AULD, Ms Roxanna, Policy Officer, Crops, Horticulture and Wine Branch, Agricultural Productivity Division, Department of Agriculture, Fisheries and Forestry

GRANT, Mr Allen, First Assistant Secretary, Agricultural Productivity Division, Department of Agriculture, Fisheries and Forestry

HELM, Ms Stephanie, Policy Officer, Crops, Horticulture and Wine Branch, Agricultural Productivity Division, Department of Agriculture, Fisheries and Forestry

OTTESEN, Mr Peter, Assistant Secretary, Crops, Horticulture and Wine Branch, Agricultural Productivity Division, Department of Agriculture, Fisheries and Forestry

PENM, Mr Jammie, Assistant Secretary, Agricultural Commodities and Trade Branch, Australian Bureau of Agricultural and Resource Economics and Sciences, Department of Agriculture, Fisheries and Forestry

[17:46]

CHAIR ( Hon. DGH Adams ): I declare open this public hearing of the House of Representatives Standing Committee on Agriculture, Resources, Fisheries and Forestry for its inquiry into the Wheat Export Marketing Amendment Bill 2012. Today the committee will hear from representatives from the Department of Agriculture, Fisheries and Forestry. Welcome to the hearing.

Although the committee does not require you to give evidence under oath, I should advise you that this hearing is a formal proceeding of the parliament and warrants the same respect as proceedings of the House. Giving false or misleading evidence is a serious matter and may be regarded as contempt of the parliament. You may wish to make some introductory remarks.

Mr Grant : No, we do not have any, Chair. We are happy to take questions at your leisure.

CHAIR: The submissions that we have received, which will appear on our website—most of them anyway—that we have now authorised for publication deal with several issues. One is quality standards, or the assurance for the buyer of variety, accreditation and some argument about our competitors, those being Canada and the US, having all those things in place, and that this bill may weaken the opportunity that we have of giving our customers the same satisfaction from having an assurance quality process. Could you give us your opinion on that?

Mr Grant : I do not think that the bill makes changes to any arrangements that affect the quality of wheat exports from the current situation. The Productivity Commission looked in quite some detail at the provision of industry services, including delivery of quality standards, and basically concluded that this was an issue that the industry needed to resolve to its own agreement and support. There are currently activities happening within industry looking at the development of an industry code of conduct. That could be an issue that the industry might like to think about—development of the industry in the context of that industry code of conduct—but, really, the government, at the end of the day, agrees with the Productivity Commission that this is not an issue where the government can provide significant advantage in helping the industry achieve this. As I said, the current arrangements do not have any involvement by the government in certifying wheat export quality standards, and the changes to the bill will not change that arrangement at all.

CHAIR: Those two things that I mentioned probably do that through their own industry processes, not through government regulations.

Mr Ottesen : It is also worth mentioning that we are advised that a lot of buyers and exporters already use commercial quality certification services, so there is not a vacuum.

Mr TEHAN: Are they readily available for the—

Mr Ottesen : That is what we understand, yes.

CHAIR: The ASX has given us a submission saying that there are a lot of commodities. Basically, they are dealing with the reportability of what exists in the country, I think. There seems to be some argument about what is in storage and what is on the farm, and that can distort the market.

Mr Grant : I am not aware of any other government involvement in certifying quality standards for any other commodity. The government is involved in certifying that exports are of a sufficient quality where an importing country requires that as a condition of import, but that is not to do with a market quality issue and it is not to do with issues affecting how the market operates. It is essentially a trade issue.

CHAIR: That is more of a biosecurity or—

Mr Grant : It is a condition of an importing country to make sure that there is a formal process by which those exports are certified to be of the quality or of the origin to which they claim.

CHAIR: Like meat?

Mr Grant : Yes, potentially meat. Some dairy products are certified by Australian biosecurity services as well. None of those are involved in government certifying to determine a market quality standard.

Mr SCHULTZ: There has been a very considerable and colourful history of wheat exporting through the Wheat Export Authority and the various monopolies that have been referred to in the past and there are certainly some very serious issues centred around the former AWB company. It was quite obvious after that process—particularly the AWB process—that there was a very strong sensitivity within the industry that people wanted to get it right. What is it about this particular issue that you believe is most concerning for exporters of wheat?

Mr Grant : I guess it depends on which exporters you speak to. Those who are bulk handlers and operate port arrangements would say that there is no need for the government to interfere in their operations, because it is constraining their trade and, in particular, adding cost to their business. If you speak to some of the smaller exporters, they would say that they need to have a level playing field and that they need to ensure that there is no anticompetitive behaviour that is adopted by people who can adopt a monopoly situation in some cases. If you talk to growers, they will say that they want the best return for their grain. There is a range of issues, depending upon what part of the chain you talk to.

Mr SCHULTZ: Price was one of the issues that was very strongly objected to in the AWB issue. You have exporters—as an example, from Western Australia and South Australia—who are predominantly the people who export wheat out of this country because of their isolation, and they were complaining because they were getting hooked for about $60 to $100 per tonne in charges and that impacted on their ability to maximise the export price for their wheat. In the eastern states, particularly the wheat growers in New South Wales were operating on an export market price, and many of them were A and B class shareholders in AWB. That created all sorts of problems. When we got rid of the so-called single desk it created the issues that you are now talking about, where some growers have bags and silos—a variety of things—on their property because the market has opened up for them. I think there is a lot of general nervousness within the industry that any further interference with the process is going to make it even more difficult for them in very demanding circumstances for the free competition that currently exists in the industry. Would you like to make a comment on that? It is not a question, I suppose; it is an observation.

CHAIR: How do we make sure that the new players come into the market process as well? It is about looking at quality and different varieties—all those sorts of things, other than just a bulk commodity.

Mr SCHULTZ: You are mixing good with bad.

CHAIR: Yes. And feed wheat and whatever. How do we keep those new players coming into the marketplace?

Mr Grant : Part of it is that the process of change from the AWB days to what is now proposed has been a transition over six or seven years. You have had a period whereby you had quite strong government intervention, the need for accreditation services and the threat of being deaccredited, if you like, if there is any poor behaviour. During that time we have seen a proliferation of a whole range of people coming into the market. There are now more than 20 people who are accredited to export wheat. What we are now proposing is another transition. We are saying that we are currently in the next phase of the transition, which is to still have a regulator, but to decrease the red tape—a so-called 'lighter-touch' arrangement. The next step to that is to do away with the regulator but still maintain some controls through the auspices of the ACCC and the access undertaking. I think the government has focussed on this transition to make sure that industry can adapt at all points to that changing environment. As we have seen, it has encouraged the proliferation of quite strong competition in the market.

Mr SCHULTZ: What mechanisms do you believe governments should introduce to create some sort of controlled mechanism that does not allow the issue to get out of control any further than it is at the moment? One of the things that sticks in my mind was a person who was heavily involved in arguing for the dismissal of the single desk. There was the graft and corruption that was occurring, where people were selling our wheat over in the Middle East, as an example. They were flying around in helicopters and driving vehicles with duffel bags full of hundreds of thousands of dollars of cash to pay off people to take our wheat. Is that still an issue that is going to be introduced or does it have the possibility of infiltrating what we are trying to achieve now? Shouldn't they be the safeguards that we should be looking at as well?

Mr Grant : We think that, in the end, the market will provide those safeguards. People will not sell their grain to companies or exporters when they think they are being charged for services that are not being delivered or they are charged for services that are too costly. They will take their grain somewhere else because the competition is there and that will put a fixed price on their ability to compete on administration and on service. If you get those cases—and they are reported in the media—then people will vote with their feet in some senses, or if they are breaking the law then people have got the option of going to the ACCC and saying, 'This company is adopting behaviour that is anticompetitive or not consistent with the obligations they made in the contract under which I sold my wheat to them,' and they will take action through the courts.

CHAIR: The ACCC will be the final player, just like in everything else that we have to come into that play.

Mr TEHAN: You have actually segued very well to my question, Dick, thank you. Are we confident that the ACCC will have the resources to be able to ensure that there is proper competition within the marketplace?

Mr Grant : Under the proposal, the ACCC will take over some of the activities that Wheat Exports Australia stopped doing in October 2012. We are currently working with the ACCC to transfer some resources funding for them to undertake the role of monitoring the continuous disclosure rules. We are currently transferring from WEA the computer system and other technology which will provide the tools for them to do that quite efficiently. So, yes, we are provisioning the ACCC for their activities in the short term. In the long term, the ACCC will treat the grains industry in the same way as they treat other commodity industries and it will be part of their general remit to oversee competition across the industry.

Mr TEHAN: Is it likely that some of the expertise is going to cross over as well as the technology so that the ACCC is quickly up to speed on these processes?

Mr Grant : With great respect to my colleagues in WEA, there is not a huge amount of expertise that is required. It is about monitoring that the shipping stems are in place and that they are transparent and open. In discussions we have had with the ACCC, they do not envisage any difficulty in picking up that role with the sorts of experience and staff that they have got.

CHAIR: On Friday morning the ACCC will be before us.

Mr Grant : As will Wheat Exports Australia.

Mr TEHAN: I was just curious to get a sense of how the department was coordinating with the ACCC, and it sounds like that is taking place, which is good. As a department, you are confident that, by taking this next step towards deregulation, we are going to be once again looking to maximise the return for the grower? You do not see any potential issues around competition or some of the other things that have been raised with us around quality assurance and accreditation? You think that this is the right next step?

Mr Grant : Yes, we do not see that. In consultations with most of the industry, we do not think that the industry has that view either. Generally across the board people say that the time for accreditation has ceased, that we have gone down that path and have achieved our objectives. Most of the issues that industry raised—and you will cover them next Monday, I guess—are around the provision of the other services and the body that might be required to do that. In the sense of regulating exports, we think that there is no need for a continued regulation system and we do not think that the removal of the provisions will impact on the competitiveness or the profitability of growers or marketers.

Mr TEHAN: Do you see a need for a body or some sort of code of conduct around those other services?

Mr Grant : Under the legislation there is a need for a voluntary code of conduct before the minister is able to agree to remove the provision for access undertakings by the bulk handlers. We believe that the industry will get the most benefit from agreeing to address the information provision and the quality assurance provision through a code of conduct that they can all sign up to and agree to. We think that is more likely to result in an efficient process in the industry than having regulation imposed on industry where there are no costs. Our fundamental view is that that is the correct forum, at least in the early stages, for them to explore. If, in the end, industry says to government, 'We think we need a body and we're prepared to fund that through a levy. Will you help us raise a levy to put that body into place?' then I am pretty sure the government would look at it and probably say yes.

Mr TEHAN: Do you think that the industry might need assistance putting the voluntary code of conduct together or do you think that all the parties will be able to come to the table and agree on something?

Mr Ottesen : I would say that is already happening and there is already a strong level of interest. What is called a code development committee has been established. It is being coordinated by Grain Trade Australia and all the key players are at the table. That is from right down the supply chain—except overseas buyers, of course. The third meeting is tomorrow in Sydney. The bulk handlers are there as well and, in the end, they are the ones who have perhaps the greatest stake in it. They are very committed to finalising this, knowing that, unless it reaches a satisfactory level, they are at risk of the government—or the minister—not agreeing to accept it and therefore the access test will continue beyond October 2014. That is a very expensive condition at the moment. So there is a big incentive to address this seriously. It is underway. I cannot guarantee what the outcome will be, but everyone is there and they are in the process.

Mr Grant : There are also a couple of opportunities for the government to help. The department has already funded, in recent times, a consultant to better explore and understand industry's views about information provision, because there are very mixed messages across the spectrum. We have funded a consultant to provide a report based on consultations across the process. That has not been completed yet, but when it has been it will be released to industry for the code. Also, under the act, because the wheat export charge is currently still being applied—it will be stopped in the near future; regulations will be made to stop it—there will be an excess of wheat export charge that has built up beyond the time by which Wheat Exports Australia will be able to utilise it. So there will be a pool, and the government is committed to working with industry to disseminate that money according to the priorities that industry sets. Potentially, if industry says, 'We need some help to develop the code,' or to develop some other aspect, then there is the potential to use those funds to do that.

Mr SCHULTZ: That sounds suspiciously like a path we went down when we were dealing with the wool stockpile. There were some issues centred around that very question. What direction is there for the industry to work together as an industry, which you just alluded to, to get to the point where they do not have to fall back on a minister of the Crown? The controls and the measures of accountability are there to the extent where a minister of the Crown only has to step in under exceptional circumstances—if I could use those words. Is there a possibility that could happen in the future, because at some stage wheat growers, like everybody else, are going to have to take responsibility for their own accountability? It does not matter whether they are in export, whether they are grain handlers or whether they are growers. Over the years, the industry has had a negative perspective—and correct me if I am wrong—not from the point of view of the growers themselves but from the point of view of the growers being ripped off by all of the other players in the industry. I suppose I am asking: what guarantee can we have with these sorts of regulatory changes that is going to impact favourably on the grower and remove the excessive control that the other players in the industry have, including exporters?

Mr Grant : Under the provisions of the bill, from 1 October 2014 the Crown will not be involved at all. There will be no oversight by the government at all. There will be a completely deregulated market. From that point on, if there are significant issues that are uncovered in the operations of the market—such as anticompetitive behaviour or some operations that potentially disadvantage one part of the sector through illegal, immoral or whatever purposes—the industry will always have the option to come back to government and say, 'Look, for a whole range reasons, this system is not working. We need further support.' The option of the government intervening itself back into the marketplace at some future time is there, the same as it is for any other commodity sector.

CHAIR: If anyone has complaints, as Alby was saying, we focus them in there and—

Mr SCHULTZ: The ACCC will have a few more teeth than it has at the moment.

Mr Ottesen : It is worth mentioning that the voluntary code of conduct, if it develops in the way we expect it will, will also be an important determinant of behaviours. That is the intent of that.

Mr LYONS: It looks like most of the producers are against this and the subsequent handlers seem to be pretty much in favour—roughly. Why?

Mr Grant : You will probably have to ask them that. I would not like to second guess what their answer would be on this issue.

Mr Ottesen : It is worth saying that the Western Australians support it.

CHAIR: They would support it and they grow most of the wheat, I think.

Mr SCHULTZ: And grain growers also. I think you could say that there is maybe a—

Mr LYONS: There are a number of suggestions. It always worries me. We talk about agricultural stuff all the time, and the producers always tell us they are ripped off, yet the government is actually servicing them by taking levies, and now we are saying that we might have to do that in the future. We either have deregulation or we do not. To me, having a two-bob bet each way does not seem to be a sensible road.

CHAIR: Those issues are in the submissions. It is really about enterprise in the market—get on and do it. If there is a problem with the market, then let government intervene if needed. Regarding the issue of transparency for market intelligence, for domestic and export, I can see the need for that and I can see the complexities regarding storage on farms as well as in other areas. Would that be in the code, that they would be trying to find some solution to that and industry itself would sign up to it, as some industries do now? In a world sense, they sign up to those things—in the metal industry, for example, where there is a world—

Mr Grant : There is already data collection. It was initially funded by the government as a transition measure. It has now been picked up and it is funded by the GRDC and Grain Growers Ltd. The industry could continue to fund that through that mechanism or another mechanism, or it could agree through the code or through some other mechanism on a voluntary basis in order to provide an information flow that would better meet their needs. I think there has been some criticism of the current measure—that it does not provide enough information on a regular basis in order to get a better feel of where the grain is at any point in time. A code would be one mechanism to do that and, from our view, that would probably be sensible. They could agree through some other measure as well.

Mr Ottesen : As Allen said before, we have employed someone—who is an expert in the industry and has, as we understand it, a good reputation and is seen as independent—to go out there and try and get behind the various views. There are a lot of competing views out there. Based upon what we have seen so far, it is looking very good. The aim is that we get the advice, put it back to industry and say, 'There are some independent views. Add it to the conversation and see what you can do with that,' and there is also the view that the code may be a logical vehicle for picking up the result of that conversation.

CHAIR: I can see that the transparency of knowing what the market in Australia produces, what is there, is a very sensible process. Other industries do that. I cannot see why this industry could not.

Mr TEHAN: Is there a model in any other commodity sector of a voluntary code that works successfully and would hold out hope that this could work?

Mr Ottesen : There are a number. There is the horticultural code of conduct, and people have some views around that. There is a franchising code and there is an oils code. You would know them better than us. There is the grocery voluntary code.

Mr Grant : In the beef industry you get that transparency through the saleyards, basically, and through the tagging system and the identifier system. It can work in that there is the provision of information, and the industry knows that at any point of time there is the status of the stock flowing through the system.

CHAIR: There is a changing culture, I guess, in this industry. That is where it is at the moment.

Mr SCHULTZ: In the notes we have here, there is a submission summary. I note with some interest that the South Australian select committee, the Australian Grain Exporters Association, the Western Australian Department of Agriculture and Food, the Western Australian Farmers Federation and GrainCorp are all in favour of it. It is interesting from my point of view because, geographically, most of those people have their distribution points in the isolated part of Australia, and the people who are involved in the grain business in the isolated part of Australia are today doing what they were doing—

CHAIR: The single desk.

Mr SCHULTZ: Yes, when we had all the problems about those farmers being ripped off. There is obviously a concern that they need more regulation, and the people in the east and in the south probably do not put as much emphasis on it as they do.

Mr Grant : GrainCorp is in favour as well.

Mr SCHULTZ: The point I am making is that it does not matter what you do; you will have an argument from the eastern states and the other states.

Mr TEHAN: One submission, which has been summarised for us by the committee, says that deregulation is a positive step, although the Wheat Export Authority should be retained.

Mr SCHULTZ: It's called two bob each way!

Mr TEHAN: Can you see a logic in that?

Mr Grant : No, we do not, because Wheat Exports Australia is a regulatory body and it has the skills and capacity to delivery regulatory services, so if you are deregulating then Wheat Exports Australia is not the body that you would ask to provide other industry services. If you want to create another body to do that, fine, but it is not Wheat Exports Australia, in our view.

CHAIR: Thanks very much. Sorry we were late and kept you up late. A transcript will be available. You will be able to read some of the submissions on our website, and there will be a few others shortly. I thank everybody, including Hansard, for their contribution.

Resolved (on motion by Mr Schultz):

That this committee authorises publication, including publication on the parliamentary database, of the transcript of the evidence given before it public hearing this day.

Committee adjourned at 18:16