given the powers necessary to ensure that Australian horticultural industries achieve their full potential in overseas markets.”
6. The AHC has only used the export powers in those circumstances in overseas markets where export controls can be expected to provide net benefits to horticulture industries.
7. The competition policy case for the continued use of export control powers of the type used by the AHC depends on demonstrating that the powers provide net public benefits, when compared to other regulatory options (including no regulation) and that the benefits cannot be achieved without government intervention.
8. The consultant's report identified four market circumstances operating overseas where the use of export control powers could potentially provide net public benefits:
· the opportunity to capture market power opportunities, through controlling supply or capturing a timing advantage;
· the ability to countervail market power exercised by importers or others in the market;
· the ability to capture economies of scale in the supply chain in production, marketing, distribution, etc;
· the need to comply with foreign quarantine and/or quota requirements (circumstances imposed by a foreign government).
9. The AHC currently exercises its export control powers in four export markets; the US citrus market, the Thailand citrus market, the Taiwan horticultural market ( to administer quotas set by Taiwan’s Government on citrus, apples, peaches and plums) and in the Korean citrus market.
10. Currently, the only Product Board operating is the Australian Dried Fruits Board (ADFB). The ADFB will be abolished and its roles and responsibilities taken over by the new horticulture services company.
US Citrus market case
10. The South Australian citrus industry gained access to the US citrus market in the early 1990's, after investing considerable resources in developing the necessary quarantine protocols.
11. The citrus industry approached the AHC for use of export control powers in 1991 to assist their marketing of fruit into the US market. In June 1992, following a series of industry consultations, a Corporate Permission was issued, prohibiting exports to the USA unless they were undertaken through a sole importing agent, DNE Fruit Sales.
12. The purpose of designating a single importer was to provide for the development of a marketing strategy that focussed on delivering high quality fruit to customers in a co-ordinated manner and ensured that all exporters met the required quarantine requirements. It is also designed to avoid undercutting of price or quality by individual exporters.
13. Quarantine access for Australian oranges into the United States works at two levels:
- stringent quarantine and quality requirements apply from 1 September to 30 June of each year, which do not preclude exports but do make profitable export activity difficult; and
- there is a window of opportunity through July and August, during which the requirements are relaxed (not removed) to provide improved export opportunities.
14. The July and August window coincides with the off-season for United State navel orange producers, allowing Australian exporters a timing advantage.
15. The volume of Australian produce exported to the US market has increased steadily since 1992. The volume and the average return increased from 2,415 tonnes, with an average return of $A 751/tonne in 1992-93 to 21,696 tonnes with an average return of $A 1,574/tonne in 1998-99. The value of Australian exports has grown accordingly from under $2m in 1992-93 to over $40m in 1999-2000.
Single Importer Arrangement
16. The arrangement with DNE led to the development of marketing strategies for Australian navels that focus on delivering high quality fruit to supermarket outlets in high socio-economic areas of the United States. This is based on delivering volumes containing a high proportion of large clean fruit for which premium prices were expected in the absence of domestic fruit during July and August. Smaller fruit sizes are also accepted, although the sale of any significant volumes of small fruit would require careful management to ensure that small fruit does not erode the premium prices for larger fruit.
17. Coinciding with the development of market access to the United States, a range of Riverland exporters and packers voluntarily combined to form Riversun, an umbrella organisation that co-ordinates the vast majority of exports to the United States. With the decision to award access to the US citrus market to Sunraysia and the Riverina in 1996, Riversun attracted exporters and packers from these areas to its ‘membership’.
18. Riversun is a marketing co-ordinator, not an exporter. It manages and arranges transport, consolidations, packaging and other activities, seeking to capture various economies of scale available through the supply chain. Riversun also contributes to the maintenance of quality standards through the chain, both to meet quarantine standards and to ensure the arrival of high quality fruit. Riversun states that its mission is to achieve the greatest volume of sales at the best possible price. This mission recognises that the single objectives of either maintaining the highest possible price only, or moving the greatest volume only, do not necessarily maximise value to company members.
19. It is not mandatory for an exporter to use Riversun and it is not specified in the AHC Corporation Permission. DNE is required to accept sales from any licensed Australian exporter. As such, the use of Riversun will reflect the value that it offers to exporters by reducing transport costs and co-ordinating imports. If Riversun does not deliver value to its members then those exporters will not use it.
Description of benefits and costs
20. Benefits of the export arrangements include:
- Capture of a market timing advantage. The bulk of Australian navels arrive in the United States during the off-season for United States navels. This enables sales of Australian navels to capture a timing and quality premium. The ability to capture that premium is assisted by the use of export control powers, largely through the ability to limit competition between Australian suppliers.
- Countervailing of buyer power. Use of the export control power ensures that Australian navel exporters do not compete amongst themselves for retail market share. Two experiences reported to the Working Party demonstrated clearly the significant quantitative benefits of this effect.
- Economies of scale. The development of the Riversun company coincided with access to the United States market. Riversun is reported to have achieved significant savings in transport costs, as well as assisted with fruit coordination to achieve best prices in the United States. The success of Riversun is demonstrated in its high uptake by exporters, given that it is not mandatory to utilise the services of Riversun. These benefits are associated with the export control powers although it cannot be claimed that co-operative arrangements can only operate with legislative backing.
- Brand and quality management. There has been some branding and quality benefits identified as arising from exports to the United States, particularly through the efforts of Riversun. As with the capturing of economies of scale, these are linked to the export control power although quality and branding success can occur without export control powers.
- Knowledge and technology carry over to other markets. There have been a range of initiatives in packaging, transport, marketing and distribution triggered by the United States success that have the potential to add to efforts in other markets. Such flow-on effects are commonly associated with export activity due to the market discipline imposed on exporters. Again, while these can be associated with the use of the export control powers they cannot be claimed to be solely associated with the use of such powers.
21. Costs of the export arrangements include :
- Lack of incentive for a single importer. Early in the process the citrus industry recognised that the sole importer status could offer DNE reduced incentives for performance. As a result performance incentives have been put in place to keep pressure on DNE to provide the best possible service. Annual reporting requirements also encourage performance, although it is understood that at present these performance reports are presented by DNE itself, rather than by independent assessment.
- Loss of market opportunities. Restricting supply necessarily involves the loss of some market opportunities. In the case of the United States it is clearly the case that exports of small fruit have been constrained in order to protect price premiums for larger fruit. This has resulted in the loss of the potential value of small fruit exports (although it is recognised that the objective has been to protect more valuable large fruit exports and that any sales below costs are unprofitable anyway).
Conclusions on effectiveness
22. The Corporation Permission for orange exports to the United States has facilitated the development and maintenance of a premium market for high quality fruit in the US market and the growth of the market based on supplying the type and quality of fruit sought by US consumers.
23. On the evidence available, navels sold to the United States appear to provide returns of near to double those of equivalent sales into other markets. However, premium prices in the United States reflect demand in the United States. They represent an opportunity but alone do not justify the use of export control powers.
24. The export control powers have assisted in the maintenance of premium prices by reducing the scope for Australian navel exports to undercut each other and force prices down and reduce returns to Australian businesses.
25. As outlined above, the use of a single importer entails costs. In particular these relate to the incentive arrangements facing the importer and affecting their performance. Some of these costs have been addressed, through the development of incentive structures on commission payments and the appointment of Oppenheimers as a sub-agent, providing some degree of benchmark for DNE.
26. There are a number of expected market developments that will change the nature of the United States citrus market for Australian exporters. These include retail consolidations, competition from other countries and the challenge of managing the dynamic of supply and demand. The various impacts of such changes are already under discussion. It is not clear what implications might flow from these developments. However, it cannot be assumed that the current export arrangements will remain relevant. Continual performance review and market analysis will be required to determine the best arrangements for the Australian citrus industry and the Australian community.
27. From this case study it is clear that reliance on voluntary constraints on exporters is unlikely to work, as there will always be some who want to export directly free of any marketing constraint. This would seriously undermine the returns for the industry as a whole.
Use of powers in other markets
28. The AHC also provides for regulation of export markets in the following products sale of peaches, plums, apples and citrus to Taiwan under quota arrangements and sale of citrus to Thailand and Korea.
29. Wide consultation has occurred with key stakeholders during the preparation of the consultant's study in to the use of export control powers by the AHC, with 90 submissions received from many sectors of the horticultural industry.
30. The strong balance of submissions and comment was for the retention of the export control powers, although some exporters opposed the use of the powers on the basis it restricts their freedom to trade under terms and conditions specified by them.
31. Based on the case study analysis, it was concluded by the industry-Government review that the powers were being use to advantage by the horticulture industry in certain export markets and that the removal of the powers would erode or remove the export market advantage currently being achieved. In particular, removal of the power to nominate a single importer in the case of citrus to the US could be expected to erode the price premiums being achieved through the control of quality and size of fruit being delivered to the market. It was therefore concluded that the powers would need to be retained and transferred to the new horticulture services company to implement.
32. It was also agreed that the company would be required to follow a 5-step process for the use of powers in the future to achieve increased accountability and transparency:
· Develop a case based on net public benefits and consult widely with industry
· Case to be reviewed by the company
· AFFA to prepare a Regulation Impact Statement
· Company administers licenses and the system once approved
· Annual review of performance and future review of powers
33. The company has been given a two year phase-in period for the new 5-step process, to avoid undue disruption to the existing arrangements.
NOTES ON CLAUSES
Clause 1 : Short title
This clause provides for the Act to be called the Horticulture Marketing and Research and Development Services Bill 2000.
Clause 2 : Commencement
This clause provides for the Act to commence upon Royal Assent and for Parts 3 and 4 to commence at the same time as the repeal of the AHC and HRDC Acts. This will allow the industry services functions and the export control functions of the new horticulture services company to begin upon transfer day.
Clause 3 : Simplified Outline
This clause provides a simplified outline of the Act.
Clause 4 : Definitions
This clause provides for terms in the Act to defined.
Clause 5 : Crown to be Bound
This clause provides for the Act to bind the Crown but not make it liable to be prosecuted for an offence.
Clause 6 : Application of this Act
This clause provides for the Act to apply both within and outside Australia.
Clause 7 : Application of the Criminal Code
This clause provides for Chapter 2 of the Criminal Code to apply to all offences committed under the Act in relation to the export control functions of the company.
Part 2 The industry services body and the industry export control body
Clause 8 : Simplified Outline
This clause provides a simplified outline of Part 2 of the Bill.
Clause 9 : Declaration of the industry services body and the industry export control body
In order for the Minister to be able to provide for the new horticultural services company to deliver the marketing and research and development services to, and administer export control powers in respect of, the horticulture industry as intended, there is a need to formally declare the company to have these functions. This is achieved in this clause by providing for the Minister to declare a body to be the industry services body and the industry export control body if certain conditions are satisfied. The same body can fulfil both functions.
The conditions attaching to his declaration are provided in this clause. A key condition is that the Minister has had regard to whether the company’s constitution is appropriate.
The clause also provides for the Minister’s declaration of a body to specify the day on and after which the relevant body is to be the industry services body or the industry export control body. A copy of the declaration is to be published in the Gazette within 14 days after it is made.
Clause 10 : Cessation of declaration of the industry services body or the industry export control body
This clause provides for the Minister to declare that the industry services body ceases to be the industry services body; or the industry export control body ceases to be the industry export control body; on certain specified grounds. The declaration must be by notice in writing.
The specified grounds ensure the company has flexibility to request this cessation (subclause(2)(a)), and to ensure that if the company acts inappropriately, has an inappropriate change made to its constitution, or is moving into insolvency, it may cease to be declared.
The notice must specify the day on which the body is to cease to be the industry services body or export control body. That day must be after the day on which the declaration is made. A copy of the declaration is to be published in the Gazette within 14 days after it is made.
Clause 11 : Transfer of industry assets and liabilities after cessation of declaration
This clause provides for the Minister to transfer certain assets and liabilities from a body which has ceased to be declared as the industry services body or industry export control body to another declared body, or another body or trust that the Minister is satisfied has the objective of furthering the industry’s marketing and research and development interests.
The assets and liabilities available to be transferred are those agreed to by the body in the deed of agreement entered into under section 12. It is anticipated that the assets and liabilities so agreed will be those representing the industry’s investment over time into industry marketing and research and development through the statutory authorities and the new company.
The notice of transfer is to be in writing and requires regulations to have been made to effect the transfer. The declaration is to be published in the Gazette within 14 days.
Division 3 Deeds of Agreement
Clause 12 : The Minister may enter into Deeds of Agreement
This clause provides for the Minister, on behalf of the Commonwealth, to enter into a Deed of Agreement with the proposed industry services body and proposed export control body. The purpose of the Deed of Agreement is to specify the conditions the Commonwealth requires the bodies to meet in order that the public accountability requirements of the Commonwealth are met. The public accountability requirements relate to use of statutory levy funds, Commonwealth matching payments for research and development, the administration of export control powers, and the use of assets and liabilities transferred from the statutory authorities under the Horticulture Marketing and Research and Development (Repeals and Consequential Provisions) Act 2000 .
Clause 13 : The Minister may vary Deeds of Agreement
In order to allow variation of public accountability requirements as necessary from time to time, this clause provides for the Minister and a declared body to vary the Deed of Agreement in writing. The variation is to published in the Gazette within 14 days stating the variation and its effect.
Clause 14 : Public access to Deeds of Agreement
The Deeds of Agreement will be important documents specifying the public accountability conditions applying to the new declared bodies. This clause requires the industry services body and the export control body to keep a copy of the Deed of Agreement available for public inspection at the body's registered office and to provide a copy for a fee. If it is available on the Internet, the bodies are to inform persons seeking a copy of that fact.
Part 3 -Expenditure and funding of the industry services body.
Clause 15 : Simplified outline
This clause provides a simplified outline of Part 3 of the Act.
Division 2 -Expenditure and funding of the industry services body
Clause 16 : Commonwealth payments to the industry services body
This clause provides for the funding of the marketing and research and development programs of the new company.
It provides for the Commonwealth to pay the specified marketing and research and development amounts to the industry services body as defined in the Act. It also provides for the Commonwealth to pay one-half of eligible R&D expenditure (as defined in the Act and in the Deed of Agreement entered into by the Industry Services Body). The total amount is not to exceed 0.5% of GVP of the horticulture industry for the financial year, in line with the Commonwealth's matching policy. It provides for the Secretary of AFFA to determine the GVP for horticulture. It also ensures that double payment of matching payments to the company does not occur.
The clause also provides for the time, manner and conditions of payment of matching funds to be specified in the Deed and for conditions to apply to the payments. These conditions include payment of expenses or refunds to the Commonwealth under conditions specified in clause 17 of the Bill.
The clause provides for the amounts payable to be appropriated from the Consolidated Revenue Fund.
Clause 17 : Expenditure of Commonwealth payments by the industry services body
Marketing amounts may only be used by the company for the purposes defined which include the horticultural industry marketing, for company administration, paying staff, agents and consultants, expenses incurred by the Commonwealth in collecting , recovering or administering the collection of marketing funds and making other authorised or prescribed payments.
Research and development amounts may only be used for this purpose and the related purposes as described in the clause.
Part 4 - Export Control
Division 1 - Simplified Outline
Clause 18 : Simplified Outline
This clause provides a simplified outline of Part 4 of the Bill.
Division 2 - Export Control
Clause 19 : Regulated horticultural products and regulated horticultural markets
This clause provides for the Secretary of AFFA to declare a horticultural product to be a regulated product to a regulated market in order to allow the export control powers of the Act to be applied.
The order takes effect at least 14 days after the order is notified in the Gazette . A copy of the order is to be published in the growing regions affected. The Secretary only makes the order if processes relating to the imposition of export controls as set out in the Deed of Agreement have been satisfied. These processes reflect the consultation and consideration process for new export controls agreed between the Government and the horticultural industry.
Clause 20 : Revocation of Orders
This clause provides for the Secretary of AFFA to revoke an export control provided processes set out in the Deed of Agreement have been satisfied. The same conditions to the issuing of the order also apply to the revocation of an order.
Clause 21 : Prohibitions on certain exports of regulated horticultural products to regulated horticultural markets
This clause provides for an offence should a person export a regulated product to a regulated market without a license or in breach of the conditions applying to an issued license. For natural persons the offence provision includes 180 penalty points for exporting without an license and 60 penalty units for breach of license conditions. The current level of a penalty point is $110, providing for an offence of $19,800 for exporting without a license, or $6600 for exporting with a breach of conditions. For corporations committing an offence under these provisions the offence is multiplied by five.
Clause 22 : Licenses to export regulated horticultural products to regulated horticultural markets
This clause provides for regulations to be made to govern the licensing of exporters under the export control provisions. It specifies the coverage of the regulations to include granting and assigning a license, the conditions applying to it, surrendering a license, revoking or suspending due to a breach of conditions and providing for administrative review of the company decisions. It provides the conditions that the regulations may allow to be set on licenses by the company.
Clause 23 : Issue of certificates for Australian horticulture products by the industry export control body
This clause provides for the export control body to be able to issue formal certificates certifying a matter related to export. For example, some countries with quota arrangements require the exporter to produce a certificate stating the amount of quota they have been allocated and a certificate issued by the company would be used for this purpose.
Clause 24 : Powers the Secretary may exercise if there is no industry export control body
This clause provides for the Secretary of AFFA to exercise the export control powers in circumstances where there is no export control body declared. It also allows for the making of regulations to support this action and for the payment of licence fees to the Commonwealth. This clause will allow the continued export of regulated product to a regulated market in the exceptional circumstances where no export control body is available. It also provides for the Secretary to collect payment of fees for licenses.
Clause 25 : Exemptions of the industry export control body and its officers from liability for damages
This clause is designed to offer protection of the export control body and its officers from liability for damages with respect to their actions as an export control body or as officers of that body, unless such actions are in omission or bad faith.
Clause 26 : Operations of certain laws not restricted
This clause is provided to make it clear that Part 4 of the Bill does not affect the operation of any other law relating to export.
Part 5 - Miscellaneous provisions
Clause 27 : Injunctions for actionable conduct
This clause provides for the Minister to apply to the Federal Court for an injunction if the industry services body or the export control body has engaged, engages or proposes to engage in conduct that would breach the legislation, the regulations, the orders or the Deed of Agreement. The clause provides for the different forms of injunctions to apply.
Given the important industry and public accountability role of the company it is important that the Commonwealth can act through an injunction to prevent actionable conduct from continuing, should it arise.
Clause 28 : Commonwealth recovery of amounts payable under Deeds of
This clause provides a statutory right of recovery for money repayable to the Commonwealth under this Act or the Deed of Agreement entered into by the industry services body.
Clause 29 : Ministerial directions
This clause provides for the Minister to give a written direction to the company. The direction must meet the criteria of being in the national interest because of exceptional and urgent circumstances.
The clause requires the Minister to be satisfied that the direction would not require the company to incur expenses greater than amounts provided under the Act and that the Minister has given the company's directors an adequate opportunity to discuss the need for the proposed Direction as well as the impact of compliance with the Minister on the company's commercial activities. The direction must be laid before each House of Parliament within 15 days, unless doing so would prejudice the national interest or the company's commercial activities.
Clause 30 : Commonwealth access to information etc
This clause contains provision for company documents to be provided to the Secretary of the Department where the Secretary suspects actionable conduct by the body or previous bodies. It specifies the also specifies the constraints applying to the use of information or documents so provided.
Clause 31 : Application of the Archives Act 1983
This clause provides for records of the Australian Horticultural Corporation, the Horticultural Research and Development Corporation and the Australian Dried Fruits Board that are transferred to the declared bodies to be subject to the Archives Act 1983 .
Because the company will be fulfilling key ongoing industry and public functions in relation to use of levy and matching funds and export control powers, provision is also made to provide for the records relating to these functions of the new declared bodies to also be covered by the Archives Act 1983.
Clause 32 : Delegations
This clause provides for the Minister to delegate all powers to the Secretary under the Act, with the exception of Ministerial Directions. The Secretary may delegate to an officer with the necessary skills or experience. Delegations must be in writing.
Clause 33 : Compensation for acquisition of authority
This clause provides a right to compensation if, as a result of the operation of the Act, property is acquired from a person otherwise than on just terms.
Clause 34 : Regulations
This clause provides for the making of regulations under the Act.
Clause 35 : Orders
This clause provides for the Secretary to make orders consistent with the Act.