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Monday, 8 May 1989
Page: 1994

Senator CHILDS —I present the report of the Senate Standing Committee on Industry, Science and Technology entitled Assistance for the Sugar Industry, together with the transcript of evidence.

Ordered that the report be printed.

Senator CHILDS —by leave-I move:

That the Senate take note of the report.

In moving to take note of the report by the Standing Committee on Industry, Science and Technology entitled Assistance for the Sugar Industry I draw attention to the fact that the report contains five key recommendations. Together they provide reassurance for the industry and support if and when the world sugar price slumps in the next three years. In brief, the recommendations are, firstly, that the proposal to end the sugar embargo proceed; secondly, that a sliding scale tariff system be introduced to provide more protection for the industry should the world sugar price fall below a certain level in the next three years; thirdly, that the Industries Assistance Commission review the situation and report before 1 July 1992; fourthly, that an Australian Sugar Industry Council be established; and fifthly, that any deficiencies in the anti-dumping legislation be investigated and amendments made if necessary. These recommendations, if adopted, should ensure the continued viability of the Australian sugar industry. Furthermore, overall levels of protection will be significantly reduced in line with Government policy.

This matter was referred to the Committee on 14 December 1988. It resulted from concerns raised about proposals to replace the sugar embargo with tariffs and end current domestic pricing arrangements when the sugar agreement expires on 30 June 1989. The Committee conducted public hearings in Brisbane, Bundaberg and Canberra. It took evidence from a wide range of people and organisations, including the Minister for Primary Industries and Energy (Mr Kerin), representatives of his Department and the Australian Bureau of Agricultural and Resource Economics, and representatives of the Australian sugar industry, the trade unions and sugar consuming industries.

The Committee was also able to view a number of aspects of the sugar industry first hand. It visited the sugar growing centres of Mackay and Bundaberg and conducted informal discussions with a number of people and organisations there. The Committee found that there is widespread concern in the industry and in the trade unions about the possible implications of the proposed changes. The industry has just recovered from a prolonged period of very low prices which caused significant economic hardship. There are fears that removal of the embargo and current domestic pricing arrangements will threaten industry viability if the bottom falls out of the market again. These fears exist despite predictions by the Australian Bureau of Agricultural and Resource Economics that prices will continue to improve for the next two years.

Australia exports 80 per cent of the sugar it produces. A considerable proportion of this sugar is sold on the world market, a market corrupted by government interference and unfair trading practices. Because of the nature of the world market the free market price of sugar is extremely volatile and has varied between US3c and US40c per pound in recent years. Sugar is frequently sold or dumped at prices which are well below the cost of production.

The sugar industry argues that the sugar embargo and the domestic pricing arrangements have helped it to survive previous slumps in the sugar market. This is because under the current arrangements domestic sales of sugar return more to the industry when the world price is low. When the price is high the industry subsidises the consumer as the domestic sugar price is held at lower levels than the prevailing world price. The industry considers that the tariffs proposed by the Government provide the least assistance when the price is low and protection is most needed. When the price is high and no assistance is needed the level of protection is high.

It is feared that when world prices are low and the industry is at its most vulnerable sugar will be dumped in Australia at very low prices. The trade union representatives to whom the Committee spoke also expressed concern about the possible effects of the changes, particularly on employment. They argued that the changes would increase insecurity of employment in an industry already characterised by declining employment levels.

The Minister for Primary Industries and Energy put the Government's position to the Committee. Mr Kerin's view is that excessive regulation and protection have resulted in a smaller, less efficient industry than would otherwise exist. The Committee was told by Mr Kerin that excessive regulation of the industry has meant that potentially profitable opportunities have been missed because production could not be increased in time and that the industry would be better off in the long term if it were less heavily regulated. Mr Kerin also informed the Committee that the changes are part of the Government's overall plan to reduce protection levels in all industries. He said that the sugar industry would benefit from these changes and could not expect to be exempted from them.

The embargo and the domestic pricing arrangements are just part of the regulation of what is a very heavily regulated industry. The Queensland Government, through the Sugar Board and the Central Sugar Cane Prices Board, controls most aspects of production. For example, farmers are told how much cane they may grow and are penalised if they grow it on land not assigned for cane growing. The Queensland Government also acquires and markets all sugar produced. Mr Kerin informed the Committee that he considers that the proposed changes will act as a catalyst to force other changes in the industry.

The Committee also took evidence from representatives of some of the sugar using industries. They were generally supportive of the Government's proposals. They considered that they should have alternative sources of supply available to them. They also thought that the sugar industry should operate in the same competitive environment as them.

The Committee was placed in a difficult position by these conflicting viewpoints. On one hand, it appreciates that there is a need for change in the industry. There are benefits to be had from an overall reduction in protection levels. There is also a need for Australia to adopt policies which are consistent with its international efforts to free up world trade. The arguments for change presented by the sugar using industries must also be considered. On the other hand, the Committee is aware that, despite the controls on it, the sugar industry is technically a very efficient industry. Australia is a low cost producer of sugar by world standards. It competes on a world market characterised by wildly varying prices and unfair trading practices.

There is considerable scope for damage to be done to the industry if it is left unprotected during times when the world price is low. The people who will suffer most are those least able to adjust, such as mill workers and people in the extensive service industries. Even though the Australian Bureau of Agricultural and Resource Economics has predicted that the price will increase over the next two years, the Committee believes that a mechanism for protection should be put in place. It is for these reasons that, after considerable deliberation, the Committee came to the view that the embargo should be lifted, but that the industry should be provided with some protection when prices are low. No protection need be provided when the price is at more reasonable levels.

The Committee does not consider that the proposed ad valorem tariff structure is appropriate for this industry. Such tariffs provide very little assistance at low price levels, and burden sugar using industries with high tariffs when the price is high. The Committee canvassed a number of options for achieving an appropriate tariff mechanism. We recommend that a sliding scale tariff come into effect when the value of sugar falls below a certain level. Clearly, this mechanism is designed to apply only when the price is low. It will satisfy both the industry's requirement for some protection at low price levels and the Government's objective of reducing overall protection levels.

The Committee considers that there is a need for a forum in which all participants in the industry can be heard. Whatever the situation has been in the past, there will now be a national approach if an Australian sugar industry council is established. This body would operate as an advisory body to government.

The Committee's final recommendation concerns the adequacy of the present anti-dumping legislation. The Committee received evidence during the inquiry which alleged that the anti-dumping legislation would not adequately protect the sugar industry from dumped imports. Despite apprehension in the industry, only a small number of companies would seek to import products at dumped prices. Nevertheless, advice from the Australian Customs Service confirmed that there may be some difficulties in applying the anti-dumping legislation to sugar imports. The Committee recommends that, if deficiencies are alleged, they should be investigated and changes made to the legislation if necessary. Should there be evidence of undue delay in dealing with dumping complaints, the Committee would be prepared to consider a further reference to investigate the evidence.

In conclusion, I would like to place on record the Committee's appreciation of the cooperation shown by Mr Kerin who made a personal appearance before the Committee. He provided us with a very frank statement of his views on why he considered change to be necessary in the sugar industry. This was most useful to the Committee in its deliberations. I would like to thank all those who made submissions and appeared as witnesses before the Committee. The Committee also received and took up offers of informal assistance from others such as representatives of the Australian Customs Service and I would like to thank these people.

I also would like to thank those companies and organisations in Mackay and Bundaberg which extended hospitality to the Committee during its visit to those areas. I am pleased to be able to tell the Senate that the Committee members were able to cooperate extremely well with each other in the conduct of this inquiry and are to present a unanimous report. The Committee secretariat, who had to work very hard, deserve our thanks because they had to meet a Senate deadline.