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Rural and Regional Affairs and Transport References Committee
04/07/2013
Review of the citrus industry in Australia

HILL, Mr Perry, General Manager, Mildura Fruit Company

McMAHON, Mr Greg, Managing Director, Seven Fields

CHAIR: I welcome our next witnesses. Mildura Fruit Company has lodged submission 29. Would you like to make any amendments or additions?

Mr Hill : No amendments and no additions.

CHAIR: Seven Fields has lodged submission 16. Would you like to make any amendments or additions.

Mr McMahon : No, thank you.

CHAIR: Would you care to make a brief opening statement?

Mr McMahon : Thank you for the opportunity to appear before you today. I am the managing director and one of the owners of Seven Fields, which is a family owned company growing citrus predominantly in this region but also in the Northern Territory. For transparency, I should say that I am also a non-executive grower/director of Citrus Australia, and Seven Fields is a member of Citrus Australia.

In brief opening, the issues that we face as a citrus industry—and Seven Fields faces all of these as well—include our increasing international competitiveness. Because Australia produces more citrus in its season than we can consume in this country, we need export markets and we need access to those in a cost-effective and reasonable manner when it comes protocols. Things like fair trade agreements assist workable protocols. The high Australian dollar has obviously hurt, but we understand there is not a lot that can be done about that at a governmental level. But our competitiveness is very important.

As an industry, we also need to remain focused and diligent about our research and development and biosecurity to make sure that we are spending enough to be adequately prepared for what is coming down the pipeline in the future, whether a pest and disease threat or an opportunity to use new techniques that will make our lives easier—whether that is cost reduction or revenue increase—or make us more efficient.

Thirdly, we believe at Seven Fields that more needs to be invested in the citrus industry collectively in a unified and coordinated approach. We also believe that growers ought to be contributing more at a national level for those programs to operate nationally, because, at the end of the day, Australia produces only one per cent of the world's citrus. It is a very small amount and we need to concentrate our efforts nationally to remain competitive in those markets. I think we can best achieve that by investing nationally as a group of growers generally.

Mr Hill : Mildura Fruit Company is a packer and exporter. We pack fruit for approximately 120 growers. Mildura Fruit Company itself does not own any orchards.

CHAIR: Who owns you?

Mr Hill : Seventy five per cent is owned by a company called Bright Food, a Shanghai based, state owned enterprise. The other 25 per cent is owned by a number of shareholders in Australia.

CHAIR: I would like to take you through your tax arrangements, but I will not at this minute.

Mr Hill : As I mentioned before, we pack for about 120 growers. The growers are very reliant on the job we do in terms of selling their fruit and getting the best price we possibly can. The last three years have been particularly tough for growers, with the high exchange rate and the cost of fruit fly compliance, so many of the growers would not be doing very well financially. The money they receive would probably be less than their production costs. So, whilst I do not think the industry is broke, as such, there are a number of factors that have contributed to the poor returns to growers. The submission I put forward addresses some of the key things that need to be looked at closely to streamline the packing and exporting of citrus.

CHAIR: Thank you very much for that. I appreciate the fact that, even though the dollar is going the right way at the present time, it has been, as we all know—and I am a cocky—the terms of trade have been very difficult. Mildura Fruit Company, do any of your cousins or relations or corporate entities own the label 'Mildura'?

Mr Hill : No.

CHAIR: Who does?

Mr Hill : I am not sure of the ownership, but—

CHAIR: Is it Berri?

Mr Hill : I am not sure who owns the company.

CHAIR: Do you think it is deceitful to market 75 per cent water and 25 per cent orange juice in a carton marked 'Mildura' that is fully imported?

Mr Hill : I do not really want to get involved in that discussion. That is probably for someone else to get involved in. But I think—

CHAIR: That is what is wrong with the industry, though: no-one has the guts to say what the truth is.

Mr Hill : In my submission I mentioned that, to counter the flood of imported juice concentrate into Australia, there probably needs to be a mandated requirement to have a percentage of Australian grown oranges in juice.

CHAIR: If you were not being paid to do what you do, do you think it would be not unreasonable to have a thought in the back of your mind that 'Mildura orange juice' is a bit misleading when it is imported?

Mr Hill : I suppose Mildura is a town, but in terms of the general public—

CHAIR: If I walk into the supermarket in Junee where I come from and Mildura orange juice is sitting on the shelf, without reading the fine print that it is imported, I would think I was buying Mildura orange juice.

Mr Hill : I suppose there is an inference there that it is from Mildura—yes.

CHAIR: Mr McMahon, congratulations. You seem to be pretty young bloke to be in an important job. Is it a family business?

Mr McMahon : Yes, Senator.

CHAIR: Yours is 75 per cent foreign sovereign owned?

Mr Hill : Yes

CHAIR: Congratulations because you are in the Territory. Where are you in the Territory?

Mr McMahon : In Katherine, just on the Venn, if you know the area.

CHAIR: Yes, I know the area implicitly. I am aware that it is closer to the market in Asia—where two-thirds of the world's population will live by 2050—than Sydney is. Is there a countercyclical benefit there?

Mr McMahon : To respond to the proximity to Asia question—

CHAIR: It is not countercyclical to Beijing, I realise.

Mr McMahon : No. The principal crop we grow in citrus in Katherine is lemons. Our main crop is mangoes. If we grow lemons there, the time of year they come in displaces US imports into Australia. So we are countercyclical to everything down here because of the climate up there, but we compete with US imports. In the domestic market, Australians still prefer to buy Australian grown fresh produce. That is right from the supermarkets through to the independents. By growing lemons we can try to get into the market in late December, January and February. That is earlier than anyone can get lemons, even in Queensland, and especially down here. It means that we will import less. There is no export, to clarify that.

CHAIR: With your mangoes, do you compete with the MIS arrangements up there, or are you an MIS?

Mr McMahon : No, we are not an MIS. It is our business. We lease the property, the farm, and we lease the packing shed, but we operate the business and own the business. We do not compete with an MIS. There was a large one in Kununurra, the Rewards Group, but it has gone into administration.

CHAIR: It got what it deserved. It was such a phoney tax take. By the way, Mr Hill, there is my consideration of the tax arrangements. Last week we dropped a report on the national interest test and foreign investment. Part of the concern for all Australians is how we are going to keep hospitals, schools and roads if we have this 'normal' behaviour of tax avoidance by foreign investors. Of course, the international taxation agreement has very generous terms for foreign and sovereign investors. But I will leave that for another time because it is well documented and I do not want to take you to somewhere where you would probably prefer not to go.

Senator RUSTON: Mr Hill, you commented on point 5 in your submission, which is in relation to having a mandated percentage of Australian juice in fruit juice. Can you briefly talk me through what you think that is likely to do in terms of having an impact on the Australian market and particularly in your region.

Mr Hill : The Valencia orange has been a large crop grown in this area. A lot of it has been pulled out because growers are having trouble competing against imported concentrate.

Senator RUSTON: The valencias are being pulled out.

Mr Hill : A lot of them have been pulled out over the years. Growers have trouble competing against imported concentrates. The demand for the Australian grown juice is just not there because of the price. What I am suggesting there is that if the government mandated a percentage that would then give the Australian grower some hope that they can move their fruit at a reasonable price.

Senator RUSTON: So it would be mandated at a price? You are not talking about the price?

Mr Hill : The content.

Senator RUSTON: So therefore let the market find its own price for that. Mr McMahon, you made the comment before and also in your submission that you did not believe that there was sufficient funding being made available to deliver the outcomes that the industry needs for its future. Do you have any priorities that you would be putting on the expenditure of existing funding and the commensurate additional funding should it be made available? Are there some priority areas?

Mr McMahon : For me, the biggest priority is to obtain and then maintain market access to places where we need to export fruit. I believe that will provide the biggest difference to Australian growers of citrus.

Senator RUSTON: In terms of the issues that you see with market access at the moment, where do you think the market access issues are falling down at the moment, apart from money?

Mr McMahon : There are a number—and if I can group free trade agreements into that as well.

Senator RUSTON: Yes.

Mr McMahon : If you go into Korea, for example, the import duty on Australian citrus is higher than it is for the US. We do not compete with the US when our fruit comes in, except perhaps for some overlap at the end of their season and the beginning of ours. But our fruit becomes more expensive for our Korean importers to buy from us than they have been used to buying from the US. If that cost is then passed on to consumers, it leads to a decrease in consumption. I do not have the exact figures here, but I met with our Korean importer earlier in the year and they would have imported as much in one week from the US as they imported from Australia for the entire season. Part of that is to do with competition from local produce in Korea at the time that our produce is there, but a large part of it is to do with our cost structures. We are already expensive and then the import duties pile on top of that again.

CHAIR: Has the biggest cost in that in recent times been the currency?

Mr McMahon : Not in Korea. Currency has been an issue everywhere for the last several years, but as I said in my opening statement there is not much that we can probably do about that. I like to focus on the areas where I think we can do things. I know free trade is complex and I know market protocols are complex. I have spoken to DAFF people and to AQIS people about it. I have been on trade missions and, frankly, I am none the wiser as to how those things get done. It is frustrating.

CHAIR: With your indulgence, Senator Ruston: do you import into other parts of Asia?

Mr McMahon : We export into other parts of Asia.

CHAIR: Have you come across the facilitation that you have got pay?

Mr McMahon : No.

CHAIR: I am dealing with three Australian companies that have a product stuck on a wharf in a certain large country in Asia—

Senator COLBECK: Just give us a clue: starting with what?

CHAIR: No. It is quite a serious issue because part of getting the paperwork right to get it through the wharf is to pay the bribes. You are familiar with that culture, are you?

Mr McMahon : I am familiar with it, and in all honesty there are two countries that come to mind and we just choose not to send there.

One of the reasons we choose not to send there is that market access and rules around what we can send to places are important. If you have no rules and it is completely borderless then what will happen is that Australia's name as a producer of clean, green, good food will be trashed because you just can send anything there. You need some form of protocol where people have to follow rules so that you can discipline people following those rules and you maintain that reputation as a country. If I send poor fruit to Korea or China that is going to impact on MFC's reputation and that of anybody else as a grower, because they see us as Australians. I am not saying there should be no rules; there should be rules.

In those places I think you are referring to there are no rules, and what happens in places with no rules is that if I think I am producing something of quality, that is worth paying a premium for—because, as Australians, that is our only hope; we have to produce something that is good and that people are prepared to pay more for, which is probably true in other industries but is definitely true in ours—then I cannot afford to go into a market where the lowest common denominator is going to pull us all down. I would not want you to think that it is because I want to be lilywhite, and I do not want to be part of it; it is because of commercial reasons that we choose not to go to places like that.

CHAIR: It is bloody difficult.

Senator RUSTON: One of the things that has constantly come up in the hearing and in the evidence we have received has been this issue of registration costs for export. We have heard from many small growers that the increase in costs from $500 to register your shed in the previous year to possibly $8,500 next year has been a burden that is a bridge too far for them to continue to export. One of the suggestions that has come back—and I am sure Senator Xenophon will continue on this line—has been that instead of having a one-size-fits-all, blanket registration fee we should come up with a sliding scale. If we came up with a sliding scale of registration then both of your organisations would, I imagine, be likely to see a significant increase in your registration fees. Could you comment on that?

Mr Hill : My understanding of the modelling that was done over the last two or three years, when AQIS decided that horticulture would go to a cost-recovery basis, was that one of the components of the fee structure was to have a tiered structure. There were many models put around, and whilst I was not involved in any committee as such I became aware of all the different models put forward, including very complex tiered structures. At the end of the day a decision was made to go for a more simplified version which will obviously affect the smaller operators rather than the larger operators.

Senator RUSTON: How would you feel if the recommendation of this committee were that we should go to a sliding scale so we could protect our small exporters and also encourage new entrants into the market? What would your company's response to that be?

Mr Hill : With the current structure you have your inspection charges, your establishment costs, which you were talking about—there are many ways to come up with a structure to go cost-recovery. The disappointing thing is that we were going from a subsidised industry to a cost-recovery industry. That hurts. Somehow, they are going to have to recover the money if, indeed, that is what their decision is going to be. It is one of those factors that adds cost, ultimately, to the grower.

CHAIR: Do you think it is designed to keep the small growers out of the market?

Mr Hill : I would hope not, because ultimately—

CHAIR: Because $8,500 for $20,000 worth of exports, isn't that a bit—

Mr Hill : It is more than just the citrus industry. I would imagine that you are right in the sense that if the cost is so high some people will exit the industry.

CHAIR: How much are your fees versus your export value?

Mr Hill : In terms of revenue, exports are about $60 million.

CHAIR: What are your fees?

Senator RUSTON: What is your shed registration?

Mr Hill : It is going to be about $8,500.

CHAIR: Do you think there is something corny about that system?

Mr Hill : No.

CHAIR: Are you funded by equity or by borrowings? Is it a provincial government in China that owns you?

Mr Hill : Our structure is quite complex.

CHAIR: I bet it is!

Mr Hill : We are part of a very large Australian food company.

CHAIR: So, where are you based?

Mr Hill : Mildura.

CHAIR: Where are your books? Are you funded by equity or borrowings by the sovereign investor?

Mr Hill : I would suggest both.

CHAIR: So you would be aware of the transfer pricing arrangements?

Mr Hill : No. All that happens out of our office in Sydney.

CHAIR: Ah, know no evil—don't ask, don't tell!

Mr Hill : I do not need to know what happens at the higher levels.

CHAIR: Well, we do need to know. What is your role in the company?

Mr Hill : General manager.

CHAIR: And you do not know?

Mr Hill : No. All the tax is—

CHAIR: That is highly irresponsible, I would have thought—that you do not know the financial arrangements of your own company.

Mr Hill : As I said before, we are just a very small part—

CHAIR: I'm sure you are!

Mr Hill : of a much larger Australian group of companies, which are in turn owned by other ventures.

CHAIR: Well, in a week or two I will let you know what your financial affairs are, because I am in the process of investigating them.

Senator RUSTON: Mr McMahon, perhaps I could ask you the same question: what would your response be if the recommendation of this committee was to go to a sliding-scale fee structure for shed registration?

Mr McMahon : In principle I am a supporter of a user-pays system in any respect. So, if it applies to shed registration then I think that is a fair thing. I would also say that I believe it is still an in equity, but I have to confess that I may have missed some detail. But if you are what I would refer to as a city based exporter of citrus fruit that can go to a market where, say, there is no protocol—so there is no AQIS inspection required—then you do not pay any fee. I think that is inequitable, and I think those exporters across the board should pay, because every piece of fruit that is exported is a benefit for the whole industry; it is not a case of saying, 'I only grow for the domestic market, therefore I am not interested in export'. If you grow for the domestic market you are vitally interested in export, because it will determine the price level that is here. But there is some leakage from the system from, I believe, people who export but do not pay, and I would be a supporter of them contributing to that cost as well. But I guess it is consistent with the user-pays system if that were to happen.

Senator RUSTON: Could you tell me the motivation for the legal action that is currently being undertaken by your company, I believe, against your industry bodies here in Sunraysia?

Mr McMahon : It is the court case that myself and another grower in the region here are involved in. We issued Supreme Court proceedings challenging the validity of the order that establishes the Murray Valley Citrus Board, which is the state government statutory board that operates in the Murray Valley region. We challenge that. The validity of that order would our argument. It requires services to be provided to growers.

CHAIR: I would caution that if it is in court we do not want to interfere with what might be court proceedings.

Mr McMahon : I appreciate that. In the expectation that this question may arise I checked with my legal advisors, who said that it was quite okay for me to speak about it, except where it gets to the point where I might talk about what the judge might do or say. So, I am happy to talk about it.

Senator RUSTON: I just wanted a broad understanding. I knew there was an action; I just did not know what your motivation was for bringing the action. That was all I really wanted to know.

Mr McMahon : There were two motivations. It is designed, in our argument, to be a fee for service. We pay a large fee because the levy is on a per-tonne basis, in respect of oranges, grapefruit and mandarins. It is not on other forms of citrus. And you are supposed to receive recompense for that; that is how it is designed. But we do not use any of the services of the Murray Valley Citrus Board, and neither does the other grower who joined with us. So it puts us at a disadvantage as growers in this region, because every other grower in the country only pays the national levy of $2.75 for oranges. I am not against paying levies; I am in favour of it. But the second part of the reason I was motivated to do it is that I would rather take that $5.50 and apply it nationally to national programs that benefit the whole industry. And that move has happened in South Australia and in New South Wales with the Riverina Citrus group. Queensland Citrus Growers have also wound up, and the Murray Valley Citrus Board was the last one. It was actually in reading the report from the South Australian review that retired Judge Moss gave me the inkling that this might be a way we could try to achieve that for this district too. So, they are basically the two motivations.

Senator RUSTON: Sure—although I must say that in the Moss report the recommendation was to keep Citrus Growers of South Australia as the organisation, and that was funded through a South Australian levy, albeit at a much lower level than I believe you are levied at. It was the decision of the minister not to accept that recommendation.

Mr McMahon : Correct. If I can respond to that, I think that was an excellent outcome. Please do not mistake the action that I have taken in respect of the Murray Valley Citrus Board as meaning that regional representation is not important; I think it is vitally important. But what I think is also important is that that regional representation is fed into a national system and there is a compulsion for that to happen so that there is leverage of knowledge and leverage of resources, because if each of these state statutory bodies operates in isolation and there is no requirement for cooperation, and in fact there is some level of dysfunction between them and with the national body, then things do not get communicated. At the moment we are facing significant national issues and we will find that, if there is a fruit fly issue being addressed in the Murray Valley but there is no desire or requirement to share that knowledge or information with Queensland, New South Wales or anywhere like that—and in my view that is currently what is happening—then that is a problem. But, in the South Australian example, that is now a subsidiary of Citrus Australia, that information gets fed straight to the board and we can deal with it nationally.

Senator RUSTON: Finally, taking you through to that regionality, everybody that we have heard has very strongly put forward the view that there is an inability to have regional representation and that the connectivity for the levy payer for the regional issues in their area—and then the feeding up of that information so that there is that information flow up and down between the national body, the regional people and the people who pay the levy—has been severed, by all accounts. So—in the sense that what you are saying is that, if you want to be able to maintain that connectivity and that transfer of information, you need a regional body—why didn't we try to change the regional body that already existed and had the members so that it could provide that information flow, instead of setting up a separate body? My understanding is that the regional body has most of the growers in this area, by virtue of levy, as members. It just sounds as if you actually want exactly the same thing that everybody else does but you are coming from a different perspective.

Mr McMahon : I want it coordinated and controlled centrally and nationally, because the issues are national. It was not happening. It is not currently happening that way, because of the disconnect between the boards. The Murray Valley Citrus Board, by its own words, does not represent growers. It is in for a four-year term. It answers to the state government. There is no way that you can democratically decide the direction of that organisation except once per year, when there is a budget meeting and it is a yes or no decision. So there is a lack of control from growers. There is also a disconnect with growers like me and Wiffen Holdings, the other grower, who represent, we think, somewhere between 15 and 25 per cent of the fruit that is grown in this region and who say they have received no services from the Murray Valley Citrus Board. That would be in dispute, but we say we receive no services. The fact that we are saying that says to me that that structure is not working.

On the other hand, the Citrus Australia organisation has set up regional bodies in each of these places, including in the Murray Valley, where that information is flowing up to a national program. It is feeding into the research and development program nationally, and that is what driving the direction of that organisation, but it needs more funding. If we could take the $5.50 per tonne we are paying here—of which, in my estimation, 50 per cent or thereabouts is leaking to admin services, salaries and offices—and apply that to doing real work, even matching it with federal government funding on an R&D program, we will get much better traction nationally.

CHAIR: No-one is going to argue. Congratulations. It is nice to see a young bloke in an industry. What is the value of your exports—roughly? We do not want to get the tax office after you.

Mr McMahon : No, there has been no problem with the tax office in the last couple of years, I can assure you. They owe us money, I think; it is the other way round. It would be in the order of $10 million to $12 million export value.

CHAIR: And an $8,500 fee for a year?

Mr McMahon : Yes. As I said to Senator Ruston, I have no problem with the 'user pays' system. That fee is obviously inconsequential to us.

CHAIR: Yes, it is.

Senator GALLACHER: What was your initial export market value when you first started exporting? Did you start off at $12 million or at $12,000?

Mr McMahon : No. Thinking back to 2007, we probably sent four or five containers overseas.

Senator GALLACHER: How does anybody get into export now if they are facing an 8½ thousand dollar start-up fee? It would prohibit them penetrating the market.

Mr McMahon : We used to have our fruit packed by MFC, sitting to my left. MFC would have paid whatever charges existed to a large extent back then—I am probably sure. That would then be billed back to us. In terms of the organisation and coordination of export, it was the packing that was done here. I understand that is—

CHAIR: As a young bloke, I hope you do not learn the hard way that the courts are not about the truth; the courts are actually about the law.

Senator COLBECK: With respect to the final model that was accepted or put in place for the fees and charges, Mr Hill, you talked about a number of different models being applied—sliding scales and that sort of thing. I accept your answer that it is not an issue for you, because, when you are exporting $60 million worth, 8½ thousand dollars is easily mitigated across that amount of export. The final model that was accepted was not anything that industry put up, was it? It was the model that the government suggested.

Mr Hill : My understanding is there was a ministerial task force which included representatives from the government and industry.

Senator COLBECK: Yes, that is right. The ministerial task force put up a number of models, but the model that was finally accepted was the one that the government wanted, not any of the models that the ministerial task force put in place.

Mr Hill : I believe that is correct.

Senator COLBECK: That is my understanding too. How many growers do you take supply from?

Mr Hill : About 120.

Senator COLBECK: That is $60 million in export. Are there specific market segments that you target?

Mr Hill : We have about 25 countries on our books.

Senator COLBECK: Which one is the biggest?

Mr Hill : Our biggest market is Hong Kong. Japan is our second biggest market. The US is about No. 3.

Senator COLBECK: Regarding the product going into Hong Kong, where does it end up going?

Mr Hill : My understanding is that about 80 per cent of it would stay in Hong Kong, but importers will make the decision about whether they choose to send it after that. The majority of our fruit will stay in Hong Kong.

Senator COLBECK: I do not think we need to take that any further. Is it possible to give us on notice—it is difficult to do it here—the countries that you send your product to?

Mr Hill : Sure.

Senator COLBECK: It would be interesting to know, and to get a sense of the sorts of volumes that go to each of those countries.

CHAIR: Senator Colbeck, with your indulgence: is the bulk of export fruit or juice?

Mr Hill : We export fresh produce.

CHAIR: No juice?

Mr Hill : Just fruit and cartons.

Senator COLBECK: Does your corporate structure and ownership help you in accessing any of your markets?

Mr Hill : The current ownership has only been in place for 18 months or a bit longer. The Mildura Fruit Company and its predecessor have been around for 100 and so years. We have been exporting for about—

Senator COLBECK: So most of your arrangements predate your current business?

Mr Hill : Most definitely. We have been importing for 20-odd years.

CHAIR: Do you do any juice?

Mr Hill : No, we do not do juice. We send our over-run, if you like—fruit that is unpackable or unsound—across the road to the juice factory.

Senator COLBECK: So you sell on to someone else who does do juice?

Mr Hill : Yes.

Senator COLBECK: Does that impact on your returns or growers returns?

Mr Hill : It impacts grower returns. We pass on what we receive essentially, less any costs, to the grower. We do not make any money out of what goes to the processor.

Senator COLBECK: What about in the context of export? Is the grower's return impacted by your markets and prices into your markets?

Mr Hill : The challenge our traders have is to find the best return in market for the fruit that we can pack. We return that price to the grower less our costs and charges.

Senator COLBECK: Mr McMahon, you talked about market access to key markets being important. You mentioned Korea. What are the other key markets that you are looking to get access to where you see the best value?

Mr McMahon : Our best market would still be Japan. We did not send anything direct to China last year; this year we hope to send 40 containers. Access to China is very important, particularly as Chile, last I checked, does not have access for citrus into China. That is really important. We cannot keep Chile out, but we have to keep growing that market to establish ourselves so that competitors find it harder to get in because they are a lower-cost producer.

Senator COLBECK: Build up the relationships that keep your place.

Mr McMahon : Correct. As I said at the start and to emphasise again: it is not just about achieving the access first off; it is about maintaining the access and the relationship and making sure the protocols do not change. From a grower's perspective—I am not sure if this happens at a diplomatic level—it seems especially with the Asian countries that, if somebody has what they think is a good idea for a protocol treatment for fruit that might make it harder, it is not very long before the other countries copy it.

CHAIR: Is this fruit navels?

Mr McMahon : It is mostly navel oranges. We also grow a lot of mandarins and we are trying to establish markets for those too.

Senator COLBECK: My understanding, though, is that there are more markets that are becoming protocol markets. You had the discussion earlier about how people who are exporting into markets that do not have quarantine requirements do not pay fees. My understanding is that there are fewer and fewer of those as they look to protect their own biosecurity circumstances and pick up what is happening in neighbouring countries or someone else's existing protocols.

Mr McMahon : That is right, and I think that is important. I should also say that sometimes we need those markets with no protocols. You may have heard this in evidence already. For example, when we go to Japan, at the moment, we have to cold-treat our fruit. If we have a failure of that cold treatment process between here and Japan—even though it has been cleared here, the fridge has broken down on the way over—Japan will not accept the container. We cannot do anything else with that fruit except divert it to, at this stage, either Singapore or Hong Kong, both non-protocol markets. The alternative would be that that fruit just gets dumped over the side of the ship or somewhere in Japan, and we would have a complete loss. Last year, unfortunately, that happened to us on four occasions with four different containers. We managed to recover something by choosing to go to Singapore.

So that outlet is important for us. I would not like to lose it. But, overall, if you are talking four containers out of last year's 150, I am not against protocols, but they have to be workable.

Senator RUSTON: Would preclearance in Australia have an impact on what you have just said about the risk of turning up at the wharf and having your fruit rejected?

Mr McMahon : Not on those occasions, no. It was just a failure of the in-transit cold treatment.

Senator RUSTON: Thank you.

Senator COLBECK: Which is part of the biosecurity protocol for that market?

Mr McMahon : Correct—exporting from this region, yes.

Senator COLBECK: And that is around 14 or 15 days cold storage to deal with things like fruit fly?

Mr McMahon : Yes.

Senator COLBECK: So you have Korea, Japan and China. What are other key markets?

Mr McMahon : The US will be a key market for us this year. We have not sent there previously because of the system that was operating. The committee may also be aware it used to be a single import desk. If you sent Australian citrus to the US, you had to use that one importer. I was personally not in favour of that system; it brought you down, in my opinion, to the lowest common denominator. For that reason it was not a place that we chose to send. We were one of the companies that lobbied for a change to that. This year it is now an open market where we can send to any agent we like, and that allows us to differentiate ourselves based on our product quality or whatever attributes we see.

CHAIR: Was that a slip-up in the free-trade agreement?

Mr McMahon : I do not know that it had anything to do with free trade.

CHAIR: Yes, but you would have thought that does not sound like free trade in a system under a free-trade agreement.

Mr McMahon : To me it ran against other things the government had been trying to do for a number of years but, other than being involved in that issue for this industry for that period of time, I did not really look back into the history.

Senator COLBECK: In respect of marketing and part of your national levy, as I understand it, goes towards marketing, do you see a benefit, in those markets that you are accessing internationally, from the marketing from Citrus Australia? I would have thought that some effort would be going into those markets for Australian product as part of the marketing exercise, as opposed to necessarily just marketing our product here at home. There are two sides to the equation, so I am interested in whether we are seeing a benefit out of that process.

Mr Hill : Personally I do not see a great benefit. I think exporters and their importers would work out suitable marketing arrangements. I do not know that money collected and spent at a national level would do a huge amount. Obviously, it is good in a very broad sense of promoting Australia as fresh and clean and green, but in terms of whether the consumer in the overseas country would embrace that and buy more fruit at a higher price I am not sure.

Senator COLBECK: So do you participate in any of the major international marketing exercises, Asia Fruit Logistica, for example? Do you go to those sorts of forums?

Mr Hill : We have representation at that fair, yes.

Mr McMahon : I have a view on this that is at odds with others and possibly even Citrus Australia. I think, as for the marketing levy that we pay, which is just on oranges and it is only 75c a tonne, of two things. It is totally inadequate. If you are going to have a marketing levy it needs to be much higher. I go to Asia Fruit Logistica and we go to Berlin Fruit Logistica. We are trying to sell our fruit. Every time I go there I am embarrassed at the presence Australia has.

Senator COLBECK: It is a pretty awesome event, isn't it?

Mr McMahon : They are major events. When we are in Asia, which is our backyard, we should be able to send there fresher produce that tastes better and looks better than South Africa and Chile can. If any of the senators have been to that show, they would know that the sizes of the displays and the money that the South Africans and the Chileans and the Peruvians throw at those things are extraordinary.

Senator COLBECK: I was there last year, which is why I asked the question.

CHAIR: We do not have the government largesse, shall I say.

Senator MADIGAN: Mr McMahon, earlier you were saying about how you like having a peak body in Citrus Australia and that you think it would be good that Citrus Australia hear from the regional or local bodies. Yesterday, I think—unless anybody corrects me—we were told that the local regional bodies cannot have membership of Citrus Australia. So then how can these regional bodies feed information into Citrus Australia if they cannot have membership of Citrus Australia?

Mr McMahon : The answer to that, and this is the reason I joined Citrus Australia partly out of frustration that the system was not moving along fast enough, is that the concept of Citrus Australia and the structure that was voted on by all those grower associations—I am not sure who you heard from yesterday but they included Riverina Citrus and Murray Valley Citrus and they all voted for the Citrus Australia model at the time—said that growers will be members of Citrus Australia, not the organisations because that was part of the problem that was making it uncompetitive or why it was not dealing with the issues. So growers can be members and can be voting members and then packing sheds, such as MFC or other packing sheds that do not actually own any trees, and other stakeholders, including market agents, can be affiliate members but are non-voting. There were two papers written on that, as is my understanding, by Deloitte's and KPMG. It was researched and a lot of the research was funded by HAL and the government.

CHAIR: Who pays KPMG must have plenty of money.

Mr McMahon : That structure has been settled so that any of those putting arguments that you may have heard yesterday—and I am at a disadvantage because I was not there—may not have ever got over the fact that that was what was agreed upon by growers at the time.

Senator MADIGAN: Can you say that some people may be annoyed that they are a member of their local organisation, so a local grower is a member of his local organisation, and then, as you say, they voted for this system but, obviously, there is a disconnect between what they thought it was going to do and what is actually happening? People are confused, would you say?

Mr McMahon : I do not know what is inside their minds, but in 2008 when I supported the establishment of a national body that was grower owned I was in 100 per cent agreement with the structure and the way it was going to go forward, because as a nation we need to have a strong national peak body.

CHAIR: Has it done what you thought it would do?

Mr McMahon : It is doing what I thought it would do. The only thing is that it does not have enough funding. My opinion is that the national levy needs to be higher. I would rather divert the $5.50 per tonne that we are paying in this region but my counterparts in Queensland—

CHAIR: Do you know where the research money goes?

Mr McMahon : Yes. Every year all growers get a report from Horticulture Australia that lists all the projects where the funding is going. You can interrogate those reports and find out what is happening, yes.

Senator MADIGAN: Mr Hill, earlier you said that the Mildura Fruit Company is 75 per cent foreign owned and 25 per cent locally owned; correct?,

Mr Hill : The Mildura Fruit Company is not owned directly. We are part of a bigger food group which, in turn, is.

Senator MADIGAN: Then later you said that it has been going for over 100 years. Did I hear that correctly?

Mr Hill : The Mildura Fruit Company was a cooperative. I think it is 105 or 110 years old in that sense.

Senator MADIGAN: How long has it been since it went from being a cooperative to being a company?

Mr Hill : I am not sure of the history. It has been, I would suggest, 20-plus years.

Senator MADIGAN: Today, what percentage of the Mildura Fruit Company is Australian owned? Is it growers or companies that own that 25 per cent shareholding? When it went from a cooperative to this current company structure, how was that gone about? Was there an injection of funds that diluted the shareholding of the growers?

Mr Hill : Going back a number of years ago, it was owned by local shareholders who previously would have been growers. Going back about nine years ago, a lot of those shares were sold and ownership then transferred to private interests.

Senator MADIGAN: Foreign interests?

Mr Hill : No, not initially. About six years ago a private equity arrangement was put in place. I am not sure of the mix of foreign and Australian ownership at that point. Again, we were part of a larger group of companies. About 18 months ago that, in turn, was then sold from private equity into the ownership which we have today, which is 75 per cent a Shanghai based enterprise.

Senator MADIGAN: You also mentioned earlier that you pack for 120 growers in the region. Of those, are any foreign owned growers or are they all locally owned growers?

Mr Hill : To my knowledge, there is no foreign ownership.

CHAIR: Is it sovereign or provincial? Who owns it? Is it a central government thing or provincial?

Mr Hill : Shanghai—state owned.

CHAIR: Provincial.

Senator McKENZIE: I have three quick questions. I just wanted to ask if any of you can comment on our protocol arrangements for import of citrus?

Mr McMahon : I can comment on that. I do not have any comment on what the protocols are, but I would like to say that I think importing citrus in our counter season is generally positive. I think it helps keep consumption up and smooths the transition to our own local season.

Senator McKENZIE: You were talking about the levy and looking at the proportionality of that payment. Do you have a preferred option for the levy or vote percentage: total tonnage, acreage or a one-grower one-vote arrangement? Do you have a view on how you would like to see that representation realised?

Mr McMahon : Sorry, was that the AQIS levy?

Senator McKENZIE: I think it was in relation to a question from Senator Ruston.

Mr McMahon : Is this the national levy or was it the registration—

Senator McKENZIE: It was about the representation on regional and national bodies—I think it must be in relation to regional bodies. There was a discussion around how growers were represented and that some growers obviously represented a larger percentage or proportion of the total national crop and therefore may require more representation than smaller growers.

Mr McMahon : Citrus Australia membership is currently based on your area of production and as a grower you pay a membership fee to join Citrus Australia based on that production. That was a system that was voted on, as I mentioned earlier, in 2008. That is a system that I certainly support. In answer to Senator Ruston's question earlier, I generally support a user-pays system. Provided that the services are provided the fee ought to be paid. I am not sure if that answers your question.

Senator McKENZIE: It was around whether there was another mechanism for calculating payments, but that is fine. You are happy with the existing system. Finally, I want to know if there are any issues around the skilled workforce for you.

Mr Hill : Many of our staff are seasonal workers. There are a lot of local people and people who float through looking for seasonal work. They are largely semi-skilled or unskilled, if you like. In terms of looking for skilled staff, I think there is a shortage in certain areas, but we address those as required.

Senator McKENZIE: Are the skill shortages adequately reflected in government programs et cetera?

CHAIR: Are you talking about 457s? What are you talking about?

Senator McKENZIE: Yes, I am talking about 457s but also other programs that existing around skill shortages and identified skill gaps in certain regions and whether citrus as an industry feels they are being adequately catered for in that regard.

Mr Hill : In terms of citrus packing and exporting, there are probably less sheds around than there were a few years ago. If you are looking for some skills in those areas, there is probably not a huge pool of experienced people to draw from.

Mr McMahon : We have a farm in Katherine where we have a big problem attracting any sort of labour, skilled or unskilled. Down here in Sunraysia we have just opened a new packing shed and we are having some difficulty finding skilled workers. We have probably been at it for two or three months, particularly in respect of some electrical automation skills. That is hard. I assume we are still competing against the mining companies. The current programs in our industry are positive. If there is a visa program available we can look at that, but the Pacific Seasonal Worker Program is one we use and support. I think it is a fantastic system and long may it continue.

Senator McKENZIE: Thank you.

CHAIR: Mr McMahon, do you have a contingency plan for the event of HLB?

Mr McMahon : No.

CHAIR: Do you think anyone does?

Mr McMahon : No, but again a biosecurity levy or a larger levy would I think help us address that as an industry.

CHAIR: Do you think about that?

Mr Hill : It has certainly been raised in discussions.

CHAIR: There is not much good raising it in discussions—

Mr Hill : No, but we have not—

CHAIR: This committee—and I in particular—are very familiar with all of this stuff with foot and mouth and it is about $8 billion in the first 18 months. From the evidence we have received and the research I have done today—and California has got endemic citrus canker now—this greening business could come in overnight on a cyclone and yet there is no plan.

Mr McMahon : Yes, there is a problem; I agree with you.

CHAIR: Well, that should be fundamental. Somebody should be castrated for not having fixed it. If there is no contingency plan, you will get your just deserts. It should be absolutely the first priority. That could wipe out the industry, and we do not have a plan.

Mr McMahon : Biosecurity Australia has a plan.

CHAIR: I'll bet they have!

Mr McMahon : There is a plan, and I am sure Citrus Australia can speak to the committee about that later in more detail, but my issue is: it is underfunded.

CHAIR: But don't you go to them and say, 'What are we going to do if it happens when the next cyclone comes in?' Do you know what it looks like? Do you have things up in your orchard?

Mr McMahon : Yes, we do. Biosecurity is a big issue on our farms. We have protocols for people who come onto the farms. Our farm managers are looking out for these sorts of things all the time. The pest and disease monitors are looking out for these things. So we are aware of it. Biosecurity—

CHAIR: But they have not sat down with you and said, 'This is the plan'?

Mr McMahon : No, Citrus Australia have. At last year's conference they spent a large part of that conference particularly on this virus but also on other—

CHAIR: Have they said what the plan is?

Mr McMahon : I believe so, at that conference; it is hard for me to recall because I have not—

CHAIR: We will go and have another glass of wine and a further think.

Mr McMahon : We can talk about it, yes. But it needs more money.

CHAIR: Just so you know—and I do not want to terrify you—when the foot and mouth exercises were conducted there three or four or five years ago, in the first 36 hours in that exercise they ran out of resources. I mean—der! Okay; thank you very much for your effort.

We will now move, by high technology, to the Commonwealth Department of Agriculture, Fisheries and Forestry.