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Time to take initiative: Crean



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MEDIA RELEASE MINISTER FOR PRIMARY INDUSTRIES AND ENERGY

SIMON CREAN, MP CANBERRA

DPEE91/234C 12 September 1991

TIME TO TAKE INITIATIVE: CREAN

"The grains industry m ust take stock and draw up a blueprint for its future despite the immediate bleak outlook," the Minister for Prim ary Industries and Energy, Simon Crean, said today.

Mr Crean told delegates at the Grains 2000 Conference in Canberra, th a t industry and Government should actively pursue a broad consultative process. This would encourage the initiatives necessary to drive the industry into the 21st century.

"The Federal Government is committed to ensuring industry has every opportunity to achieve long term prosperity and future commercial and environmental sustainability," he said.

"While the Government fully understands the difficulties confronting the industry at the present time, it believes in the longer term it is far . from being an industry in decline. A ustralian agriculture has immense scope for adding value to our rural commodities, including grains. Value adding will reduce our reliance on risky m arkets and will add to

the industry's resource base.

"International factors may dominate the immediate outlook but A ustralia has in its grasp the opportunity to fundamentally change course and through the Uruguay Round, significantly reduce government distorted markets.

"Further change to wheat marketing arangem ents in the medium to longer term are required to m aintain the drive to a more competitive industry. This would build on changes to legislation introduced in 1989.

"Competition is the main incentive to increased efficiency. The Australian Wheat Board (AWB) m ust have the opportunity to broaden its operations and to compete in other areas of the grains industry.

"The Government is committed to the establishm ent of a Grains Industry Council to provide a forum for the active and co-ordinated involvement of the industry in the Government's policy formulation process.

COMMONWEAL! p a r l ia m e n t a r y L IE MICAH *’

"A working party was recently set up to examine the future structure of the AWB so there will be real progress next year.

"I hope the work of this group, together with the outcomes from this conference, will establish a blueprint for the grains industry's future," M r Crean said.

Inquiries: Catherine Payne, Minister's office (06)277 7520

ADDRESS BY THE HON. SIMON CREAN M.P. MINISTER FOR PRIMARY INDUSTRIES AND ENERGY 'GRAINS 2000' CONFERENCE CANBERRA

12 SEPTEMBER 1991

Introduction

This conference is a tremendous achievement for the Grains Council of Australia and I'm pleased to have the opportunity to address you this afternoon.

It is an opportune time to take stock of the grains industry and draw up a blue print for its future. Most conference papers and, I understand, the discussions as well, have taken this approach by putting forward revealing and in some cases

radical ideas.

What we, that is industry and Government, should now be looking to is the start of a broad consultative process which will result in the changes necessary to drive this industry forward with prosperity into the 21st century.

Previous speakers have had the task of drawing together the threads of specific topics. It would be impossible for me to address all the issues raised, rather I will

outline some of my views, many of which I am pleased to say have been raised over the past three days, some of which I will leave you to consider.

I will concentrate on the Government’s role in industry development and will

cover in particular three key themes:

* International Strategies

* Australian Cross-Sectoral issues, and * Australian Sectoral Issues, specifically the Grains Industry

Firstly though, I would like to say a little on the current situation facing rural Australia. This Government is aware of the difficulties being experienced by

many farmers and their families. For the grains industry, it is a situation that has resulted largely through no fault of its own. Recent record world crops and the trade subsidy war have driven prices down to disastrous levels. The situation

has now been compounded by drought in certain regions.

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When the price falls began to bite last year, the Government brought in a range of measures to try to help rural Australia and the grains industry. On the whole the principle adopted has been to provide assistance to those individuals who need it most, such as through the Rural Adjustment Scheme, rather than give

across the board assistance in ways which distort the functioning of markets.

This Government has consistently steered away from price support and related measures.

The reasons for this are well known. Such mechanisms result in production and market distortions which can induce resource allocation changes well into the future. Price supports are an extremely blunt instrument which result in relatively little going to the small producers who in most cases need it most. It is the existence of these very types of measures in competing nations that contributes to the ills of our industry.

Such measures could also seriously compromise Australia's position in the Uruguay Round at a critical stage in the negotiations.

For these reasons a guaranteed minimum price for the wheat industry, as

proposed by the GCA earlier this year, was not supported by Government.

I'll briefly outline the measures the Government undertook instead.

. We increased the national interest credit insurance cover for wheat exports and now carry around $1 billion in potential liabilities for wheat sold on credit to higher-risk markets.

. We took measures which allowed the AWB to bring forward post-harvest payments and we provided a mechanism for stress payments to growers

. The Government met its commitment that grain growers would not be

expected to shoulder the full burden of the UN trade sanctions against Iraq. This has been met through two means:

- agreement to pay up to $35.1 million for losses which were not covered

by the Government's national interest cover. The claim submitted by the

GCA on behalf of the grains industry has now been audited and I hope to be able to make those payments shortly; and,

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- payment to date, of over $285 million to the AWB, through EFIC. These payments could reach $500 million by the end of 1992 should Iraq continue to not pay these debts. These losses are directly underwritten by the Australian taxpayer.

. We substantially increased RAS funding and funding for rural counselling and, most recently, we have revised the requirements for family

allowance assessments to better meet the welfare objectives of that program. I made these social equity issues a high priority on gaining this portfolio and am pleased to see results accruing already.

It should be borne in mind that as a result of the increased funding for RAS the Government has the capacity to support up to $1.4 billion of rural debt under the scheme.

This Government is committed to ensuring that industry has every opportunity to achieve long term prosperity and to achieve commercial and environmental ’ t

sustainability for the future without the props of Government and taxpayer hand outs, for inappropriate price support schemes.

We want to see Australia's position in the international market place consolidate and expand as we approach the 21 st century and for the benefits of that to come back to you, the stakeholders in the industry.

International Strategies

I do not need to remind you of the impact of international influences on your industry. This was well covered on the first day of proceedings but is also

painfully obvious on a daily basis on the farm, as it hits the hip pocket.

The actions of overseas government actions have contributed substantially to

current instability on world grain markets. We see evidence of this in the huge swings in prices, stock piles and budgets directed to agricultural supports.

The resource distortions, or more simply expressed waste, associated with agricultural subsidies and transfers rose to A$385 billion in 1990. To put that into perspective, that was approximately Australia's level of GDP in 1990/91, that is, the total value of goods and services produced in Australia in a full year.

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You know the main offenders and suffer the fallout from their selfish actions. ABARE estimated that last year Australian grain growers were deprived of

$700 million as a result of the EC's Common Agricultural Policy. Of the USA's support measures the Export Enhancement Program alone, cost Australian growers $175 million. They are not alone but have greatest impact.

We have in our grasp, in the Uruguay Round, the opportunity to fundamentally change course and to significantly reduce the degree to which governments distort markets.

Australia may be seen as a small player in global trade but we can have an

influence in shaping the path of things to come.

Australia is exercising to the utmost, an important role in this process. Our influence in the Round through the Cairns Group far outweighs our 2% share of world grain production. It is an enormous achievement for the Cairns Group and

Australia, that the success of the Round now rests on agreed progress in agricultural reform. It is vital that having put in all the hard work over the last five years that Australia does not give the game away when we finally seem to be seeing some light at the end of the tunnel.

In my view, we have very little time left. Unless real progress is made in the Uruguay Round in the next 4-6 months, the political will for a successful outcome will be dissipated, particularly as the USA elections draw closer. Should substantial progress not be achieved in this time, Australia will need to reassess

its strategy. However, I am confident the Round will come to a successful conclusion - it serves no purpose to think otherwise.

There have been calls in Australia to wind back the clock to the income and price support schemes of the 1970's and 1980's. This just does not make sense. It would hinder the very flexibility and adaptability that the industry has

demonstrated it is capable of, and which will be essential to our responding to the challenges of the 1990's.

Beware of those who advocate Australia entering the grains subsidy war. There

is no way we could match the subsidies on offer by the EC and USA and our

grains exports would then be directly targeted. It is in neither the country's nor the farmers' interests to pursue such a strategy.

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In this respect, Australian officials have recently concluded discussions on reducing the impact of the EEP on our grain sales. This follows on from a

bipartisan mission to the USA led by Dr Blewett earlier this year. Next week, as

you have heard, officials will meet to cover equivalent ground with the EC and this will be followed up by a bipartisan Parliamentary delegation to Europe. It is very much in our interests to take the role of the honest broker in attempting to

scale down the trade subsidy war.

The Government will continue to use ever opportunity to pursue our case both multilaterally and bilaterally. The discussions I, the Prime Minister and Dr Blewett held this week with the French Agriculture Minister, M. Mermaz, are but

one example.

Cross-Sectoral Issues

Turning now to the Australian scene, and looking to future prosperity, both Government and industry must today, do more to better position ourselves to \

make the best of opportunities as they arise and become better at responding to, and managing, change.

I see the principles or fundamentals on which we can build for rural industry

success as: „

* value adding; .

* greater industry productivity; * continual structural adjustment; and * sustainability, both economic and environmental.

Value Adding

I have heard Australia's potential in agriculture described in several ways: we can become the 'food bowl' of the Asia-Pacific Region, as populations rise and the region becomes more industrialised, and hence wealthier. We can become 'a garden of Eden' for the

increasingly affluent North Asian countries, supplying fruit, flowers, wines and other high-value produce.

If we look beyond the year 2000, which we need to do, I have even heard that Australia has the potential to become 'the Saudi Arabia of the 21st Century' - a reference to the potential to use crops like wheat as the feedstock to make a wide range of products now made from oil.

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Some of these phrases are a bit cliched, I grant you. But they do allow all of us, including your average urban Australian, to quickly conjure up an image of the importance of agriculture to Australia's future, as well as its past - of the potential we possess in these

in d u s trie s .

But to turn that imagery into reality will require addressing all of

the four issues I have just mentioned. It will mean becoming 'cleverer' about what we do.

A farmer told one of my staff the other day that farmers didn't have time to think about their industry's future and things like value adding; they were flat out running the farm, out all day on their tractors. But farmers have to think about it, to think beyond this year's, or next year's grain prices.

We - and I mean Australians as a nation, not just the farmers - need to realise, for example, that not many people in the developed world these days buy flour to bake their own bread and cakes. More and more buy pre-packaged meals or eat out.

I met earlier this week members of the Australia Japan Business Forum processed food mission to Japan. They were excited about the potential for exports that exists in the food services industry in Japan - the fast food outlets, restaurants, hotels etc. Japanese spend about $250 billion a year in what could loosely be called 'dining out’. Australia's share of that market is about $250 million.

That's only 0.1 per cent. That's how much we are missing out.

Far from being an industry in decline, I believe Australian agriculture has more of the characteristics of a sunrise industry - high productivity rate, diverse output pattern, flexible production techniques, capacity to adjust to changing economic forces and a high level of capital intensity relative to labour, the scarce input in Australia. And as a sunrise industry, I also see immense scope for adding value

to our rural commodities, including grains.

The real growth in world trade is not in primary commodities. That is why I am a strong believer in effective value adding. We must see our export base broaden out. This does not mean Government picking winners, but rather Governments and industry working together to identify barriers to further processing and

removing those barriers.

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We need to work towards not only making parts of the manufacturing sector internationally competitive but also more productive. And then to harness efficient primary export industries to an efficient processing base.

The Government, building on the work of the Prime Minister's Science Council, is developing a sectoral strategy for the food processing industry. Working groups, involving industry representatives, have been established to examine

means of capturing the substantial potential gains. They will address issues

such as priority products and markets, technology and innovation, cost impediments and work place reform.

A report prepared for the Science Council indicated that Australia could quadruple the value of processed food exports to $9 billion a year by the year 2000, serving the rapidly growing markets in Asia. This would create 300,000 new jobs. Clearly we can not afford to ignore this potential.

Opportunities for value adding in the grains industry extend beyond the food processing sector. Benefits will flow if industry continues to change its culture ; from a bulk seller of grains into any market, to marketers of quality products into

the dynamic growth areas, meeting what the customer wants.

The AWB has been successful in developing this thrust and I am aware of some advances and further exciting prospects in respect of grain legumes. And . traditional high value food crops, such as chick peas, navy beans and peanuts,

offer high returns, provided promotion and marketing efforts are closely attuned.

In the long run, value adding will reduce our reliance on risky markets and will

add to the industry's resource base.

Australia is close to the expanding markets in Asia and the Pacific - the fastest growing economies in the world - but are we reading the market signals and are we responding by changing our export mix and improving market strategies?

These markets have particular needs which extend beyond only the bulk primary product. They have demonstrated they will pay well for having those needs met. The AWB and other grain traders are passing this message on to

growers through class and quality payments.

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There is absolutely no doubt that quality and market specifications are already a

market feature that Australia is and must continue to respond to. The cleanliness of our grains is a feature that should increasingly command a premium in quality conscious markets, particularly those organically grown.

We are already seeing a level of value adding in the Western Australian project

for straw-based paper manufacture. There is similar potential in the manufacture of building materials and in energy generation, for example, fermentation derived ethanol.

The potential for adding value is not just through Government programs. The Bread Research Institute has an impressive range of privately funded research programs. And growers can also benefit through higher returns for sale of the

whole plant.

Productivity and Structural Adjustment

Productivity growth is another area where we cannot afford to lag behind our competitors. In the face of a declining terms of trade of around 3% per year, Australia's farmers have compensated with a productivity growth of almost the same magnitude per year.

Such growth has been brought about by structural adjustment and through technological change but fundamentally because our rural sector has been exposed to international rigour. Industry's ability to become more productive is tied to its ability to link these factors. But while the rural sector has a much better

record in this area than the manufacturing sector, there is so much more we could do.

For example, we need to make our R&D effort work better for us, to provide us with greater productivity and sustainability.

The grains industry has a considerable investment in R&D - the industry has

recognised this worth and supported it. As a result, grains R&D bodies have spent over $125 million on R&D over the past five years funded by both Government and industry.

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The establishment of the Grains R&D Corporation late last year sees this effort becoming more focussed. Such a development is central to the Government’s commitment to help the industry get maximum returns for the research dollar.

I am pleased therefore to see the industry is seeking to extend the matching R&D funding arrangements to other grains in the coarse grains sector - cereal rye, oats and possibly sorghum.

And we can do better. In my view, the scope for increasing productivity through the application of technology - that is, the real product of the R&D effort - is unlimited. Those who would suggest that technological advances are being

made in ever decreasing incremental steps are no where near the mark. The biggest barrier we face is uptake and we pay the cost for that dearly.

Uptake of technology is an area that I will be looking to R&D Corporations to

really come to grips with. It is therefore pleasing to see the GRDC, along with other R&D Corporations, moving in this direction.

We have a substantial biotechnology capability. Given the growing world market for chemicals produced from fermentation - a market now estimated at more than A$10 billion a year- we must employ our capability to the full in the years ahead. With our skills in genetic engineering, within a decade we will be able to make plants with improved ability to cope with Australian variations in climate and soil conditions and to better tailor our crops to Australian farming systems. The linkages between biotechnology, agriculture and food production would be so much stronger as a result - we would be adding real value to our

natural resource base.

Such productivity gains are all part of ensuring the industry's economic sustainability but they are also inextricably linked to environmental

sustainability.

Sustainability

Sustainable agriculture is a major focus for my portfolio and for this Government.

Its importance to rural Australia into the year 2000 cannot be overstated for without sustainable agricultural practices, Australia will not be able to maintain commercially viable farm businesses in the long term.

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Some of the biggest barriers to achieving a more sustainable agriculture hinge on changing attitudes and behaviour to ensure the adoption of more sustainable

practices. And we cant do this without communication. The Government will have before it recommendations on these issues in the coming weeks and I will be particularly focussing on this aspect.

A major vehicle for setting national priorities for improved land management practices will be the Decade of Landcare Plans being developed by the Commonwealth and States. But sustainable development is not just something

for governments, as sustainability is central to the success of a farm as a business. Clearly, it has to be of direct concern to farmers.

Some of you will argue that the severity of the current rural downturn prevents anything other than short term survival strategies and that expenditure on resource conservation activities has to be deferred. Cash flow problems will limit a farmer's expenditure options. But it is important to note that sustainable agriculture does not only mean spending on land conservation works, planting trees etc. It can also involve relatively low cost activities such as better farm

planning (which can be funded in some instances through RAS), changing crop rotations, stubble retention and minimum tillage.

Sectoral Issues

Turning now to sectoral issues, the changes to Commonwealth Primary Industry SMAs have been substantial since the Government's white paper of 1986 on SMA reform. To date this has seen the encouragement of greater managerial responsibility, greater commercial orientation and greater accountability to those

who fund SMAs.

The major thrust for these changes was a need to transform SMAs into commercially oriented agencies focussed on marketing and headed by boards made up of people with the skills necessary for this transition. Such SMAs, it

was believed, could better and more successfully operate in the competitive

international arena. The current board of the AWB, I believe, is testimony to this new approach.

A number of the recommendations of the Davis Report will also be implemented

as a further step in this process, once I am satisfied genuine industry concerns have been taken into account.

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The Industry Commission has suggested that the greatest efficiency gains in statutory marketing can be made by reforming State institutions. We are currently seeing change at the State level however, many remaining features require further examination.

Looking more closely at the AWB, traditionally it has provided significant benefits to the industry: it has historical market share and broad industry acceptance; it has a highly developed and extensive network of infrastructure and industry

contacts; through its control of wheat exports, its share of supply provides stability to the industry; it has access to concessional borrowing rates due to government guarantees; it has largely tax free status; and the Government provides National Interest cover to enable it to service bulk, higher-risk markets.

These benefits were built on in 1989 as a result of the wheat marketing changes - its market power enables it to take a strong position in negotiations with service

suppliers and it has had Government backing in the development of a capital base, through the Wheat Industry Fund. This confirms, in my view, that we are on the right track.

However, so long as there remain impediments to efficient operation we must

view the present arrangements as transitional.

As it now stands, the overall structure of the AWB and associated statutory - arrangements for the wheat industry currently involve aspects that do detract from its effective operation:

. the objectives for the AWB create problems for achieving the most gains from commercial operations (the conflict between maximising net returns

to growers selling to the pools and providing marketing options to growers through commercial operations);

. the AWB trading arm is hampered by a low capital base and a small

(domestic) market focus;

. as a "receiver of last resort", the AWB and its suppliers must bear the

costs of disposing of low quality bulk deliveries;

. other statutory constraints detract from its efficient operation including

those on staffing, borrowings, futures and investments; and,

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. there are several levels of accountability which must all be satisfied (the Parliament, pool growers, the GCA and WIF equity holders).

In the medium to longer term, therefore, I see a need for further change to the

wheat marketing arrangements.

This is likely to include further commercialisation of AWB activities and perhaps even a separation of these from some of the regulatory features of those

arrangements from which spring many of the impediments mentioned above. If the AWB is to continue to take on international trading competitors, the big multinationals, then it must have the best opportunity to broaden its operations

and to compete for involvement in many other areas of the industry.

Competition (or its threat) is the main incentive to increased efficiency and initiative. We are seeing this now with greater pool segregations and class pricing, greater price transparency, quality specific wheat contracts and export options for other commodities such as chick peas. A number of these opportunities have been generated from within as growers demand new and additional services. That is why I see continued commercialisation of the AWB

as producing further benefits.

The strategic strength for the industry should be enhanced by such changes. Essentially, I see such changes separating the trading and pooling activities from the more regulatory and generic promotion ones.

Having said that, I have no illusions about the difficulties of moving one of Australia's top trading companies (it is in the top 10 in the Bulletin's top 500 Australian companies) further along this: route. The issues this raises are not

just how far and fast but for whom.

Clinton Condon has suggested a grower co-operative model. I know there are some legislative problems with the extension of Co-operatives beyond State boundaries but see the same objectives as being achievable, in the absence of national or uniform state co-operatives legislation, through the Corporations

Legislation.

I agree that growers should be the principal beneficiaries of such a program but

should it stop there?

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Future commercialisation will require substantial capital investment. With the

greater links with other sectors inherent in value-adding, the potential exists for other players to take some equity and the wider Australian public too. Equally, I would not rule out the organisation taking up equity in other enterprises as a means of integration with other indusrty sectors. Related issues such as how

capital should be raised and how should we handle the WIF in the future, require further assessment.

When we ask how far should the AWB's commercialisation go, we need to

consider the long term level of Government involvement. I am aware of the

strong case that has been put forward for maintaining single desk selling and this might seem justified particularly in those markets where an economic rent

could be extracted. But there are other markets where this is not the case and where competition could generate market share. How could we get the best of both worlds?

One way might be through selective export licensing along the lines of the Australian Meat and Livestock Corporation. Such activities could be undertaken by a statutory grains/wheat regulatory body. The Government is also involved through guarantees on borrowings of the AWB. These are set to be reviewed

during 1993. ;i

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We should also ask if, by pooling the experiences of Australia's grains industries in value adding, would there result a far stronger and more consistent industry approach to adding value. Think about the industry cluster concept put forward by Hassalls. Such an approach could create a sector less exposed to the vagaries of international price cycles and therefore one that would not have to

rely on welfare and Government graces during commodity price cycles.

Conscious of the importance and value of linkages in the grains industry, the Government has agreed to the establishment of a Grains Industry Council. It will provide a forum for the active and co-ordinated involvement of the industry in the

Government's policy formulation process. It is not intended that the establishment of such a Council will preclude individual organisations from presenting their views directly to me as they are free to do so at present. Rather the Council will seek to make maximum use of peak sectoral bodies across the

grains industry to co-ordinate policy advice to me on strategic issues affecting

the entire industry.

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The Grains Council of Australia has been involved in these developments so far and my Department has contacted several other organisations concerning their possible involvement. I expect to be considering the question of composition of

the Grains Industry Council in the near future.

The legislation to support this body (and potentially other Industry Councils) is part of a package which I intend introducing into the Parliament later this year.

The Government is committed to funding the establishment of the Grains Industry Council within budgetary disciplines. Nonetheless, I hope the Council will be well placed to address some of the strategic issues identified by this Conference.

Future Action Despite the current problems in our country areas, the rural sector is vital to the Australian economy and will be well beyond the year 2000. It is a sector that has demonstrated remarkable resilience and has all the hallmarks of a sunrise industry. I see no reason to suggest that we will not continue to achieve success. This Government is determined that the climate for such an outcome in the future is set now.

I have set out how this Government can do this through our international trade strategies, in encouraging value adding, productivity growth, structural adjustment and sustainability. And most importantly, through encouraging the development of a sound sectoral framework within which sectoral strategies can

be formulated.

But in the immediate future, where do we go from here after this conference? I would like to see us maintain some of the enthusiasm we've seen in the past three days, have the questions raised, addressed, and move on some of the

ideas put forward .

Not long ago an AWB/GCA/DPIE Working Party was set up to examine the future

structure of the AWB. I would like that group to provide me with an interim report on these issues within the next six months so that we might consider and see real progress on change during the course of next year. The work of this group, together with the outcomes from this Conference will indeed establish a

blueprint for the grains industry's future.

I again pay tribute to all those involved with the Conference and thank you.