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Government announces new wheat marketing arrangements



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DPIE92/82C 8 October 1992

GOVERNMENT ANNOUNCES NEW WHEAT MARKETING

ARRANGEMENTS

The Minister for Primary Industries and Energy, Simon Crean, today announced a package of initiatives for the grains industry which provide a framework for growth to the end of the decade.

Mr Crean said today's announcement provides the potential for the future development of a vertically integrated grains industry while also recognising the current reality of trading our commodity in a corrupted international trading environment. It will also promote security in the industry, allowing growers and other industry participants to plan with more certainty.

"The package has the agreement of the Grains Council of Australia (GCA), the nation's peak grower body, with whom I have held intensive discussions over the past 12 months. I have also consulted with a wide range of other bodies associated with the industry," he said.

The key elements of the package are:

(a) continuation of the single desk for the AWB. The Government will review this position subject to progress in the Uruguay Round and as any successful reforms arising from the Round become effective;

(b) an extension until June 1999 of the Government's guarantee of Australian Wheat Board (AWB) borrowings (as distinct from price underwriting) a t 85 per cent of estimated net pool returns;

Parliament House, Canberra ACT 2600. Telephone: (06)277 7520 Facsimile: (06)273 4120

(c) the continued accumulation of the Wheat Industry Fund (WIF) until June 1999 to ensure an adequate capital base for the AWB; to provide working capital for the AWB's trading division; and for investment in

value adding activities for a new subsidiary company of the AWB. At the end of the capital build up period the accumulated funds will be used as collateral to fund advance payments to growers without reliance on any Government guarantee of borrowings. The Government's guarantee of the WIF will expire in 1994.

"This package represents both sound policy and this Government's capacity to work with industry to develop industry driven growth strategies. It involves the phasing out of Government support but has regard to the particular circumstances of the industry and the environment in which it operates," Mr Crean said.

"It is an integrated package that positions the grains industry for the future. The legislative changes for the AWB and the establishment of the new subsidiary company provides the basis to take advantage of the huge market opportunities in processed product in both the domestic and export markets. It is a direction the industry must pursue in order to minimise the impact of commodity price swings.

"Maintenance of the single desk for the AWB provides the most effective mechanism for countering the aggressive use of subsidies by both the European Community and the United States in the absence of a conclusion to the U ruguay Round."

Mr Crean paid tribute to the GCA for the manner in which they approached the consultations, particularly through the organisation of direct involvement by Australia's wheat growers in the consideration of their industry's future.

Information: Catherine Payne, Mr Crean's Office (06) 277 7520. Tim Mackey, Department (06) 272 5563.

ATTACHMENT

AGREED WHEAT PACKAGE

1 .EXPORT MONOPOLY

The Australian Wheat Board's (AWB) export monopoly powers to ~ continue but to be subject to review after the GATT Round outcome is clearer and as anv successful reforms arising from the Round become effective.

2 .GOVERNMENT GUARANTEE OF BORROWINGS

Under sections 77 and 78 of the Wheat Marketing Act 1989, the Government's guarantee of AWB borrowings, is to continue at a level of 85 per cent of the aggregate estimated net pool return for the period from now until June 1999.

The guaranteed borrowings will continue to be used to make advance and cash out payments to growers and for operational costs associated with wheat pools.

3. WHEAT INDUSTRY FUND (WIF)

WIF to accumulate until June 1999 in order to:

•provide a capital base for the AWB which can be used to fund its future activities, primarily making advance payments to growers, at the end of the build up period without the need for Government guarantees;

•continue to fund the ongoing operations of the AWB's trading division; and •fund ongoing investment and future activities in value adding.

The WIF levy will continue at least at its current rate (two per cent which is the minimum specified in the Act - the Grains

Council of Australia (GCA) can request it be increased up to a current maximum rate of five per cent) until June 1999.π

WIF equity funds will continue to be invested by the AWB and its new subsidiary company in accordance with an annual business_ „ plan approved by the GCA representing growers/WIF contributors.

The AWB is estimated to require a capital base of around $400 million to continue its current range of activities in the absence of the Government's guarantee of borrowings. It is expected that the

WIF build up over the period to June 1999 will raise the required amount. The industry's existing assets may be used to form part of that capital base where appropriate (primarily the crop that is

harvested). The current equity in the WIF is $110 million.

I anticipate that the WIF will be used, until 1999, as follows: (a) around 80 per cent of future contributions for building up the capital base; (b) around 20 per cent of future contributions together with around $30 million of current equity for value adding activities by a subsidiary company of the AWB; and

(c) around $100 million of current equity for the AWB's trading division operations.

4 . AWB SUBSIDIARY COMPANY

Through appropriate legislative change, the AWB will be granted the power to become directly involved in grains based value adding activities in addition to the investment powers it already has, subject to constitutional limitations. This will enable a broadening of the economic base of the grains industry and the strengthening of linkages between growers and processors.

The AWB is to establish a subsidiary company specifically for grains based, value adding activities. These activities will mainly involve joint venture arrangements. Such a subsidiary will draw on WIF equity, along the lines set out in 3 (b), to fund its activities

and investments. The investment and use of WIF funds, both by the AWB and its subsidiary, will be subject to the same safeguards for growers as currently operate, that is, in accordance with a business plan approved annually by the GCA. Any revenue

generated by the subsidiary will be returned to WIF and credited on a pro rata basis to WIF contributors.

The exact form of the subsidiary has not been decided. Provision already exists in the Act for the AWB to set up subsidiaries with the permission of the Minister for Primary Industries and Energy. In terms of composition of the board of the subsidiary, members will be selected by the AWB in consultation with the Minister and with the GCA. The intention is that the board of such a subsidiary will reflect an appropriate mix of skills and expertise necessary for the successful operation of the subsidiary as well as a mix of

both the growing and processing sectors.