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John Anderson on the meat industry: Meat Industry Conference, Brisbane, Thursday 1 May 1997: speech

Introduction

Chairman, distinguished guests, ladies and gentlemen I'm very pleased to be here today to open the Meat Industry Conference.

I also welcome this opportunity to talk to you about the very important issue of institutional reform in the industry now underway.

Those of you who attended the Annual Conference last year will recall that I set out broad government policy objectives. Let me repeat those.

It is the Government's fundamental aim to improve the international competitiveness of Australian industry. In relation to the meat industry we seek to achieve this at all parts of the supply chain from production to processing to transportation and to the market. The Government will continue to work at the macro-economic level to provide the low inflationary economic environment that will encourage investment and growth.

The Government is working at the micro-economic level to improve competitiveness in such areas as production, processing, transport and regulation.

And today, I will talk about reforms to the meat industry's arrangements and in these discussions, it is essential to keep in mind that improving competitiveness is a task where industry is also a main player.

In these discussions, it is essential that we keep a clear understanding of the relative roles of Government and industry. The Gov- ernment is quite clear about these roles.

Governments establish the economic framework and global trading environment.

The private sector creates the commercial opportunities, makes the investment decisions and competes for commercial returns. It must manage and define the areas of industry co-operation and competition.

The fundamental goal of Government and industry in these respective roles must be to improve on our international competitive- ness. Unless we improve productivity and cost efficiency beyond the farm gate our competitiveness will not improve on a sustain- able basis and we will not maximise our export opportunities and value adding potential.

The reform package

The beef and sheepmeat industries are faced with a golden opportunity. The package of measures which the Government has agreed to and which I announced on 18 March, constitutes a fundamental cultural change within the industry. Rather than relying on Government involvement and legislated instruments, the package offers all sectors of the meat industry control and ownership of their own affairs.

During the debate on structures over the last year or so I received a number of clear messages.

Firstly, industry wanted to run its own affairs.

Secondly, levy payers wanted a hard headed approach to how their monies are spent and wanted to implement the most efficient mechanism to achieve this.

Thirdly, while some wanted to see the new organisations split along species lines, others saw this as leading to unnecessary dupli- cation and expense as well as the loss of the synergies available through joint activity, especially in the field of RD. Neverthe- less, there was a majority requirement for independent beef and sheepmeat marketing.

Above all, I received the key message that core functions, in particular research and development, food safety and quality, market intelligence and market access, must be maintained and adequately funded and serviced.

The package the Government has agreed upon offers the opportunity to achieve all of these. I recognise, however, the very signifi- cant change from a statutory legislated environment where Government dictates requirements, to the proposed corporate approach which allows industry to be the driver of change, subject to achieving the maximum necessary accountability to Parliament for the use of industry levies and tax payer contributions.

Flexibility

I am aware that there are some concerns about the proposed new arrangements and some people are disappointed they did not achieve their preferred outcomes.

May I say that over time, as people become more familiar with the arrangements and come to understand the degree of flexibility and opportunity which exists, most concerns have become muted.

Let me now address what I see as the major issues and concerns and place them in context and I am sure you will see that there is scope to achieve most of what all parties want.

Main features

At the outset I would like to highlight eleven critical elements in the package.

1. A single producer owned company will provide services to the industry including RD, marketing, food safety and quality market access and related activities.

2. A statutory levy will remain on producers, reflecting the express wishes of the sector. Determination of the rate of the levy will be a matter for producers to decide.

3. A deed of grant between the producer owned company and the Government will govern the transmission of levy funds, setting out the purposes of funding together with audit and accountability requirements.

4. The marketing and promotion functions will be split along species lines, with separate and independent management opera- tions, to ensure accountability to levy payers.

5. Initial appointments to the board of the producer owned company will be selected by a senior industry team, subject to my approval. Future board selection processes will be determined by the owners of the company in consultation with me.

6. There will be full accountability to the Annual General Meeting through external performance audits and a 66% majority of votes will be sufficient to dismiss the board.

7. Memoranda of Understanding covering all sectors of the industry will establish the basis for cooperation, including activities to be jointly funded under willing partnerships, adherence to the MISP, maintenance of RD food safety and quality pro- grams, AUSMEAT and other related activities.

8. The statutory levy on processors and livestock exporters will be set at zero, but will be reactivated if the sectors fail to raise agreed sums for core operations through voluntary means. Agreement of the sectors to re-imposition of the levy will be spelt out in the MOU. The setting of a zero levy will be dependent on an effective MOU being achieved to ensure strong meat in- dustry partnerships

9. Legislation will provide for Ministerial intervention in industry affairs during times of crisis or when the national interest is involved. It will also include audit, accountability and reporting requirements in respect of levies collected on behalf of the in- dustry sector(s).

10. Administration of export licenses and quotas will be moved to the Department of Primary Industries and Energy which, if le- gal issues can be resolved, will delegate these functions to the private sector as appropriate to ensure effective delivery through partnerships.

11. As I have always said there will be no changes to present arrangements until legislation has been passed by the Parliament and processors and livestock exporters have satisfied the Government that they are able to implement effective voluntary funding arrangements.

The transition

At the request of the six Peak Industry Councils, I have agreed to the establishment of a transition team to sort out the detail and implement this package. Within the framework which has been established, industry has significant flexibility to work out the most appropriate working relationships to ensure the services it wishes to have are provided.

The transition team comprises the Leaders of the six peak councils and their CEO's, AMLC and MRC, the DPIE and Mike Mac- namara from my office. At the request of the six Peak Councils, I have asked Tim Roseby from DPIE to take the role of independ- ent Chair of the team.

The transition team will be meeting for the first time on 6 May in Sydney and will provide the catalyst for the considerable work remaining to be done.

A broad timetable for implementation is now forming and I expect legislation to be approved by around November this year. This will allow a possible start-up date for the new arrangements of January 1998. There will need to be a further period of implemen- tation by the new board to fully achieve the new structures during the first half of 1998.

I know there has been some talk of reducing current levy rates during the transitional period. Let me make it quite clear that I will not agree to reducing levies or winding up of AMLC and MRC until I am satisfied the transition can be given real effect and that there will be no unwarranted disruption to functions and staff resources which the industry considers it would like to continue.

The first and major task for the industry will be to decide upon functions which will continue into the future. I realise there will be some debate on this but the package makes it possible to deliver a range of functions using differing funding formulae.

For example, RD will be provided by the producer company and will be funded primarily by producer levies and Government contributions. However, the processor and livestock exporter companies, as well as individual processors and exporters will be able to contribute to RD projects undertaken by the producer company on a project by project basis.

AUSMEAT will undoubtedly continue, probably as a joint venture between producers, processors, lot feeders, livestock exporters and pig and goat meat interests.

The continuation of overseas representation might also attract varying levels of interest between the various sectors depending on their particular concerns.

The 'species split'

Those people with concerns about the species split need to understand that their objectives, of having competition between beef and sheepmeat and ensuring the concerns of the beef industry do not overshadow sheep, can also be achieved below the line. This can be done by having completely separate and accountable business units within the producer company. It works elsewhere in the commercial world and can do so in the red meat industry.

The board of the producer company will be a skills based board and there will be no reserved seats for beef interests that would dominate sheep or vice versa.

The Memorandum of Understanding

Of particular interest and importance to you all will be the Memorandum of Understanding and the Articles of Association of the Company.

The MOU will be the means by which the industry can be assured the service providing entity does what industry wants. The MOU can be given legal standing in the Articles of Association of the Company.

Let me use an example to indicate how this might work - I say might, because it is up to you to decide. Within the MOU it is pos- sible for each party to specify what level of funding it will provide and also specify precisely what that money is to be used for. In this way, the MOU would become a flexible document whereby functions may be added and dispensed with over time in accor- dance with planning objectives developed as the MISP evolves. In the dynamic of changing market circumstances such flexibility is essential.

The service providing entity would have a contract with the funding providers to deliver the service to fulfil the functions speci- fied. Using this model, each funding provider would know from year to year what their levies and voluntary contributions are, and precisely what they are used for.

Through outsourcing the service providing entity would bring in competition to provide services to industry.

The company and advisory group

Names of the new producer owned company and the future advisory group which I have referred to as the Red Meat Advisory Group, are up to industry to decide upon.

The company's success will depend on it having the right people running it.

We have moved quickly to initiate the process for the selection of the initial Board which will be subject to my approval. Advertisements seeking applications for board membership have already appeared in the national press.

A short list of potential Board members will be developed by a Selection Committee under the chairmanship of Mr Maurice Bin- stead from Queensland. I understand that the Selection Committee is meeting here in association with this conference to progress aspects of the selection process.

The new Board will need a range of expertise covering livestock production, processing and export, business and financial management, management of RD, legal and corporate governance, international trade and marketing and human resource issues.

It will be a Board with the mixed skills necessary to run a service delivery company. I see no need or scope for there to be agri- p- oliticians on the Board. Policy and leadership activities will be coordinated elsewhere through the Peak Councils.

The selection committee will submit its nominations to me before the end of June 1997.

The new Board will then appoint a Chief Executive Officer and move to take over the identified functions and relevant staff of the AMLC and MRC.

I want to emphasise the company's focus will be on service delivery.

Leadership will be provided by peak industry councils, especially in relation to policy development. The separation of leadership and service delivery is fundamental to these changes.

This process will effectively empower and reinforce the capacity of Cattle Council, Sheepmeat Council and the Feedlotters' Association to undertake the industry leadership role - supported by the Red Meat Advisory Council.

Appropriate funding and adequate staffing of peak councils is a very significant issue that must be addressed. Funding must be quite independent from, and not beholden to, the service providers. In the past the AMLC/MIC have provided amounts of consul- tation funding which have been used to underpin the day to day operations of peak councils, which arrangement has not been en- tirely adequate.

Better arrangements which provide the Councils with independence of operation need to be identified.

Reserves

This brings me to the issue of reserves. As you know both the MRC and AMLC hold reserves. I do not envisage use of these re- serves for a levy holiday. You need to bear in mind that most of the MRC reserves are matchable with Commonwealth monies. Resources will be necessary for the new company's operations and also to cover outstanding liabilities arising during the winding up of MRC and AMLC.

I would strongly recommend to you that you do not enter into a dispute over the remaining funds. An option available for you to consider is to hold remaining reserves in trust, with the investment proceeds used to fund activities of peak councils and to cover emergency situations.

Processor organisation

The processing sector is close to agreeing on a framework for its own organisation which will co-ordinate its participation in collectively funded core functions to be carried out in partnership with the producer company.

Processors' involvement in collective industry activity will be through a system of `willing partnerships' with the producer body.

The processing sector has assured me that willing partnerships will deliver better outcomes and that it will raise its own funding through a system of 'contractual funding obligations' undertaken between individual processors and the processor organisation.

Processors will contribute agreed amounts to core collective functions but will not be obliged to fund promotional or other projects if these are of no perceived benefit to them.

In other words, processors will pay for what they want. If they don't sign on they won't get the benefits. I have confidence the processing sector will seize the opportunity offered to it and have the discipline and commitment to meet its obligations to fund collective functions and retain the necessary partnerships through recognition of commercial reality rather than Government com- pulsion.

Nevertheless I will retain the capacity to raise the levies if required.

Livestock exporter organisation

The livestock exporters have also requested that they be allowed to raise their own funds for agreed collective activities on a will- ing partnership basis. Arrangements for this group will be similar to those which will apply to the processing sector.

I have been advised by the processors and the livestock exporters that their sectors are making good progress towards identifying the nature of the new relationships they require and establishing their new representative bodies.

An important question for processors and livestock exporters, as for producers, is the nature of their boards as this will largely de- termine their effectiveness in carrying forward the interests of their entire sectors.

Commercial Relationship

It is important to recognise the relationship between these organisations will be more commercial than ever before. The producer organisation will establish commercial relationships with the processor organisation, the livestock exporters or with other players in the supply chain.

Tribute to existing organisations

I would like to take this opportunity to pay tribute to the work and commitment of MIC, AMLC, MRC. These organisations have worked hard on behalf of the red meat industry.

The AMLC in particular has received a lot of unfair criticism during this severe externally induced beef industry slump. Corpora- tion staff have worked well within the constraints of their statutory framework. I will be looking to them to assist with a smooth transition to the new arrangements.

I recognise the uncertainty which staff must cope with during the transition stage and urge them to continue to behave in the very professional way they have so far. In any institution it is inevitable that changing markets and other influences will require struc- tural alterations from time to time.

Both the AMLC and other boards have demonstrated a commendable understanding of the matter. It is upon all of us to make sure the new arrangements work effectively and lead to a more productive and prosperous future.

Conclusion

The Meat Industry Strategic Plan is about those things that have to be done to attain the industry vision: commitment to a sustain- able and profitable customer driven meat and livestock industry. That commitment is essential.

A sustainable and profitable customer driven meat and livestock industry is what we must all work for.

I can give you my commitment on behalf of the Government to do all I can to help you achieve the vision but I don't want to be in the business of telling you what to do or how to do it. I want to see industry take-up the challenges and work together to meet them.

Overwhelmingly, the industry asked for ownership, accountability and the capacity to determine how levy dollars will be spent. You now have this opportunity.

Against the background of the 12 levy paying principles, the processors and live exporters asked to be given the opportunity to demonstrate how they would contribute on a voluntary basis. This has been delivered also.

It is now up to the industry as a whole, as well as individual sectors, to build and shape the new structures to take advantage of the opportunities presented. You must take the lead role.

Today I have dwelt on issues pertaining to the reform of the current institutional structures. However these matters do not represent the totality of the Government's meat package.

Over the last several months the Government has moved on a number of fronts that have a direct bearing on the dynamics of the meat industry. Time does not permit me to go into detail but I will mention the main headings.

The government is addressing the reform of AQIS and in particular the matter of meat inspection that will deliver greater food safety and efficiencies to the processing sector.

Emphasis is being placed on food safety initiatives to ensure a uniform and national HACCP approach can be implemented.

The Work Place Relations Act is now law and offers the red meat industry greater and increasing flexibility to conduct their busi- ness in an environment that requires maximum competitive advantage. Transport and waterfront reform are underway.

I am examining the efficiencies of our joint Research and Development effort to ensure maximum benefit to the industry and to the tax paying public.

The current review of the Rural Adjustment Scheme is addressing a broad range of matters of direct concern to the red meat industry.

Emphasis continues to be placed on both multilateral and bilateral market access issues. In this respect Australia continues to push, through the SPS processes, a scientifically based framework for trade.

Australian competition policy is proceeding and indeed as I have mentioned forms an important part of the institutional reform package.

I have also, quite deliberately, raised the profile of the importance of grading and eatability as we all must recognise that the achievement of Australian domestic and export standards go to the heart of this industry's competitiveness. I know this issue is at the top of my agenda and yours.

As these reforms, amongst others, fall into place and bite the meat industry will be poised to be able to take full advantage of the expanding opportunities available in Asia and the world to a modern, dynamic competitive supplier of healthy and wholesome food.

I look forward to progressing these issues with you and am pleased to declare Conference open and wish you well in your deliberations.