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Industries assistance commission report on wheat stabilisation



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MEDIA RKhEASE 78/93 BACA

INDUSTRIES ASSISTANCE COMMISSION REPORT OH WHEAT STABILISATION

The Minister for Business and Consumer Affairs, Mr Wal. Fife, and

the Minister for Primary Industry, Mr Ian Sinclair, today announced the .

release of the Industries Assistance Commission Report (No. 175) on Wheat

Stabilisation.

The Ministers said that because the recommendation of the I.A.C.

involved -matters which come within the powers and responsibilities of State

Governments as well as the Commonwealth it had been decided to release the

Report publicly before the Government considered the Report's recommendations.

It was expected that the views of the various interests concerned

would come forward in the general public debate that will follow the release

of the Report. These will be taken into account by the Government in

considering its attitude to the I.A.C.1s recommendations.

The Minister for Primary Industry will enter into discussions with

the States on the aspects of the recommendations which come within their

authority. In addition, because the recommendations propose changes in

present stabilisation arrangements which have been negotiated between the

Government and the industry and involve growers' moneys, the Minister for

Primary Industry will be entering into discussions with the Australian

Wheatgrowers' Federation. The advice of the Australian Wheat Board will also

be sought.

The Ministers said that a special summary of the Report had been

prepared by the I.A.C. for the purpose of informing growers of the broad

outcome of the Inquiry and this was also being given public release.

Copies of the Commission's Report will be available at Australian

Government Publishing Service Retail Bookshops in each of the capital cities

in the near future.

CANBERRA, A.C.T

26 July 1978

INDUSTRIES ASSISTANCE COMMISSION

REPORT ON WHEAT STABILIZATION

SPECIAL SUMMARY PREPARED FOR WHEATGROWERS BY THE IAC

In February 1977 the Minister for Business and Consumer Affairs asked the

Industries Assistance Commission, an independent statutory body responsible

for reviewing assistance to industry, whether assistance should be provided

to.stabilize returns for wheat for seasons following the 1978-79 season.

If assistance were considered necessary, the Commission was to report on its

nature and extent. The three Commissioners who conducted the inquiry held

public hearings in the five mainland State capitals in August 1977 and one

in Canberra in October 1977. They heard evidence from about fifty witnesses,

including representatives of wheat and grain growers, wheatgrowers and

other farmer organisations, grain handling authorities, flour millers, stockfeed

users, bread manufacturers, consumers, statutory organisations and government

departments. In March 1975 they published their draft report and in May

1978 they held another public hearing to receive submissions on it.

The Commission1s final report includes an extensive discussion of the .

evidence, detailed conclusions and recommendations, and many statistical

tables. This is a special summary of that report prepared for wheatgrowers.

It has three aims:

. to set out the main conclusions and recommendations,

. to highlight some of the key issues of the report, and

. to spell out some of the implications for wheatgrowers.

It must be emphasised that this is a special summary, that it does not include

all the qualifications, details and nuances of the original, nor should it

be seen as a substitute for the report itself. .

WHAT ARE THE MAIN CONCLUSIONS AND RECOMMENDATIONS? .

Briefly, the ComTuission concluded that:

Stabilization . Past wheat stabilization measures have had little

impact on either the stability of wheat prices or

wheatgrowers1 incomes.

. To stabilize wheat prices effectively could involve

tying up several hundred million dollars of growers’

monies - and even then wheat growers’ incomes might

, not be stable.

. Stabilization efforts should be directed at individual

growers' incomes rather than at commodity prices or

industry revenues.

. Consequently the traditional form of wheat price

stabilization should not be continued.

General Assistance . By any definition wheat production is one of Australia's

really efficient activities, and is w’ell suited to our

. economic and trading environment.

. A general strategy of raising assistance to lightly

assisted activities such as wheat growing to compensate

them for the effects of higher assistance given to

other activities was not favoured by the Commission.

Assistance for . Assistance is available for all rural producers in

Times of Stress times of stress by such means as carry-on finance and

the household support assistance of the R.ural Adjustment

Scheme.

. In addition the Commonwealth Government should

supplement prices received by wheatgrowers for a

limited period when wheat prices fall rapidly to

distress levels. The Australian Wheatgrowers'

Federation termed this 'potholing assistance'.

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. These supplements would be paid when the expected

returns from an Australian Wheat Board wheat pool

were below 70 per cent of the average of the two lowest

indexed returns out of the preceding five pool returns.

'An appropriate initial government commitment would be

to make up the difference between the current price

and 70 per cent of the average of the two lowest

Λ indexed pool returns in the preceding five.'

. Payments under this potholing measure would apply to all

wheat sold in the current year. They would be at the

same rate on all wheat, regardless of premiums and

dockages, provided they met minimum standards.

. No contributions from wheat growers would be required

for this arrangement. Government assistance would be

open ended. Payments would be made directly to growers

in the current season and be received earlier than payments

under past stabilization plans.

. . The assistance would be paid quickly but infrequently

and rarely for more than two consecutive years. If

appropriate, the industry’s situation would be

scrutinised while this assistance is being afforded,

to establish whether further assistance should be

provided.

Payments to Growers . The Australian Wheat Board should be put in a position

from which it could offer more flexible payment

arrangements to growers. '

. The Board should be. free to borrow on the best terms

available from both government and commercial sources

in Australia and overseas. The Reserve Bank should not

necessarily be the only or principal source of finance

for the Australian Wheat Board.

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Improving Market

Incentives

Sole seller

Domestic Price

. While this flexible payment system is being developed -the government might assist the wheat industry by

guaranteeing the Board's loans.

. Growers should be able to trade their 1 shares' in a

pool and use it as security for borrowing.

. The premiums and dockages set by the Board for particular

grades and varieties of wheat sold on domestic markets

should be paid on as many grades and classes of ^zheat

as the Board, in consultation with bulk handling

authorities and other interested parties, finds feasible

and economical.

. Handling and storage costs and arrangements should be

worked out between the bulk handling authorities, the

Australian Wheat Board and other wheat traders, and

each bulk handling authority’should assess its operations

in a commercial manner. '

. Shipping differentials should be introduced for each

loading port so as to reflect advantages of location

and loading facilities within and between States, and

these should be reflected in growers' returns. (These

differentials are now limited by statutory provisions

and apply only to Western Australian growers.)

. The Australian Wheat Board should remain the statutory

sole seller of wheat and flour on the export market

(which takes about three-quarters of Australia's wheat).

There should be no statutory sole seller of wheat on the

domestic (Australian) market.

. The export of wheaten products, other than flour and

sharps, should no longer be controlled.

. The domestic price of wheat (the home consumption price)

should no longer be administered as this has benefited

neither growers nor consumers. (It has been 'administered'

in that it has been set following negotiations at the

commencement of a stabilization plan, then adjusted annual1)

in line with movements in certain costs of production.)

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. The domestic market should be served by those, firms best

suited to providing a particular service - the Australian

Wheat Board, individual growers, private traders, users,

or a combination of these. '

. Within the home consumption price arrangements, there has

been a component to cover the cost of shipping wheat to

• Tasmania. Consequently all Australian wheat consumers

have borne this cost. If it is the Government’s policy

that Tasmanian consumers continue not to bear the cost

of wheat shipped to Tasmania then the cost should be

borne by the Commonwealth Government.

. Growers disposing of wheat outside the Board should not

bear the Board's administrative costs, but all wheat

sold should be levied to contribute to wheat research.

Pests . A separate inquiry into grain pests should be undertaken.

It should investigate all grains, including oil seeds,

grain by-products and any other susceptible media, and

all forms of transporting, handling and. storing of grains

. ' It should identify the most effective method or methods

. of dealing with the existing and potential problems, and

should consider the nature and extent of any government

assistance for the implementation of its recommendations.

Licensing . Until then the AWB and other traders in wheat should be

. . . licensed for the purposes of pest control.

. Licensing should be controlled by Commonwealth and State

■ Governments and licences should depend on storage and

other facilities conforming to hygiene standards and

defined pest control procedures.

. Licensed traders could collect the wheat research levy

and provide evidence of deliveries from growers on which

any Commonwealth Government potholing assistance would

be paid.

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WHAT ARE THE MAIN FEATURES OF THE PAST AND PRESENT STABILIZATION PLANS?

Features of the six wheat stabilization plans implemented since 1945 are:

. The Australian Wheat Board has been the sole controller of both

domestic and export marketing.

. With the exception of wheat production, almost every facet of the

wheat industry has been subject to some form of continuing

administrative or government control.

. The Australian Wheat Board has had to take all wheat tendered,

subject to its meeting the Board's minimum standards. Wheat has

- become the property of the Board when received by the bulk handling,

authorities in each State. Some wheat is sold directly to other

licensed receivers. Storage and handling costs have been shared

among all growers.

. Wheat delivered in any one season has formed a 'pool* and wheat

groxvers have received an average, or 'pooled', net price, determined

by equalising the returns obtained from the domestic and export

markets adjusted for any payments into or out of a stabilization

fund. .

. Payments to growers have been made in stages. The first advance

payment is made shortly after the delivery of the wheat and has

been financed by loans from the Reserve Bank. Subsequent payments

have been made as monies became available from sales and after the

Board has repaid its loans from the Reserve Bank. A pool generally

takes several years to finalise.

. Wheat sales on domestic markets have generally been at administered

home consumption prices, although in the first and fifth plans the

. AWB was able to sell some wheat, for some purposes, at prices

differing from the home consumption price.

. The home consumption price has been negotiated at the commencement

of each plan, then adjusted annually in line with movements in certain

costs of production. It includes a component for the cost of shipping

wheat to Tasmania.

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. Guaranteed prices were features of the first five plans, although

the bases for calculating them have differed, and a stabilization

fund has operated to provide for grower or Commonwealth Government

contributions to facilitate the payment of guaranteed prices. There

were limits on the quantity of wheat on which the guaranteed price

was paid.

. In the sixth (current) plan the guaranteed price has been replaced by

a stabilized price which has been related to movements in export prices

and set according to a specific formula. Commonwealth Government

contributions to the stabilization fund have been limited to $30 million

in any one season or $80 million over the entire plan. Wheat growers

have contributed to the fund when the average export price for a season

exceeded the stabilization price, unless the average export price was

less than $55.12 a tonne. The growers' contribution has been limited

to $30 million a season, or $5.51 a tonne. When the fund has exceeded

$80 million the excess has been refunded. There has been no limit on .

the quantity of wheat on which the stabilization price was, paid.

HOW WOULD IMPLEMENTATION OF THE NEW PROPOSALS DIFFER FROM .

THE OLD STABILIZATION PLANS? '

Under the IAC's proposals

. The AWB would remain the sole controller of the export market, but

there would be no statutory sole seller on the domestic market (which

accounts for 25 per cent of total sales).

. Domestic prices would no longer be administered.

. There would be some relaxation of dominant government control on the

domestic market.

. The would- continue.- to~take^-aEI: wheat: delivered to- it, subject to -

its meeting minimum quality standards, quota requirements, or its

normal terms for such costs as late delivery penalties. It would

remain the major buyer of wheat.

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. On the domestic market growers could choose to sell their wheat

' either to the Board or to other firms, thus reaping any advantages

of price, terms of sale, location or handling facilities available

to them. They would not necessarily have to sell to final users

through intermediaries. .

. The Board’s pooling and payment systems would presumably continue*

. Trade carried on outside the AWB would no longer be on *a clandestine

and unnecessarily circuitous basis’. Economies would be achieved

where local grain merchants could offer more acceptable terms or .

facilities than the Board. Unnecessary storage, transport and

administrative costs could be avoided.

. The responsibility for that component of the domestic price which

covers the cost of shipping wheat from the mainland to Tasmania

would be transferred from Australian wheat consumers to the whole

community.

. Instead of price stabilization there would be potholing assistance.

The Commonwealth Government would supplement returns received by

wheatgrowers for a limited period when wheat prices fall to distress

levels. Payments would be made when returns from a wheat pool were

below the average of the two lowest returns in the five preceding

pools. The proposal is that, initially, the Government should make

up the difference between the current priqe and 70 per cent o£ the

average of the two lowest annual prices in the preceding five. This

would mean effectively a guaranteed gross return of about $75 a

tonne next season.

. No contributions from wheatgrowers would be required. Government

assistance would be open ended. Payments would be made quickly.

WON’T THE RELAXATION OF CONTROL ON DOMESTIC MARKETS INVITE MARKETING .

’CHAOS’2 WON’T IT MEAN A RETURN TO THE ’BAD OLD DAYS OF THE 1930s*2

In the Commission’s view the introduction of licensed traders vrauld not bring

about a lowering of growers' returns. In order to attract supply, a trader

would be obliged to offer more attractive terms of purchase than offered by

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other potential buyers, including the AWB. Similarly, traders would be under

competitive pressure to keep their marketing margins low and to offer marketing

services which would attract users. The better they are able to do this, the

better off would be both farmers and users. Under the Commission's

recommendations, growers would be free to negotiate with traders if this were

to their advantage, subject to safeguards regarding quarantine requirements.

They would still have access to the AWB which would still be acquiring and

disposing of most of the wheat crop. In addition, should the AWB offer some

form of farm-gate cash price then those growers preferring this method of

payment would be catered for by the AWB.

Most agricultural commodity markets operate without enforcement of sole trader

position, even where some control is exercised on price. There appears to Jbe

no inherent characteristic in wheat marketing which would suggest that the

normal methods of marketing in a mixed economy should not be used. Furthermore,

the continued presence of the AWB in the market as the most significant buyer

is a continuing safeguard against, any attempt by traders to depress prices

even if this were considered possible. However, this would not lead to 'chaos*

nor a return to 'the bad old days'.

Check List of Features

Feature Old plan Proposed plan

Stabilization fund Yes No

Grower contributions Yes No

Government assistance in times of stress Limits Open ended

Domestic price administered Yes No

AWB sole control of exports Yes Yes

AWB sole control of domestic market ' Yes No

AWB takes all wheat delivered to it Yes Yes

AWB has pooling and payment system Yes Yes

Pest and disease control Limited Major inquiry

licensing of traders

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