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Federal Labor's new direction for wheat marketing.



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Media Release SENATOR KERRY O’BRIEN SHADOW MINISTER FOR PRIMARY INDUSTRIES, FISHERIES AND FORESTRY FEDERAL LABOR’S NEW DIRECTION FOR WHEAT MARKETING A Rudd Labor Government will introduce major new reforms to wheat export marketing. Labor proposes a new model for exporting wheat which retains a single desk for the control of wheat exports and at the same time increases choice to growers by allowing a number of selling options. The Howard Government has allowed Australia’s trade reputation to fall into disrepute following the Wheat for Weapons scandal and has failed to reform the wheat export marketing system. Federal Labor believes it is time to introduce changes to the way Australian wheat is marketed overseas. Rather than forcing growers to sell their export wheat through a monopoly exporter as is currently the case, under Labor’s plan there will be a single desk with multiple accredited exporters. Labor’s plan will improve returns to growers by introducing contestability to export marketing services and allowing competitive pressures to apply in the export supply chain for the first time in Australian history. The single desk will be managed by a new export regulator Wheat Exports Australia, replacing the Export Wheat Commission and providing it with additional powers to ensure sound governance of accredited exporters of Australian wheat. Under Labor’s plan: • Wheat Exports Australia will manage the single desk for bulk wheat exports; • A new export accreditation scheme will be developed and administered by Wheat Exports Australia; • Wheat Exports Australia will control bulk wheat exports by accrediting exporters; • Growers will be able to directly participate in bulk exports through accredited Grower Cooperatives and/or Alliances; • AWB International’s veto power will not be reinstated;

• The ‘general exemption’ from control of the Export Wheat Commission currently held by AWB International will also be removed; • The implementation of the new wheat export marketing system and the transition of industry development functions will be informed by expert industry advice provided

directly to the Minister; and • These arrangements will be independently evaluated by 2010.

Labor has a proud history of agricultural policy reform.

Through the 1980’s the Hawke Labor Government introduced major changes to wheat marketing designed to increase the efficiency of the wheat market and improve returns to growers. Labor opened up more choice for growers by deregulating the domestic wheat market.

Today’s announcement builds on Labor’s tradition of agriculture policy reform based on sound economic principles, not political compromise.

There is no place, in this day and age, for politicians to be running Australia’s $3.5billion wheat industry. Today’s announcement gets the politicians out of running Australia’s wheat export marketing system.

The major benefits of Labor’s new direction include:

• greater contestability;

• greater selling options;

• reduced risk compared with a single buyer (eg. AWB’s loss of the Iraq market);

• additional transparency of price and cost information for growers;

• more cost-efficient marketing services;

• long-term transition of industry development functions to industry control; and

• opening up of new markets for the sale of Australian wheat.

10 October 2007 - ADELAIDE

Contact: Kerry O’Brien 0419 007 780 Martin Breen 0407 435 624

Australian wheat export marketing

Australian wheat export marketing

Election 2007

Policy Document

Kevin Rudd Federal Labor Leader

Senator Kerry O’Brien Minister for Agriculture Fisheries and Forestry

October 2007

www.kevin07.com.au

Authorised and printed by T. Gartrell, 161 London Circuit, Canberra City ACT 2600

Election 07 Policy Document Australian Wheat Export Marketing

Australian wheat export marketing

Overview

The Australian wheat export sector has been rocked by the Wheat for Weapons scandal which brutally exposed the failures of the current export marketing arrangements. Federal Labor believes now is the time to introduce changes to the manner in which Australian wheat is marketed overseas.

Labor proposes a new model for exporting wheat which retains a single desk for the control of wheat exports and which increases choice to growers by offering a number of selling options.

Rather than forcing growers to sell their export wheat through a monopoly exporter as is currently the case, under Labor’s plan there will be a single desk with multiple accredited exporters. Labor’s plan will ensure that export marketing services are contestable thus applying downward pressure to export supply chain costs for the first time in Australian history.

Under Labor’s plan:

Ñ The Export Wheat Commission will be replaced by a new body, Wheat Exports Australia, which will manage the single desk for the control of bulk wheat exports;

Ñ Wheat Exports Australia will administer a new export accreditation scheme to control bulk wheat exports;

Ñ Accredited exporters shall be required to comply with strict reporting conditions and a ‘Probity and Performance test’;

Ñ Growers will be able to directly participate in bulk exports through Grower Cooperatives and/or Alliances;

Ñ Traders and marketers currently operating in the domestic market will be able to apply for export accreditation;

Ñ AWB International’s veto power will not be reinstated;

Ñ The ‘general exemption’ from control of the Export Wheat Commission currently held by AWB International will also be removed; and

Ñ The implementation of the new wheat export marketing system and the transition of industry development functions will be informed by expert industry advice provided directly to the Minister.

These arrangements will be independently evaluated by 2010.

A Rudd Labor Government will reform the export marketing of Australian wheat - maintaining the single desk arrangement, but introducing much needed competition.

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Election 07 Policy Document Australian Wheat Export Marketing

Australian wheat exporting

Through the 1980’s the Hawke Labor Government introduced major changes to wheat marketing designed to increase the efficiency of the wheat market and improve returns to growers. Labor has a long and

proud history of wheat industry reform In 1984, Labor established new arrangements that: Ñ allowed growers and feedstock users to trade directly;

Ñ changed minimum price arrangements to improve the market signals to growers; and

Ñ expanded the price underwriting system to cover five categories of wheat rather than just one in order to reduce cross subsidisation.

In 1986, Labor established a Royal Commission into grain storage, handling and transport to determine whether the legislative and administrative arrangements were delivering appropriate returns to growers.

The Royal Commission handed down its report in 1988 recommending:

Ñ deregulation of the wheat distribution system;

Ñ abolition of regional storage monopolies;

Ñ removal of impediments and restrictions to road transport of grain; and

Ñ disaggregation of port charges and shipping services to reduce costs.

In 1989, Labor responded to the Royal Commission with a comprehensive legislative package which opened up more choice for growers by deregulating the domestic wheat market.

Under this package of reforms the Australian Wheat Board had the financial and commercial flexibility to compete in the domestic market.

Growers were able to continue to sell wheat to the Australian Wheat Board pool, sell their wheat for cash to the Board or sell to other buyers in the domestic market.

Labor provided the Board with the power to establish subsidiary companies and engage in a wide range of commercial activities, including storage and handling. The Wheat Board was also provided with a capital base to build its business through the establishment of an industry fund. Labor provided a loan guarantee to facilitate the establishment of the fund and a levy on all wheat sold was established to support it.

Labor also required that Board directors had the balance of skills required to operate in the new commercial environment.

Challenges for Australian wheat marketing

In contrast to Labor, the Howard Government has failed to develop, implement and oversee effective wheat marketing arrangements in response to the changing circumstances facing Australian wheat growers. Mr Howard has failed

to ensure effective wheat marketing arrangements

The Howard Government model, which came into effect on 1 July 1999, converted the Australian Wheat Board to a private company, AWB Limited, which was initially owned and controlled by growers. AWB Ltd listed on the

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Election 07 Policy Document Australian Wheat Export Marketing

Australian Stock Exchange in August 2001 with a two-tiered corporate structure of A-class (grower-owned voting rights) and B-class shares (equity shareholders). The company is now dominated by non-growers.

An AWB Ltd subsidiary, AWB International, was established to manage the export single desk. It is this wholly owned subsidiary that is currently the ‘designated company’ under the Wheat Marketing Act and the legal holder of the single desk monopoly.

Under this model, AWB International was responsible for maximising the net returns from the wheat pool to growers. The Howard Government also established the Wheat Export Authority to monitor the performance of AWB International and report to growers.

However, the Howard Government failed to ensure that the interests of growers were properly protected under these new arrangements.

First, there was no effective separation of the management of the listed company AWB Limited (responsible for maximising returns to its shareholders) and the subsidiary AWB International (responsible under the Wheat Marketing Act for maximising returns to growers).

These dual responsibilities created an inherent conflict under the Corporations Act. Directors of the subsidiary company were required by the Wheat Marketing Act to make decisions in the interests of parties who were not necessarily equity holders in AWB Ltd (the sole shareholder in AWB International), but the Corporations Act required the Directors to act solely in

the interests of their parent company.

These weaknesses were identified soon after the new arrangements were put in place. But despite this, the Howard government has taken no action to remedy this fatally flawed corporate structure.

Secondly, while one of the key functions of AWB Limited was to provide services to AWB International to enable it to manage a national pool, the Government did not require the provision of these services be contestable. As a result, returns to growers from the pool have not been maximised because the cost of operating the pool have not been minimised.

Thirdly, the body established by the Howard Government to protect the interests of growers, the Wheat Export Authority, was not given the powers it needed to do its job and the government failed to ensure it used the limited powers it had effectively.

AWB Limited and AWB International

The Howard Government failed to act on the AWB-AWB(I) conflict of

interest

The AWB Limited constitution, drafted by the Howard Government, required the AWB International Board to have the AWB Limited Chair as its Chair and three other AWB Limited Board members as members of its Board. As a result there was a clear and obvious conflict of interest for the Chair and the three Directors who were common to both Boards. The Howard Government has known of this conflict for years but has failed to act.

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Election 07 Policy Document Australian Wheat Export Marketing

The Service Agreement

The problem with the joint membership of the two Boards by the Chair and three AWB Limited Directors was highlighted by the two entities being required to negotiate the terms of the Service Agreement between AWB Limited and AWB International.

The AWB Services Agreement was a bad deal for growers

While the negotiations in relation to the terms of the Service Agreement were undertaken by subcommittees of both boards, the arrangement could not provide adequate protection for growers.

The Service Agreement originally covered a bundle of no less than seventy services. The contract provided for the payment of a base fee plus performance incentive payments by AWB International to AWB Limited. It has been a bad deal for growers.

The failings of the Wheat Export Authority

In its 2001-02 growers report, the Wheat Export Authority (the Authority) stated that while AWB International could impose a penalty on AWB Limited for failing to deliver certain services, those penalties were inadequate. The Howard Government took no action to remedy this problem.

The Wheat Export Authority was unable to effectively monitor the activities of AWB

The Authority was unable to effectively monitor the performance of AWB International, which meant there was no proper scrutiny of the Service Agreement between AWB International and AWB Limited, or the arrangements for the payment of performance bonuses by AWB International to AWB Limited. These costs were ultimately borne by growers through lower pool returns. Again, the Howard Government took no action to remedy this problem.

The Authority was not given the power to compel AWB to provide information and contracts for examination. Had the Authority been given appropriate powers, the Wheat for Weapons Scandal may have been detected and the damage subsequently done to Australia’s international reputation may have been avoided.

Labor and industry stakeholders repeatedly raised concerns about the terms and lack of transparency surrounding the Service Agreement and the lower performance standards required of AWB Limited in order to trigger bonus payments. These calls for action to protect growers’ interests were ignored by

the Howard Government.

Containerised and bagged wheat exports

Containerised and bagged wheat provides a small but significant opportunity for growers, particularly smaller growers to participate in niche export markets and to develop new markets. Containerised and bagged wheat markets also provide additional flexibility to growers.

The Howard Government was slow to act in deregulating containerised wheat The Howard Government failed to respond to concern about the impact of the wheat export marketing policy framework in relation to containerised and bagged wheat. Concern centred on the requirement for the WEA to consult and seek written approval from AWB International prior to granting consent.

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This problem was highlighted in an inquiry undertaken by the Senate Rural and Regional Affairs Committee in 2003. In its report the government controlled Committee recommended that the Wheat Marketing Act be amended to allow the WEA to approve bagged and containerised exports that met acceptable quality standards without reference the AWB International.

After years of inaction, the Howard Government recently passed new laws in relation to export of containerised and bagged wheat. The legislation removes the need for a permit to export containerised and bagged wheat and introduce a new requirement for the wheat to undergo quality assurance certification.

The Howard Government has not established the case for a legislated “quality assurance scheme”. The Australian wheat export industry already has a well established market-driven system in place to ensure that suppliers and buyers are protected in their transactions. Under this scheme, there have been very few instances of problems in relation to the export of containerised and bagged wheat.

The wheat for weapons scandal

Not only did the Howard Government fail to establish an export marketing regime that ensured returns to growers were maximised, it also failed to protect the reputation of growers and Australia as a whole in the international market place.

Australia’s international reputation was severely damaged in

the Wheat for weapons scandal.

The failure of the Howard Government to act on repeated warnings that AWB was breaching the terms of the United Nations Oil-for-Food Programme in Iraq has damaged this county’s trading reputation and unfairly reflected on Australian wheat growers.

Over a period of seven years - 1998 to 2005 - dozens of warnings were received by the highest levels of the Australian Government from official agencies including the Australian UN Mission in New York, the Canadian Government, the United Nations, Australia’s US Trade Commissioner, the Department of Foreign Affairs and Trade and the Iraqi Provisional Coalition

Authority.

The Howard Government failed to take any action in response to these warnings preferring to accept the advice of AWB officials that allegations of corruption were ‘unfounded’.

The Wheat for Weapons Scandal has damaged Australia's reputation as an honest broker in trade and diplomatic circles. The failure of the Howard Government to act appropriately on the recommendations made by Commissioner Cole and by allowing AWB to continue to manage the wheat export monopoly without effective sanction is both a national disgrace and a failure of moral standards.

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Labor’s Fresh ideas for wheat marketing

Summary

If elected, Federal Labor would undertake the most comprehensive reform of Australian wheat marketing policy since the Labor reforms of the 1980’s.

Comprehensive reform is necessary to restore Australia’s international reputation, protect growers and maximise their returns. In essence, Labor proposes the creation of a more dynamic market whilst retaining single desk control of bulk wheat exports.

Under Labor’s plan:

Ñ The Export Wheat Commission will be replaced by a new body, Wheat Exports Australia, which will manage the single desk for the control of bulk wheat exports by monitoring export contracts and ensuring the proper behaviour of companies operating in the international market place

Ñ A new export accreditation scheme will be developed and administered by Wheat Exports Australia

Ñ Accredited exporters shall be required to comply with strict reporting conditions and a ‘Probity and Performance test’

Ñ Growers will be able to directly participate in bulk exports through Grower Cooperatives or Alliances

Ñ Traders and marketers currently operating in the domestic market will be able to apply for export accreditation

Ñ AWB International’s veto power will not be reinstated

Ñ The ‘general exemption’ from control of the Export Wheat Commission currently held by AWB International will also be removed

Ñ The implementation of the new wheat export marketing system and the transition of industry development functions will be informed by expert industry advice provided directly to the Minister;

Ñ The export of containerised or bagged wheat will be deregulated; and

Ñ These arrangements will be independently evaluated by 2010.

Wheat Exports Australia

Labor will replace the Export Wheat Commission with a new body, Wheat Exports Australia. Labor will remove the general exemption power defined under section 57(1) and 57(1A) of the Wheat Marketing Act which is currently granted to AWB International. These reforms will provide for single desk control of wheat exports, not single desk trading as is currently the case. Rather than forcing growers to sell their export wheat through a monopoly exporter as is currently the case, under Labor’s plan there will be multiple accredited exporters. Labor’s plan will ensure that export marketing services are contestable thus applying downward pressure to export supply chain costs for the first time in Australian history.

Wheat Exports Australia will be given powers to issue wheat export accreditation to companies or individuals that agree to comply with strict

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Election 07 Policy Document Australian Wheat Export Marketing

reporting conditions and meet a stringent ‘Probity and Performance test’. Any company wishing to export bulk wheat will need to be accredited. Wheat Exports Australia will have substantial new powers including the power to grant and revoke accreditation. This will ensure that only those companies with demonstrable financial standing and reputation can participate in export wheat marketing. In addition, Wheat Exports Australia will have substantial new monitoring, reporting and enforcement responsibilities.

Labor will make changes to the structure, functions and process of appointment to the Board of Wheat Exports Australia. Board appointments will be expertise-based and subject to nominations by a selection committee which includes industry representatives. The Minister for Primary Industries will make final appointments.

Wheat Exports Australia will be funded through the existing Export Wheat Charge and an additional fee-for-service accreditation fee on a cost-recovery basis.

The end of the “power of veto” over bulk wheat exports

Under Labor’s proposal, the “power of veto” over applications for bulk export permits previously held by AWB International will not be reinstated. AWB International will be required to apply to Wheat Exports Australia for accreditation to export bulk wheat.

Industry development and communications

Labor will ensure that the Minister is informed by direct industry expert advice on:

Ñ Wheat marketing policy,

Ñ The best means to progress the implementation of the new wheat export marketing system, and

Ñ The development of a road map for transition of industry development functions including strategic planning, research and development, quality assurance and varietal development, industry receival standards, quality training and generic promotion.

The Minister will regularly consult with industry experts on long-term funding options for industry development activities.

Containerised and bagged wheat

Containerised and bagged wheat exports will remain deregulated and the Quality Assurance scheme removed. Labor will work closely with the wheat industry to ensure existing market-driven quality schemes continue to operate effectively and efficiently in the market place.

Evaluation and industry consultation

In consultation with industry, Labor will conduct an independent evaluation of these arrangements by 2010 on:

Ñ The advantages and disadvantages to the Australian wheat industry of single desk control of wheat exports,

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Ñ General trends in the domestic and international grain markets,

Ñ Competition policy,

Ñ Whether any changes should be made to the single desk arrangements, and

Ñ The operation of containerised and bagged wheat exports.

Labor will consult with industry on any additional changes to wheat marketing arrangements.

Benefits of Labor’s new direction

Benefits of the proposed new direction for the marketing of Australian wheat include:

Ñ Depoliticisation of wheat export marketing,

Ñ Additional powers for Wheat Exports Australia to ensure sound governance of accredited exporters of Australian wheat,

Ñ Greater selling options for growers,

Ñ Capacity for growers to participate directly in export marketing,

Ñ Additional transparency of price and cost information for growers,

Ñ More cost-efficient marketing services,

Ñ Long-term transition of industry development functions to industry control,

Ñ Reduced risk compared with a single buyer (eg. Iraq), and

Ñ Opening up of new markets for the sale of Australian wheat.

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