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Tuesday, 9 May 1989
Page: 2064


Senator COOK (Minister for Resources)(3.47) —I table revised explanatory memoranda relating to the Bills and move:

That these Bills be now read a second time.

I seek leave to have the second reading speeches incorporated in Hansard.

Leave granted.

The speeches read as follows-

WHEAT MARKETING BILL 1989

The purpose of this Bill is to introduce new marketing arrangements for the wheat industry and thereby establish a sound future for one of Australia's most important export earners.

In a speech to the Annual Conference of the Grains Council of Australia last year, I invited the industry to take the opportunity of the need for a new Wheat Marketing Act and the Report of the Royal Commission into Grain Storage Handling and Transport to think seriously about the future structure of the wheat industry and its position in the Australian and world economy.

It is a matter of some regret that the GCA has been unable to articulate a vision for the future of its industry and has adopted a position of non-negotiability on the major issues.

While the GCA has been arguing for the status quo it seems not to understand that this is an industry which has been undergoing continuous and, in some cases, quite major change. For instance:

wheat growing is becoming part of a broader grains industry in which more growers are prepared to make changes in their cropping based on relative prices

the industry has recently weathered extremely unfavourable market conditions caused by heavy export subsidisation by the US and EC

wheat purchasers are becoming more specific about the quality characteristics they seek

the AWB's operations have changed significantly over the last decade. For instance the Board is now a significant offshore borrower. More recently the AWB has provided growers with more flexible delivery options through the introduction of pool cash out arrangements, warehousing and a special stockfeed segregation.

the domestic market has already been partially deregulated with the introduction of permits for feed wheat and continued black market trading.

growers have been getting more experience of alternative methods of selling their grain. Even the GCA has recognised this through its recent establishment of the National Grain Exchange.

The industry has shown that it can respond to the pressures for change. It must continue to have this flexibility. The wheat market is currently very buoyant due to a combination of crop shortages and a rundown in US stocks. However the mechanisms which encourage over-production in some countries remain in place. We are seeking through the GATT Uruguay Round to have these measures wound back, and I am very pleased that during recent negotiations in Geneva progress was achieved in setting out a long and short-term framework for liberalising agricultural trade. However, much remains to be done since Australia cannot compete with the treasuries of the US and EC. We can only respond to difficulties on the world market by ensuring that we not only grow, but also handle and market our grain as efficiently as possible.

This objective cannot be achieved while unnecessary regulation and controls limit the AWB's effectiveness and impose extra costs on growers and users of wheat.

The Bill contains provisions to retain the AWB's export monopoly, but to open up more choice for growers by deregulating the domestic wheat market. In place of the compulsion contained in the current marketing arrangements the Government is introducing a range of measures to extend the AWB's commercial powers and flexibility to ensure that it will be able to compete effectively in a deregulated market. The Bill also gives effect to the Government's concern to minimise its own control over the AWB's operations and to extend the Board's accountability to growers. The AWB will not be weakened as has been claimed, but will be significantly strengthened.

Specifically, and most importantly, the AWB will have clear powers to buy wheat for cash. This will enable it to remain a force in the domestic market, but will also ensure that it has the flexibility to access particular qualities of wheat for export if these are not made available through the pooling system.

Second, while the AWB's principal objective will remain the marketing of wheat, it will have the scope to market other grains and wheat grown in other countries where this assists its wheat marketing effort.

Third, the AWB will still be able to pool returns but it will have flexibility in deciding how to conduct these operations. Under the current Wheat Marketing Act there is a single ASW pool with differentials established for other grades. This leads to inflexibility. Under the new legislation the AWB will be able to establish separate pools for separate grades or time periods. This, together with a wider range of payment options, will provide greater scope for responding to market movements.

I should also point out that the legislation does not make any specific requirements of the AWB regarding its pooling activities and the balance between these and any direct trading in wheat. This will be for the AWB and growers to decide in consultation.

The AWB will also have powers to enable it to establish subsidiary companies and to engage in other commercial activities such as countertrade, processing, storage and handling. To assist these activities the legislation will also provide for an industry fund to provide the AWB with a much needed capital base. I will elaborate on arrangements for the fund later in this speech.

To complete its marketing powers the AWB must be able to operate within States. The Government urges the State Governments to ensure that the Board is not weakened by the lack of appropriate facilitating legislation.

The Opposition and the Grains Council of Australia have suggested that the Bill is deficient because it does not provide the AWB with powers to trade within States. The simple fact is that the Commonwealth does not have the constitutional power to legislate to this effect. The issue of facilitating the legislation was raised with the relevant State Ministers at the February meeting of the Australian Agricultural Council, for their own reasons some States have chosen to prevaricate. It is the State Governments, not the Commonwealth, who must now act on this issue.

A significant issue for Australian grain producers is the cost associated with the storage, handling and transport of their product. The Royal Commission identified that in 1987-88 these costs were equivalent to around 22% of the fob price for wheat. It recommended a series of deregulatory moves which included the removal of sole receival rights for grain handling authorities, removal of restrictions on the transport of wheat in certain States and the disaggregation of charges for these services to enable growers to make informed decisions about least cost grain paths. The Royal Commission estimated that these changes could lead to potential resource cost savings of up to 10 dollars per tonne.

The Commonwealth Government has endorsed the broad thrust of the Royal Commission's findings and last year amended the Wheat Marketing Act to provide the AWB with the choice in contracting for grain distribution services and to disaggregate charges to growers. Much of the responsibility for putting the Royal Commission's recommendations into effect rests with the State Governments. However, New South Wales is the only State to announce a positive response.

If the AWB and other grain trading corporations are to realise the savings estimated by the Royal Commission, they must have the scope to use least cost methods of handling and moving grain. The amendments to the 1984 Wheat Marketing Act, which I have already mentioned, were a step in this direction. However, some States have chosen to deny growers the opportunity of benefiting from the potential savings by continuing monopoly practices in their handling and transport sectors.

May I provide some examples. In Victoria, Section 188 of the 1983 Transport Act restricts the mode of transport of certain goods. Bulk wheat, barley and oats are not to be carried by private road hauliers beyond a 60 km radius of the place of consignment unless the vehicle owner has been granted a permit by the State Transport Authority. Under section 10 (2) of the Grain Elevators Act, the Grain Elevators Board has the exclusive rights to handle grain in the State.

In Queensland, similar regulations effectively restrict to rail grain transport over distances greater than 120 km. Section 26 of the Grains Handling Act provides Bulk Grains Queensland with exclusive rights to the storage and handling of export grains shipped from Queensland.

The AWB and other grain trading corporations must be not disadvantaged by this lack of action on the part of the States. The new Wheat Marketing Act provides clear powers for the AWB and other grain trading corporations and their service providers to enter into contracts for storage, handling, transport, port services for grain and marketing of wheat intended for interstate or export unencumbered by State regulations.

Following tabling of this Bill in the House of Representatives, concerns were raised about the inclusion of references to grain marketing in the sections of the legislation dealing with these powers. The Minister has made it clear that these provisions were not aimed at changing current arrangements within the States for the marketing of other grains. They gave the Government a reserve power in case the States tried to circumvent the Commonwealth's intention to enable unrestricted transport, storage and handling operations. However, recognising the concerns expressed by the States, the Government accepted an amendment in the House confining regulations on marketing to wheat.

I turn now to the marketing provisions in this Bill. The Government recognises that world grain markets remain under the influence of distorting government policies. I have decided, in response to widespread concerns expressed by the GCA and growers generally, that the AWB should remain the single export marketer for all Australian wheat. The AWB will continue to be able to use private traders as principals or agents as it does now and it will be able to authorise the direct export of wheat if the Board and growers judge it in their best interest. While it continues to have this export monopoly, the AWB will continue to be the receiver of last resort. This will, however, not prevent it from setting standards for the wheat it receives.

There is no justification for continuing the AWB's domestic marketing monopoly. Wheat is the only industry subject to Commonwealth regulation which has this control. In its 1988 May Economic Statement the Government announced that domestic support arrangements for agriculture should be progressively reduced in accordance with the general reductions in protection and assistance across the economy.

The Bill provides for the domestic marketing of wheat to be freed up and this will be achieved through the removal of compulsory acquisition and termination of the arrangements for an administered domestic price. The objective of this move is to give growers greater choice in how they sell their wheat and when. Growers will still have the option of delivering to the AWB's pools, but in addition they will be able to sell their wheat for cash either to the AWB or to other buyers on the domestic market.

It is quite clear that many growers want this choice. Some 90% of the wheat used for feed purposes is traded under the permit system. It is also a fact that wheat continues to be traded on the black market and, as indicated recently by the Flour Miller's Council, that milling wheat is being sold through the feed wheat permit system.

The essential point is that compulsory acquisition is no longer needed for an efficient marketing effort. I am confident that the AWB will remain the dominant force in a deregulated domestic market given its expertise and the additional commercial powers which I outlined earlier.

An important benefit arising from freeing up the domestic market will be the greater scope growers will have to arrange their own storage, handling and transport. These additional competitive pressures will assist in achieving the potential resource cost savings in this sector identified by the Royal Commission.

Users of wheat, particularly feedlotters, will also benefit from a freer domestic market and the removal of the costs and red tape involved in the current grower to buyer and permit systems.

In the recent debate on wheat marketing much has been made of the effect of domestic market deregulation on growers' returns. The argument has centred on concern that when prices are depressed by heavy subsidisation on overseas markets, this will be reflected in the domestic market price.

This effect, however, depends on the level of subsidisation and also the size of the Australian crop. During the last season the smaller Australian crop and improved market opportunities meant that there was little need for the AWB to discount its prices, even though there was continued strong subsidisation by the US and EC. When market prices are rising rapidly, the domestic price arrangements can cost growers money. The inclusion of past prices in the formula can lead to the Home Consumption Price being lower than the free market price.

The AWB through its export monopoly will still control some 80 per cent of the wheat produced. Average export prices as reflected in the expected net pool return will put a floor in the market. Contrary to claims by the GCA no grower selling wheat outside the AWB system is likely to accept a farm gate price which is less than the price obtainable through the pool.

Estimates show that over the last four years, if none of the wheat sold domestically had passed through the AWB pools, the loss to the pools would be in the range of 0.23 cents per tonne to 2 dollars and 93 cents per tonne overall. This is the worst that could happen and, in my view, is highly unlikely to happen.

In a free market millers can be expected to continue to pay a premium to secure their special requirements for regular supplies and there will be scope for individual growers to achieve quality premiums within the ASW range, something that is not available to the AWB under the current administered domestic price. In addition, the potential savings through the use of more efficient storage, handling and transport facilities can be expected to more than outweigh any transient reduction in prices likely to result from subsidisation on export markets.

These new marketing arrangements will meet the needs of growers of specialty wheats such as durum and organically grown wheat. Currently these producers incur the AWB's pool costs even if they do not use its services. In future they will be able to sell their wheat freely on the domestic market and I would expect that the AWB will be able to accommodate the export needs of these producers either through its additional pooling flexibility, or through the scope it has to authorise the direct export of wheat.

While the AWB will have extended commercial powers and a continued export monopoly it should not abuse its market power. The Trade Practices Act will apply to its commercial activities. In this regard it will be important for the Board to keep its trading and pooling activities at arms length and for it to visibly and separately account for these activities.

Concern has been expressed that domestic market deregulation will affect Australia's ability to maintain its current high standard of grain hygiene and that this will affect our export effort. I do not believe this will be the case. The AWB will be able to enforce existing hygiene standards through its contractual arrangements with those providing storage, handling and transport services. The legislation will make the Board's powers clear in this respect. Wheat which moves outside the AWB will be subject to market pressures if it does not meet hygiene standards acceptable to buyers. Some growers may choose to store more wheat on farm, but this is unlikely to be extensive particularly since the option of warehousing is now available.

A guaranteed minimum price scheme has operated in the wheat industry for 10 years. This scheme has its drawbacks. Because of the averaging effect of the GMP formula, the GMP and, therefore advance payments, is not necessarily a good indication of expected market returns. For instance, because of the recent strengthening of the wheat market, the final GMP set recently for the current season is only about 80 per cent of expected net pool returns. The GMP has tended to be used as a market indicator but is clearly a poor one. The GMP arrangements have also been the source of rigidities in the operation of the current wheat marketing arrangements, particularly with respect to the AWB's pooling operation.

In all years the principal benefit of the GMP scheme has been the backing it provides to enable the AWB to borrow at favourable interest rates and pay a relatively high first advance to growers delivering wheat to the AWB pools. The Government will continue to provide this benefit via a specific borrowing guarantee. Essentially this means that the AWB's borrowings will continue to be underwritten by the Government. Should there be a call on the guarantee the Government will meet its obligation and will not seek repayment by the industry. This is a significant commitment and is indicative of the Government's willingness to continue to back the wheat industry.

In the initial year of the new arrangements this guarantee will be set at a level which will enable the payment of a first advance equivalent to 90 per cent of the estimated net pool returns in the current season. I would point out that because of the current rising market prices, this will result in a higher first advance than would have been available under the GMP scheme.

In the 1988 May Statement the Government announced that industry should progressively take over responsibility for funding the costs involved in reducing price uncertainty through underwriting schemes. Consistent with this intention the level of the borrowing guarantee will be phased down to 80 per cent of estimated net returns in year five of the new arrangements. The guarantee will be subject to review within five years. Should the industry wish to have a higher level of first advance than that available through the borrowing guarantee, provision has been made for it to introduce its own mechanism to make any additional payments.

Arrangements for setting the level of the guarantee will involve preliminary Ministerial determination (in consultation with the AWB and the Bureau of Agricultural and Resource Economics) of the estimated net pool return for the season by 1 October. As under the current arrangements, a final guarantee and advance could be established later in the season. It will be up to the AWB in consultation with the GCA to determine the actual level of first advance for particular categories of wheat delivered to pools which will be based on the level of available borrowings. The level of the Government's financial commitment, however, will be limited on an aggregate basis to the level of the borrowing guarantee.

I am aware that the averaging arrangements in the previous GMP scheme provided support to growers in circumstances of extreme market downturn such as in 1986-87. If such a crisis were to occur again the Government would need to give close consideration to special support arrangements for the industry. I would also point out that the Government is also providing drought assistance and national interest insurance cover to the wheat industry.

The financing arrangements I have just described relate only to the AWB's pooling operation. However, as I have indicated, the Board will have a broader commercial role and there is a need to establish a capital base for it. It is a source of major weakness to the industry that the AWB has no asset base despite its role as one of the country's largest marketers. The new wheat marketing legislation will provide the mechanism for the establishment of an industry fund through a levy on all wheat sold. The Government will also assist in the initial establishment of this fund through the provision over five years of a loan guarantee of up to 100 million for the purposes of the fund.

This will not be a stabilisation fund. It will provide finance for a range of activities which would include:

the AWB's commercial undertakings, including cash purchases

making advance payments above the level provided through the AWB borrowing guarantee

providing insurance on credit sales.

It will be for the GCA in consultation with the AWB to determine the specific uses to which finance from the fund will be put.

The fund will be a powerful new avenue through which the industry will be able to influence its future. Detailed arrangements for the fund are still being considered by the GCA and the AWB and will be incorporated in regulations. I would emphasise, however, that the Government would want to see a commercial relationship between the fund and the AWB and proper equity arrangements established for growers. The fund will only be activated if industry agrees to the introduction of a levy for this purpose.

Levy arrangements are the subject of separate Bills.

The AWB will be moving into a new phase of its operations and facing new challenges. It will be undertaking expanded commercial operations with a minimum of Government control but with Government borrowing guarantees. If the AWB is to perform effectively in this new environment it is essential that the best qualified people are appointed to the Board. It must be able to develop clear corporate strategies and purpose. The new Act will provide for Board members to have a balance of skills in the areas of production, marketing and finance.

It will also be essential for the AWB to have a highly skilled management team. It must have a Managing Director as the Chief Executive who the Board should be able to pay at market rates, free from the Remuneration Tribunal constraints which operate at present.

In principle I favour the appointment of a non-executive Chairperson who in the long term would be part-time. I recognise that the Board faces a challenging task in the transition to the new arrangements and that stability in its leadership structure is desirable. I have indicated to the GCA that the AWB will continue to have a grower Chairperson.

I am aware of grower concern about ``loss of control'' of the AWB. Let me emphasise that the Board will continue to be accountable to growers. However, this responsibility will be exercised through the the AWB Selection Committee and consultative arrangements between the AWB and GCA rather than through participation in the day to day running of the Board.

The new Act will make clear provisions for the AWB to consult the GCA on the performance of its functions. In particular, I would expect the AWB to consult the GCA on such issues as the establishment of subsidiaries, pooling arrangements and general policy on trading in other grains and wheat of other origin. While the Act provides for a minimum of one consultative meeting each year, I would expect the AWB and GCA to consult more frequently than this.

Given its continuing role as a statutory authority, the AWB will also continue to be accountable to the Minister and the Parliament. The Board's Annual Report, Corporate Plan and Annual Operating Plan constitute important avenues of accountability both to the Government and the GCA.

The current arrangement under which the cost of shipping wheat to Tasmania is funded through a levy on domestic wheat sales will be terminated with the deregulation of the domestic market. The Government has, however, undertaken to continue funding this assistance from Consolidated Revenue. The exact amount of this assistance has still to be worked out but in 1989-90 I expect it to be close to the average level of about 3 million dollars which has applied in recent years. The assistance will phase down by 25% over the five year period commencing in 1989-90 and the scheme will be subject to review within five years.

There are no other direct financial implications arising from the legislation, although the Government is committed to assuming contingent liabilities under the proposed borrowing guarantees.

I believe that this new legislation will set the Australian wheat industry on a clear path for a prosperous future. It provides for a commercially strong AWB, free from unnecessary regulation and with clear lines of responsibility to growers. The marketing arrangements will provide more flexibility and choice to growers and an opportunity for both growers and end users to keep costs down. These changes together with the introduction of new financing arrangements for the AWB will ensure that the industry is in a strong position to meet competitive challenges into the next century.

I commend the Bill to Senators.

WHEAT INDUSTRY FUND LEVY BILL 1989

The purpose of this Bill and the associated Levy Collection Bill is to enable the wheat industry to impose and collect a single ad valorem levy on wheat, for distribution between the Wheat Research Trust Fund and any industry fund which may be established under the provisions of the Wheat Marketing Bill 1989. This latter Bill is the basis for the whole legislation package covering new wheat marketing arrangements to apply from 1 July this year.

The levy will be paid on wheat that is sold, delivered or processed by or on the growers' behalf from 1 July this year. This will enable the continuation of the current research funding arrangements based on grower and matching Commonwealth contributions, from that date.

The Grains Council of Australia will determine the rate of levy, based on a percentage of sales value, for payment to the research fund. This percentage which will be set by regulation cannot be less than 0.25% and this compares with the current rate of research tax of about 0.35% of value. The industry has already indicated a preparedness to increase its contribution to research over a three year period in order to move towards the ceiling of the Government's matching contribution of 0.5% of average gross value of production.

The industry fund provided for under the Wheat Marketing Bill to finance a number of commercial activities by the Australian Wheat Board will only be activated if the industry through the Grains Council determines that a percentage of the total levy to be imposed under the Levy Bill is to be used for this purpose. This percentage of sales value cannot be less than 2% which is equivalent to about 3 dollars and 80 cents per tonne for standard quality wheat.

The decision to implement an ad valorem levy to replace the previous fixed rate per tonne wheat taxes, which were imposed for research purposes and the operation of the stockfeed permit scheme, was designed to make the levy as equitable as possible. For example a tonne of prime hard wheat is more valuable by about 35 dollars than a tonne of feed wheat and therefore an ad valorem levy will distribute the levy burden more evenly among growers of different qualities of wheat.

The amount of revenue collected for wheat research purposes under the new levy arrangements is not expected to vary from current estimates which reflect the industry's agreement to increase its contribution to research. Revenue is expected to increase to 11.8 million dollars by 1991/92 from the current level of around 10.5 million dollars.

It is estimated that if the industry fund is activated the component of the levy for payment to the fund would initially be set at 2% of sale value. This would result in revenue of an estimated 55 million dollars in a full year.

Administration of the levy collection arrangements will be undertaken within the existing resources of the Department of Primary Industries and Energy.

I commend the Bill to honourable senators.

WHEAT INDUSTRY FUND LEVY COLLECTION BILL 1989

The purpose of this Bill is to provide the machinery necessary for collecting the levy imposed by the Wheat Industry Fund Levy Bill 1989.

This Bill should be read as one with the Levy Bill and is to come into operation on the same day as that Bill becomes operative.

The Bill specifies the liability of purchasers and receivers under the scheme, outlines penalties for non-compliance and provides appropriate powers of enforcement.

There are no financial implications other than those covered in the Second Reading Speech for the Wheat Industry Fund Levy Bill 1989.

I commend the Bill to honourable senators.

WHEAT (TERMINATION OF TAX) BILL (NO. 1) 1989

The purpose of this Bill is to terminate at 30 June 1989 the current research tax arrangements imposed on wheat delivered to the Australian Wheat Board. After that date an equivalent research levy will be imposed on wheat under provisions of the Wheat Industry Fund Levy Bill 1989.

Those sections of the principal Act, the Wheat Tax Act 1957, covering payment of tax monies already collected will remain in force to enable finalisation of these arrangements.

I commend the Bill to honourable senators.

WHEAT (TERMINATION OF TAX) BILL (NO. 2) 1989

The purpose of this Bill is to terminate at 30 June 1989 the research tax imposed on wheat sold under grower to buyer arrangements. This scheme will no longer operate under the deregulated domestic wheat marketing arrangements provided for under the Wheat Marketing Bill 1989.

Provisions of the Wheat Tax Act 1979 covering payment of tax monies already collected will remain in force to enable finalisation of these arrangements.

I commend the Bill to honourable senators.

WHEAT (TERMINATION OF PERMIT TAX) BILL 1989

The purpose of this Bill is to terminate at 30 June 1989 the tax imposed on permits issues by the Australian Wheat Board for stockfeed wheat sold outside of the pooling system.

This permit scheme will no longer operate under deregulated domestic marketing arrangements provided for under the Wheat Marketing Bill 1989.

I commend the Bill to honourable senators.

WHEAT TAX (PERMIT) COLLECTION AMENDMENT BILL 1989

This Bill in association with the Wheat (Termination of Permit Tax) Bill 1989 provides for the finalisation of tax payment arrangements under the current stockfeed wheat permit scheme which will terminate on 30 June 1989. Provision for the refund of any tax to permit holders, as is appropriate under the Wheat Tax (Permit) Collection Act 1984, will be maintained.

I commend the Bill to honourable senators.

Debate (on motion by Senator Tambling) adjourned.