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Tuesday, 25 November 1986
Page: 2690

Senator POWELL(5.10) —At the heart of this legislation, the Fertilisers Subsidy Bill 1986, there is a basic conflict in regard to what is really a single principle, on which most people in this place are agreed. The principle is that if government support is available it should be available to local Australian industry rather than to overseas industry. The Government's case-it is a persuasive case-as put by this legislation, has the support of some of my colleagues, as Senator Siddons has outlined. However, I will be voting against the legislation. I will do so on two major grounds. First, in most of the debate on this issue-debate since the Budget announcement and now debate on the legislation-it seems that we have lost sight of a fundamental fact. The original decision on the imported fertiliser subsidy and earlier decisions on fertiliser subsidies were made, as the Industries Assistance Commission continues to recognise, on the following basis:

In 1966 a subsidy was introduced on domestically produced and imported nitrogenous fertilisers with the stated objectives of reducing costs of industries which were major users of nitrogen, encouraging the experimentation with and use of those fertilisers, and improving the competitive position of exports.

Since then, that has been the basis for the development of a range of fertiliser subsidies for Australian primary industry. Reduction of the cost to the users-primary industry-was the motivation for the 1982 decision which the legislation proposes to change. As a result of the earlier legislation fertiliser prices were reduced to rural producers. Given the adverse conditions and circumstances confronting Australian farmers, it is even more important that nothing is done now which will reverse that reduction in price. Now is a particularly bad time to withdraw a subsidy which has successfully reduced the price of fertilisers to rural producers. Although I will be voting to retain the subsidy and, therefore, against the Government's legislation, I do not consider the current subsidy system to be the best of all possible worlds in the context of support for rural producers. My colleague Senator Macklin, the Australian Democrats spokesperson on primary industry, strongly suggested before the passage of the 1982 legislation that it would be preferable if payments related to the purchase of fertiliser, whether local or imported, were made by way of bounty directly to the rural producers whom they were introduced to assist.

The second reason for my lack of support for this legislation is that if, as I fear, the result of withdrawing the subsidy is that production costs rise for our rural producers, the balance of trade may lose more from the resultant fall in exports than it will gain from the reduction in imports this legislation anticipates. On balance, the evidence persuades me that supporting this legislation will do more damage to rural producers and our balance of trade than Australia can gain from giving further protection to our own fertiliser industry.

World prices for Australia's agricultural commodities are at their lowest levels since the Depression of the 1930s. Professor John Freebairn, a visitor to this Parliament last week, demonstrated as part of a seminar series for the Commission for the Future that prices for a range of commodities, such as cereals, meats, dairy products and sugar, are at a much lower level than they were even during the Depression. There has been an overall, gradual decline in export prices for those commodities and now they are in a very deep trough. This, then, is not the time to make what is a major decision which could have a major impact on an industry which is suffering so badly. It is a particularly bad time for the wheat industry which is being locked out of markets because of the trade war between the United States and the European Economic Community and which last week lost another market as Bahrain decided to import from its newly exporting neighbour, Saudi Arabia. On two fronts our cereals industry has a problem. Highly subsidised products are coming from some of the major traditional exporters and, due to development in previously importing countries, we have lost the Bahrain market. For the wheat industry fertilisers represent about 10 per cent of total production costs.

The Government and Australian fertiliser manufacturers assure us that fertiliser prices will not rise as a result of this legislation. Indeed, some prices have been reduced so that Australian manufacturers can be seen to be passing on the extra $13m which will now be transferred to them. However, not all fertiliser prices have fallen. Imported fertilisers, in particular, will remain at the same price until current stocks are exhausted. When that happens, rural producers will pay up to $42 per tonne more for imported fertilisers. That fact is not one which I have dreamt up, nor is it one which has been put to me by a particular lobby group. Given the unsubsidised costs, that is the natural conclusion to draw from a Press release put out by CSBP and Farmers Ltd which contains a price list which includes the reductions to which I have just referred. The Press release concludes:

Consequently, the price of DAP and Urea will remain unchanged while stocks of these products last.

When it comes to sale time, most of us should recognise the line `while stocks last' as a warning that the reduced price will be available for only a limited time. I believe that Australian industry does not have the capacity to increase quickly its production of high analysis combination fertilisers. There have been claims from the industry that it can do so. It may be possible in the longer term.

However, there is no doubt that the capacity does not exist now. As I have pointed out, this is a very bad time for such an adjustment to be made within the rural industry and, in particular, the wheat industry. This legislation will, therefore, discriminate very strongly against many farmers, especially grain growers who will have no option in the interim but to use imported fertilisers. When the subsidy is removed they will be forced to pay up to $42 per tonne more when the current subsidised stocks are depleted. What is worse, the market for Australian fertilisers will again be dominated by a few Australian producers who will be able to determine the prices of the fertilisers they manufacture and the fertilisers they will be importing-they will continue to import large quantities, both of completed products and of components for products which are produced here-because the Government is basically giving them back the whole Australian market. We should remember that in 1982 this subsidy introduced competition into the market which has, according to the President of the National Farmers Federation, reduced farmers' fertiliser costs by $70m.

If it were possible to control the prices these manufacturers can charge we would not be so concerned. But does anybody seriously expect that local producers, with increased protection, will not seek to maximise their profits by charging the highest prices the market will take? There will be no competition to prevent them from doing so, and the Federal Government cannot control their prices. I am on the side of our rural producers who fear that the market control this legislation will give to domestic fertiliser producers will translate into a spiral of rising prices designed to maximise profit in what will virtually become a closed market, as was the situation before 1982. If the production costs of our products, such as wheat, rise in the current world market situation, we will sell even less and the export side of our balance of trade will decline. At the end of October, after the announcement of the Budget changes, Senator Button called for an urgent report on claims that fertiliser prices in southern New South Wales had increased by up to $40 a tonne. The price rise was to have been described as the removal of a transport subsidy.

In the report in the Australian Financial Review on 29 October the Australian fertiliser manufacturer involved was described as deciding not to go through with the proposed price increase because it was a `concern politically'. The general manager was quoted as saying: `We gave some consideration to looking at prospects to increase prices but we have not done so'. According to that report, the involvement of Senator Button's staff who contacted the manufacturer had brought the issue under control. It is clear what the Australian manufacturers want to do. They have merely jumped the gun before the legislation is passed. I do not know how often the responsible Minister's staff can successfully prevent such price rises once the legislation has been passed.

I draw attention to a Press release of 14 October 1986 from the Minister which drew attention to the fact that monitoring arrangements which had been in place for some time had been strengthened to reflect the reduced competition from imports which will result from the changes to subsidy payments. It appears that people in the Minister's office share the concern about which I have been talking. Redressing the concern in this instance would depend very much on the sort of action that would be available through the Minister's Department. Therefore, I understand the fear of Australian rural producers. In this situation, when we are choosing between making a government payment to advantage or assist the fertiliser industry or primary industry, I choose to support our farmers at this time, especially in those industries most likely to be affected-the grain and sugar industries-and place my vote on the side of rural industries which are at risk. Although there is certainly a need for considerable adjustment, I believe that this is not the time for it or the way for it to be done.