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

AUCOTE, Mr Chris, President, Australian Grain Exporters Association; General Manager, Bunge Australia

HONEY, Mr Geoff, Chief Executive Officer, Grain Trade Australia

RICHARDS, Ms Rosemary, Executive Officer, Australian Grain Exporters Association

[14:36]

CHAIR: Welcome. Have you been to jail?

Mr Honey : No.

CHAIR: For the record, I have been to jail: I visited the Junee jail before it opened and had a look through it, but I was not there when they locked the gates. Would you like to make an opening statement?

Mr Honey : Thank you for the opportunity to address the committee. First of all, our chairman, Mr Peter Reading, gives his apologies for not being able to attend due to a prior appointment. In relation to Grain Trade Australia, there are a couple of quick points I would like to make. The organisation is a trade organisation. We are tasked by our members in developing the grain trading standards that are used right across the Australian grains industry, also the development of contracts and trade rules that service those standards, and we run a dispute resolution process. To give a little bit more information in relation to the grain trading standards, GTA put out the wheat, barley, sorghum and all the wheat and coarse grain standards. The oilseed standards are produced by the Australian Oilseeds Federation and the pulse standards by Pulse Australia. Those standards are used right across the industry.

There are a number of contracts that the organisation puts out on behalf of its membership. We have got contracts that span from growers to traders or merchants and then trade to trade contracts, No. 2, the track contract. We have got contracts for fob for bulk shipments and container contracts and are in the process of developing another export contract as we speak. We have storage and handling agreements that are used where required and also a road freight contract that can be used. All these documents are on the website and are available for public use. The membership is right across the Australian grain supply chain: large national, international grain organisations all the way through to country-based merchants, whether they be in storage or trading capacities. We have got organisations to either side of the supply chain such as major banks and the Australian Securities Exchange, for instance, because they utilise a lot of those standards and contracts as well.

There are about 250 members. Members are organisations, not individuals, and it is very rare to see a contract that is written in Australia that does not reference the Grain Trade Australia trade rules and/or the standards. This enables a common understanding of what the core principles are in relation to any grain contract within Australia.

Just one other major point that I do want to make is that we are a nonpolitical organisation so, whilst you may see GTA in Canberra, it is talking to DAFF Biosecurity and it is briefing people on what is happening within the industry. But we are not going to be in a position where we are going to be making calls as to what is right or what is wrong or what parliament should or should not be doing. What we do see as critically important is that when people such as yourselves are making decisions in relation to the grains industry, you are doing it with the full knowledge of what is currently available or occurring within the industry.

There are a couple of developments that I would just like to make sure I cover off on. At the Australian Grains Industry Conference which will be held at the end of July—and you are all more than welcome to attend—we will be releasing two very, very important documents. The first one has been under development for about 18 months, the Australian Grains Industry Code of Practice, and that will have quite a bit of prescribed activities within it. The intention is that this will be a code right across the supply chain but, importantly, from the GTA prospective, it will be introduced this year and it will become part of a requirement for GTA membership from 1 July 2014 onwards. So GTA members will be required to be compliant with the Australian Grains Industry Code of Practice.

As a subset to that, there will be guidelines for pool providers, and pools have been the subject of quite a bit of discussion of recent days. I will not take up the committee's time, but I think that if you were to go through those requirements, they are very, very prescriptive for, as a pool provider, what you will and what you will not do. So those two documents are out there.

The Port Access Code of Conduct that has been a point of discussion this morning on a number of occasions originally started at GTA in relation to the Port Access Code of Conduct. GTA was the secretariat to that particular committee. We sat to the side of the deliberations, so to speak, but what I can say is that that particular code was developed by the Port Access Code of Conduct Development Committee when it was originally formed. The committee was on the cusp of releasing a draft code for industry discussion. That was overtaken by legislative imperatives back in November and that is when the code became a mandatory prescribed code. So the committee is now the Code Development Advisory Committee. That particular committee has placed before the government core sets of guidance notes or principles that the committee believes should find their way into a mandatory prescribed code. This was agreed by the membership of that committee.

The only other one which has not got a run, but which I think is incredibly important, is DAFF Biosecurity. They have undergone a major overhaul in their operations over the last 18 months not just within the grains sector but also with other export activities and with other commodities. Without going into detail, there were a number of very, very positive things that came out of that particular process to enhance the capability of getting product out of Australia and making sure that we maintain and enhance our market access capabilities overseas. Thank you.

CHAIR: Would you like to add anything?

Mr Aucote : Briefly. Similar to GTA, AGEA are a representative organisation. We are the representative body for exporters of Australian grain. We represent our members to facilitate an efficient and effective export industry. AGEA supports open and contestable markets. Our focus is to assist Australia grow its exports of grains and oilseeds. We try to bring the export sector together to focus on the precompetitive issues that underpin the position of Australia's grain and oilseed industry. Following on Geoff's point about the Port Access Code of Conduct, we were actively involved in that discussion, representing the export sector to try to come up with a solution to move forward around port access for the Australian grains industry.

CHAIR: Thank you for that. In recent times there has been a development in Western Australia for a company from the mainland of China, I presume, in buying up land with a view to producing something like 800,000 tonnes initially in their first—

Mr Aucote : A substantial quantity, and it is down Albany way.

CHAIR: Yes, and about 800,000 tonnes with a view to perhaps going out to three or four million tonnes in time, which, to the best of my knowledge—and this is where you may be able to help me if you have a grain export representative—may not necessarily be on the commercial market. Are you familiar with that?

Mr Aucote : I understand that there is a company down there that has bought some land and is looking to export through the Albany port. But I am not aware of what commercial deals or arrangements it has in place.

CHAIR: So wouldn't it be in Australia's interest to know that? Wouldn't it be in your interest, representing other exporters, to know whether or not this is going to be on the global market and if this company produces something like 60 million tonnes globally whether that would cause a distortion in the global market if it is not on the market?

Mr Honey : It certainly could have an impact, but I am not sure of the numbers of what they are looking to do through that facility.

CHAIR: No-one really knows, which is the difficulty for this committee and the difficulty for FIRB. In foreign acquisition, this committee has looked at such things as we have now got companies that are linking up to migration agents for the $5-million trigger for residential qualification. Recently a property sold in the Riverina and the agent involved said, 'I have no idea who bought it.' They got three residential qualifications out of it but he had no idea, because of the $2-company fronts, who he was actually dealing with. So that is where we are up to.

I was interested whether you would recognise there is a possibility to distort the market. We are not too sure what Ord stage 2 and 3 mean yet or whether they are going to be on the market—we presume they are not going to be on the market—and whether in the long-term growers will be affected by the equivalent of Coles and Woolies pulling out of the lamb auctions; it takes tension out of the market.

Mr Aucote : It just depends on the volume.

Ms Richards : Our focus has been around ensuring that the environment we have is open and contestable, a level playing field. In our view the growers will get the most benefit from having strong competition from multiple players. As these things come up, you have look at each one.

CHAIR: Are you interested in the inequity of a company trading in Australia, based in Australia, paying tax in Australia competing against a company based in Switzerland or the Cayman Islands not paying tax in Australia trading on the same basis?

Ms Richards : Some of the previous speakers made the point that the tax laws of the country are probably for a different forum. Obviously our view is that any company that comes in here should abide by the rules of the nation and the state. The port access code is a good example where there is critical infrastructure. We need equal access by all players to that infrastructure so we have a set of rules that are known, that are fair to everyone and a mechanism to enforce those rules. That is our focus.

CHAIR: In south Australia, should we change the rules so that Glencore do not pay themselves the fine if they miss a slot? Do you know what I am talking about?

Ms Richards : I do. Port access has been a complex ongoing debate. We have a mandatory code.

CHAIR: This is beauracratic cover-up language you are using.

Ms Richards : There have been a number of issues around access rules, the allocation systems, the pricing. We are gradually trying to address those.

CHAIR: I promise you will not get the sack if you give a yes or no answer. That is a very good bureaucratic answer. Given that under the present system if Glencore orders a slot and misses that slot they pay themselves the fine. If Senator Back orders a slot and because the truck broke down or something went wrong and he misses a slot he pays them the fine, don't you think that is a stupid system?

Ms Richards : AGEA has been on the record. We have put in a number of submissions to the access undertakings that some of ways that fees are charged and some of those issues as you say where there is cross ownership are issues. We put forward some solutions around having to address those. They have not necessarily won the day. We are in a different environment now. We are moving out of the access undertakings into a code of practice. The mandatory code of conduct will have a lot more teeth than previously what we had with the access undertakings. So whenever that gets put in place we will have a new set of rules and, hopefully, we can move forward with better access.

CHAIR: I stand to be corrected but either Glencore, Toepfer or ADM is forming a relationship with Monsanto. Monsanto are, as you know, in the business of seed supply and, as you know, they are seriously in the business of patenting plant genes to provide some closed loop operation of seed supply. Is that an orange light I see flashing in letting that happen?

Mr Honey : In terms of closed loops or—

CHAIR: In terms of an absolute monopoly on seed supply. There are two companies, Syngenta and Monsanto, who have been busily taking out patents on plant genes to restrict outside research on the qualities that give a wheat plant drought tolerance, salt tolerance et cetera. If they link up with someone like ADM or Glencore, is that a further endangerment to the cost of seed for growers?

Mr Honey : It is something that I have not considered before.

CHAIR: We are unique on this committee! We consider all sorts of things, including why in God's name human beings have allowed companies to patent human genes. Do not ask me, because it is not inventive material; it is discoverable material. That is why you cannot patent the moon. No-one made it; they discovered it.

Senator BACK: The code of practice due for release in July, as you say, will be mandatory from 1 July 2014—

Mr Honey : For GTA members.

Senator BACK: For those who are not GTA members, can they play in the grain-trading world?

Mr Honey : Of course they can.

Senator BACK: What would you see as being the proportion of those who would be unlikely to participate in the code of practice? Is there an early indication? It has been out there now for 12 months.

Mr Honey : Just in terms of the post farm gate trading environment it is a couple of per cent.

Senator BACK: That would not participate?

Mr Honey : That are not members of GTA in terms of total trade. They tend to be the smaller trucking operators and that sort of thing.

Senator BACK: We would all hope, wouldn't we, that the vast majority of the post gate industry would actually be participants in and signatories to the code of practice?

Mr Honey : Correct.

Senator BACK: I have a lot of hope for it. That is why I am—

Mr Honey : Certainly. That is why the GTA board are putting a lot of emphasis on this particular document, not just for the Australian grain industry and the Australian environment but also from an international perspective to say this is the process that is undertaken in Australia. When you look at a shipment going overseas you have the contract and the standard, but to get to that stage there is a whole heap of other stuff behind it, whether it be varietal trials or—

Senator BACK: In fact, some of Senator Heffernan's questions to you earlier do have an impact, don't they, on aspects of what the code will cover? So I think it is interesting that he asked. Perhaps I will go along in late July and ask you about it at the conference.

Mr Honey : That would be good.

Senator BACK: Can I also ask, Mr Aucote, when do we expect the port access code of conduct to actually find its way into legislation? Will it be 1 July next year also?

Mr Aucote : That is a very hard question to answer. It is difficult to know. The industry has been working on developing a code. As Geoff said, we started looking at a voluntary code on port access which then evolved into a mandatory code. The industry—and I am talking about the export industry, the port terminal operators and the growers—were involved in a very active and robust discussion to try to develop a system that is going to serve the industry and move them forward. We are nearly six years into deregulation now. The industry is evolving and we have to make sure that the systems that we set up will help the industry evolve and move forward.

Senator BACK: Will the oversight party of that port access code of conduct be ACCC?

Mr Aucote : Correct.

Senator BACK: Without going back too much over today's activities, once again there would be those of us around this table who would plead for them to either have some standing knowledge of the industry or have access to it and not just one sector—perhaps an independent party that does not have a vested interest.

Mr Honey : Senator Back, could I just make a quick comment there?

Senator BACK: Yes.

Mr Honey : I could say that ACCC have participated in the code development committee and the code development advisory committee. They have always had two or three observers there, and one lady in particular has been constant throughout. I would be very hopeful that all of those issues that have been discussed around that table have been picked up. Unfortunately, they are not the people that you have been talking to here.

Senator BACK: No. I was surprised. I do take on Mr Bradley's comments from earlier in the day. I am well aware of the negotiations and the role of the ACCC with regard to CBH and also our discussions with Mr Pearson in a committee last year. My last question is about stocks information. Is that being addressed at all by either of your groups—this whole question of transparency of stock?

Mr Honey : It has been addressed—once again, just going back to the code development by the committee. There was a subcommittee formed within that. It was going to be included. There was stocks information included in the draft code that was being developed, which has subsequently been put to one side. The recommendations that came out of that particular subcommittee were—this is information that would be provided by all port terminal operators, and this is in our submission—aggregate stocks of bulk wheat held at each port terminal on a weekly basis; barley and canola at each port terminal on a weekly basis; stocks of other grains held at port terminals on a weekly basis; and the names of the three largest grades of bulk wheat by volume held at each port terminal on a weekly basis. That was as close as the committee got to agreement on this particular issue.

CHAIR: What is the point of the port terminal—

Ms Richards : Perhaps I can just add to that.

CHAIR: as opposed to up-country, where—

Mr Honey : Yes, I understand where you are coming from.

Ms Richards : I think, yes, we need to separate the issues. There was a discussion around what level of disclosure was required for information at the port to support the port access code, and that is where there has been a level of agreement, as Geoff just read out. Then there is the broader issue of stocks more generally, and that is where the industry has not yet reached—

CHAIR: With great respect—

Ms Richards : maybe I could just finish—where the industry has not reached agreement. That is a far more complex issue, because—just addressing the code—the code does not capture the number of parties that would need to provide that information to be useful. So at AGEA we do support that there is a level of transparency of information that would be valuable to the industry. We are probably not in agreement that it needs to be as transparent as some of the other groups, particularly the grower groups, think, but if it is going to be put in place it does have to be supported by all parties who need to provide that information.

CHAIR: But, with great respect, when it is at the port it is on its way.

Ms Richards : Exactly.

CHAIR: So you are trying to neutralise the position—

Mr Honey : Rosemary is just stating the facts, Senator.

Ms Richards : No, we are trying to find the right—

CHAIR: I know. I appreciate that you are representing the people that pay you.

Ms Richards : No, with respect, what we are trying to do as an industry is find a solution that gives the right result with the right mechanisms, and the port terminal operators are not the right people to disclose the information, which is what the port access code is about.

CHAIR: Surely it is pointless if it is about to go on the ship. What people need to know is what is up-country at Junee.

Ms Richards : Yes, that is right, so there has been—

CHAIR: But you do not agree with that.

Ms Richards : a level of discussion—

CHAIR: You do not agree with that?

Senator BACK: Hang on, Bill.

Ms Richards : There has been a level of discussion about that. As I say, there are differing parties in the industry that have different views about the level of transparency. This is an issue that the wheat industry task force clearly have on their plate, and it is an issue that will be further discussed by the industry.

CHAIR: Despite what Senator Back says, what is your position?

Ms Richards : As I said and we have stated in our submission, we do believe that there is a level of transparency around stocks that is required, and we have quite clearly articulated that in our submission.

CHAIR: And do you think up-country disclosure is part of that?

Ms Richards : We have said in our submission that there is a disclosure around receivals and then there is a disclosure of stocks throughout the year.

CHAIR: You are talking two languages.

Mr Aucote : And we are talking about aggregated to a port zone—disclosure of information about stocks at a port zone.

CHAIR: But you are not prepared to concede that people, traders, are entitled to know what is in the subterminal at Junee in the warehouse. You are not.

Ms Richards : We believe port—

CHAIR: Just say no. You do not have to go on with all that.

Ms Richards : As I say, our position is clearly articulated in our submission.

CHAIR: By the number of words—thank you, Senator Nash—not the definition.

Senator NASH: Thanks very much, Chair. Have there been any discussions with ADM on whether or not they would comply with the guidelines or the requirements of either AGEA or GTA?

Ms Richards : From an AGEA point of view, we do not really—that is not—

Senator NASH: That is all right. I am just try to get a sense of whether anybody has had—

Ms Richards : No. We do not have guidelines in the same sense as GTA. GTA is the industry's body that sets up those standards.

Senator NASH: Mr Honey, have you had a yarn to ADM?

Mr Honey : I have not had a direct conversation with ADM, but looking at how they operate in other markets, particularly in the North American market, where there are similar organisations to Grain Trade Australia, they are very active participants in those markets and, importantly, active participants within those organisations.

Senator NASH: But theoretically, if they did take over GrainCorp down the track there is nothing to make them comply with the guidelines, is there?

Mr Honey : No, it is a market economy.

CHAIR: They do have a record of bribing politicians.

Ms Richards : In relation to the port access code they would have to, because it is mandatory.

Senator NASH: That was my next question: in terms of the mandatory code, what are the penalties for noncompliance going to be?

Ms Richards : They are the same as under the Competition and Consumer Act. It is a breach of that act.

CHAIR: Do you expect ADM to be a member of your organisation, because they will be a major trader?

Ms Richards : We would expect so. TOFA already is, so we would expect that.

Senator NASH: What does that mean? What would happen to them under this new mandatory code if they were not behaving appropriately. What happens to them?

Ms Richards : All of the sanctions that are currently there in the Competition and Consumer Act—

Senator NASH: What are they? I am not familiar with them.

Ms Richards : There is a series of them, depending on what the level of the breach is.

CHAIR: Describe one.

Ms Richards : Fines.

CHAIR: You have no idea.

Senator NASH: What sort of values? Anybody?

Mr Honey : I have no idea. It is not an area we are involved with within the industry.

Senator NASH: This is the problem we are up against. We had a discussion earlier in the day about the fact that there is no ability to restrict pricing, and ACCC do not have any oversight there. We are now looking at a mandatory code that they would have to be part of, but we do not know what the penalties would be. For an $80 billion company, if you are going to whack on a $20,000 fine they are not going to care.

CHAIR: You do not know the penalty rate.

Ms Richards : The penalties under the competition act can be significant, as you would well know—

Senator NASH: Relatively significant, I am sure.

CHAIR: Do you know what they are?

Ms Richards : It depends on what the breach is.

CHAIR: You do not really know, do you?

Mr Honey : It is not our area of expertise. That question is more properly addressed to the ACCC. They are running this code. They will be running the sanctions.

CHAIR: If I were representing the exporters and I represented GrainCorp and Cargill and others, I as their representative would want to know what the penalties are of breaching the rules to advise the people I represent. But you do not know that.

Ms Richards : Not in specifics—as I say, it is a complex matter—but you can refer to the act. The act is there and it has the penalties. We have had discussions with ACCC through the port access code of what the breach should be and what sort of penalties would apply to those. I think we have a level of comfort there.

CHAIR: Thank you very much for your evidence.

Proceedings suspended from 15:03 to 15 : 15