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Rural and Regional Affairs and Transport References Committee
16/07/2013
Ownership arrangements of grain handling

ARNEY, Mr Darren, Chief Executive Officer, Grain Producers South Australia

WEIDEMANN, Mr Andrew, Chairman, Grain Producers Australia

WOODS, Mr Peter, Project Manager, Grain Producers Australia

[12:46]

CHAIR: Welcome. We have received your opening statement. Would you like to summarise that?

Mr Weidemann : Thank you, firstly, for the opportunity to present today. Grain Producers Australia is not here to comment on the purchase of GrainCorp by Archer Daniels Midland. GPA understands that the ACCC will not oppose the acquisition, as per the media release of 27 June 2013. Although GPA was pleased to hear at this committee's hearing on 18 June ADM's Mr Finn state, 'As a business and investment in Australia we also want to work on a level playing field,' GPA doubts this is actually the case with transparency of stocks. During that hearing, senators directed numerous questions at ADM executives regarding court cases over supposed price fixing. GPA is of the view that if the Australian grains industry has broad competition and stocks transparency than the possibility of this behaviour will be limited.

Export statistics for the 2013-14 margin year to mid-June clearly indicate that for wheat the top five exporters have in excess of 80 per cent market share. Each of these exporters also control and own port terminal facilities and have significant up-country storage and handling facilities. There has been significant concern on this matter across Australia, particularly in the last few years. In fact, this is the fifth inquiry where such matters have been raised.

The government, in abolishing Wheat Exports Australia, set up the Wheat Industry Advisory Taskforce to report by 1 July 2014 with $3.5 million of grower levy funds. GPA was in favour of setting up the task force, but in six months the task force has met only twice and, following its second meeting on 23 May 2013, indicated that it was close to finalising a discussion paper on the issue which will include preliminary observations. GPA believes the task force has taken far too long to make at least some preliminary findings and give the industry some level of confidence. Action is required now, not in another 18 or 24 months. Growers' livelihoods are at stake because of the lack of transparency in price discovery.

What is the level of reporting that is done in the US and Canada? Reporting in the USA includes weekly updates of commercial sales and an export sales reporting program. All exporters of importable US commodities are required to report their firm's weekly export sales and shipments by commodity and destination under USDA's Export Sales Reporting Program. Reportable commodities under the Export Sales Reporting Program include wheat, feed grains, seeds, cotton, rice, hides, skins and beef. Reporting under the Export Sales Reporting Program is mandatory. Any person who knowingly fails to report under this program may be fined not more than $25,000 or imprisoned for not more than one year or both.

There is a National Agricultural Statistics Service. Within the United States Department of Agriculture the Economics, Statistics and Market Information System publishes a quarterly report on grain stocks. This report contains stocks of all wheat, durum, corn, sorghum, oats, barley, soybeans, flaxseed, canola, rapeseed, rye, sunflower, safflower and mustard seed, by states and US and by position—on-farm or off-farm storage. It includes number and capacity of off-farm storage facilities and capacity of on-farm storage facilities.

The National Agricultural Statistics Service grain stocks estimates in this report are based on surveys conducted during the first two weeks of the month of its release. Separate surveys are conducted to obtain the on-farm and off-farm estimates. The on-farm stocks survey is a probability survey that includes over 84,000 operators selected from a list of producers that ensures all operations in the United States have a chance to be selected. These producers are asked to provide the total quantities of grain stored on their operations as of 1 December 2010. This includes all wholegrains and oilseeds stored whether for feed, seed, or sale as well as any stored under a government program.

The off-farm stocks survey is an enumeration of all known commercial grain storage facilities. This includes approximately 9,000 facilities with about 9.74 billion bushels of storage capacity. An effort is made to obtain a report from all facilities. Reports of stock holdings are normally received from operations covering about 90 per cent of the capacity. Estimates are made for missing facilities to make the survey complete.

Reporting in Canada, the Canadian Grains Commission provides a weekly report, Grains statistics weekly. This publication contains data on weekly and crop year-to-date movement of principal grains and oilseeds from Canadian farms for domestic processing and exports, stocks in various commercial facilities, grain prices and feed grain handlings. This information is published on the Canadian Grains Commission website—

CHAIR: Can I interrupt? We are pressed for the clock and witnesses are backing up. Could you summarise what is left? We are more interested in the questions. The point of your opening statement is to deliver what message?

Mr Weidemann : The thing from our point of view is that multinationals are used to reporting their stock situations and exports in both the US and Canada, so why don't they want to report the same in Australia?

CHAIR: In other words, what is in the warehouse.

Mr Weidemann : What is in the warehouse, what is in the system, what is in the supply chain. There can be only one reasoned market advantage, and reporting exports and stocks is not a new proposition to ensure a level playing field. We have been here before in front of the senators. Stocks transparency is essential and should be legislated. Growers need this information to make informed decisions to sell or hold their grain. Just because the price is falling does not alter this; in fact, there is a greater need for more transparent information at this time. You will want to use it no matter the quantity or specifications of the grain—if there are large or small quantities of this produced, and in warehouse—of course you will, as this will help you decide to sell now or store to sell at a later date.

GPA is also concerned with the lack of regulation with regard to grain pools. The Wheat Export Authority highlighted the difference between EPRs and actual returns. The WEA pool reports indicated that there were clearly some consistently bad performances. Growers are concerned that a class action against one of these grain pool operators—

CHAIR: Is that Emerald you are talking about there?

Mr Weidemann : That is Emerald.

CHAIR: It pays to know your game.

Senator EDWARDS: I note your submission, which is fairly consistent with that of our previous witnesses, and I asked them the same question. The ACCC this morning gave their evidence and, to cut to the chase, the thrust of my questioning is: are you involved currently with the ACCC or having any input into the task force as to how this mandatory code of conduct should be shaped which will largely influence how I believe you are protected from any takeover by any company of any assets of which you have seven eighths control—like the one we are having this inquiry on?

Mr Weidemann : I have been involved through GPA in the establishment of a port access code development committee. It is fair to say that there is some agreement around some of the port access provisions, but there is contention around issues of stocks information and transparency of supply.

Senator BACK: They do not want to give you that clarity? Who does not want to give it to you: the traders or the bulk handlers?

Mr Weidemann : Nobody really wants to give us the information we require to make it a transparent marketplace to the level we are asking.

Senator EDWARDS: So the traders can operate.

Mr Weidemann : There is a provision looking at up-country sites and the information in those up-country sites is important with regard to the transformation and formation of cargoes, assembly of cargoes et cetera

And if you are exporting you need to know the quality parameters in those particular port zones. Interestingly, I note Alison Watkins' comments this morning that the information has no advantage. On your question around ACCC, GPA has never been of the view that the ACCC has the expertise, I think again shown this morning in their comments, to represent the interests particularly of producers. We were quite shocked by the level of potential lack of understanding of what this actually means to us as growers.

Senator EDWARDS: So there still is potentially the proposition that the fox could be in charge of the henhouse still.

Mr Weidemann : Quite clearly.

Senator EDWARDS: If we can get over this issue then we can all remain relaxed about who owns anybody.

CHAIR: Except, with great respect, Senator Edwards, when it comes to paying their due revenue.

Senator EDWARDS: With a number of caveats that they behave like good corporate citizens and pay their taxes. That is implicit in what I am saying. But there still remains that issue. So you do not mind foreign ownership as long as the flaws in the system are addressed, and you are still experiencing problems with the ACCC understanding and the task force understanding that you need that stocks information in the marketplace for there to be a level playing field.

Mr Weidemann : Correct. We have gone nearly six months since the establishment of the task force and we have not had an opportunity to meet with the task force as yet. I do not believe any grower group has met with the task force to put forward the positions that we have. But going back to the ACCC, clearly we were arguing last year and it is the same particular point where we were trying to retain an independent umpire, you have got a licence to drive up the road. If you break the rules, you get fined, but you have a set of rules. What we are after in this industry is a set of rules. In regards to investment, agriculture in Australia needs international investment. Let us be frank, we need that. There is no argument, I believe, from my organisation's point of view and possibly the majority of growers that I come in contact with. Clearly the issues around the rules of engagement and the rules of operation and whether they are a good corporate citizen or not. I think it is pretty clear that some of the multinational companies have got a trading history. If you read back and look over the history of the Australian grains industry and the multinationals and the formation of those multinationals, there have been some questionable activities over a long period of time.

CHAIR: Do you think it is quaint that under the present code of conduct at ports Glencore as it now is pays itself a fine if it misses the slot?

Mr Weidemann : I am probably not surprised by the way they operate.

CHAIR: That is supposed to be, duh, a good idea.

Mr Weidemann : When you look at the statistics, and perhaps Peter Woods might want to make comment here, but the final WEA report that was put out clearly demonstrated the lack of a fully deregulated market working properly when you have very few trading a maximum amount of grain. My view is that if you are going to have a deregulated market you need to provide the opportunity for everybody to play on a level playing field. I do not believe we are seeing that. I do not believe that anybody that was promoting deregulation would be comfortable with the current situation as it sits.

CHAIR: Globally there has not been anyone who has been able, with the biggest blunt axe and the biggest sledgehammer, to bring these global traders into line. I mean, they have all broken the law all over the world. As I said earlier, to settle a matter is only pocket money to them, $400 million instead of $3.5 billion possible cost. It would have to be a pretty blunt axe, wouldn't it.

Mr Weidemann : Take the ADM component away from this particular point. Regardless of who owns GrainCorp, we still need a set of rules in Australia to allow competition to thrive and operate properly, and I do not believe we are seeing that at the moment.

Senator EDWARDS: Are you confident that the current make-up of ACCC and the task force—ACCC more particularly, so forget the task force—ACCC is equipped with the knowledge to be able to represent the charter of that commission effectively in this area of commodities?

CHAIR: Before you answer that question, in the full knowledge that Mr Michael Eady, the director of fuel transport and prices oversight, has got a subterm on this.

Mr Weidemann : I think there was a demonstration this morning of a lack of understanding. We have said from day 1 that we need to have people with skills if the ACCC is to carry out and perform the functions that it has been asked to do. It does not currently—I think it was a good demonstration this morning—have those skills. Clearly, growers would be quite shocked. The Australian public in general should be quite shocked with the level of incompetence we have seen this morning.

Senator EDWARDS: I am sure Mr Pearson at the ACCC, who is a very good fellow and likes to run a very good ship, will be taking those comments on board in relation to the task force. Hopefully he can fill that lack of knowledge in the sector going forward for what you have to get done.

Mr Woods : I think you have to look at the previous WEA legislation and the history of why the ports became under access undertakings and why the ACCC looked at it in the way they did. They were considered as voluntary undertakings. They only needed to have an undertaking if their exporting arm wanted to export from Australia. Of course they are going to do it. Given that light, it was voluntary for them to have an access undertaking and go to the ACCC. Therefore, they look at it in a completely different light than if it were a mandatory undertaking. There was no price regulation, there was no looking at prices. I will say that the people in the ACCC came from various backgrounds—my understanding would be law backgrounds. Some of them came up to speed very quickly on that sort of stuff. In my discussions, in my previous role, with the ACCC they really were not interested in what we had to say. I daresay that would be the case now.

Senator EDWARDS: Given Mr Pearson's comments to Senator Back in estimates, I think that he understands that there is a problem with their understanding of this industry. It is a big industry. I am very hopeful that he will not dismiss this hearing and all of the things that we are hearing. Thank you.

Mr Arney : Around the mandatory code of access for ports, it is predominantly looking at the outturn side—exporters having access to loading vessels. I do not know whether it is has addressed the third-party storage and handlers. It was mentioned before that farmers could vote with their feet and go to a different grain storage supplier—

Senator EDWARDS: Vote with their truck.

Mr Arney : but I do not think that has been addressed in having access to those port terminals, through both logistics arrangements and storage arrangements.

Senator EDWARDS: It is not as simple as voting with their truck, is it?

Mr Arney : In South Australia growers have built on-farm storage but, regarding access to the port terminal, they still have to pay a full receival fee to go through—

CHAIR: How do you think they have figured out how many million tonnes of on-farm storage there is? Do you think it is a good guess?

Mr Woods : They have people everywhere. You can use a satellite and take a guess: is that a 100-tonne or a 200-tonne silo? Who knows the time they have to do things.

Senator NASH: In your submission, you finish off with:

Thus GPA draws the conclusion that there is a conflict between responsibility to shareholders and the best interest of Australian producers—and the Australian producer is losing out.

I take it to the GrainCorp submission where they say:

GrainCorp does not accept the proposition that the interests of its shareholders and those of Australian growers or consumers are somehow mutually exclusive.

They are totally opposite statements. Why should we believe that yours is correct and not the GrainCorp one?

Mr Weidemann : Again, it comes down to good corporate practice and what you see in reality. At the moment our statement is quite clear and correct with regard to the way they would view their growers versus their shareholders. I am a shareholder of GrainCorp. The company itself at the moment is probably under the constraints it has had over the last 10 years. It has been operating very well with regard to the ability it has had to invest in the supply chain. I hosted Ian Pinner, the president. He came out to Australia. He came home and met with a group of growers, and quite clearly the issue for the growers was around: what are you going to do with the site? I can show you—

CHAIR: I can assure you he did not know until he hit the inquiry.

Mr Weidemann : He has got the message pretty clearly, but in terms of running the business he was quite clear to growers that he does not want it to run backwards. That is fine, but what we are seeing at the moment is Cargill, for instance, not buying from a GrainCorp site. Regardless of who owns it, we have some problems. We have some real problems in our supply chain currently.

Senator NASH: It happens in reverse, too.

Mr Weidemann : And every day we get an email to growers. Quite clearly Cargill are not buying from GrainCorp.

CHAIR: So let us just reinforce that because we have to finish up. If Cargill takes the other 60 per cent of Allied Mills and Allied Mills have 100 per cent of the provision of Goodman Fielder—and Goodman Fielder are a bloody big show—and they in turn have a signed, sealed and delivered deal with Coles, it does not say much for competition, does it?

Mr Weidemann : No, look, it does not. But again I will go back. That is already happening. We need to have greater information available and openness to the port access so that we can introduce other buyers. There are other buyers in the world who will buy grain. The problem is they are seeing impediments to be able to do trade and business with us at the moment for a range of reasons. Not only just because ADM are going to own GrainCorps; it is because our supply chain is not working efficiently and is not transparent enough to allow for greater up and down the supply chain—

CHAIR: But is it realistic to think it can operate on a pure than the driven snow ethos in Australia? As I said a week or two ago we do not want a bunch of shonks and crooks out here. We are competing against a company that can go to the Russian government to get them to change the government decision on buying or selling wheat just to suit their position in the market somewhere else. That is what we are up against.

Mr Woods : But, Senator, this is bigger than just one company and the one you are talking about. How do you fix a system that is already broken? Transparency of information is probably one of the best ways. If the port facilities were not owned by exporters we would not be sitting here today, it would not be an issue. You are not going to be able to reinvent and make them divest those facilities, so the next best thing we can do is legislate to have transparent reporting of stock information on a daily basis during harvest and on a weekly basis during the rest of the year along the lines that they are doing in the US by silo, not by port zone and not by port. What is at port is largely irrelevant. We need to know what is sitting at Forbes, what is sitting at West Wyalong and what is at every silo in Australia on an aggregated fashion.

Senator NASH: Do you realise that ADM are planning to extract higher returns out of the current GrainCorps structure than GrainCorps currently are?

Mr Weidemann : I would not be surprised that that would be their avenue. If they are paying a large sum of money for the asset then they will be looking to get in return the greatest level that they can out of that asset.

Senator NASH: I have a view, but how do you expect they are going to do that?

Mr Weidemann : Increase charges would be the first thing.

Mr Woods : What is already happening is that third parties delivering to port outside the up-country silo system are incurring extra charges. Therefore, do you put the grain in store up country or do you deliver it to port? There is almost no difference so you drive up the up-port stuff and everyone then has to deliver through the up-country systems that at there. Of course they do not make any money having silos full of air—we all understand that—but how do you control it?

Senator NASH: Thank you.

CHAIR: Anyhow, I apologise that we have fallen off the clock a little. We are going to have a short lunchbreak now.

Proceedings suspended from 13:08 to 13:30