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Industries Assistance Commission - Report - Honey Industry, dated 4 May 1984 (No. 347)


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The Parliament of the Commonwealth of Australia

THE HONEY IND U STR Y

Industries Assistance Commission Report

4 May 1984

Presented 21 March 1985 Ordered to be printed 28 March 1985

Parliamentary Paper No. 37/1985

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INDUSTRIES ASSISTANCE COMMISSION REPORT

T H E H O N E Y I N D U S T R Y

4 MAY 1 9 8 4

No. 3 4 7

INDUSTRIES ASSISTANCE COMMISSION REPORT

THE HONEY INDUSTRY

4 MAY 1984

AUSTRALIAN GOVERNMENT PUBLISHING SERVICE

CANBERRA 1984

© Commonwealth of Australia 1984

Printed by C.J. THOMPSON, Commonwealth Government Printer, Canberra

INDUSTRIES ASSISTANCE COMMISSION REPORT

THE HONEY INDUSTRY

THE HONOURABLE THE MINISTER FOR INDUSTRY AND COMMERCE

I forward the Commission's report on "The Honey Industry" made in accordance with the reference of 6 May 1984 under Section 23 of the Industries Assistance Commission Act 1973

B . Sweeney Acting Secretary

9 May 1984

For the purpose of this inquiry, in accordance with Section 19 of the Industries Assistance Commission Act 1973) the powers of the Commission have been exercised by:

R.G. Mauldon Commissioner

CONTENTS

Page

ABBREVIATIONS

1. SUMMARY 1

2. INTRODUCTION 3

2.1 The Reference 3

2.2 The Public Inquiry 3

2.3 The Structure Of The Report 3

3. THE AUSTRALIAN HONEY INDUSTRY AND ITS MARKETS 4

3.1 Production And Marketing 4

3.1.1 Production 4

3-1.2 Marketing 5

3.2 The Structure Of The Industry 7

3.3 The Honey Market 8

3·3·1 Domestic production 8

3-3.2 Imports 9

3-3-3 Exports 9

3·3·4 Apparent domestic consumption of honey 10

3·4 The Beeswax Market 11

4. TRENDS IN INDUSTRY RETURNS 12

4.1 Factors Affecting Returns 12

4.2 Industry Returns 15

4.3 Annual Variations In The Returns From Honey 17

5. ASSISTANCE TO THE HONEY INDUSTRY 20

5.1 Current Assistance 20

5.1.1 Tariff assistance 20

5.1.2 Assistance to exports 20

5.1.3 Other forms of assistance 21

5·1·4 Measures of assistance 22

5.2 The Effects Of Industry Assistance 23

6. THE INDUSTRY'S REQUESTS AND SUGGESTIONS 26

6.1 The Proposal For A Market Stabilisation Scheme 26 6.2 Other Requests 27

7. MARKETING PROPOSALS 30

7.1 The Proposed Market Stabilisation Scheme 30

7.1.1 Details of the proposed scheme 30

7-1.2 The likely effects of the proposal 33

7-1.3 Assessment of the proposed scheme 37

7.2 Government Underwriting 39

7.2.1 The Working Group's underwriting proposal 39 7.2.2 Income fluctuations and industry assistance 41 7.3 Exemption From Provisions Of Trade Practices 44

Legislation

7.4 Increased Promotion Of Honey 45

8. OTHER ASSISTANCE ISSUES 46

8.1 Costs Of Production 46

8.2 Pollination Services 47

9. CONCLUSIONS 51

Page

10. STATUTORY REPORTING REQUIREMENTS 55

11. RECOMMENDATIONS 56

APPENDIXES

A THE REFERENCE 57

B LIST OF WITNESSES 58

C REQUESTS AND SUGGESTIONS 68

D STATISTICAL TABLES 90

E THE PROPOSED STABILISATION SCHEME 94

F PRICE STABILISATION AND INCOME INSTABILITY 99

ABBREVIATIONS

ABS Australian Bureau of Statistics

AEP Assessed Export Price

AHB Australian Honey Board

BAE Bureau of Agricultural Economics

CPI Consumer Price Index

DPI Department of Primary Industry

EEC European Economic Community

FCAAA Federal Council of Australian Apiarists' Associations

EGA Honey Corporation of Australia Limited

LA Light Amber

The Working Group A Working Group representing the Federal Council of Australian Apiarists' Associations and the Honey

Packers' Association of Australia, with the administrative support of the Australian Honey Board

1. SUMMARY

The Australian honey industry is characterised hy a large number of apiarists, many of whom are part-time or hobbyist producers. Nevertheless, a substantial proportion of honey is produced by a small number of large commercial beekeepers. The packing sector is also dominated by a small number of large operators.

Production levels in the industry are chiefly determined by seasonal factors, such as weather and flowering conditions, which result in significant fluctuations in output. With some exceptions, profitability in both the beekeeping and packing sectors of the honey industry has been low in recent years.

The industry has traditionally supplied practically all domestic honey requirements, with imports representing less than 1 per cent of total domestic consumption over the last five years. Additionally, the industry is export oriented, selling a substantial proportion of its annual output on overseas markets (around 55 to 60 per cent of production in recent

years). The overall assistance afforded the industry is relatively low. These characteristics suggest that the industry is relatively economically efficient and well suited to Australia's resource endowment and trading environment.

Requests for assistance were generally directed at improving returns in the industry. A proposal for a market stabilisation scheme and government underwriting of producers' returns was presented by a Working Group (the Working Group) representing the Federal Council of Australian Apiarists'

Associations (FCAAA) and the Honey Packers' Association of Australia, with the administrative support of the Australian Honey Board (AHB). Other requests included a rebate of the diesel fuel tax for apiarists and the supply of sugar to the industry at reduced, 'stockfeed' prices.

The Working Group's market stabilisation proposal involves government intervention in the domestic honey market to establish a 'two price' or 'home consumption pricing' scheme for the industry. Such a scheme would enable the administering authority to impose a levy on all domestic sales of honey - a figure of around $250 per tonne, to be phased in over two to

three years, was mooted at the hearings. The Working Group envisaged that the effect of the levy would be to raise domestic selling prices above export selling prices by an amount equivalent to the levy. The proceeds of the levy would then be distributed over total domestic and export sales and would represent an increase in returns to the honey industry.

The Commission has estimated that a levy of the magnitude mooted by the Working Group could increase the domestic price of honey by approximately 20 per cent. Assuming that there was no reduction in domestic sales, the resulting transfer from consumers to producers would be approximately $4

million. This would represent an increase in the nominal rate of assistance available to the honey industry of the order of 14 percentage points. However, the Commission considers that these figures are upper estimates of the likely effects of the scheme, because some reduction in domestic sales would be likely, following a price increase of that order.

Whilst the proposed scheme has the potential to significantly increase the assistance available to the industry, a number of difficulties would be encountered in its implementation. Some of the practical difficulties which would have to be overcome include: ensuring that producers paid the

levy on domestic sales of honey; forecasting honey export prices for the

ensuing year in markets which are characterised by volatile prices; and determining the value of the levy on domestic sales and hence the domestic price of honey. The value of the levy would have to be determined taking

into account the price of honey substitutes, such as jams and vegetable and meat extracts and the availability and price of imported honey. Since there is considerable international trade in honey, its importation might have to be restricted (eg by tariffs) if the domestic price of honey were

increased significantly.

Sections of the industry, including some producer/packers, would be disadvantaged if the Working Group's proposal were implemented. Additionally, the extent to which apiarists, as distinct from packers, would benefit from the scheme is unclear. These factors, coupled with the

scheme's potential to significantly increase assistance to the industry (largely at the expense of domestic consumers), have led the Commission not to recommend the introduction of a marketing scheme for honey, such as that proposed by the Working Group.

The Working Group also proposed government underwriting of producers' returns from honey. At the initial public hearings underwriting was proposed as an adjunct to the two price marketing scheme. However, at the draft report hearing, the Working Group indicated that, if the proposal for the introduction of a marketing scheme were rejected, it would support the underwriting of export prices as an alternative to its initial proposal.

Underwriting was sought principally on grounds of offsetting the adverse effects of price fluctuations and uncertainty on the financing of apiarists' operations and on investment in the industry. Although the Commission could establish no special case for the honey industry which would justify the introduction of this type of assistance, it considers

that it would be a less inappropriate form of assistance than the proposed levy/disbursement scheme, designed to raise domestic honey prices.

The Commission also examined a number of other possible changes to the assistance arrangements for the honey industry. It has concluded however, that there is no sound basis for changing the current arrangements - whether it be by underwriting, by way of modifying domestic honey prices,

government sponsored promotion of honey sales, exemption under the Trade Practices Act, or any other mechanism.

Although the Commission has recommended that there be no change in the assistance provided to the honey industry, it considers that potential may exist for an increased role for contract pollination services, which may be currently undervalued and underutilized by potential users. Accordingly, it has suggested that the Government give consideration to increasing the level of research and extension funding available to the beekeeping industry, with the objective of improving the supply of publicly available information on pollination services.

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2. INTRODUCTION 2.1 The Reference

On 6 May 1983, the Minister for Industry and Commerce requested the Commission to inquire and report, within 12 months of the date of receipt of the reference, on "... whether assistance should be provided to the

Australian honey industry and, if so, the nature and extent of such assistance". (See Appendix A.)

The reference arose following representations by the local industry. The honey industry has not previously been the subject of a report by either the Commission or its predecessor, the Tariff Board.

2.2 The Public Inquiry

Public hearings were held in Melbourne on 5 and 6 September, in Perth on 12 and 13 September, in Sydney on 15 and 16 September and in Brisbane on 26 and 27 September 1983· On 27 March 1984 a further public hearing was held in Sydney to enable interested parties to comment on the Commission's draft

report.

Evidence was received from witnesses representing individual apiarists and packers, Commonwealth and State government departments and authorities, and apiarist and packer organisations. A list of these witnesses and the names of the companies or organisations which they represented is set out Appendix B. Requests and suggestions made by witnesses are summarised in Appendix C .

2.3 The Structure Of The Report

Aided by only minimal levels of Government assistance, local honey production has for many years been sufficient to supply virtually all the requirements of the domestic market as well as many export markets.

Nevertheless, industry representatives contended that some difficulties are currently being experienced in the industry. The Working Group claimed that these difficulties could largely be resolved by the Government assisting in the establishment of a market stabilisation scheme. This report examines the question of whether increased Government involvement -

through assistance to establish a stabilisation scheme or through some other form - is required and/or warranted.

The following two chapters of the report provide background information and statistical data on the industry in order to identify its major characteristics and markets. These chapters also aim to provide a basis for identifying and analysing recent changes in the industry. Chapter 5 details the forms and levels of assistance presently afforded local honey production, Chapter 6 discusses the industry's requests and suggestions for assistance, and the remainder of the report outlines and discusses both

the proposed stabilisation scheme and other assistance proposals.

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3 THE AUSTRALIAN HONEY INDUSTRY AND ITS MARKETS

Honey, like many other rural products, is produced hy a large number of producers. However, only a minority of these are full-time commercial apiarists. Most are hobbyist or part-time beekeepers. On the other hand, the commercial honey packing and marketing sector is significantly more

concentrated with one packer, the Honey Corporation of Australia Limited (HCA), playing a dominant role in a number of states. The AHB is empowered by the Honey Industry Act 1962 to control honey exports, which traditionally have accounted for about 40 per cent of total industry production. Exports in the last two years have, however, accounted for around 55 to 60 per cent of total production.

This chapter outlines some of the main characteristics of the industry and discusses some of the factors influencing its development and operation. It also provides statistical information on the structure of the industry and on production, exports and imports.

5.1 Production And Marketing 5.1.1 Production

The Australian honey industry is one of Australia's smaller rural industries, accounting for less than one quarter of 1 per cent of the gross value of all Australian rural production. The industry is primarily concerned with the production, packaging and marketing of honey, although

limited quantities of other products, such as beeswax, mead and pollen, are also produced. Beekeeping also provides pollination services to a number of agricultural industries.

Honey production takes place mainly during the spring and summer and is closely aligned to the availability of nectar which, in turn, varies between floral types, seasons and regions. Because the industry is largely dependent on native sources of nectar, which vary within and between years, commercial apiarists regularly shift hives to new locations where nectar supplies are available. The migratory pattern of production in Australia differs from beekeeping practices in North America and Europe.

Hives are typically sited in national parks, reserves and state forests or on privately owned land. Entry to some non-private land is, however, prohibited or, alternatively, is subject to compliance with certain conditions and/or the payment of prescribed fees.

Nectar is sourced from a wide range of trees and ground covering plants. The flavour and colour of honey vary according to the floral source from which the nectar is extracted. In Australia, eucalypts are the main floral source for commercial honey and other hive products. Australian honey is, however, generally marketed according to its colour rather than its floral source. Lighter honey is usually sold at a premium on both the domestic and export markets.

The various types of honey are normally blended to produce standard lines of acceptable colour and flavour. The blended honey is strained and allowed to settle in tanks where suspended matter, such as pollen or wax, rises to the top or falls to the bottom of the honey where it can be removed. This operation improves the clarity of the honey as well as reduces the amount of impurities. The honey is then strained and packed in retail or bulk containers.

4

Honey derivatives, such as candied honey and creamed honey, involve additional operations. Candied honey is produced hy causing the dextrose component of the honey to crystallise. Crystallisation is induced by cooling the honey and 1 seeding' it, ie adding a small amount of fine­

grained honey. Production of creamed honey involves stirring or whipping to add small air bubbles to the honey prior to packaging and chilling.

Beeswax is the second most important product of the honey industry. The wax, which is secreted by worker bees, is recovered as a by-product of honey producing operations. It is used in the production of candles, cosmetics, pharmaceuticals, lubricants and polishes. A considerable amount

is also used in the production of wax foundation which is purchased by beekeepers and used as the base on which bees draw comb in their hives.

Other hive products include chunk honey and comb honey sections, mead, pollen, royal jelly and propolis. Mead is produced by about half a dozen commercial producers in Australia. Pollen is sold as a health food, while royal jelly and propolis are used in the preparation of various mixtures said to have therapeutic properties. Only relatively small quantities of

chunk honey and comb honey sections are marketed. Not many beekeepers produce these products. Raising queen bees and bee colonies for sale to local and overseas apiarists and the provision of contract pollination services are other specialised activities currently undertaken by small numbers of beekeepers.

3.1.2 Marketing

. Packing

Some beekeepers pack their own honey and sell it from either their own premises, by the roadside, or through nearby outlets, such as health food stores and fruit and vegetable shops. However, most sell their output to specialist packers who generally blend and clarify the honey prior to distribution.

Commercial packers mainly market honey domestically through supermarkets and health food stores. Over the last few years, an increasing proportion of packers' sales to supermarkets has involved honey in house brand and generic packs. Honey sold in this way is generally lower priced. Some

darker coloured honey, which would generally be less attractive to consumers, is blended with clear glucose and sold as 'honey and glucose'. Some grades of honey, such as those which have a strong flavour, are sold in bulk for manufacturing purposes rather than being sold for table honey.

Few regulations or restrictions apply to the marketing of honey for domestic consumption other than those relating to Government weights and measures and health regulations. However, packers who sell more than 50 kilograms of honey per month on the domestic market must pay a levy of 2.45 cents per kg on local sales in order to finance the activities of the AHB and for industry research. In NSW, packers are subject to the

provisions of the recently implemented Farm Produce Act 1983, which require that payment be made to honey producers within 30 days following the end of the month of delivery. It was claimed by the Mudgee Honey Company Pty Ltd

at the draft report hearing that this requirement has increased the stock holding costs of packers and has resulted in them holding smaller stocks of honey. Consequently, it was argued, more beekeepers have begun to sell their honey direct to the public, thereby avoiding levies and regulations

and undercutting the packers' prices. However, the New South Wales

5

Department of Agriculture stated that the majority of producers and some packers were in favour of the provisions of the Act. The Department said that prior to the implementation of the Act, in some instances it was taking six months for beekeepers to be paid for their honey supplies to

packers.

Exports of honey are subject to regulations administered by the Department of Primary Industry (DPI). These require that export establishments be registered with the DPI and that, prior to shipment, exports be inspected by officers of the Department to ensure they comply with the specified export standards. Exports of honey are subject to a levy of 0.75 cents per kg which, like the levy on domestic sales, is used to finance the activities of the AHB and for industry research.

. The Australian Honey Board

The AHB is a Commonwealth statutory authority established under the Honey Industry Act 1962. The Board consists of a Chairman representing the Australian Government, five members representing honey producers and four members representing honey packers. The Minister for Primary Industry

appointments the packer representatives following nominations from the packing industry and the honey producer representatives are elected by honey producers who own at least 200 hives. Pour members of the Board make up an Executive Committee which has the role of administering minimum

export honey prices. The AHB had a staff of four at 30 June 1983·

The AHB's total income in 1982-83 was about $392 000 and its total expenditure about $389 000. In that year 42 per cent of the Board's expenditure was associated with the promotion of honey and the remainder with operating and administrative expenses.

The Board is responsible for making reports and suggestions in regard to matters affecting the honey industry, for promoting the consumption and sale of honey on the domestic market and for assisting and encouraging improvements in the methods of production, storage and transport of honey. More importantly, the Act empowers the AHB with exclusive control of the

export of honey from Australia and its promotion on world markets. It is responsible for the issue of licences to packers wishing to export and the issue of export permits for each shipment of honey. The AHB also sets a minimum export prices for each grade of bulk honey and operates an exclusive agency system in the major world markets.

The AHB also operates Repossession Honey Pools, which are a financing system whereby concessional loans provided through the Rural Credits Department of the Reserve Bank are made available to approved packers to enable beekeepers to receive early payment for their honey. The loans are available on stocks which are to be sold on either the export or domestic market. The AHB is at present investigating the possibility of also

extending finance to beekeepers for stock holding under the provisions of the Honey Industry Act 1962. The arrangement would involve funds from the Reserve Bank being made available by the AHB direct to beekeepers.

There was some criticism of the AHB during the Commission's inquiry. The HCA, for example, was critical of the level and rate of increase in the AHB's expenditure and the lack of improvement in consumption or returns to producers resulting from the AHB's advertising program. The Melbourne Section of the Victorian Apiarists' Association requested that the AHB be

reduced to 5 members and that these members be elected by all honey

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producers liable for levy payments or affected by Board decisions. Whilst it may be possible to reduce the operating costs of the AHB - by for example reducing the number of Board members - the Commission has not sought to determine whether any changes to the existing structure and role of the AHB would be of benefit to the industry.1

3.2 The Structure Of The Industry

According to ABS data, there were 2609 beekeepers operating 40 or more hives during 1982-83· This represents a 15 per cent increase over the 1981- 82 figure (see Table 3-1)·

Data relating to apiarists with less than 40 hives are not collected by the Australian Bureau of Statistics (ABS) on the grounds that their contribution to overall production is considered to be insignificant. Some information on the number of smaller apiarists was submitted by the FCAAA.

This suggested that there are a substantial number - around 10 000 beekeepers - who operate less than 40 hives. Production by these small apiarists was estimated by the FCAAA to represent about 11 per cent of total national production.

During 1982-83, beekeepers operated 540 000 hives. ABS data indicate that, over the period 1975-76 to 1982-83, there has been an upward trend in the number of beehives in operation, although a slight fall occurred during 1982- 83.

TABLE 3.1 : NUMBERS OF APIARISTS AND BEEHIVES: 1975-76 TO 1982-83

1975 -76

1976 -77

1977 -78

1978 -79

1979 -80

1980 -81

1981 -82

1982 -83

Number of beekeepers® 2285 2274 2151 2201 2141 2224 2263 2609P

Number of beehives ('000) Productive 377 348 363 369 402 379 402 390P

Unproductive^3 120 145 116 132 109 151 142 150P

Total 497 493 479 501 511 530 544 540P

a Beekeepers with 40 or more hives. b Beehives from which no honey was taken. Some unproductive hives may, however, have been used for other commercial purposes (eg queen bee production).

p Preliminary.

SOURCE: Compiled from data supplied by ABS.

A characteristic of the industry is the large number of part-time beekeepers. The Bureau of Agricultural Economics (BAE) estimated that over half the 2263 beekeepers with over 40 hives in 1981-82 would have operated on a part-time basis and that apiarists with fewer than 200 hives are

generally considered to have other sources of income. This view was

1 Some observations concerning the operations of the AHB are given in Senate Standing Committee on Finance and Government Operations, "Report on the Honey (Export Inspection Charge) Bill 1982", AGPS, May 1982.

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supported by the New South Wales and Western Australian Departments of Agriculture which suggested that beekeepers would need 200 or more hives to be considered commercial. The Government of Victoria suggested that a higher number - about 400 hives and over - could be loosely termed commercial.

3· 3 The Honey Market

3.3.1 Domestic production

ABS production data for beekeepers maintaining 40 or more hives are summarised in Table 3»2 and detailed in Table 1 of Appendix D.

TABLE 3.2 : DOMESTIC PRODUCTION OF HONEYa ; 1978-79 TO 1982-83

1978-79 1979-80 1980-81 1 981-82 1982-83

Quantity (tonnes) 18 258 24 954 19 558 24 847 22 472

Gross value (S'OOO)^ 14 111 19 050 15 815 18 211 16 329P

a Produced by apiarists with 40 or more beehives. b The ABS defines the gross value of production as the value placed on recorded production at the wholesale prices realised in the principal markets, p Preliminary.

SOURCE: Compiled from data supplied by ABS.

These data show that domestic honey production by apiarists with 40 or more beehives fluctuated considerably in the five years to 1982-83·

The data in Table 1 of Appendix D also show that, over the five years to 1982-83, New South Wales has been by far the major honey producing State.

A relatively small number of apiarists operate a large proportion of hives and produce a major share of total Australian honey output. For example, during 1980-81, the latest year for which details are available, only about 460, or 20 per cent of apiarists possessing more than 40 productive hives, had more than 350 hives. However, those 20 per cent of beekeepers accounted for more than 60 per cent of the total number of productive hives and produced around 70 per cent of the total honey output of apiarists operating 40 or more hives during that year.

The commercial honey packing sector is quite concentrated, especially in the eastern mainland states, with a large proportion of honey output being processed by a few large packers and the HCA playing a major role in three states. On the basis of the evidence, the HCA packed around 65 per cent of all honey destined for the domestic and export markets in New South Wales during 1982-83 and is the only substantial packer in Queensland.

While a large number of apiarists package their own produce, their total output is small, relative to that of the major packers.

There are no details available from the ABS on employment within the honey industry but evidence received by the Commission indicates that beekeepers employ little labour, other than family members. Employment is generally

8

seasonal with labour requirements lowest during the winter months and highest when extraction of honey is taking place, in spring and summer. Several beekeepers stated that labour for their operations is supplied by their own efforts and by family members. Witnesses indicated that a 400 hive apiary would typically be operated by one person and that an 800 hive

apiary is around the size which would require the employment of non-family labour. According to ABS data, there were only 115 beekeepers who had 800 or more productive hives in 1980-81.

Eight major honey packers provided data on employment. Total employment on honey-related activities in 1982-83 by the eight packers was 141, about half of which were employed by the HCA. These eight packers packed over 90 per cent of the total Australian honey production in 1981-82.

3.3.2 Imports

Some witnesses commented that, if domestic prices were raised as a consequence of the introduction of a levy (as suggested by the Working Group as part of its proposal for a market stabilisation scheme), competition from imports would increase.

Imports of natural honey have been insignificant (see Table 2 of Appendix D), representing less than 1 per cent of the quantity of Australian consumption. In 1982-83, imports of honey were valued at about $0.25 million.

3.3.3 Exports

Exports have traditionally accounted for approximately 40 per cent of Australian production. However, in the last two years they increased to around 55 to 60 per cent (see Table 3-3)· The value of Australian honey exports for the five years to 1982-83 are shown in Table 3 of Appendix D.

The value of exports has fluctuated considerably over the period. In 1982-83, exports were valued at about $11.7 million.

The United Kingdom was the principal destination for Australian honey exports in each of the five years to 1982-83, while the significance of other destinations varied.

Honey is exported in bulk, by grade, or pre-packed ready for sale. In each of the five years to 1982-83, bulk honey constituted the major component of total exports (see Table 4 of Appendix D). Pre-packed honey was exported principally to countries in Asia and the Middle East, while the major destinations of bulk honey exports were the United Kingdom, the United States of America, the Federal Republic of Germany and Portugal.

Exports of glucose and honey are shown in Table 5 of Appendix D. The quantity of glucose/honey exports was less than 5 per cent of pure honey exports in each of the years 1978-79 to 1982-83·

According to the BAE, in the six years to 1981-82, Australian exports accounted for only 2 to 6 per cent of world trade V~v'ey. In general, witnesses considered that export prospects were good. Some suggested that exports could be increased by marketing on the basis of flavour, rather

than colour. However, the HCA claimed that eucalypt honey had not been accepted well overseas as a straight line honey, and that the international presentation of honey is usually on a colour basis.

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Some witnesses contended, however, that exports are limited by the price competitiveness of Australian honey relative to overseas sources and by the supply variability on the world market. It was also suggested that the DPI requirement for exporters to use new drums reduced the competitiveness of

producers on export markets by increasing production costs unnecessarily. Witnesses claimed that overseas buyers would generally be satisfied with reconditioned drums. The requirement to use new drums is currently being

reviewed by the Department.

3.3.4 Apparent domestic consumption of honey

Statistics on domestic sales of honey are limited. However, the data in Table 3*3 provide estimates of apparent domestic consumption in recent years.

In the three years to 1980-81, stockholdings increased. Following a fall in honey prices in 1980-81, however, these have been run down.

Local producers supplied almost all of the domestic market in each of the years shown.

TABLE 3.3 : ESTIMATED DOMESTIC MARKET SUPPLIES AND APPARENT DOMESTIC CONSUMPTION (tonnes) OF HONEY : 1978-79 TO 1982-83

1978-79 1979-80 1980-81 1981-82 1982-83

Domestic production® 18 258 24 954 19 558 24 847 22 472

Less exports^ 5 720 11 427 8 195 14 921 12 555

Plus imports 85 64 58 59 90

Less change in stocks0 +1 226 +768 +1 009 -4 193 -634

Apparent domestic consumption of honey 11 397 12 823 10 412 14 178 10 641

Domestic producers' market share (per cent) 99.3 99.5 99.4 99.6 99.2

a Production by apiarists with 40 or more beehives. b The ABS records exports according to the date on which it receives the export documents rather than the date of shipment. This method of recording exports does not generally have a significant affect on

published statistics. However, it did result in 2109 tonnes shipped in 1981-82 appearing in ABS statistics as 1982-83 exports. In this table the Commission has adjusted the ABS figures by transferring 2109 tonnes from 1982-83 to 1981-82. 0 Stockholdings by registered packers. These data are, therefore,

underestimated to the extent that they do not include stockholdings by apiarists other than those registered as apiarist/packers.

SOURCE: Compiled from data supplied by the ABS, the AHB, and Commission estimates.

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3·4 The Beeswax Market

Production of Beeswax during the period 1978-79 to 1982-83 is shown in Table 3-4.

TABLE 3-4 : DOMESTIC PRODUCTION OF BEESWAX3, : 1978-79 TO 1982-83

1978-79 1979-80 1980-81 1 981 -82 1982-83

Quantity (tonnes) 349.1 464.2 366.1 482.0 424.4

Gross value ($’000)^ 1208 1718 1399 1677 1445

a Produced by apiarists with 40 or more beehives. b The ABS defines the gross value of production as the value placed on recorded production at the wholesale prices realised in the principal markets.

SOURCE: Compiled from data supplied by ABS.

Imports of beeswax in recent years have been small in both quantity and value (see Table 6 of Appendix D). The main source of imported beeswax has been New Zealand.

Exports of Australian beeswax fluctuated during the period 1978-79 to 1982-83 but were considerably greater in 1981-82 and 1982-83 than in previous years. In 1982-83 the value of exports was about $1.2 million (see Table 7 of Appendix D).

Estimated market supplies of beeswax from 1978-79 to 1982-83 are shown in Table 3*5.

TABLE 3-5 : ESTIMATED DOMESTIC MARKET SUPPLIES OF BEESWAX : 1978-79 TO 1982-83 (tonnes)

1978-79 1979-80 1980-81 1 981 -82 1982-83

Production 349.1 464.2 366.1 482.0 424.4

Less exports3 194.4 217.9 176.6 348.0 323.2

154.7 246.3 189.5 134.0 101 .2

Plus imports*5 60.9 15-8 10.2 13.8 9.5

Estimated domestic market supplies 215.6 262.1 199.7 147.8 110.7

a ABS export figures have been adjusted by the Commission by transferring 44.7 tonnes from 1982-83 to 1981-82, on the same basis as the transfer explained in footnote b of Table 3·3· b May include small amounts of other waxes.

SOURCE: Compiled from data supplied by ABS.

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4. TRENDS IN INDUSTRY RETURNS

Many witnesses stated that uhe honey in_..Jtry experienced financial difficulties during recent years. A number of xiese requested that a market stabilisation scheme be introduced as a means of overcoming these difficulties. This chapter examines recent trends in the industry, particularly in respect of returns, to evaluate the extent and causes of industry problems.

4·1 Factors Affecting Returns

The returns received by those participating in the honey industry are determined by domestic and export prices, sales volumes, changes in stocks and the costs of producing honey and preparing it for marketing. Recent trends in these determinants of industry returns are set out below.

. Domestic prices

Table 4·1 shows movements in domestic retail prices of honey and 'farm gate1 honey prices. The table also gives details of movements in the Consumer Price Index (CPI), the food component of the CPI and prices received by farmers generally over the period shown.

TABLE 4.1: DOMESTIC HONEY PRICES : 1976·-77 TO 6 MONTHS TO DECEMBER 1983

Average price8 retail Food

component of CPlb

Farm gate price

Index of prices received by farmers, all products0 CPld

c/500g jar Index c/kg Index

1976-77 63 100 100 50 100 100 100

1 977-78 75 119 111 66 132 103 110

1978-79 85 155 124 72 144 126 119

1 979-80 87 138 141 72 144 153 131

1 980-81 90 143 156 66 132 164 143

1 981 -82 88 140 169 62 124 161 158

1982-83 92 146 184 71 142 171 176

6 months to Dec. 1983 102 162 197 na na 184 187

a Weighted average retail price for a representative 500g jar of honey in Sydney, Melbourne, Brisbane, Perth and Hobart, b Weighted average for the six State capital cities, c Weighted average for all States. d Weighted average for the six State capital cities, na Not available.

SOURCE: Compiled from data supplied by the ABS, BAE and the New South Wales Department of Agriculture.

12

Over the period 1976-77 to 1979-80, the retail price of honey increased by an amount consistent with the rate of increase in food prices, as measured by the food component of the CPI. 'Farm gate1 honey prices increased between 1976-77 and 1978-79 at a rate higher than the increase in prices

received by farmers generally. Subsequently, movements in honey prices and farm gate prices have not kept pace with movements in food prices and prices received by farmers respectively. The net effect over the period 1976-77 to 1982-83 was a decline in 'real' honey prices. In 1982-83 both retail and farm gate honey prices showed some improvement and during the 6 months to December 1983 the retail price of honey continued to improve.

. Export prices

Unit values of honey exports for the period 1976-77 to 1982-83 are shown in Table 4.2. Although it is likely that the figures have been affected by changes in the proportion of pre-pack to bulk honey sales and by changes in the mix of honey grades exported, the data are considered to be broadly representative of movements in export prices.

There was a substantial increase in honey export prices from 1976-77 to 1980-81, despite a minor fall in 1979-80. Most of this increase was attributable to a large jump in prices in 1977-78. Prices fell significantly in 1981-82 and, although there was some recovery during 1982­ 83, unit values for export sales in that year remained some 15 per cent below those recorded for 1980-81. Comparing the index of export unit values shown in Table 4.2 with the two price indexes for domestic honey

sales shown in Table 4.1, it appears that export prices for honey have been considerably more volatile than domestic prices.

Witnesses put forward a number of explanations for the sudden turn around in export returns during 1981-82. Some suggested that the fall was due to a substantial increase in exports of honey from other countries, notably China. The BAE suggested that the chief reason was the strengthening of

the Australian dollar against other currencies, particularly the Deutschmark. Hamburg is a large market for world honey supplies and the BAE stated that the Hamburg price is a good indicator of world honey

prices.

The United Kingdom is the main destination of Australian exports and the London average price quotations for Australian light amber (LA) honey, in Australian dollars, fell by about 14 per cent between 1980-81 and 1981-82. However, in terms of sterling, the price quotations increased by about 3

per cent during the same period. Consequently, the strengthening of the Australian dollar appears to have been of considerable significance in the fall in export returns in 1981-82.

The HCA, the largest local honey exporter, stated that export sales are providing a much lower return than sales on the domestic market. The Commission estimates that the ex-factory price of pre-packed honey sold on the domestic market ranges from about 11 to 23 per cent higher than the price of equivalent pre-packed product sold on the export market.

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TABLE 4.2: UNIT VALUES OF HONEY EXPORTS : 1976-77 TO 1982-83

Unit value Index

c/kg

1976-77 70.0 100

1977-78 98.9 141

1978-79 107.8 154

1979-80 101 .3 145

1980-81 109.6 157

1981-82a 80.4 115

1982-83a 92.9 133

a See footnote b of Table 3·3·

SOURCE: Compiled from data supplied by ABS.

. Levels of honey production

Honey production is characterised by significant year to year variations. Table 4.3 shows that over the period 1971-72 to 1982-83 an increase in production was, in every instance, followed by a decrease in the following year and vice versa. The pattern of production shown in the table is

consistent with submissions made by a number of witnesses, who indicated that seasonal conditions and flowering cycles play a major part in the output of honey in any one year and, consequently, that producers' returns can fluctuate significantly.

TABLE 4-3: PRODUCTION OF HONEY : 1971-72 TO 1982-83

Quantity Index

tonnes

1971-72 20 240 100

1972-73 18 083 89

1973-74 . 21 189 105

1974-75 20 636 102

1975-76 21 413 106

1976-77 14 929 74

1977-78 18 583 92

1978-79 18 258 90

1979-80 24 954 123

1980-81 19 558 97

1 981-82 24 847 123

1982-83 22 472 111

SOURCE: Compiled from data supplied by ABS.

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Stocks

Substantial stocks of honey are held by packers, a practice which is facilitated by the ease of storage and long life of the product. Table 3.3 indicates that the level of stocks held by packers is subject to considerable fluctuations.

Witnesses stated that, at times, beekeepers also hold significant stocks of honey. This was said to be because some choose not to sell when prices are low and also stocks are built-up during periods of high production to provide income when production is low.

. Costs of production

Many individual beekeepers who made submissions provided details of their production costs. This information showed significant variations in the relative importance of the various components of beekeepers' costs. Surveys of beekeepers' operations have been conducted by several state governments.1 An example of such a survey is the Victorian Department of Agriculture's 1980-81 survey of beekeepers with 400 or more hives who derived at least 60 per cent of their income from the apiary.

According to the Victorian survey results, the main components of beekeepers' costs during 1980-81 were: imputed cost of family labour (not including the operator) - 22 per cent of total costs; fuel and oil - 13 per cent; other vehicle and travelling costs - 10 per cent; hive maintenance

costs - 12 per cent; other variable costs - 11 per cent; and fixed costs other than labour - 32 per cent. Overall, 46 per cent of total costs were classed as variable and 54 per cent as fixed. Only limited information is available on the extent to which beekeepers' costs have changed since 1980-81. However, a survey by the Western Australian Department of Agriculture indicated that beekeepers' total costs had increased by about

11 per cent between 1980-81 and 1981-82.

Several packers submitted details of their costs of processing and packaging honey. The cost of the honey ranged from about one half to two thirds of the ex-factory cost of the final product and containers represented about 20 per cent. Labour costs were relatively minor, ranging from about 5 per cent of the ex-factory cost for large packers to about 10 per cent for smaller packers. Little information was available concerning

recent increases in packers' costs, but Anderson Honey Products Pty Ltd stated that since it commenced operations in 1980, there have been many significant increases in its manufacturing costs, including a 52 per cent rise in electricity charges and a 59 per cent rise in freight costs.

4.2 Industry Returns

Only limited information is available on the financial position of beekeeping and honey packing operations. The ABS does not compile such statistics and this section is based on information provided by witnesses.

1 A New South Wales survey was conducted in respect of 1979-80 and covered 60 apiarists with 200 or more hives. A Victorian survey, conducted in respect of 1980-81, covered 30 apiarists with 400 or more hives. A Western Australian survey, conducted in respect of 1980-81 and 1981-82, covered 21 beekeepers with 200 or more hives.

15

. Returns to beekeeping

Many individual beekeepers provided details of the financial performance of their operations. The information indicated that some have been achieving a reasonable return from beekeeping but characteristically the profitability of beekeeping operations in recent years has been at a level which most witnesses considered to be relatively low.

Only limited information is available from other sources on the profitability of beekeeping. The data which are available have been provided by occasional surveys conducted on varying bases by state and Commonwealth government departments. The BAE has not carried out a survey of apiarists' financial position since 1970 but survey results obtained by various state government departments of agriculture provide some information about beekeepers' incomes.

The New South Wales survey was conducted in respect of 1979-80, a year during which the honey flows were described as 'excellent'. Average net income per hive, after allowing for the operator's labour and management, was found to be $31.15 and this was said to be a 'quite reasonable' level

of profitability. This amount corresponds with an average net income from honey and beeswax production per respondent of $12 631.

The Victorian survey was conducted in respect of the following year and the results showed an average net operating profit of $16 880 before taking account of an allowance for the apiarist's labour and management and repayment of capital and interest on loans. The Victorian Department of Agriculture stated that after allowing for the payment of an imputed owner

allowance of Agriculture, the average return on assets would be negative. The Western Australian survey showed an average net return, before tax, per apiary, of $14 675 in 1980-81 and $11 250 in 1981-82. This return was

after a deduction for operator's labour of $13 244 in 1980-81 and $15 685 in 1981-82.

The BAE compared the cash operating surplus of apiarists covered by its last survey, conducted in 1969-70 in New South Wales, with the results of the survey by the New South Wales Department of Agriculture. The BAE concluded that, in real terms, the cash operating surplus generated by apiaries had remained roughly constant over the ten years to 1979-80. However, as the average amount of capital invested in apiaries is likely to have increased over the period, the BAE considered that the profitability

of beekeepers' operations had probably fallen.

On the basis of cost and price movements since 1979-80, the BAE contended that the financial position of beekeepers has probably deteriorated since that time. This view was supported by the results of the Western Australian survey which indicated that the average net return for the beekeepers surveyed, fell by 23 per cent between 1980-81 and 1981-82.

. Profitability of honey packers

The Commission received submissions from a number of relatively small producer/packers and from companies specialising in the packaging and wholesaling of honey products. Although not all of these firms provided statistical information concerning the profitability of their packing

operations, the majority considered that their returns were inadequate. However, the HCA - the dominant packer in the eastern mainland states -

16

indicated that its profit and dividend performance had generally been 'satisfactory' over the last few years. Similarly, the Honey Pool of Western Australia - a producers' co-operative and the largest Western Australian packer - indicated that the 1982-85 season had generally been

a good one for the Pool and its members. It claimed that this reflected an increase in average production per member, coupled with the maintenance of packaged honey wholesale prices somewhat above those prevailing in the eastern states during that year.

. Profitability of other products and services

The Commission received only limited information concerning the activities of beekeepers specialising in honeycomb production, the provision of pollination services or queen bee breeding. The evidence which was received indicated that beekeepers who had specialised in the first two fields have achieved better financial results than those achieved by beekeepers generally. There appears to have been a recent downturn in the profitability of commercial bee breeders.

4-3 Annual Variations In The Returns From Honey

Data on the total income of the honey industry are not available. However, Table 4.4 gives details of the value of the industry's production of honey over the period 1972-73 to 1982-83- These data indicate an upward trend in total industry revenue over the period 1972-73 to 1982-83, although there

were considerable fluctuations about the trend over the period. All the declines corresponded with reductions in production, with the 1974-75 and 1982-83 declines being reinforced by falling prices. In real terms, there

has been a downward trend in the gross value of total honey production over the period 1972-73 to 1982-83. Average honey prices have fluctuated about an upward trend over the period shown although in real terms they also fell.

TABLE 4.4 : HONEY QUANTITY AND VALUE DATA : 1972-73 TO 1982-83

Gross value of

Quantity production® Implicit priced

produced _________________ ________________

tonnes $'000 Index $ per tonne Index CPIC

1972-73 18 083 8 130 100 449.59 100 100

1 973-74 21 189 11 768 145 555.38 124 113

1974-75 20 636 9 292 114 450.28 100 132

1975-76 21 413 10 453 129 488.16 109 149

1976-77 14 929 8 405 103 563-00 125 170

1977-78 18 583 13 480 166 725.39 161 186

1978-79 18 258 14 111 174 772.86 172 201

1 979-80 24 954 19 050 234 763.40 170 221

1 980-81 1 9 558 15 815 195 808.62 180 242

1 981-82 24 847 18 211 224 732.93 163 267

1 982-83 22 472 16 329 201 726.64 162 298

a Gross value of production at wholesale prices received by beekeepers, b Gross value quantity. c Weighted average for the six State capital cities.

SOURCE: Compiled from data supplied by ABS.

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Compared with major rural products, the increase in the unit value of honey has been relatively low. However, most rural products have exhibited greater relative variations from year to year than honey in their unit values.^ Table 4.5 sets out indexes of unit values of selected rural products. It indicates that over the period 1972-75 to 1982-85 the increase in honey unit values was exceeded by all of the other products shown with the exception of wool and the relative variations in unit values were exceeded by all other products with the exception of apples.

TABLE 4.5 : INDEX OF AVERAGE UNIT GROSS VALUE OF SELECTED PRODUCTS : 1972-75 TO 1982-85

Wheat Wool

Cattle and calves Sugar Barley

Dried vine fruit Whole

Milk Apples Honey

1972-75 100 100 100 100 100 100 100 100 100

1975-74 202 104 119 95 151 159 100 150 124

1974-75 205 71 50 198 196 105 114 154 100

1975-76 195 79 54 165 188 99 114 180 109

1976-77 165 99 66 166 197 121 145 184 125

1977-78 184 106 72 147 164 192 157 202 161

1978-79 255 115 155 152 160 216 157 194 172

1979-80 285 159 214 215 251 501 171 242 170

1 980-81 287 141 195 274 270 515 245 259 180

1 981 -82 294 147 171 195 255 256 286 285 165

1982-85P 521 149 226 171 294 266 500 519 162

Conditional coefficient of 15.0 14.5 45.1 25.1 14.8 25-9 16.9 5.1 12.4

variations (per cent)

a Defined as the standard error of the estimate about a linear trend fitted by least squares, expressed as a percentage of the mean, p Preliminary.

SOURCE: Compiled from data supplied by ABS.

A number of statistical methods can be used to investigate the relative importance of price and quantity variations in determining changes in the gross incomes of industries. One such method is the Burt and Finley procedure^ which was used by the Western Australian Department of Agriculture. The Department's analysis was based on ABS data for Western Australia.

1 As measured by the conditional coefficient of variation, a measure of the variability of a series. The higher the value of the coefficient, the higher the degree of year to year fluctions in unit values. 2 Appendix F explains this procedure and discusses applications of it

to data on the honey industry.

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Outcomes from the Department's analyses depend critically on the time period and the size of the apiaries being considered. For example, for apiaries of more than 400 hives, the results indicated that, over the period 1962-63 to 1973-74, price changes were the dominant factor

contributing to variations in income; over the period 1973-74 to 1981-82 quantity changes were dominant; and over the entire period 1962-63 to 1981-82 price changes were the main influence on industry income variations. The Department concluded from the range of results obtained that attempts to stabilise honey prices would not substantially reduce income fluctuations, reflecting the result that, in general, price and quantity movements have been in opposite directions.

The Commission also used the Burt and Finley procedure to analyse the relative importance of price and quantity in explaining the variations in the gross value of honey production for Australia as a whole over the period 1972-73 to 1981-82. Using these data the Commission obtained different results from those of the Western Australian study. In particular, the analysis suggests that price and quantity movements have been reinforcing, although it also suggested that prices received by producers have greater influence on industry income variations than fluctuations in production.

Partly because of these inconsistencies, it is not possible to draw any definite conclusions about the relative importance of price and quantity changes in affecting changes in honey industry income. In addition, the Burt and Finley methodology does not indicate whether observed changes in prices and quantities being sold are due to changes in the pattern of

demand or supply. In order to determine the underlying determinants of changes in honey industry income it would be necessary to determine key aspects of the structure of the honey market. Some comments on this issue have been made in Appendix F.

In summary, it appears that in monetary terms honey industry gross income was on an upward trend over the period 1972-75 to 1982-83, although there were fluctuations about that trend. In real terms, however, industry income has trended downwards. The information available to the Commission

suggests that, with some exceptions, the net returns received by the industry have generally been low in recent years. The unit value for honey has increased less rapidly than for many other major rural products and has also tended to be less variable around the trend.

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5. ASSISTANCE TO THE HONEY INDUSTRY 5.1 Current Assistance

Government assistance to the honey industry has been available in a number of forms. These are primarily tariffs, export incentives, taxation measures and other subsidies which are outlined in this Chapter.

5.1.1 Tariff assistance

Tariffs on imported honey and similar products are relatively low. Imports from General sources of both natural honey and beeswax, which fall within tariff classifications 04.06 and 15.15, respectively, are dutiable at 2 per cent, while imports of these products from Developing Country sources enter duty free. Imports of artificial honey falling within tariff classification 17.02.9 are dutiable at 10 per cent from General sources, or 5 per cent from developing countries. Honey packed for sale can only be imported if packed in prescribed sizes.

Other products of the industry also have low levels of tariff assistance. Pollen is dutiable at 5 per cent when imported as a health food and if imported for other purposes is either dutiable at 5 per cent or free,

depending on pack size, and importation is subject to quarantine regulations. The duty on mead is 50 cents per litre. Imported bees are dutiable at 2 per cent and quarantine regulations must be complied with.

5.1.2 Assistance to exports

. Export inspection

Inspection services associated with honey exports are currently financed by the Commonwealth Government. The Senate Standing Committee on Finance and Government Operations estimated in 1982 that the cost to taxpayers of the provision of export inspection services for honey to be somewhat in excess of $150 000 per year. 1 The extent of the subsidy may be reduced as the

Government has stated its intention of recovering from the industry $4.70 per tonne of honey inspected, which is expected to represent approximately 50 per cent of the average cost of its proposed new export inspection arrangements. These proposed arrangements are based on sampling of honey shipments rather than an inspection of all honey consigned for export. This procedure is expected to substantially reduce the cost of inspection.

. Overseas Trade Publicity Committee

The AHB is a member of the Overseas Trade Publicity Committee which co­ ordinates the overseas promotional activities of several of Australia's primary product marketing boards and corporations. The Government subsidises expenditure on approved promotions by boards and corporations which are members of the Committee. In 1982-83, the AHB received $31 508

from the Government under this arrangement.

. Export incentive schemes

The honey industry has been eligible for the general export incentive schemes available to producers in many industries. The Export Market

1 Senate Standing Committee on Finance and Government Operations, "Report on the Honey (Export Inspection Charge) Bill 1982", AGPS, May 1982.

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Development Grants Scheme provides taxable cash grants for expenditure incurred on overseas market research and development. Certain honey- packers and the AHB have been beneficiaries of this Scheme. While grants to packers have been small and intermittent, payments to the AHB have been more significant. For example, the Board expects to receive $54 764 from

the Scheme in respect of 1982-83 expenditure.

The Export Expansion Grants Scheme provided taxable cash grants on the basis of increases in exports in excess of the annual average in the three preceding years. Whilst it covered exports of all manufactured goods, the Scheme applied to only some agricultural products, including honey.

Individual packers, and especially the HCA, have received considerable sums under the Scheme in certain years. However, this Scheme terminated in respect of exports after 30 June 1983·

5·1·3 Other forms of assistance

. Research

The Government contributes in various ways to research which, in turn, benefits the local honey industry. In particular, the Government matches, on a dollar for dollar basis, expenditure from the Honey Research Trust Account. The Trust Account and the Honey Research Committee were established in 1980 to replace a non-statutory research arrangement under which honey research was funded by contributions from the AHB and the Commonwealth Special Research Grant. The Honey Research Committee makes

recommendations to the Minister for Primary Industry in respect of a levy on honey sales, which finances the industry's contribution to the Trust Account, and expenditure from the Account. The rate of levy at present is 0.25 cents per kg on both domestic and export sales. The Account funds are

primarily used for scientific, technical or economic research in respect of beekeeping and the production, packing and marketing of hive products.

Total expenditure on industry research under this arrangement during 1982-83 was about $92 000, of which the Government contribution was about $46 000.

. Repossession Honey Pools

Repossession Honey Pools are a financing arrangement, authorised under the Honey Industry Act 1962, whereby concessional finance is made available from the Rural Credits Department of the Reserve Bank to the industry, for the purpose of facilitating the marketing of honey by enabling beekeepers

to receive early payment for their product. The arrangement is operated by the AHB which extends finance to approved packers, provided they have the necessary security, to assist them to hold stocks of honey prior to sale on either the domestic or export market. The finance is available for a maximum of nine months and the loan can be made on 70 per cent of the total unencumbered bulk honey stocks held by the packer.

This arrangement provides only limited assistance. Recent rates of interest applying to such finance have only been marginally below commercial rates. The Repossession Honey Pools have become less attractive to packers as a source of finance because of recent changes in the security requirements for loans. While stocks of honey held by packers previously provided adequate security, following a change to the Honey Industry Act, either a bank guarantee or a mortgage over assets of the business is now

required in order to obtain finance. The value of outstanding advances under the arrangement at 30 June 1983 was $663 395·

21

. Taxation benefits

Beekeepers, like primary producers generally, have access to income tax averaging arrangements. Under these arrangements, tax over the long term can be reduced by using the average of the income of the current year and the preceding four years to determine the rate of tax payable on the

current year's income.

Benefits have also been available through the Income Equalisation Deposits Scheme, which has enabled income for tax purposes to be transferred from high income years to low income years. This scheme has been altered from 1 September 1983 with the taxation benefit being discontinued. The benefit

for depositors now results from a rate of interest 2 per cent above the two year bond rate.

. Other

There are certain assistance measures available to the rural sector generally, such as the Rural Adjustment Scheme and drought relief schemes, from which beekeepers have received some benefit. However, the amount of assistance received appears to have been minimal.

The differential rates of levy on honey sales which finance the activity of the AHB could also provide a limited amount of assistance to the industry by enabling a higher price to be received from domestic sales than export sales. The levy on domestic sales for this purpose is 2.2 cents per kg and on exports 0.5 cents per kg. 1

5.1.4 Measures of assistance

In order to estimate the incidence of assistance on consumers and to compare assistance levels across industries, the Commission has adopted two measures: the nominal rate of assistance and the effective rate of assistance. These are described below:

. the nominal rate of assistance is the percentage by which gross returns per unit of output of an industry are increased by assistance, relative to the (hypothetical) situation of no assistance to that industry. The nominal rate, therefore, measures the extent to which consumers pay higher prices and taxpayers pay subsidies and bounties in support of local output; and

. the effective rate of assistance measures the net assistance to an industry's value adding activities taking into account not only the assistance available to the industry itself, but also assistance available to activities which supply its inputs. In respect of the honey industry it reflects:

- assistance on returns to output;

- assistance to value adding factors (eg subsidised interest charges and income tax concessions); and

- the direct effect on input prices of protection afforded industries producing those inputs.

1 The mechanism by which a higher domestic levy could enable a higher domestic selling price is similar to that outlined in the Working Group's proposal for a market stabilisation scheme. See Chapter 7· 22

A wide range of materials with varying rates of duty are used in beekeeping. Timber and paint (for hive repairs and maintenance) and honey containers are dutiable at 15 per cent, motor vehicle parts approximately 25 per cent and protective clothing about 50 per cent.

The Commission's estimates indicate that a low level of assistance has been accorded beekeeping although the level has shown some fluctuations. Nominal rates of assistance between 1978-79 and 1982-83 varied between 1 and 4 per cent and effective rates of assistance varied between zero and

5 per cent. The major factor affecting the variability of the assistance estimates has been the periodic incidence of export incentives. In 1982-83, the nominal rate was estimated to be 3 per cent and the effective rate 2 per cent.

The latest year for which comprehensive estimates of effective rates of assistance for other agricultural industries are available is 1981-82. In that year, the effective rate for beekeeping was 5 per cent, which was similar to that available to some other agricultural industries (including

wheat growing and wool production) but considerably less than for several other agricultural activities, such as dairying and tobacco growing. The average effective rate of assistance for agricultural activities in 1981-82 was approximately 9 per cent.

Export incentives have been the major form of assistance accorded honey packers. The benefits of export incentives are likely to have been shared between packers and beekeepers. In estimating the level of assistance the shares accruing to each have been allocated on the basis of proportions of

total value added accruing to packers and beekeepers for bulk honey exported.

Tariff rates on materials used in the packing process range from 2 per cent on glass jars to 15 per cent on drums and 25 per cent on lids, labels and cartons.

Nominal rates of assistance for honey packing are estimated to have been less than 5 per cent over the period 1978-79 to 1982-83· The effective rate of assistance during this period is estimated to have been zero or negative.

In summary, the level of effective assistance available to the honey industry is low by economy wide standards but comparable with that available to other rural industries, with the exception of some receiving industry specific assistance. Approximately 40 per cent of the industry's output is exported while imports represent less than 1 per cent of total

domestic consumption. Together, these factors suggest that the industry is relatively economically efficient.

5·2 The Effects Of Industry Assistance

The more suited an industry is to Australian economic conditions, the greater will be the benefits that accrue to the community from its use of resources. Industries that are less suited to Australia's resource endowment and trading environment and which are consequently less efficient users of Australia's resources, in an economic sense, require relatively

23

high levels of government assistance before they can attract the resources they need to compete on domestic and overseas markets. However, this assistance has the effect of attracting resources away from more lightly assisted, efficient production activities and therefore discourages the expansion of industries well suited to Australian conditions.

The most appropriate approach to encouraging economically efficient activities - such as honey production - is to reduce high levels of assistance elsewhere in the economy, while generally not increasing assistance to more lightly assisted activities. This should reduce the costs to other industries and the community generally arising from the provision of assistance to relatively inefficient activities and encourage the development of industries most suited to Australia's resource endowment and trading environment.

It is sometimes argued that the costs imposed by high levels of assistance on other activities justifies the provision of 1 compensatory assistance1 to lightly assisted activities, such as beekeeping, to offset those costs. Some of the difficulties with this approach which may occur in practice include: 1

. the provision of assistance to individual industries to counter the adverse effects of the existing assistance structure cannot be justified on resource allocation grounds because there is no guarantee that any additional

resources flowing into that industry would come from less efficient industries and furthermore provision of such assistance would be likely to increase resistance to future government attempts to reduce overall assistance levels;

. considerable administrative costs, which would have to be borne by the community as a whole, would be involved in developing a neutral assistance structure, incorporating tariff compensation;

. provision of such assistance may provoke retaliatory action by Australia's trading partners.

It is also sometimes argued that industries characterised by risk and uncertainty should receive government assistance. However, in general, assistance should not be provided on the grounds of a perceived reluctance

of the capital market to provide funds fo^· high risk activities. Any deficiencies in the capital market which may direct investment funds away from high risk activites are more appropriately addressed by reform of the financial system.

Despite these considerations, there may be circumstances where it could be appropriate to increase assistance to lightly assisted industries. For example, grounds could exist if a local activity generates significant

benefits to the rest of the community which are not taken into account in the price received by the producer, or if there is under investment in the

1 This matter is discussed in more detail in Australia. IAC, Annual Report 1973-74, AGPS, Canberra, 1974, Appendix 5.5; and Annual Report 1974-75, AGPS, Canberra, 1975, Chapter 3.

24

industry due to inadequate dissemination of available information. However, in such cases it is necessary to consider whether the market imperfections are significant enough to justify government intervention. It is also necessary to consider if industry wide assistance, such as that

provided by import protection or price support schemes are the most appropriate response, or whether government objectives could be more effectively met by seeking to correct the market imperfection at its source.

Some witnesses claimed that issues related to these latter considerations are relevant in assessing appropriate levels of assistance to the honey industry. These claims are briefly summarised in the following chapter.

25

6. THE INDUSTRY'S REQUESTS AND SUGGESTIONS

Witnesses generally requested an increase in government assistance in order to restore economic viability to the honey industry and to afford it some degree of compensation for the costs imposed on it by the existing structure of industry assistance. They said that the problems recently encountered by the industry are mainly a consequence of depressed product prices and rising costs of production. Accordingly, requests for assistance were usually for measures directed at raising producers' incomes by increasing the prices received for honey and/or by reducing costs. Much

of the evidence related to the Working Group's proposal for a 'market stabilisation scheme'. Witnesses' major requests and suggestions are discussed below and detailed in Appendix C.

6.1 The Proposal Eor A Market Stabilisation Scheme

The stated objective of the scheme proposed by the Working Group was to prevent adverse export market pressures from affecting the domestic market. Basically, a Stabilisation Fund would be created by imposing a levy on all domestic sales of honey. This would induce a margin between domestic and export selling prices equal to the levy. It was suggested that the levy could be gradually phased in and that the final figure might be around $250 per tonne. The proceeds of the levy would be used to subsidise

exports and any remainder would be distributed over total domestic and export sales. In order to stabilise beekeepers' returns and to allow interim pool distributions to be made from the beginning of the year, the Working Group further sought government underwriting of producers' returns.

(Details of the scheme and the underwriting arrangements proposed are set out in Appendix E).

Proponents of the scheme stated that its introduction would increase confidence in the industry and would lead to a greater overall return, with benefits accruing to all sectors. They claimed that it would be effective in restoring economic viability and contended that the wider community benefits associated with the industry (principally incidental pollination

services) justified the assistance requested. At the draft report hearing, the Working Group stated that, as an alternative to the implementation of the proposed scheme, the underwriting of exports would, to some extent, cushion the impact on the domestic market of any dramatic downturn in export prices. The FGAAA and the HCA endorsed this request.

Most witnesses expressed at least some reservations about the scheme. Some were concerned that the benefits of the higher domestic price might not be passed back, in full, to beekeepers. Accordingly, several maintained that a fixed or guaranteed minimum price to beekeepers was required to restore viability to the industry. The Bathurst and District Branch of the Commercial Apiarists' Association of New South Wales stated that, unless a set price at the producer level was incorporated, it would not support the introduction of the scheme. The Branch claimed that, in the absence of such a price, competition among packers could erode any benefits to beekeepers.

Several witnesses were also concerned that some details of the scheme had not been determined satisfactorily, or required amendment. The Commercial Apiarists' Association of New South Wales argued that a marketing scheme which did not provide a specific price to the producer for all grades of honey would not work nor be acceptable to its members. The Association

26

also stated that improved domestic market conditions could lead to a requirement for protection from imports. It suggested that such protection be afforded by making imports also subject to the equalisation levy or, alternatively, by imposing an import tariff. Some witnesses further

commented that the scheme had not been adequately explained or debated and requested that a poll of producers and packers be taken to establish its acceptance by the industry before being implemented.

Some witnesses sought exclusion from the scheme. The Tasmanian Beekeepers' Association indicated that Tasmania had, from the first, requested exemption. The Association stated that Tasmanian beekeepers had developed local and export markets for their straight line honeys at premium prices

and that, if a levy of the magnitude suggested were introduced, it would reduce the prices received by them and lead to their becoming unviable. Both the Amateur Beekeepers' Association and the Melbourne Section of the Victorian Apiarists' Association requested that small producers be exempt

from the levy. They claimed that the output of these producers is too small to influence any marketing scheme, that the costs of policing their adherence would be uneconomic and that they would receive little or no benefit from any government assistance. The Melbourne Section of the Victorian Apiarists' Association suggested that exemption be granted to

beekeepers with less than 40 hives, while the Amateur Beekeepers' Association suggested exemption for those with sales of less than 50 kg per month.

The effectiveness of the scheme in achieving stability for the industry was questioned by a number of witnesses. The Archibald Honey Company contended that the scheme would encourage uneconomic expansion and that controls on production would be required. The Honey Industry Association

of Western Australia stated that implementation of the scheme might exacerbate the decline in domestic per capita honey consumption without providing for further development of the domestic market. J. and M. Edmonds suggested that traditional purchasers of the industry's exports

would take account of the subsidy implicit in the scheme and lower their prices accordingly. Combined with a reduced domestic market this would further aggravate the current situation. In opposing the introduction of a price equalisation scheme, the New South Wales Department of Agriculture suggested that it would be more appropriate to encourage a reduction in the

industry's dependence on the export market. The Government of Victoria and the Northern Territory Department of Primary Production also opposed the adoption of the Working Group's scheme.

6.2 Other Requests

Measures directed at restoring producers' profitability by reducing costs, rather than by raising prices, were requested by the majority of witnesses. The Western Australian Department of Agriculture argued that, since the high levels of assistance afforded the industry's main inputs were

contributing to its difficulties, there was a case for some cost compensation. It suggested that this be provided by extending the diesel fuel rebate currently available to primary producers for off-road use to

beekeepers for on-road use. Several other witnesses endorsed this request. B.R. and R.M. Pearson claimed that this type of assistance would benefit apiarists since fuel represents their highest cost input. The Victorian Apiarists' Association further requested that the taxation exemptions available to other primary producers on oil, spare parts and tyres be available to beekeepers.

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Several witnesses requested that sugar he made available to beekeepers at stock feed prices. N.V. and H. Rice claimed that lower prices for sugar would enable them to reduce transport and labour costs when building up colonies and would assist in the production of queens and bees for export. They stated that it would reduce bee medication costs since the Queensland Department of Primary Industries insists that sugar be used as the carrier

for treatments. The PCAAA stated also that this concession would assist beekeepers developing large honey bee populations for pollination.

Numerous requests were received for the provision of low cost finance. Some witnesses commented that they had difficulty in financing the storage of honey, which often led to their selling at unsatisfactory prices. They claimed that the assistance available through the Repossession Honey Pools is of little, if any, benefit and is currently underutilised. The Anderson Honey Company indicated that the recently introduced requirement for packers to provide either a bank guarantee or a registered mortgage as

collateral for borrowings from the Honey Pools would reduce packers' ability to purchase honey from beekeepers. The HCA suggested that an interest rate of 8 to 10 per cent on Honey Pools finance would be "a more realistic figure" than the current rate which is only marginally lower than those available commercially. The Gippsland Apiarists' Association requested also that stocks of honey be accepted as security for these borrowings.

In relation to the future of the industry and its diversification into products other than honey and beeswax, several witnesses requested increased government assistance for research. The Government of Victoria contended that there is an information gap which is causing pollination services to be undervalued and underutilised and that a greater government involvement in research to overcome this deficiency is justified. The FCAAA also sought accelerated government involvement in pollination

research and promotion programs to develop the service in Australia. The Honey Industry Association of Western Australia and the Working Group claimed that increased assistance should be afforded the industry because it generates benefits in the form of pollination services.

Sundry other requests were submitted by witnesses. Improved and more effective domestic promotion and marketing were considered by some witnesses to be an essential component of any long term improvement in the industry’s position. Continued access to, and preservation of, state

forests were also sought by beekeepers. In addition, the Northern Territory Department of Primary Production requested a review of honey flora in northern Australia to establish the area's potential, particularly in view of its disease free status. The existing forms of assistance were considered to provide some benefits to the industry and witnesses generally sought their retention.

Witnesses at the draft report hearing reiterated their concerns that the industry would decline without additional assistance. They claimed that they were adversely affected by assistance afforded other industries, that their levels of income were relatively low, and that many had no opportunity to leave the industry. Accordingly, they sought measures of assistance which they considered would redress the position of the honey industry. Both Mr McIntyre and the FCAAA sought exemption for the industry from the provisions of the Trade Practices Act 1974 in order to allow producers collectively to determine a higher market price. Both the

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Melbourne Section and the HCA suggested that the role and functions of the AHB should be reassessed. In addition, a number of witnesses suggested that there was potential to increase both the demand for honey and producers' returns by more effective promotion and suggested that the Government intervene in this direction.

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7. MARKETING PROPOSALS 7.1 The Proposed Market Stabilisation Scheme

The Commission received a number of requests and suggestions related to arrangements for the marketing of honey. Considerable debate was generated by the Working Group's proposal for the implementation of a 'market stabilisation scheme'. Additionally, a number of witnesses requested that some form of government underwriting of honey prices be introduced. Other proposals related to the marketing of honey included obtaining exemption from the provisions of the Trade Practices Act to enable consultation between honey packers and apiarists on honey prices and the promotion of honey in the domestic market. This chapter presents details of these

proposals, and the Commission's comments on them.

7.1.1 Details of the proposed scheme

The Working Group sought the introduction of a statutory market stabilisation scheme which would sustain domestic honey prices at higher (and possibly more stable) levels than export prices. According to the Working Group, the main objective in developing the proposal was:

"... to insulate the important domestic market from the effects of adverse pressures which from time to time exert themselves in the export market place, and which flowed on to the domestic market."

The proposal is an example of what is generally referred to as a 'two price' or 'home consumption pricing' scheme. Such schemes have been a common method of assisting agricultural industries in Australia. They can raise industry revenue by taking advantage of the fact that Australian

producers have more market power in the domestic market than they have in overseas markets. To ensure the effectiveness of such schemes it is necessary either to control supplies coming on to the higher priced domestic market or to induce some increase in export sales. It may also be necessary to impose some form of protection against imports to prevent

imports from eroding domestic prices.

In many two price schemes, revenues from domestic and export sales are compulsorily pooled, with all producers receiving a weighted average of domestic and export prices. In such cases allocations of supplies to domestic and export markets are made by a centralised authority. However, pooling over all sales and the centralised allocation of supplies to various markets are not essential features of two price schemes. Under the Working Group's proposal a levy on domestic sales would be used to finance

a subsidy on export sales but centralised control of supplies to various markets would not apply. The Working Group contended that under its proposal domestic prices would rise to the average of export prices plus

the levy and would make domestic and export sales equally profitable to producers.

The Working Group's description of the proposed scheme is reproduced in Appendix E. The Commission's interpretation of how it would operate is set out below.

The key aspects of the proposed scheme are:

. the introduction of a levy on domestic honey sales (additional to the existing levies to finance the AHB and industry research);

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. the pooling of returns from honey exports, through the establishment of an Export Pool;

. the equalisation of returns from the domestic and export markets, via the distribution across total domestic and export sales, of the monies collected from the levy and any credit balance in the Export Pool at the end of the accounting period; and

. a requirement for legislative backing.

Whilst the Working Group's proposal also requested government underwriting of producers' returns, this was not an integral component of the marketing scheme and is considered separately in section 7.2.

The proposal suggests that, if the scheme were to be introduced, it would be administered by the AHB and would operate as follows.

. The levy on domestic sales

All domestic sales of honey, regardless of grade, would be subject to a levy which would be paid into a Stabilisation Fund. The levy would apply to all forms of honey, viz. liquid, blended, crystallised, creamed or candied, mixtures of honey and glucose and honey otherwise processed. Sales of honey for manufacturing purposes - production of confectionery,

cereals and cakes etc. - would also bear the levy, but a rebate would be paid to the manufacturer after use.

The levy, which would be imposed as a specific dollar value per tonne of honey, would be calculated as the difference between the Assessed Export Price (AEP) - the AHB's estimate of the average export price of Light Amber (LA) honey during the forthcoming year - and the maximum wholesale price

which could be charged on the domestic market. The latter would be determined by the AHB according to its assessment of the market in the forthcoming year.

. The Export Pool

The AHB would continue to set minimum export prices for each grade of honey during the year, according to prevailing conditions in export markets. The Export Pool would be operated solely on the basis of the difference between the minimum export price for LA honey and the AEP. The actual

selling price realised would be of no direct relevance to the working of the Pool.

If an exporter were to sell honey at a time when the approved minimum price exceeds the AEP, then the Export Pool would be credited with the difference, multiplied by the quantity sold. In the example shown in Table 6.1, the first sale at a minimum LA price of $900 - which is $50 in excess of the AEP - would represent a credit to the Export Pool of 3000 x $50 = $150 000.

Conversely, a sale at less than the AEP would represent a debit against the Export Pool. In the example, the second sale at $800 - which is $50 less than the AEP - would lead to a debit against the Pool of 1000 x $50 = $50 000. In practice, an exporter selling honey of any grade, at a time when the minimum approved price for LA was in excess of the AEP, would pay

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TABLE 7.1 : AN EXAMPLE OF THE OPERATION OF THE WORKING GROUP'S PROPOSED MARKET STABILISATION SCHEME'

Approved minimum Approved minimum price of grade price of LA

at time of sale at time of sale Effect

(tonnes) ($ per tonne) ($ per tonne) ($ per tonne)

Export Market

1 3 000 LA 920 900 900

2 1 000 LA 850 800 800

3 1 000 ELA 950 870 830

4 1 500 MA 810 800 860

5 500 W 1 000 960 900

6 500 A 780 750 810

7 500 DA 740 730 890

($ per tonne)

Pool receives credit at $900 Net : receipt $ 50

Pool receives credit at $800 Pays out additional $ 50

Pool receives credit at $830 Pays out additional $ 20

Pool receives credit at $860 Net receipt $ 10

Pool receives credit at $900 Net receipt $ 50

Pool receives credit at $810 Pays out additional $ 40

Pool receives credit at $890

Domestic Market

8 10 000 All

grades

Stab. Fund receives $250 per tonne levy.

a Levy - $250 per tonne; AEP - $850 per tonne; Domestic Price - $1100 per tonne, b W - White, ELA - Extra Light Amber, LA - Light Amber, MA - Medium Amber, DA - Dark Amber.

the difference between these two prices into the Pool. Thus, in the example, for sale 1 the exporter would receive $870 per tonne and pay $50 per tonne into the Pool. Similarly, for sale 7, the exporter would pay $40 per tonne into the Pool and would receive a payment of $700 per tonne. If

the minimum approved price for LA were less than the AEP at the time of sale, the exporter would retain the receipts from the sale and would receive a payment from the Pool equal to the difference between the AEP and the minimum approved price for LA. For example, the exporter making sale 6 would receive $780 per tonne from the sale plus $40 per tonne from the

Pool.

At the end of the accounting year, after debiting the cost of administering the scheme, if the Export Pool had incurred a negative balance, the difference would be made up by a transfer from.the Stabilisation Fund. Alternatively, if the Pool had a positive balance, that amount would be

added to the Fund.

Following these adjustments, the balance in the Stabilisation Fund would be distributed equally, on a dollars per tonne basis, across all domestic and export sales of honey for the year.

. Legislative backing

If such a scheme were introduced, it would be necessary for the Government to enact enabling legislation. In particular:

. the administering authority would require the power to register all beekeepers and packers, and appropriate arrangements would have to be made for collection of the levy on domestic sales of honey and honey products'' ;

. the administering authority would also require the power to determine the AEP and to advise the Minister on the appropriate value of the levy;

. the administering authority would further require the power to administer the Export Pool and the Stabilisation Fund; and

. it may be necessary to introduce measures to protect the local market from imports.

7.1.2 The likely effects of the proposal

. Effects of the scheme on the honey industry

According to the Working Group, if the scheme were introduced, the domestic wholesale price for LA honey would be set in line with the AHB's assessment of the maximum price the market would bear. Although the Working Group did

1 In order to implement the scheme, levy payments would have to pass through the Government's accounts. For example, the Department of Primary Industry could collect the levy on behalf of the administering authority, enter the payments into the accounts administered by it, and

then remit the funds to the administering authority. This procedure is currently followed in administering the dairy industry marketing scheme.

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not submit details of how this price would be determined, it stated its belief that the imposition of a levy of $250 per tonne - 25 cents per kilogram - would not result in any decline in domestic sales.

The Working Group submitted the results of a market survey commissioned by the AHB which suggested that consumers would continue to buy the same amount of honey if prices were 25 to 33 per cent higher. However, both the Western Australian and New South Wales Departments of Agriculture stated

that an increase in the domestic price could be expected to lead to a fall in honey consumption. The BAE stated that, whilst there is limited information available on the matter, it considered that domestic consumption of honey would not vary greatly in response to price changes, although it considered that some decline in domestic consumption would follow the imposition of a levy of the magnitude suggested by the Working Group.

One of the major factors which would determine the extent of any decline in honey sales as a result of the imposition of a levy, would be the availability of potential substitutes. Since there is a number of other low priced spreads - such as jams and vegetable and meat extracts - which

compete with honey in the local market, there could be some decline in honey sales if domestic honey prices were increased significantly.

The success of the levy/disbursement mechanism in raising producers' returns would not be totally dependent on there being no loss in sales if domestic prices were increased. Although increasing domestic prices may cause a reduction in domestic sales and a diversion of supplies to lower

priced export markets, gross industry returns would be increased by a two price scheme, provided sales on the higher priced domestic market were relatively less sensitive to changes in prices than sales on export markets.

Generally, an increase in the price received by producers leads to an increase in the overall level of production of an industry. Witnesses' views varied on the extent to which honey production would increase if the proposal were implemented. Some witnesses, including the BAE, raised the question of whether there are resource endowment limitations to the amount of honey that can be produced in any particular season. The FCAAA considered any increase in production could only be moderate because the availability of native flora is being restricted by agricultural expansion, die back, timber production, bush fires, drought and public land management policies. Generally, witnesses stated that some increase in output could be expected if honey prices increased significantly. A number of beekeepers stated that there are large tracts of floral resources which are not being utilised by apiarists, due to inadequate returns. They pointed

out that if honey prices increased, some of these resources would become viable. Similarly, the Northern Territory Department of Primary Production stated that there is considerable scope for expansion of honey output in the Territory. The BAE also pointed out that higher levels of profitability would provide incentives for part-time commercial apiarists to produce more honey. On the whole, it appears that some increase in production of honey would follow the introduction of the proposed scheme.

Due to data limitations, the Commission has not been able to estimate the likely fall in domestic honey consumption or the increase in production which would follow an increase in prices. However, on the basis of the evidence received, it appears unlikely that the imposition of a levy of

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the magnitude suggested by the AHB would have no effect on local honey consumption or honey production. Nonetheless, if a scheme such as the one proposed by the AHB were introduced, it could be expected that both total and per unit returns from honey sales would increase.

The Working Group made only passing reference to the effects of its proposal on sales of grades of honey other than LA. It proposed that honey packers would receive the same dollar value from the distribution of the levy and the payments from the Export Pool, whatever the grade of honey

sold. In the first instance, this would increase the price received for low quality honey relative to the price received for higher quality honey. It is difficult to forecast the likely long term effects of any such price changes which might be induced if the scheme were introduced, without detailed knowledge of likely supply and demand responses. Under normal market conditions, an increase in the relative price of lower grade honey

would induce producers to produce relatively more of that type of honey.

Some witnesses at the draft report hearing submitted that such an outcome would not eventuate. However, other submissions indicated that substantial areas of flora capable of producing lower grade honey remained underutilized to date, suggesting that there is scope for increased

production of lower grade honey, should its relative price increase. Possible changes to the industry's output mix away from that which would eventuate from market forces, resulting from the introduction of such a scheme, would represent a further potential cost to the community.

It appears unlikely that all producers would gain from the scheme. For example, a number of producer/packers, including some producing specific floral lines of honey, stated that, if the scheme were introduced, they would be unable to pass on the levy to consumers. Some witnesses also

expressed concern that packers would be able to retain a substantial proportion of the expected increase in returns rather than pass the benefits on to beekeepers. The information available to the Commission was

insufficient to enable it to draw firm conclusions on the likely distribution of any benefits which would arise if the scheme were implemented.

. Effects elsewhere in the economy

In proposing the honey stabilisation scheme, the Working Group suggested that some protective device against imports may be required - such as a tariff, a quota or a levy of equivalent value on imports. The level of protection required would depend on the level of the levy. With this barrier to overseas competition, the proposed scheme would provide the administering authority with the opportunity to determine the domestic price which maximised revenue for the industry as a whole, in a manner

similar to that adopted by monopolists in maximising their returns from captive markets. 1 1

1 However, unlike the typical monopolist, under the Working Group's proposal there would be no mechanism for controlling total industry production and sales. Since packers and apiarists would receive prices which were weighted averages of higher domestic but unchanged

export prices, it may be that the incremental costs of producing any increase in output would exceed the incremental returns to the industry as a whole.

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The economic effects of this type of scheme, as they apply to other agricultural commodities, have been extensively studied. In general, social costs arise when the domestic price is administered at a level higher than the export price. The higher prices lead to income being transferred from consumers to producers. However, being transfers from one group to another group within the economy, such payments do not leave the economy as a whole any better or worse off. Nevertheless, the higher prices could also lead to a loss in overall consumer satisfaction which is not offset by any gains to producers or, in other words, to a 'deadweight consumption loss' to the community.1 However, any deadweight loss is usually very small relative to the size of the transfer from consumers to producers.

Another important consideration is that the increase in returns accruing to honey producers could lead to an increase in the level of resource use in the industry. Whether or not this would improve the efficiency of the overall use of resources or to a 1 deadweight production loss' would depend

on whether resources were drawn from activities which were more or less efficient than honey production.^

Because the responsiveness of consumption and production to changing honey prices is not known, the Commission has been unable to estimate the precise size of the transfers, or of the consumption and production effects which would arise if the proposed honey stabilisation scheme were introduced. However, if, as mooted by the Working Group, a levy on domestic honey sales of $250 per tonne were introduced, this would lead to an increase in the domestic prices of honey of around 20 per cent. Assuming that there was no reduction in domestic sales - as some witnesses suggested - the resulting transfer from consumers to producers would be approximately $4 million. Allocating the revenue gains to the industry across export and domestic sales, suggests an increase in the nominal rate of assistance of about 14 percentage points. Whilst, in the Commission's view, these measures are likely to be overestimates - because it considers that there would be some decline in the domestic demand for honey - an increase in the assistance available to the industry of the order suggested would have a substantial impact on producers' returns and could lead to a higher level of resource use in the industry than would otherwise occur.

There are also a number of indirect effects of an economy-wide nature associated with home consumption pricing schemes. Of course, in the case of honey, these effects are likely to be relatively small. They arise primarily from the effect of the increase in the domestic price of the

commodity on the Consumer Price Index, which in turn leads to an increase in money wages under a system of full wage indexation, as is currently in operation. Since wages currently represent over 50 per cent of the economy's total costs, the initial increase in the price level is substantially magnified. The resultant increase in the domestic economy's 1 2

1 A 'deadweight consumption loss' would result from a fall in consumption of honey caused by a higher domestic honey price, the loss of satisfaction from which (to honey consumers) was not offset by the satisfaction gained by consumers as a whole, from diverting expenditure to other goods. 2 A 'deadweight production loss' would result from a rise in production

of honey caused by a higher equalised price of honey, the return from which did not cover the value to the community of the output (in their current use) of the resources diverted to honey production.

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cost structure leads to a deterioration in the international competitiveness of all traded goods industries, both export and import competing. That is, in an important sense, the costs of home consumption pricing schemes are borne by other industries in the traded goods sectorJ

. Practical difficulties

There would appear to be a number of practical difficulties in implementing a scheme such as the one proposed by the Working Group. One such difficulty would be to ensure that all honey sales bear the levy, since the industry has a large number of producers and a readily saleable product. The Working Group suggested that this problem could be overcome by setting penalties for non-payment at a level that would discourage default.

However, irrespective of the level, this strategy would not be effective without considerable policing of honey sales. Even large penalties for levy evasion would be unlikely to be effective if the probability of detection were low and the returns from non-payment of the levy were fairly

high.

If substantial sales were made by producers who did not pay the levy, the viability of the scheme would be threatened. At the higher domestic price which would follow the introduction of the scheme, producers would have a strong incentive to sell on the domestic market, and to avoid payment

of levy on sales. This would lead to reduced payments into the Stabilisation Fund and a reduction in the overall returns to participating producers. Given the nature of the industry, adequate policing of honey sales to prevent the evasion of levy payments could involve substantial

costs and, since the administration and possibly policing costs would be charged against the Stabilisation Fund, these costs could significantly reduce the effectiveness of the scheme in raising producers' returns. On the other hand, if the policing costs were not charged against the scheme they would have to be borne by the community at large.

Another practical problem which would confront the AHB in administering the scheme would be forecasting export prices for the forthcoming year, in order to determine the AEP. The difficulties which would have to be overcome in accurately forecasting export prices are evident from the data in Table 4·2 which indicate a substantial degree of volatility in export prices in recent years.

7.1.3 Assessment of the proposed scheme

The levy/disbursement mechanism detailed in the Working Group's proposal is not a price or income stabilisation device as such. It is targeted at increasing the price received by some producers from domestic markets and at equalising the price received by producers generally from domestic and

export sales. How effective the mechanism would be in reducing price fluctuations over time would depend on the manner in which the levy was adjusted from year to year. As discussed in Section 4*3, it appears that changes in output due to seasonal conditions are a significant determinant 1

1 The mechanisms in the economy underlying this result are described using the case of wheat as an example in B.R. Parmenter, D. Sams and D.P. Vincent, "Who Pays for Home Consumption Pricing Schemes?", Economic Record, Vol. 57, No. 157, June 1981, pp. 168-179.

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of variations in producers' gross returns. Thus it is by no means clear that the introduction of a scheme which attempted to equalise prices would reduce fluctuations in honey producers' gross returns.

If the scheme were introduced, it would probably affect the various sectors of the industry differently. As proposed, the scheme would operate through the packing sector of the industry. Some apiarists suggested that this could result in apiarists paying the levy, whilst packers would benefit from the disbursement of levy funds. The Commission considers that any net benefits of the scheme would be shared between these two groups of market participants, but it cannot be sure of the distribution of any such benefits between the two groups. Whereas packers are likely to have relatively more market power than apiarists, the packing sector appears to be sufficiently competitive to ensure that apiarists as a whole would be net gainers. Nevertheless, it is not likely that all participants would gain. Individual beekeepers and packers who currently extract a

considerable domestic price premium and who sell a large proportion of their output on the domestic market could well be disadvantaged.

Introduction of the proposed scheme would also result in a considerable increase in the level of assistance available to the industry. This would increase the gross income of the industry and could give rise to some expansion of the industry over time, compared with what it would otherwise be. However, in view of the limited supplies of nectar in some regions, any impact on industry expansion would not be uniform across all beekeepers and regions. If increased returns were to result in more producers or more hives competing for limited nectar supplies, any initial increase in returns could result in higher beekeepers' costs, rather than in greater production, ie. the 'resource rent' could be competed away in some production areas.

Implementation of the proposal would also result in a significant cost impost on Australian consumers - up to a 20 per cent increase in domestic honey prices. The Commission considers that this would result in some loss of consumer satisfaction which would not be offset by gains to producers.

Whilst it is often necessary for the Commission to resolve conflicting interests between various groups affected by government assistance policies, it does not appear that implementation of the Working Group's proposal would lead to a significant efficiency improvement amongst apiarists, or that difficulties facing the honey industry in recent times

would justify government intervention in the domestic honey market. Consequently, although the Commission concedes that real returns in the industry have fallen, it does not consider that this is sufficient justification for giving the industry continuing market power of the order implied by the scheme proposed by the Working Group. It also has reservations about intervention through domestic marketing to support apiarists' incomes for either welfare reasons or to ensure that excessive resources do not leave the industry. Measures such as those available through the Rural Adjustment Scheme would appear to be applicable in such cases.

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In some instances the Commission has recommended levy/disbursement mechanisms having some similar features to that proposed by the Working Group. 1 But in each of these cases the proposals have been made to replace existing mechanisms which were deemed to have more distortionary

consumption and production effects. In no case were they expected to make consumers worse off or to increase the overall level of production in the industry.

7.2 Government Underwriting

The Working Group requested government underwriting of honey returns, in conjunction with its market stabilisation proposal. The adoption of either of these mechanisms would not require the introduction of the other. During the draft report hearing a number of witnesses suggested that if the proposal for a marketing scheme were rejected, the Commission should still give consideration to the introduction of Government underwriting for the honey industry.

7.2.1 The Working Group's underwriting proposal

The Working Group's initial proposal to underwrite producers' returns is intended to limit the extent of falls from one year to the next in producers' average returns due to falling world and/or domestic prices. If the actual returns received by producers were below the underwritten returns, the Government would provide a subsidy to cover the difference.

The Working Group's proposal involves the Government underwriting the average return from both domestic and export sales of all grades of honey.2 The underwritten value would be the average of the return during the preceding two years and a forecast of the return for the ensuing year,

subject to adjustments from one year to the next being no greater than plus or minus 10 per cent. If the average return from the export and domestic markets in the ensuing year were less than the underwritten return, then the Government would provide a subsidy to cover the

difference. The proposal states that provision could be made for reimbursement of any previous government payments to be made in years when the average market return was more than 10 per cent higher than the actual return received by producers in the previous year. The repayment would consist of any amount in excess of a 10 per cent increase in returns over

the previous year's level. An example of how the underwriting proposal would operate is given in Table 7.2.

1 See for example, Australia. IAC, Dried Vine Fruit, Report No. 77, AGPS, Canberra, 1976; Dairy Industry Marketing Arrangements, Report No. 99, AGPS, Canberra, 1976; and The Dairy Industry, Report No. 333, AGPS, Canberra, 1983· 2 Some witnesses suggested that underwriting apply only to export sales.

At the draft report hearing the Working Group also indicated that if the Commission did not recommend the introduction of a market stabilisation scheme, it would support the underwriting of export returns as an alternative to its initial proposals.

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TABLE 7.2 : EXAMPLE OF THE WORKING GROUP'S PROPOSED UNDERWRITING ARRANGEMENTS

Year 1 2 3 4 5 6

(dollars per tonne)

Actual return (assumed equal to forecast return) 1000 1000 1000 950 500 1700

Projected return (three year moving average)

1000 983 817 1050

Underwritten return 1000 983 885 974

For simplicity, the example assumes that the forecast return always equals the actual return. Based on a three year moving average, the projected and underwritten returns would both be $1000 in year 3· In the following year, the return is forecast to fall to $950. Thus, both the projected (three year moving average) and underwritten returns would be $985. If the

forecast were correct, the Government would pay producers $35 per tonne ($983 - $950) to ensure that they receive the underwritten return. Assuming for simplicity, that total sales were 10 000 tonnes in each year, then the Government would outlay $330 000 in year 4·

If, in the following year, forecast returns were to fall to $500 per tonne, the projected return would be $817. However, that would represent a 17 per cent decline in producers' returns, so the underwritten return would be set at $885, 10 per cent below the preceding year's level. The Government would outlay $3 850 000 [($885 - $500) x 10 000] to boost producers'

returns to this level.

In the hypothetical example, forecast and actual prices in year 6 are assumed to escalate sharply (to $1700). The projected return would be $1050 and the underwritten return would be $974 [$885 + (0.1 x $885)]. As the scheme envisages that accumulated government outlays could be repaid in years when the actual return is more than 10 per cent above the preceding year's return, in year 6 of the example, $11 500 000 [($1700 - (1.1x$500)) x 10 000] would be available for reimbursement. Accumulated government outlays of $4 180 000 ($3 850 000 + $330 000) would be repaid from the Stabilisation Fund and the remaining $7 320 000 would be distributed to producers.

The outcome in the preceding example depends on the numbers chosen for the illustration. A different set of figures could be constructed indicating that no government outlays would be required or, alternatively, that

government outlays would not be repaid. If the administering authority were conservative in its forecasts of price changes this would increase the likelihood of government payments. Similarly, if the administering authority acted to further the interests of producers, there would also be some incentive in the scheme for it to overestimate likely returns in the ensuing year. In situations where an increase in actual returns for the forthcoming year was anticipated, there would also appear to be an incentive for the authority to be optimistic in its forecast, thereby ensuring a higher level of underwritten returns for that year.

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Thus, the underwriting aspects of the proposal have the potential to provide the industry with additional revenue, in the form of interest free loans, in periods of declining honey prices. If the Government's outlays were not recouped from industry returns at a later date, then the size of

the implicit Government subsidy would of course be substantially increased.

The Commission has used data on industry returns over the last 10 years to estimate the effects of the proposed underwriting mechanism, had the scheme been in operation over that period. These estimates are set out in Table 7-3 and are based on the assumption that the administering authority accurately forecasts the actual return for the ensuing year.

The table indicates that government outlays to the industry would have occurred in four of the nine years to 1982-83, totalling some $2.5 million. It also shows that, under the Working Group's proposals, monies

would have been available to reimburse previous government outlays in two of those nine years and that the funds available in those years would have been sufficient to repay previous outlays.

7-2.2 Income fluctuations and industry assistance

Government intervention in the market place to reduce fluctuations in producers' incomes has been raised on a number of other occasions. 1 It has been suggested by proponents of government involvement in the marketing of products subject to variable returns, that there is an economic

justification for government action to stabilise producers' incomes. They argue that fluctuating returns create difficulties for individual producers, mainly because of the need to reconcile fluctuating receipts with relatively constant expenditures, such as fixed production costs, debt

repayments and family living expenses. This, it is said, adversely affects the welfare of producers and there can be underinvestment in the industry resulting from the uncertainty of returns.

Data on gross returns and beekeepers' incomes in the honey industry are presented in Chapter 4, which also includes statistics concerning the factors which have affected these outcomes in recent times. The Commission has attempted to identify the relative significance of price and quantity

changes in determining changes in honey industry incomes but this analysis was inconclusive.1 2 While the available data suggest that beekeepers' gross receipts fluctuate from year to year, they do not indicate that these

fluctuations are any more pronounced for beekeepers than they are for other primary producers. Additionally, beekeepers generally appear to have organised their financial affairs to cope with these variations. A high

proportion of apiarists are hobbyists or part-time beekeepers and have other sources of income. For example, more than 90 per cent of beekeepers in New South Wales operate less than 200 hives and the evidence indicates that most of these are unlikely to be full-time operators. The impact of

1 See for example S. Harris (Convenor) The Principles of Rural Policy in Australia, AGPS, Canberra, 1974 and Australia. IAC, Annual Report 1973-74, AGPS, Canberra, 1974; Rural Income Fluctuations, Report No. 161, AGPS, Canberra, 1978; and Wheat Stabilisation, Report No. 175,

AGPS, Canberra, 1978 and J.S. Balderstone (Chairman), Agricultural Policy - Issues and Options for the 1980s, AGPS, Canberra 1982. 2 Section 4-3 and Appendix F present details of this assessment.

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TABLE 7.3 : AN ILLUSTRATION OF THE WORKING GROUP'S PROPOSED UNDERWRITING SCHEME : 1974-75 TO 1982-83

1972-73 1973-74 1974-75 1975-76 1976-77 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83

Actual return6 ($/tonne) 449-59 555.38 450.28 488.16 563-00 725.39 772.86

Projected return13 ($/tonne) 485.08 497.94 500.48 592.18 687.08

Underwritten return® ($/tonne) 485.08 497.94 500.48 550.53 605.58

Quantity produced (tonnes) 20 636 21 413 14 929 18 583 18 258

763-40 808.62

753.88 781.63

666.14 732.75

24 954 19 558

732.93 726.64

768.32 756.06

768.32 756.06

24 847 22 472

Government payout0 718 133 209 419 nil 879 335 661 126

Amount available for Government reimbursement® nil nil nil 388 453 1 971 471 nil nil nil nil

a Gross value divided by total quantity. b 3 year moving average, assuming actual returns are forecast correctly, c Taking into account the plus or minus 10 per cent constraint, d Underwritten return minus actual return multiplied by quantity. e Actual return minus previous year's actual return multiplied by quantity, when the actual return is more than 10 per

cent above the previous year's actual return.

SOURCE: ABS, Value of Agricultural Commodities Produced, Cat. No. 7503-0, various issues and Commission estimates.

falls in beekeeping income on the welfare of these apiarists would, to some extent, be cushioned by their other sources of income. Apiarists have also adopted strategies such as delaying capital and maintenance expenditures, packaging and retailing honey themselves and keeping their levels of

indebtedness relatively low, in order to minimise the adverse effects of poor seasons or falling prices.

Some apiarists have also adopted strategies which limit the variability of their incomes. For example, according to the Victorian Department of Agriculture, many apiarists have sought to increase income stability by keeping relatively large stocks of honey. They operate what is essentially

their own income stabilisation scheme in that they sell their honey stocks in times of relatively low cash flow. Some beekeepers have also diversified their operations, producing pollen and providing pollination and queen bee breeding services, thereby reducing the impact of variations in honey returns on their incomes.

Despite these strategies, which would tend to offset the effects of income fluctuations, there was some evidence indicating a cautious approach to investment in the honey industry. For example, the Victorian Department of Agriculture's survey of commercial beekeepers found that the majority of beekeepers had a very low level of debt commitment. On average, only 8 per

cent of beekeepers' assets were financed by external debt. The Department attributed this partly to a reluctance on the part of beekeepers to borrow funds. Similarly, the Western Australian Department of Agriculture's

survey showed that, on average, beekeepers had a 92 per cent equity share in their apiaries in 1980-81 and 88 per cent in 1981-82.

Whilst the evidence suggests that beekeepers have in general adopted a cautious approach to managing their businesses, it is not clear that this has resulted in underinvestment in the industry. As mentioned earlier, honey output is quite susceptible to variations in seasonal conditions. Because of this, a cautious approach to investment in the industry may well

be in accord with the interests of the community generally. Beekeepers are currently assisted in dealing with fluctuations in returns through their eligibility as primary producers for the income tax averaging provisions

and access to the Income Equalisation Deposits Scheme. They may also, of course, borrow from financial institutions to 'ride out' the bad years.

It is sometimes argued that government assistance to reduce income instability is warranted to prevent sharp downward fluctuations in returns forcing resources out of economically efficient rural industries. During the draft report hearing, several witnesses argued that, as a result of poor returns in recent years, a movement of resources out of the honey

industry could be expected, if government assistance were not forthcoming. However, on the basis of past evidence, a significant exodus of resources appears unlikely. According to the statistical information available from the ABS, there has not been any overall movement of resources out of the

industry to date. Despite the deterioration in real returns from honey sales since the late 1970s, the number of beekeepers and the number of beehives operated by them actually increased over the last four years. Additionally, as previously discussed, producers' levels of indebtedness are low and, as a consequence, the income required to meet commitments is also relatively low. Generally, producers seem to have arranged their

43

businesses in order to cope with fluctuating receipts from honey sales. Further, some witnesses claimed that alternative employment opportunities for the capital and labour skills invested in the industry are limited.1

All of these considerations suggest that there would be little justification for government assistance through the introduction of an underwriting scheme for producers' returns. There have been occasions when the Commission has recommended price underwriting for limited periods to support growers' returns in situations where prices fell rapidly relative to those obtained in the recent past.2 However, in none of these cases was underwriting proposed for its own sake, but rather it was suggested as a means of transition from intervention arrangements which the Commission

considered were not in the community's best interests.

7*3 Exemption From Provisions Of Trade Practices Legislation

At the draft report hearing, some witnesses suggested that an alternative means of assisting the honey industry might be through exempting it under the provisions of the Trade Practices Act 1974.3 Such an exemption, if granted to the honey industry, would allow producers to seek to raise domestic honey prices above the level which would exist in response to the operation of market forces. The extent to which prices could be increased would depend on competition from imports and from other domestically produced substitutes for honey eg. jams and vegetable and meat extracts. It is likely that the industry could only increase prices significantly if restrictions on honey imports were introduced to prevent erosion of domestic prices by cheaper, imported honey.

Compared with the market stabilisation scheme proposed by the Working Group, a price setting mechanism devised by the industry on the basis of an exemption under the Trade Practices Act would have some advantages. In particular, to be effective such a mechanism would require the general support of apiarists and packers and would require them to make collective judgements regarding the characteristics of the honey market, thereby minimising any adverse effects on honey producers. It would also avoid many of the costs and difficulties that would be associated with

implementation of the Working Groups' proposal, such as the establishment of arrangements to administer the scheme and the introduction of policing measures to ensure that all domestic honey sales paid the proposed levy.

The chief disadvantages of providing assistance through an exemption under the Trade Practices Act would be that the assistance provided by such a mechanism would be difficult to measure and would be less visible than other means of industry assistance. Marketing controls, which are an

1 Although the skills acquired by beekeepers and some of the capital used in the industry are industry specific, much of the capital (such as vehicles and buildings) and labour used in the industry, would appear to be transferable to other activities. 2 For example, Australia. IAC, The Wheat Industry, Report No. 329,

AGPS, Canberra 1983; The Sugar Industry, Report No. 332, AGPS, Canberra, 1983; and Apples and Pears, Report No.239 AGPS, Canberra, 1980. 3 In 1981 the Government announced procedures and guidelines to be used

by the Trade Practices Commission in processing requests for an exemption by regulation, although the wording is subject to wide interpretation. See Commonwealth Record, Vol. 6, No. 45,

9-15 November 1981, pp. 1472-1473·

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implicit part of trade practices exemption arrangements, can lead to similar production and consumption inefficiencies as those resulting from other forms of assistance. Generally, they are likely to make consumers worse off and lead to significant income transfers from consumers to producers. In these respects, an exemption would be similar in its effect

to the introduction of the market stabilisation scheme proposed by the Working Group. Consequently, while the granting of any exemption is a matter for determination by the Trade Practices Commission, the Commission is of the view that such an exemption would have some adverse economic

consequences.

7·4 Increased Promotion Of Honey

In its evidence to the Commission, the HCA estimated total promotional expenditure in the industry to be of the order of $400 000 in 1982-83· Of this amount, slightly less than one third was expended by the AHB, with a little more than one third being contributed by the HCA, and the remainder by other packers. A number of witnesses claimed that the industry would benefit from increased and more effective promotion of its product and sought Government assistance for this purpose.

To the extent that increased promotion of honey may alleviate some of the difficulties the industry has encountered in recent years, by increasing the demand for honey, there may be some gains to producers from increased promotion. However, in general, the Government does not provide funds for

the promotion of rural products on the domestic market and the Commission can see no reason to recommend a divergence from that policy for the honey industry. Nevertheless, if additional promotion were to be judged by the

industry to be cost effective, there are no legal impediments which would preclude industry organisations from undertaking additional promotional activities, financed from internal industry sources.

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8. OTHER ASSISTANCE ISSUES 8.1 Costs Of Production

According to witnesses, the major difficulty being faced by the honey industry is declining profitability, as a consequence of falling real honey prices combined with increasing costs. On export markets, the capacity of the industry to counter this trend is limited, since it is a relatively small supplier and cannot influence world prices. Further, the ability of producers to respond to falling prices by increasing sales is limited, since the quantity of honey produced in any time period is primarily determined by seasonal conditions, such as weather and flowering cycles. A number of assistance requests focussed on improving returns to the industry by improving the relationship between prices and costs. In particular, some witnesses requested that additional assistance be provided in the form of a diesel fuel tax rebate or by making sugar used as a feed supplement for bees available to the industry at lower prices.

While the Commission recognises that fuel is a major component of beekeepers' costs, the Government's diesel fuel tax is a general revenue raising measure designed to ensure that operators of diesel-powered road vehicles contribute to the costs of building and maintaining roads. Since the evidence indicates that beekeepers' vehicles are generally subject to

more on-road than off-road use, the Commission can see no reason for supporting an exemption from this tax for the honey industry. In general, it would be inappropriate to recommend assistance which would counteract the effect of the Government's policies in other areas. Adjustment of such

policies should only occur after an examination of their impact on all industries and the economy generally. The ambit of a specific industry reference is not a suitable forum for an assessment of the issues

involved.

Under the provisions of the Commonwealth-Queensland Sugar Agreement 1979, the Queensland Government acquires all raw sugar produced in Queensland, agrees to purchase all raw sugar manufactured from sugar cane grown in New South Wales, and makes it available for domestic use at specified administered prices. Domestic sales of sugar are made at these prices, with the exceptions of sugar sold for use in the manufacture of fruit products,1 sugar used in manufactured goods for export and sugar used for brewing purposes.2 The first two of these concessions are the result of specific government measures (the domestic sugar rebate scheme and the export sugar rebate scheme) and are identified in the Agreement, while the last is the result of a commercial agreement between the Sugar Board and the brewers.

In the Commission's view, domestic sugar prices should be determined less in terms of administrative fiat (which currently is based in part on an embargo on sugar imports) and more in terms of commercial factors which would include prices ruling on world markets.3 Had such a policy been

in place during the last decade, in most years it would have resulted in somewhat higher prices to domestic users, since administered domestic prices were maintained at lower levels than export prices from 1974-75 to

1 These include jams, canned fruits, citrus peel, crystallised and glace fruits and certain fruit juices and fruit cordials containing not less than 25 per cent pure fruit juice. 2 The marketing arrangements for Australian sugar are outlined in

Australia. IAC, The Sugar Industry, Report No. 332, AGPS, Canberra, 1983. ' " '

3 Australia. IAC, The Sugar Industry, op. cit.

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1981-82. These administered prices would have afforded some assistance to sugar users, including beekeepers, but may have disadvantaged local honey sales by reducing production costs for honey substitutes manufactured using sugar, such as jams and other spreads. However, more recently, domestic

sugar prices have exceeded export returns.

Under a more neutral sugar pricing policy, the Commission considers that it would be inappropriate for the Government to intervene, either by way of subsidy or regulation, to make sugar available to beekeepers at lower prices than to other users. The availability of lower priced sugar would favour the honey industry relative to other sugar using industries and could lead to a more than optimal use of sugar in honey production from the viewpoint of the community generally. Of course, even in existing circumstances, the honey industry is free to seek to negotiate a price with the Sugar Board in the same manner as the brewing industry.

To the extent that high levels of assistance afforded other industries in the economy impact adversely on producers' input costs and thus, on the returns from honey production, a case could be made for some form of compensatory assistance to the honey industry. However, the Commission considers that, in general, the provision of assistance to particular low cost industries in order to reduce the adverse effects of assistance afforded other industries within the economy, might only further distort

the general industry structure and would not necessarily lead to an improved allocation of resources. For example, while such a policy would improve the competitive position of the honey industry relative to other

industries, it may lead to an inappropriate movement of resources into the honey industry from other low cost industries. Thus, it is not clear that the provision of compensatory assistance to the honey industry would improve the economy-wide allocation of resources. In general, the

Commission's approach to securing a more efficient allocation of resources and an improved industry structure is to recommend the reduction of assistance to high cost industries rather than the provision of assistance to compensate for existing distortions. 1

8.2 Pollination Services

Witnesses also sought government assistance on the grounds of pollination services provided by the industry. In particular, it was contended that assistance was justified because:

(a) incidental pollination services are provided for which beekeepers are not recompensed; and

(b) rural producers underestimate the merits of pollination.

. Incidental pollination services

Adequate pollination is particularly important for certain crops, in order to maximise yields. Pollination occurs in a variety of ways, such as by the wind borne distribution of pollen and via the feeding habits of a variety of insects and animals. Bees - both commercial honey bees and feral bees - are commonly regarded as being the most effective pollinating media for most horticultural crops and some field crops.

1 These matters are discussed in greater detail in Australia. IAC, Annual Report 1975-74, AGPS, Canberra, 1974, Appendix 5*5 : Extensions to Assistance; and Annual Report 1974-75> AGPS, Canberra, 1975, p. 25.

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The pollination services provided by commercial honey bees occur during the course of the bees' nectar gathering activities and, consequently, are largely confined to those areas where there are suitable nectar flows and

for which transport costs do not make honey production uneconomic. In these areas, hives are commonly sited free of charge on private properties. This advantages both the property owner, who receives the benefits of pollination services, and the beekeeper, who gains access to a nectar source. In areas where there is little or no commercial beekeeping and in which alternative pollinating media are limited, there may be some demand

for commercial pollination services.

The value of pollination services provided by commercial honey bees varies according to the type of crop, the availability of alternative pollinating media and the proximity of bee hives. For example, hives situated in large eucalypt forests may not render significant pollination services, but may

obtain commercially useful honey. Conversely, hives situated in orchards may provide substantial pollination services, but may yield insignificant amounts of honey.

Some witnesses argued that the Government should intervene to counter­ balance inequities in income distribution which arise from the provision of incidental pollination services. They claimed that such services improved the incomes of those landowners whose plants were being pollinated, with relatively little return to the beekeepers.

The Commission accepts that commercial honey bees provide valuable pollination services to many fruit, vegetable and field crops, in addition to those provided by other means such as by the wind-borne distribution of pollen, precipitation, feral bees or other insects. It also appears, from

the evidence submitted, that relatively few beekeepers receive formal payment for pollination services.

Witnesses estimated the annual value of total pollination services provided by commercial bees to be between $100 million and $400 million. These estimates were reached by equating the value of commercial honey bee pollination with the total value of all crops that benefit from bee

pollination. As such, they undoubtedly overstate the decline in agricultural production that would occur in the absence of the honey industry (ie they ignore the existence of other means of pollination) and neglect to deduct the value of the output which would be generated in other activities by the resources that would be diverted from these crops under such circumstances.

More fundamentally, such estimates, even if soundly based, would not be relevant to the question of whether the honey industry should receive additional assistance. The honey industry is not unique in providing certain aggregate benefits to the community generally, in excess of those reflected in producers’ returns. To take just one example, the honey industry itself benefits from the supplies of nectar that many agricultural activities make available to it at little or no cost to beekeepers. On the other hand, many industries also impose costs on the rest of the community which are not reflected in producers' returns. The nuisance value of the

sting of honey bees provides a minor example of such costs.

Evidence on the existence and magnitude of the net aggregate benefits of commercial beekeeping obviously fails to establish the presence of any inequities in the distribution of income. Nor can such evidence provide guidance in the design of industry assistance policies which aim to improve the efficiency with which the community's resources are used. Such policies

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must have regard, not to the net aggregate economic benefits provided by the existence of an industry, but rather to the relationship between the incremental benefits resulting from the expansion of particular activities and their associated incremental costs.

In this context, the mere fact that pollination services are often provided free of charge does not, of itself, indicate economic inefficiency. The honey industry produces a number of products jointly, including pollination services. In situations of joint production, which are commonplace

throughout agriculture and in industry generally, it is possible for an industry to operate at its economically efficient level under normal market conditions, even though one or more of its products are produced in such quantities as to ensure that they yield very low or even zero returns to producers. Such by-products can provide substantial aggregate benefits to the economy, at the same time that their low or zero price correctly reflects the incremental benefits that would result from a further expansion of their supply. Thus, it is possible that a substantial portion of the additional pollination services that would result from an expansion of the honey industry would accrue in areas (eg eucalypt forests, pastures and crops already adequately pollinated) where their incremental value woul be very low.

This is not to deny that an expansion of the honey bee population would provide valuable additional pollination services in some situations, just as an expansion of some agricultural activities is likely to provide, as a joint product, additional nectar of value to the honey industry. Where

such interdependencies assume considerable commercial significance, it is likely that the parties involved will develop arrangements to capture the potential profits. The integration of the activities within a single enterprise, as exemplified by orchardists who also keep bees, is one observed outcome. Other outcomes are the various agreements, either

commercial or informal, between apiarists and agriculturalists that govern the siting of beehives on private land.

When incremental pollination services are very valuable relative to the associated honey flow, as for example in the pollination of cucurbits, significant formal payments for pollination services are observed. However, the absence of formal payments to apiarists for pollination

services need not indicate any failure by the parties to such arrangements to take the incremental value of pollination services into account. The extent of reciprocal benefits to farmers and apiarists is likely to differ from case to case, and hence the direction in which any associated balancing considerations, whether in cash or in kind, will flow between the parties, can be expected to vary with the circumstances.

Notwithstanding these considerations, there may exist situations in which normal market arrangements will generate an inefficiently low level both of pollination services and of agricultural activity. For example, bees range up to five kilometres from the hive and within such a radius their

activities are prohibitively expensive to police. These facts may imply that numerous contiguous small scale agricultural enterprises would not find it profitable to enter into formal or informal financial agreements with beekeepers. The economic significance of such 'spillovers' would, of

course, be somewhat mitigated by the bees' own economising proclivities and could be presumed to be highly specific with respect to both location and season.

Assistance to the honey industry at large, by means of price support schemes such as the one suggested by the Working Group, would be a particularly blunt instrument for remedying any adverse economic effects

49

associated with such localised instances of market failure. Data needed to assess the unrewarded net incremental pollination/nuisance values provided by commercial honey bees, and the manner in which these values vary between regions and across seasons, could be substantial. The costs of assembling and updating this information, when combined with the other administrative and enforcement costs involved in securing an expansion of otherwise unprofitable pollination services, could exceed the benefits to the community. However, whether or not this is the case remains uncertain.

. Perceptions of the value of pollination

To the extent that bees perform superior pollination services, farmers who benefit from bee pollination will have an incentive to employ apiarists to provide pollination services or to keep hives of their own. Currently, the demand for contract pollination services is fairly small, is limited to a few crops, and is satisfied by only a small number of beekeepers. The

Commission understands, however, that some beekeepers have received considerable income from orienting their operations towards this activity.

According to the information available to the Commission, the markets for contract pollination services are considerably more developed in some overseas countries than they are in Australia. For example, the Commission understands that in the United States of America, many beekeepers earn more income from this activity than from the production of honey. The Commission is unaware of any information which would indicate why the market for contract pollination services has not developed to any

significant extent in Australia. Perhaps the demand for contract pollination services is low since crops are presently being pollinated at no cost to growers. Alternatively, it could be because of limited awareness of the benefits to be obtained from managed pollination. In the

latter case, a larger commercial pollinating sector could be of benefit to the community as a whole.

The information available to the Commission was not sufficient to enable it to determine whether, and, if so for what reasons, the market is undervaluing pollination services. To the extent that any perceived misallocation of resources in the industry is due to inadequate dissemination of information, there may be some justification for government intervention to correct this deficiency. Currently, the level of expenditure on research in the honey industry is very small. In 1982-83, $92 000 was expended through the Honey Research Trust Account, approximately half of which was contributed by the Government. Furthermore, such funds as are currently provided by the industry, come from honey sales and no funds are provided by either the commercial pollinators or the users of pollination services. A small increase in research funding over this level might improve the efficiency of the beekeeping industry and the economy generally, without significantly increasing the level of assistance available to beekeeping.

Accordingly, the Commission suggests that the Government give consideration to increasing the level of research and extension funding available to the beekeeping industry, with the objective of improving the supply of publicly available information on pollination services. The Commission considers

that this form of action would represent the most appropriate means of overcoming any shortfall currently existing in the market for pollination services, and would focus on improving the extent of information available concerning the benefits and distribution of incidental pollination services provided by commercial honey bees.

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9. CONCLUSIONS

The Australian honey industry has traditionally supplied practically all domestic honey requirements, with imports representing less than 1 per cent of domestic consumption over the last five years. Additionally, the industry is export oriented, usually selling around 40 per cent of its annual output on overseas markets. Currently the honey industry receives a

relatively low level of assistance. Over the period 1978-79 to 1982-83, the effective rate of assistance available to the industry was in the range zero to 5 per cent. This was low by economy wide standards but comparable with that generally available to other rural industries, with the exception

of the dairying, tobacco, egg and some fruit industries.

Together, these characteristics suggest that the industry is relatively economically efficient and well suited to Australia's resource endowment and trading environment. Nevertheless, in recent years, the industry has been faced with declining profitability as a consequence of falling real

honey prices combined with increasing costs. The capacity of the industry to counter these problems is limited by its strong dependence on seasonal conditions and its inability, as a relatively small supplier, to influence

world prices. Witnesses claimed that significant fluctuations in output, world prices and exchange rates have resulted in large variations in producers' returns.

A number of witnesses considered that the costs imposed on the industry by government interventions elsewhere in the economy justified the provision of assistance to the industry. Some suggested that these costs could be offset by making a fuel tax rebate available to the industry or by enabling

it to obtain sugar (used as a feed supplement for bees) at lower prices.

The Working Group, on behalf of certain sections of the industry, proposed that a 'market stabilisation scheme' be introduced in order to prevent declines in domestic prices in times of falling world prices. However, the proposed scheme is not strictly a stabilisation scheme, since it is mainly

targeted at increasing the average price received by producers, rather than at reducing income fluctuations over time. If such a scheme were to be introduced, it would provide the means to increase honey prices

significantly and could lead to a substantial increase in the level of assistance available to the industry.

An indication of the potential impact of the scheme proposed by the Working Group can be gained from its suggestion that, if the scheme were to be introduced, the size of the levy could eventually be around $250 per tonne of honey, after a phasing in period. The Commission has estimated that if

a levy of this amount were collected on domestic honey sales, this would transfer up to $4 million from consumers to honey producers and would represent an increase in the nominal rate of assistance available to the

honey industry of approximately 14 percentage points.

Several witnesses suggested that if the Commission did not endorse proposals for a marketing scheme, consideration should be given to the introduction of Government underwriting of honey producers' returns.1 Witnesses at Commission inquiries into other matters have argued in favour

of the introduction of assistance measures to reduce income instability in rural industries, on the grounds that such instability can lead to under­ investment in those industries, due to the riskiness of potential investments.

1 The Working Group's initial submission to the Commission included details of a proposed underwriting scheme (see Appendix E). 51

The Commission's view is that, on efficiency grounds, there is no sound basis for endorsing a general policy of assisting high risk or volatile activities. Risk affects the way resources are used but it is not clear that this indicates any inefficiency in the investment market or a consequent role for government. Risk reduction and risk acceptance are

like other business strategies and their benefits and costs should be incorporated in assessments of profitability and efficiency.

Government action may be justified if regulatory constraints exist which inhibit entrepreneurs from coping effectively with uncertainty. For example, intervention may be warranted if it could be shown that the capital market were unduly conservative in assessing the riskiness of investments. However, intervention on these grounds would best be directed

at overcoming institutional rigidities in the capital market, rather than at compensating honey producers for any existing deficiencies.

It is not clear from the information available to the Commission that the activities of apiarists are inherently riskier than those of many other rural producers or of many manufacturing activities. Indeed, Australia's recent economic history provides stark evidence of the susceptibility of

producers in practically all economic activities to periodic downturns in their fortunes, whether this be due to seasonal factors, the effects of the business cycle or developments overseas. Moreover, in common with other rural producers - but in contrast to producers in other sectors of the economy - producers in the honey industry have access to mechanisms set up by the Government to help offset the impact of income fluctuations, namely

the income tax averaging mechanisms and the Income Equalisation Deposits Scheme. Thus, it is not clear that producers in the honey industry are any more susceptible to uncertain returns than are producers in many other Australian industries.

Even if the honey industry were assisted through an increase in honey prices, it is arguable whether a larger honey industry, in terms of numbers of apiarists or hives, would lead to a commensurate increase in honey production or simply to an increase in the costs of harvesting a limited nectar supply. Honey production in Australia is derived mainly from non- cultivated flora. Thus the basic nectar resource is not amenable to expansion in response to favourable honey prices. Whether apiarists can utilise more costly sources of nectar if honey prices rise, depends on the nature and distribution of the nectar resource. Such information was not available to the Commission.

Notwithstanding the difficulties of estimating the responsiveness of honey production to price changes, there is little doubt that the honey industry - like other low cost activities - is currently disadvantaged by the overall assistance structure of the Australian economy. In particular,

higher rates of assistance available elsewhere in the economy impact adversely on the industry's cost structure. Consequently, it is likely that the local honey industry is currently somewhat smaller than it would be in a more neutral assistance environment.

Such considerations have sometimes led to proposals for compensation to offset the adverse effects of high rates of assistance elsewhere in the economy. In responding to such claims, the Commission has pointed out that the provision of assistance to particular low cost industries in order to reduce such adverse effects, would not necessarily lead to an improved allocation of resources. While such a policy could improve the competitive

52

position of some lightly assisted activities, such as honey production, it might also encourage resources to move out of other low cost industries. Thus, it is not clear that compensatory assistance would, from the community's point of view, improve the overall allocation of Australia's

resources. In contrast, action directed at the source of the problem - reductions in relatively high levels of assistance elsewhere in the economy - would benefit efficient Australian industries generally, for this reason, in its Annual Reports and its reports on individual industries, the Commission has consistently recommended reductions in relatively high assistance rates.

Some witnesses at the draft report hearing said that unless beekeepers' incomes improved, they expected a significant movement of resources out of the honey industry. Whilst in recent years the real gross value of total

honey production has declined (as shown in Table 4·4), the Commission could find no evidence to suggest that this development is indicative of a long term downward trend in the profitability of the industry. In fact, real

honey prices in the domestic market increased in the 6 months to December 1983 (see Table 4.1). Further, available statistics do not indicate that there has been any significant movement of resources out of the honey industry in recent years. These data show that the number of beekeepers and the number of hives operated by them has actually increased over the

last 8 years (see Table 3· 1 ) ·

Taking into account all of these considerations, the Commission has concluded that there is no sound basis to recommend government assistance to the honey industry in order to offset the effects of risk, uncertainty or income variations. Any form of additional assistance to the honey industry would require a transfer of resources from some other sector of

the economy relative to the pattern of resource use which would otherwise occur. It is not clear that such a reallocation of resources would be of net benefit to the community as a whole. However, should the Government decide that additional assistance for the honey industry is warranted, in

order to reduce the uncertainty of producers' returns, it is the Commission's view that underwriting arrangements such as those suggested by the Working Group would be a more appropriate form of assistance than the

proposed levy/disbursement scheme. Underwriting arrangements would inhibit the impact of falling export prices on producers' returns, without enabling the local industry to increase domestic honey prices at other times. Consequently, the adverse impact on consumers of providing more certain returns in the honey industry by the implementation of an underwriting scheme would not be as great as by the introduction of a home consumption pricing scheme.

Many witnesses further suggested that the Government should provide assistance to improve beekeepers' returns, since beekeepers provide incidental pollination services for which they receive no financial compensation but which benefit many rural industries and the community at

large. The Commission has been unable to obtain a satisfactory estimate of the value of these services to the rest of the community but notes that beekeepers also receive considerable benefits in the form of access to

nectar flows, for which they generally make only nominal payments.

The key assistance issue arising from this contention is whether the failure of the market to reward beekeepers for incidental pollination benefits has led to a lower level of resource use in the honey industry than is desirable from society's point of view. Govenment intervention

53

would only tie justified if it could be demonstrated that the community would be better off if there was an increase in the level of incidental pollination, after taking account of the costs of inducing such an increase. The information required to resolve this issue would include

details of the nectar and pollen characteristics of non-eultivated flora resources together with their distribution in relation to agricultural and horticultural crops. The cost of obtaining such information has not been assessed by the Commission but could be considerable.

If the benefits of increased incidental pollination were to exceed the costs of obtaining the information and providing the appropriate assistance, the Commission considers that any intervention should be in the market for pollination services rather than an increase in the price of honey.

The markets for contract pollination services are apparently considerably more developed in some overseas countries than they are in Australia and the evidence presented to the inquiry suggests that very few Australian beekeepers have engaged in contract pollination to date. Nonetheless, it seems that a few beekeepers have received considerable income from orientating their operations towards this activity.

Since contract pollination services appear to have been underutilised by Australian rural industries to date, there could be significant gains in economic welfare if greater use were made of them. The Commission considers that the most appropriate method of encouraging greater utilization of contract pollination services would be to promote greater awareness on the part of rural producers and apiarists of the benefits to be derived from such services and the methods employed in the provision of

these services.

Accordingly, the Commission suggests that the Government give consideration to increasing the level of research and extension funding available to the beekeeping industry with the objective of improving the supply of publicly available information on pollination services. Although the Commission has not estimated the cost of undertaking a national assessment of the nectar and associated pollen resource, it considers that a survey of that nature

could be a component of such a program.

54

10. STATUTORY REPORTING REQUIREMENTS

Section 23A of the Industries Assistance Commission Act 1973 requires that the Commission report specifically on certain matters. These are discussed below.

(a) The level of assistance required to ensure that the level of activity and employment in the industry is not less than that which existed at the time the reference was made.

(b) Reasons for not recommending assistance that would ensure that the level of industry activity and employment is not less than that prevailing at the time the reference was made.

The evidence indicates that the assistance currently available to the industry in the forms outlined in Chapter 5 is not a significant determinant of the levels of activity and employment in the honey industry. The industry's output and its labour requirements are chiefly determined by

seasonal conditions. Although no comprehensive data are available, it appears that the level of employment in the industry has been relatively stable, mainly because of the significance of family labour in beekeeping enterprises. The Commission does not anticipate that its recommendations would create any significant change in the normal pattern of activity and

employment in the industry.

(c) Whether, in the view of the Commission, the structure of the industry can be improved and, if so, the manner by which the improvement can be achieved and the consequences of such improvement.

The Commission received no evidence to indicate that the structure of the industry could be improved.

(d) The economic, social and employment consequences of the proposals both generally and in particular regions.

The Commission is suggesting that the level of research and extension funding associated with the value of pollination services be increased. If this leads to increased community awareness of the value of pollination services, there could be some movement of resources into the pollinating sector. The Commission is of the opinion that any such movement would be gradual, and could lead to an improvement in the overall efficiency of resource use in the industry and the economy generally. It does not

consider that any significant social regional or employment consequences will result from its suggestions and recommendations.

55

11. RECOMMENDATIONS

The Industries Assistance Commission recommends that there be no change in the assistance provided to the honey industry.

The Commission draws attention to its suggestion that the Government consider increasing the level of research and extension funding available to the beekeeping industry with the objective of improving the supply of publicly available information on pollination services.

R.G. MAULDON Commissioner

CANBERRA, AUSTRALIAN CAPITAL TERRITORY 4 MAY 1984

56

APPENDIX A

THE REFERENCE

THE HONEY INDUSTRY

INDUSTRIES ASSISTANCE COMMISSION ACT 1973

I, JOHN NORMAN BUTTON, Minister for Industry and Commerce, in pursuance of my powers under Section 23 of the Industries Assistance Commission Act 1973, hereby refer the following matter to the Industries Assistance Commission for inquiry and report within 12 months of the date of receipt of this reference:

Whether assistance should he provided to the Australian honey industry and, if so, the nature and extent of such assistance.

2. I specify that the Commission he free to take evidence and when

necessary to make recommendations on any matters relevant to its inquiry under this reference.

MINISTER FOR INDUSTRY AND COMMERCE

6 May 1983

57

APPENDIX B

LIST OF WITNESSES

Name of witness and capacity in which appearing Organisation or company Address

Kenneth Roy Parry Amateur Beekeepers' Association

Honorary General Secretary of NSW

68 Bruce Street Brighton-Le-Sands, NSW 2216

Sevan Morris Sinnott Anchor Foods Pty Ltd

State Manager

PO Box 145 Fremantle, WA 6160

Vincent Joseph Anderson Anderson Honey Products Pty Ltd

Managing Director Cyril John Anderson Secretary

8 Cameron Parade Broadford, VIC 5658

Soren Bredberg Apiology Australia Pty Ltd

Managing Director

55 Pimelea Street Everton Hills, QLD 4055

Robert Johnston Archibald Archibald Honey Company

Manager

Spring Road Dingley, VIC 5172

Kevin George McMenemy Arles Producers

Manager

189 Leake Street Belmont, WA 6104

William Gordon Winner "The Australasian Beekeeper"

Editor

PMB 19 Maitland, NSW 2520

Address

11 William Street Melbourne, Vic 3000

125R The Northern Hoad Londonderry, NSW 2753

Lot 13 Baile Road Canning Vale, WA 6155

Box 175, Mossman, QLD 4873

251 Keppel Street Bathurst, NSW 2795

Macarthur House Northbourne Avenue Lyneham, ACT 2602

Name of witness and capacity in which appearing Organisation or company Address

John Roy Carpenter J.R. and P. Carpenter 10 Zenohia Terrace

Kelmscott, WA 6111

Clem Gumbo Central Beekeeping Supplies 406 William Street

Perth, WA 6000

Peter Pigdon Central Murray Apiaries 137 Channel Street

Cohuna, VIC 3568

R.W. Campbell Central Victorian Apiarists' Association 14 Goldsmith Street

President Maryborough, VIC 3465

Bruce Dailey Treasurer

Dennis Richard Percy Coates D.R.P. and G.C. Coates 13 Kanandah Road

Engadine, NSW 2233

Kevin Eastburn Commercial Apiarists'

President Association of New South Wales

Lawrence Noel Bingley Vice President Keith Hadley Mcllvride Secretary

Lot Number 2 Corner Bond and Estonian Roads Thirlmere, NSW 2572

Address

RMB 315 Baldivis Road Baldivis, WA 6167

PO Box 131 Manilla, NSW 2346

49 Pakington Street Geelong West, VIC 3218

R.M.B. 1030 Glenrowan, VIC 3675

157 Crandon Street Gosnells, WA 6110

1 Barnetts Road Berowra Heights, NSW 2082

Princess Highway Nowa Nowa, VIC 3887

Mourilyan Harbour Road Mourilyan, QLD 4858

Landy Street Briagolong, VIC 3860

Name of witness and capacity in which appearing Organisation or company Address

Trevor James Proprietor

Roger Eric David Baile Manager

John Edward Gould

Leon Austin Trethowan Acting Senior Economist, Department of Agriculture Russell David Goodman

Agricultural Officer, Department of Agriculture Suzanne Lillian Evans Finance Officer,

Small Business Development Corporation

Kenneth Thorpe Healy Managing Director

Christopher John Hocking

Golden West Honey Products

Goldpak Honey Company

J.E., S.A. and E.J. Gould

Government of Victoria

K.T. Healy and Company

C.J. Hocking

9B James Street Bellevue, WA 6056

Lot 15 Baile Road Canning Vale, WA 6155

12 Drynan Street Summer Hill, NSW 2130

Department of Agriculture GPO Box 4041 Melbourne, VIC 3004

Small Business Development Corporation 100 Exhibition Street Melbourne, VIC 3004

40 Willcock Street Ferndale, WA 6155

Post Office Nowa Nowa, Vic 3887

Address

391 Archerfield Road Inala, QLD 4077

29 Bald Hills Road Bald Hills, QLD 4036

9B James Street Bellevue, WA 6056

99 Beechboro Road Bayswater, WA 6053

Dalton Street Mima, VIC 3820

Box 361 Busselton, WA 6280

PO Box 67 Kangaroo Flat, VIC 3555

PO Box 5 Mount Nebo, QLD 4741

Name of witness and capacity in which appearing Organisation or company Address

Clements William McIntyre, C.W. McIntyre

M.B.E.

15 Carnegie Street Auburn, NSW 2144

Kenneth Clifford Jepson President

Melbourne Section of the Victorian Apiarists' Association 37 Jesmond Eoad Croydon, VIC 3136

Gavan Duffy Adams Mudgee Honey Company Pty Ltd

Managing Director Myra Adams

28 Robertson Street Mudgee, NSW 2850

Albert John Mumford J. & J. Mumford 17 Frederica Street

Narrandera, NSW 2700

Roderic Adrian Gill New South Wales Department of

Economist, Commodities Agriculture

Bruce White Leader, Apiculture Section

Division of Marketing and Economic Services PO Box K220 Haymarket, NSW 2000

Margaret Anne Littler Economist

Northern Territory Department of Primary Production

PO Box 4160 Darwin, NT 5794

Kenneth Joseph Olley K.J. Olley Ipswich Road

Oxley, QLD 4075

Baden Robert Pearson B.R. and R.M. Pearson 139 Arlunya Avenue

Cloverdale, WA 6105

Name of witness and capacity in which appearing Organisation or company Address

Harold Gladstone Peck H.G. Peck

Arthur Edward Pratt Pratt and Papworth

Elwyne Marie Papworth

Ian Frederick Williams Baile President Ronald Owen Pollard Senior Vice President Timothy Francis Ryan

Executive Officer

Donald Gordon Keith President

Norman Vincent Rice

Robert Kenneth John Barker General Manager

Primary Industry Association of Western Australia (Inc.), Beekeepers' Section

Queensland Beekeepers' Association

N.V. & H. Rice

Southern Farmers Co-Operative Limited

Southern Tablelands Beekeepers' Group

6 Cooinda Avenue Orange, NSW 2800

2 Voumard Street South Oakleigh, VIC 3167

239 Adelaide Terrace Perth, WA 6000

PO Box 111 Inglewood, QLD 4387

10 Beauview Crescent Beaudesert, QLD 4285

GPO Box 1445 Adelaide, SA 5001

PO Box 135 Exeter, NSW 2580

Peter Lawrence Simpson

Address

Name of witness and capacity in which appearing Organisation or company

Ian Robert Stephens R. Stephens

Shirley Rae Stephens

PO Box 4 Mole Creek, TAS 7504

Leonard Thompson Tamara Apiaries PO Box 139

Cooktown, NTH QLD 4871

Reuben Bernard Charles President, Tasmanian Beekeepers' Asociation

Tasmanian Beekeepers' Association and Tasmanian Honey Exporters' Association

38 James Street Ulverstone, TAS 7315

Barry James Tigell Vice President

Ch

Toowoomba Branch of the Queensland Beekeepers' Association 14 Makepeace Street Toowoomba, QLD 4350

B.H. Tucker B & J Tucker PO Box 26

Nowa Nowa, VIC 3887

Desmond Paul Nicel President Trevor John Monson Senior Vice President Robert Herbert McDonald

Executive Member John Linton Briggs Executive Member

Victorian Apiarists' Association PO Box 426

Benalla, VIC 3672

Brian Roy Martin Western Australia Department of

Chief Agricultural Economist Agriculture

Allan Colenzo Kessell Senior Apriculturist

Jarrah Road South Perth, WA 6151

Address

Federal

administrative Board.

Australian Honey Board 647 George Street Sydney, NSW 2000

APPENDIX C

REQUESTS AND SUGGESTIONS

Organisation or company-represented Request and/or suggestion

Amateur Beekeepers1 . If the Working Group's proposal were implemented, small producers should he

Association of New South Wales exempted from the proposed levy on domestic sales.

Anchor Foods Pty Ltd, Golden West Honey Products, Goldpak Honey Company and

K.T. Healy and Company

o oo

The Government regulate honey production as follows: - license commercial beekeepers to operate a minimum of 300 hives; - amateur beekeepers be restricted to operate less than 6 hives and be restricted in selling their honey output; and - commercial producers be subject to the same controls as those applied to

licensed packing houses, and all relevant fees, levies, etc, for financing any board or regulatory authority be applied at the apiarist level.

The AHB be reformed, to remove anomalies in its overseas agency arrangements and to improve its reactions to overseas market fluctuations.

Anderson Honey Products Pty Ltd Finance provided through the Repossession Honey Pools be available on more favourable terms.

Subsidisation of export inspection services be continued at present levels.

Subsidisation of local road freight for honey producers be introduced.

Apiology Australia Pty Ltd . Wider scientific research be conducted into matters affecting the honey industry.

. Government aid be provided for assessing the feasibility of establishing a pollen processing plant in the eastern states and Government assistance be provided for the construction of such a plant.

Organisation or company-represented Bequest and/or suggestion

Archibald Honey Company . The Commission recommend that the proposed stabilisation scheme not be introduced.

. A poll of producers with 100 or more hives be conducted before any decision is taken to implement the proposed stabilisation scheme.

. A postal ballot of honey packers be conducted to ascertain whether they are in favour of the scheme.

Arles Producers . Figures on the costs of the Working Group's proposal be made available to the

industry generally before any move is made to implement the scheme.

. All export inspection charges be paid by the Government.

. An Australia wide ban be placed on private sales, except from beekeepers' own properties.

. Incentives be introduced to encourage packers to penetrate new overseas markets with pre-packed honey rather than bulk supplies.

. If any assistance were introduced, entry into beekeeping be limited to ensure that the benefits of the assistance are not gained by new entrants into the industry.

The Australasian Beekeeper . Market reform be introduced in the honey industry to prevent apiarists from being exploited by the packing sector.

. If a honey stabilisation scheme were adopted, it should include Federal Government underwriting for the protection of beekeepers.

. Beekeepers be granted full primary producer status for taxation purposes.

Organisation or company-represented Request and/or suggestion

The Australasian Beekeeper (continued)

Australian Queen Bee Exporters

Sugar he made available to beekeepers at a subsidised price.

Beekeepers' fuel costs be subsidised.

Replacement parts for beekeepers' vehicles be exempted from sales tax.

The CSIRO Entomology Section be assisted to determine the effects of honey bees on the eco-system.

Additional Government funds be made available for the promotion of honey.

A Commonwealth health standard be introduced for pollen sold on the domestic market for human consumption and for export sales of pollen.

Government support for research into pollination be increased.

Clear warnings be printed on the labels of pesticide containers indicating the danger to honeybees.

Funds from the Repossession Honey Pools be made available at lower rates of interest.

The Government legislate to ensure that beekeepers are paid a minimum price for their product.

The Government allocate research funds to determine and encourage honey processing and packing methods which would be consistent with local and overseas quality and health standards.

Before proceeding to introduce any marketing scheme for honey, the Government investigate the effect of monopsonistic buying of honey on the viability of the beekeeping industry.

Organisation or company-represented Request and/or suggestion

Barron River & North Coast . Research be conducted into the honey industry in North Queensland. Beekeeping Club . No tariff restrictions be placed on New Zealand honey.

Bathurst and District Branch - Commercial Apiarists' Association of New South Wales

The payment of a pre-determined price to beekeepers, be incorporated in some form of honey marketing scheme.

An independent committee including a representative from the Consumers' Association, be established to recommend to the Minister the appropriate level of honey prices.

If a marketing scheme were introduced, honey prices be fixed on all grades of honey rather than one grade as suggested in the Working Group's proposal.

J.R. & P. Carpenter . The Working Group's proposal for a stabilisation scheme be rejected.

. The legality of the AHB be verified before it is given any further power.

. A national poll of beekeepers and packers be undertaken to gauge support for the Working Group's proposal.

. The excise tax on diesel fuel used to produce honey and associated products (pollen, beeswax, etc) be removed or reduced.

. Tariffs, import duties and sales taxes on imported machinery parts, tyres, etc, be removed or reduced for full time apiarists.

Organisation or company represented Request and/or suggestion

J.R. & P. Carpenter (continued)

The taxation system he altered to give incentives to full time honey producers (eg they he allowed to earn a fixed amount of income after deductions, say $20 000, before income tax applies).

Wood chip exports from WA he reduced to maintain a viable area of Karri forest for future beekeeping.

Incentives be provided to primary producers to grow crops that produce honey and pollen and require pollination services, thereby enabling beekeepers to be paid for the provision of pollination services.

Farmers be encouraged to replant local native eucalypts, as this would assist in soil erosion control and provide a nectar source for beekeepers.

The Federal Government attempt to have the 27.5 per cent tariff on imports of agricultural goods into the EEC removed.

Low interest loans be provided to viable beekeepers.

If the Working Group's proposal were implemented, WA beekeepers be exempted from participating in the scheme.

Central Beekeeping Supplies . A national loan council be set up to provide low interest bridging finance to packers to enable them to purchase honey from beekeepers at an adequate price.

Central Murray Apiaries . The export incentive schemes, particularly the Export Expansion Grants Scheme be continued.

. Honey producers be adequately compensated for their provision of pollination services.

Proposals for a market stabilization scheme be rejected.

u>

Organisation or company-represented Request and/or suggestion

Central Victorian Apiarists Association

An annual government grant be made to the AHB, equal to the value of levy receipts for the year, to enable it to increase promotion of honey on the Australian market.

Apiarists be encouraged to broaden their income base into pollination services, and income derived from pollination services be subject to a 33 per cent tax rebate.

Uniform packaging for honey products be introduced, with the packer's name and address shown on the label.

The annual grant to the Honey Research Committee continue on a dollar for dollar basis.

The Government consider the needs of apiarists in its policy concerning conservation of the environment.

D.R.P. & G.C. Coates No assistance is required for the production of comb honey sections and this

product not be included in any scheme.

Any assistance be aimed at the producer sector of the industry.

Commercial Apiarists' Association of New South Wales

. Subsidised research be given full support.

. Adequate finance be provided for holding stocks of honey prior to sale.

. Finance be made available to honey producers upon the security of the honey itself.

. Government aid be increased for the development of overseas markets for Australian honey.

. A viable market regulation scheme be introduced, since the industry needs protection equal to that afforded other industries.

If the proposed marketing scheme were introduced, imports of honey he controlled by being made to pay a levy or, if this were not possible,, a customs tariff be applied to imports.

Small honey producers be exempt from the levy on domestic sales but pay a licence fee.

*A specified price, set at producer level, apply to all grades of honey.

. *The Repossession Honey Pools and, in particular, the interest charges on finance provided through them, be looked at closely.

The number of new entrants into the industry be controlled.

Any Government policy which leads to automatic increases in petrol prices be discontinued, as this particularly disadvantages beekeepers.

The AHB be reconstituted to become a marketing authority.

The Government finance research into mead making.

Regulations be introduced so that honey can only be sold by beekeepers issued with a licence to produce honey.

Organisation or company represented Request and/or suggestion

J. & M. Edmonds Exports of honey not be subsidised by sales on the domestic market.

A levy designed to promote domestic honey sales would be of greatest benefit to the honey industry.

. The Commonwealth's contribution to the Honey Research Committee be maintained.

. Export inspection services continue to be subsidised.

. Interest rates on Repossession Honey Pool finance be reduced, to encourage greater use of this form of finance.

. Tariffs on honey imports be maintained.

. An ad valorem duty rate of 10 per cent on artifical honey imports be maintained and adjusted according to need.

. The use of artifical honey as an extender of pure natural honey be prohibited unless labelled accordingly.

. The Export Market Development Grants Scheme be continued.

. Apiarists' access to income tax averaging provisions be maintained.

. Off road motor fuel exise exemptions be continued and extended to cover fuel used by honey producers in the transportation of colonies and honey.

. Assistance to honey producers in the form of sales tax exemptions on machinery, implements and apparatus be maintained, provided the goods are used in the honey industry, and these exemptions be extended to include commercial honey producers' motor vehicles.

. The subsidy for honey promotion provided through the Overseas Trade Publicity Committee be continued.

Federal Council of Australian Apiarists' Associations

Organisation or company-represented Request and/or suggestion

Federal Council of Australian Apiarists' Associations (continued)

The Rural Adjustment Scheme and beekeepers' eligibility for assistance under the scheme be continued.

Existing forms of assistance to the honey industry be maintained.

Beekeepers' access to the nation's natural floral resources be maintained.

The Federal Government take measures to prevent the introduction of exotic bee diseases by more strictly controlling the importation of honeybees and pollen.

Increased drought relief assistance be made available to apiarists.

Sugar be made available to beekeepers at stock feed rates.

Resources necessary to implement the proposed stabilisation scheme or some other measure designed to provide benefit to the honey industry be provided by the Government.

Consideration be given to providing beekeepers with short term assistance.

Government involvement in research and education programs concerning honey bee pollination be increased.

Florabunda . Assistance to beekeepers be targeted specifically towards increasing returns

from honey surplus to local market requirements.

. Government assistance be made available to all sections of the honey industry.

M.J. Fogarty A fair fixed price to the apiarist be determined by an independent body.

Organisation or company represented Request and/or suggestion

Gennai Beekeeping Supplies Beekeepers and beekeeper equipment suppliers not be disadvantaged by the imposition of taxes or legislation restricting their activities.

The cost of transporting hives and honey be minimised by government action to reduce fuel and equipment costs.

The costs of managing hives be minimised by reducing the costs of sugar and chemicals used in the treatment of pests and diseases.

The Government encourage beekeepers to promote the use of honey.

The industry be protected from the introduction of exotic pests and diseases by ensuring adequate quarantine regulations and by education programs for beekeepers.

Gippsland Apiarists' Association . The present level of Government assistance provided the honey industry via research funding, export incentives and subsidised export inspection services be maintained.

. Finance through the Repossession Honey Pools be made available at lower rates of interest and stocks of honey be accepted as security for finance provided through the Pools.

. A market survey be conducted to determine the best means of promoting honey on the domestic market.

. A small domestic levy be introduced to pay for increased domestic honey promotion.

. The AHB be replaced by an authority with powers to ensure that sellers meet honey quality standards.

. The proposed stabilisation scheme be rejected unless it were favoured by the majority of registered beekeepers.

Organisation or company represented Request and/or suggestion

J.E., S.A. & E.J. Gould The Commission recommend that a minimum price per kilogram of honey he set at

the beekeeper level, taking into account the cost of producing a kilogram of honey and a margin for profit to the beekeeper, and this minimum price be adjusted quarterly on the basis of changes in the CPI.

There be three more apiarists than honey packers on the AHB.

Diesel fuel be made available to honey producers free of excise duty.

Bee hive sites be made available in national parks every 1.5 kilometres.

Sales of all honey/glucose mixtures be prohibited and regulation be introduced to prohibit honey packers from having glucose on their premises.

Sugar be made available at a lower price to beekeepers to reduce the costs of honey production.

The Government set aside heavily timbered areas and scrub country as beekeepers' reserves.

The structure of the Honey Corporation of Australia Limited be examined.

Government of Victoria The proposed market stabilisation scheme for the honey industry be rejected.

If the scheme were introduced, no provision be made for underwriting returns to honey producers.

The level of research funding for the Australian honey industry be increased substantially from its present level.

I

Organisation or company-represented Request and/or suggestion

C.J. Hocking . No levy be imposed on domestic consumers.

Honey Corporation of Australia . The proposed stabilisation scheme be introduced if it helps achieve improved Limited returns to honey producers.

. Consideration be given to the introduction of underwriting honey export returns as an alternative to the previously proposed levy based stabilisation scheme.

. *An assessment of the AHB be undertaken with particular reference to: - the size and composition of the Board; - the extent to which the Board's functions are relevant to the present and

'j future needs of the industry; and

- the level and rate of annual increase in the Board's expenditure.

Honey Industry Association of Western Australia A Honey Marketing Council be established in each State, constituted under an act of State Parliament, with powers to make:

- price recommendations; - price notifications; - domestic promotion and advertising expenditures; and - research expenditure.

Assistance be provided to promote honey on the domestic market.

The returns from honey exports be underwritten by the Government.

A national policy be devised for appropriate disease control measures in apiaries.

Low cost loans be made available to beekeepers for restocking disease affected hives.

* Request made at draft report hearing.

Honey Pool of Western Australia . The requests of the Primary Industry Association of WA (inc.) he accepted.

Organisation or company represented Request and/or suggestion

J.A. Ligman . More taxation concessions be made available to beekeepers, eg by reducing the

excise duty on fuel used by apiarists.

. A subsidy be made available to assist apiarists to pay for the rental of bee sites when they are experiencing financial hardships.

. The Government seek to have countries which import Australian honey remove their tariffs on this product.

H. Manwaring . Sales tax on motor vehicles and replacement parts used by beekeepers be

reduced.

oo o

. A dollar for dollar subsidy be introduced for the promotion of honey on the local market.

C.W. McIntyre Proposed a comprehensive honey marketing scheme.

Melbourne, Apiarists 1

. Major changes be made to the structure and role of the AHB including; - the structure of the Board be changed to five people elected on a non-State basis; - the franchise be changed so that all beekeepers liable for levy

payments or affected by Board marketing decisions be eligible to vote; and - the AHB's domestic marketing strategy be overhauled.

. Legislation be implemented to reduce the effects of pesticides on bees.

Section of the Victorian . If any marketing scheme were introduced, beekeepers with less than 40 hives be Association exempt from the provisions of such a scheme.

. *Levy payments made to the AHB by producer/marketers selling only on the domestic market be used specifically for domestic honey promotion.

. *A study be conducted into the feasibility of introducing a marketing scheme that would incorporate both a levy payable by honey producers and a declaration by commercial packers which would set out separately honey purchased from producers for domestic and export markets.

Samples be taken from honey export consignments to ensure that they are not adulterated with other substances.

Export inspection costs be paid for by those packers whose products are found to be adulterated.

Packers exporting pure honey be exempt from inspection fees and the cost be met by a government subsidy.

The maximum water content of 'pure honey' be established and enforced by law.

. Consideration be given to lowering or eliminating the amount of honey that amateur beekeepers are permitted to sell free of levy charges.

. *The Farm Produce Act 1983 (NSW), in so far as it relates to the marketing of honey, be revoked.

. *An acquisition scheme similar to that in operation in the wool industry be implemented for the honey industry.

Organisation or company represented Request and/or suggestion

J. & J. Mumford . Beekeepers cooperate to establish one packing establishment on the east coast

where a fair price would be set for apiarists' honey.

. Financial assistance be provided to enable beekeepers to hold honey stocks until a more equitable price is offered by packers.

New South Wales Department of Agriculture

The proposed market stabilisation scheme be rejected.

Encouragement be given to reduce the industry's dependence on the unstable export market rather than the introduction of a scheme to formally equalise returns between the export and domestic markets.

Appropriate rationalisation of the honey industry in accordance with market forces not be impeded.

Alternative income stabilisation or augmenting mechanisms for producers be investigated.

Increased funds be provided for research into the honey industry.

Northern Territory Department of Primary Production The Commission recommend that a comprehensive review of honey flora in Northern Australia be undertaken.

The proposed market stabilisation scheme be rejected.

An Export Price Stabilisation Scheme, based on a revolving fund and moving averages of real export prices of individual grades of honey, be considered.

Organisation or company-represented Request and/or suggestion

K.J. Olley . The Government request the New Guinea Government to lift its embargo on

Australian honey.

. The Government request Asian countries with very high import duties or restrictions on imports of Australian honey to reduce those import harriers.

. Assistance be provided to packers via the AHB to enable them to purchase the honey crop.

. Increased assistance be made available for the marketing and promotion of honey.

B.R. & R.M. Pearson . Beekeepers be exempted from paying Commonwealth Government taxes on diesel

fuel.

. A referendum be conducted to assess the views of producers on the proposed stabilisation scheme and if there is a majority favour of the scheme, that it be implemented.

H.G. Peck . Fixed minimum prices be established for apiarists' honey sales.

. If the equalisation scheme is implemented: - some form of guarantee that the beekeepers receive the benefits be included in the scheme; - prices received from export and domestic markets be equalised; - the present levies on export and domestic honey sales be equalised; - the level of the equalisation levy and the prices paid to apiarists be

determined by an independent authority specifically representing all sectors of the industry; - the administration costs of the scheme be contained;

Organisation or company represented Request and/or suggestion

H.G. Peck (continued) - an improved stock financing arrangement be included to provide a carry­

over facility for periods when export sales are low and stocks are high and such finance only be available to enable payments to beekeepers, and to ensure the liquidity of exporters; - adequate promotion be undertaken to offset any increase in retail prices

arising from the scheme; and - consideration be given to the formation of a buffer fund to accommodate varying seasonal production levels.

. Underwriting arrangements for honey be considered.

. *Market reforms be introduced to enable gradual honey price rises.

Arthur E. Pratt Elwyne M. Papworth

A definitive classification of honey types be established.

A 'base price' be determined for domestic market sales of honey.

A national vote of commercial honey producers be taken to establish the degree of support for the Working Group's marketing proposals.

Beekeepers' costs, such as petrol, diesel, electricity charges, maintenance and replacement of material, queen bee purchases, depreciation and maintenance of vehicles and machinery, disease prevention and bee site costs, be recognised as deductions for taxation purposes.

* Request made at draft report hearing.

Organisation or company-represented Request and/or suggestion

Primary Industry Association of Western Australia (Inc.), Beekeepers 1 Section

Assistance to the honey industry he increased as a matter of urgency.

A statutory marketing scheme he introduced to provide some stabilisation of apiarists' returns and to promote honey so that, in real terms, returns and costs associated with beekeeping rise at no less than equal pace.

Market research be expanded and a promotion campaign based on this research be conducted to increase apiarists' returns. Assistance for such a program could be provided by way of a Commonwealth contribution of $2 for every $1 contributed by beekeepers.

Assistance currently provided by matching grower contributions to research funds be increased.

A system be devised to facilitate beekeepers' claims for exemption from the payment of excise duties on fuel used for off-road purposes.

Queensland Beekeepers' Association The Commonwealth Government underwrite producers' returns in the honey industry.

Sugar used as stock feed for bees be made available at prices significantly lower than the current domestic price of sugar.

Sales tax exemptions be made available to beekeepers for motor vehicles and parts used in their businesses.

Increased government assistance be provided for research into matters affecting beekeepers.

N.V. & H. Rice Sugar for the feeding and medication of bee colonies be made available at

minimum prices.

Organisation or company-represented Request and/or suggestion

Southern Farmers Co-operative Limited

Southern Tablelands Beekeepers Group

A honey stabilisation scheme similar to that operating for the dairy industry be established, incorporating a 'floor' price or underwritten minimum price guaranteed to beekeepers.

A scheme be devised to increase the price received by beekeepers for their honey by at least the same rate as their costs of production increase.

Taxation exemptions and discounts be made available to beekeepers for the purchase of sugar for supplementary feeding of bee colonies.

A minimum price at the apiarist level be established for honey sales.

Marketing of honey on the domestic market be controlled to ensure that it achieves certain minimum quality standards and packaged honey be labelled accordingly.

The alleged practice of introducing less expensive extending additives (such as glucose) to honey be investigated and, if such practices are found to be prevalent, measures be taken to eliminate them.

An export subsidy be provided for honey sold to the EEC, equal to the level of duty imposed by the EEC on honey imports.

The AHB be encouraged to develop overseas markets where the price of Australian honey could be determined by criteria other than the colour grading system currently used eg. by floral source.

The Government provide special guidance, incentives or other appropriate assistance (on a short term basis) to small scale producer/packers with the aim of facilitating direct export of their products.

Organisation or company represented Request and/or suggestion

Southern Tablelands Beekeepers Group . Incentives be introduced to encourage more research into the benefits from (continued) honey bee pollination of agricultural crops in Australian conditions and to

further the wide dissemination of the results of such research to the farming community.

. Beekeepers be given controlled access to national parks, and the rights of access to state forests and other Crown lands be continued for the purposes of producing honey and the husbandry of beehives.

R. Stephens The requests of the Tasmanian Beekeepers' Association and the Tasmanian Honey

Exporters' Association be accepted and the proposed market stabilisation scheme be rejected.

Low interest finance be provided to enable honey produced in January and February to be carried over by beekeepers for sale in October.

Low priced sugar be provided to apiarists to ensure the survival of bee colonies during winter and to stimulate hive activity.

A scheme be devised to encourage the production of quality honey in preference to lower grade honey.

Membership of the AHB be reduced to not more than five persons.

All beekeeping premises be registered and beekeepers selling honey to the public be licensed.

Advertising of honey be increased.

Organisation or company-represented Request and/or suggestion

Tamara Apiaries . The price of fuel sold to beekeepers be reduced.

. Sales tax be removed from truck spare parts to be used by beekeepers.

. Vehicle registration costs and the costs of insurance on vehicles used in the honey industry be reduced.

Tasmanian Beekeepers 1 Association and Tasmanian Honey Exporters' Association

. Low interest loans be more readily available to allow the carry over of stocks of honey.

. The size of the membership of the AHB be reduced but its membership still include representation of apiarists and persons with honey marketing expertise.

. Domestic advertising of honey be increased.

. Leatherwood forests be preserved, since they provide a valuable nectar source for beekeepers.

. Uniform chemical spray legislation be implemented for the protection of bees.

The proposed stabilisation scheme be rejected.

Sugar for feeding bees be made available at stock feed prices.

Toowoomba Branch of the Queensland . Sugar for stock feed be made available to beekeepers at export prices. Beekeepers' Association . Beekeepers be exempted from paying excise duties on fuel used in conducting their businesses.

Organisation or company represented Request and/or suggestions

The proposed market stabilisation scheme be rejected.

A postal vote be taken to assess the extent of support by beekeepers for the proposed scheme.

A small levy (eg 1 or 2 cents per kilogram) be introduced, to be used solely for the purpose of promoting honey.

The stabilisation scheme proposed by the Working Group be implemented.

General tax exemptions obtained by other primary producers on fuel, oil, spare parts and tyres, be available for beekeepers' trucks.

The Rural Adjustment Scheme be retained.

The level of assistance provided to higher cost industries be reduced.

The diesel fuel rebate be extended to beekeepers for on-road use of diesel fuel in the course of their activities.

A statutory marketing scheme for honey be introduced (see Appendix E).

APPENDIX D

TABLE 1 : DOMESTIC PRODUCTION OF HONEYa , BY STATE : 1978-79 TO 1981-82

1978-79 1979-80 1980-81 1981-82 1982-83

% of % of % o f % of % of

State tonnes total tonnes total tonnes total tonnes total tonnes total

New South Wales 7 444 40.8 9 935 39.8 5 701 29.2 8 851

Victoria 2 715 14.9 4 065 16.3 5 160 26.4 5 418

Queensland 2 477 13-6 2 605 10.4 2 375 12.1 3 343

Western Australia 1 841 10.1 2 624 10.5 2 023 10.3 2 558

South Australia 3 048 16.7 5 098 20.4 3 614 18.5 3 953

Tasmania 684 3.7 573 2.3 669 3-4 690

Australian Capital Territory 50 0.3 55 0.2 17 0.1 34

35.6 21 .8 13.5 10.3

15.9 2.8

0.1

8 827 39.3

2 705 12.0

3 725 16.6

3 242 14.4

3 144 14.0

793 3-5

36 0.2

a Produced by apiarists with 40 or more beehives. Since most Northern Territory honey production is by apiarists maintaining less than 40 hives, it is not recorded in ABS data. However, the Northern Territory Department of Primary Production estimated that annual production in the Territory would be of the order of 10 to 14 tonnes.

SOURCE: Compiled from data supplied by ABS.

250.5

Note: Figures may not add to totals due to rounding.

SOURCE: Compiled from data supplied by ABS.

Quantity (tonnes) Value ($A1000 fob)

Country 1978-79 1979-80 1980-81 1981-82® 1982-83a 1978-79 1979-80

Germany, FR 417.5 1 970.5 645.9 2 567.5 1 976.8 361 .0 1 711 .4

Portugal 521 .7 1 092.7 658.2 778.2 293.1 269.3 996.9

UK 2 258.0 4 651 .4 5 715-5 6 493.7 6 546.1 1 782.0 3 817.0

USA 170.5 86.5 162.6 2 982.0 1 412.7 152.1 76.6

Other 2 572.9 5 645.8 5 052.6 2 299.9 2 526.6 3 599.3 4 970.2

TOTAL 5 720.2 11 426.9 8 194.8 14 921.1 12 555.3 6 165.7 11 572.1

1980-81 1981-82a 1982-83a

577.9

558.9

5 142.6

120.6

4 584.1

1 800.7

655-8

4 574.4

2 096.9

2 894.7

1 675.1

289.6

5 149.9

1 160.7

5 587-7

8 984.1 12 000.5 11 665.0

a See footnote b of Table 5-5*

SOURCE: Compiled from data supplied by ABS.

TABLE 4 : EXPORTS OF PRE-PACKED AND BULK H0NEYa : 1978-79 TO 1982-85

Quantity (tonnes) Value ($A'000 fob)

1978-79 1979-80 1980-81 1981-82b 1982-83b 1978-79 1979-80 1980-81 1981-82b 1982-83b

Pre-packed 1 491-5 2 025-5 2 510.4 1 105.7 1 205.6 2 605-9 5 548.5 5 956.6 1 947.2 2 192.5

(26.1) (17.7) (28.2) (7-4) (9.6) (42.2) (50.7) (45.8) (16.2) (18.8)

Bulk 4 228.9 9 4 01.4 5 8 8 4 . 4 15815-5 11 551.7 5 559.9 8 0 2 5 . 8 5047.5 10055-5 9470.6

(75.9) (82.5) (71.8) (92.6) (90.4) (57.8) (69.5) (56.2) (85.8) (81.2)

TOTAL 5 720.2 11 426.9 8 194.8 14 921.1 12 555-5 6 165.7 11 572.1 8 984.1 12 000.5 11 665.0

EXPORTS (100.0) (100.0) (100.0) (100.0) (100.0) (100.0) (100.0) (100.0) (100.0) (100.0)

Note: Figures may not add to totals due to rounding, a Figures in brackets are percentages. b Exports transferred from 1982-85 to 1981-82 (see footnote b of Table 3*3), are assumed to have been bulk.

SOURCE: Compiled from data supplied by ABS.

TABLE 5 : AUSTRALIAN GLUCOSE/HONEY EXPORTS : 1978-79 TO 1982-83

1978-79 1 979-80 1980-81 1981-82 1982-83

Quantity (tonnes) 211.4 206.4 371.9 79.5 350.7

Value ($A1000 fob) 235-4 317.0 558.6 101 .0 286.0

SOURCE: Compiled from data supplied by ABS.

TABLE 6 : IMPORTS OF BEESWAX® : 1978-79 to 1982-83

1978-79 1979-80 1980-81 1981-82 1982-83

Quantity (tonnes) 60.9 15.8 10.2 13.8 9.5

Value ($'000 fob) 141 48 50 50 39

Note: There were no by-law imports during the period shown, a May include small amounts of other waxes.

SOURCE: Compiled from data supplied by ABS.

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TABLE 7 : EXPORTS OF BEESWAX : 1978-79 TO 1982-83

Quantity (tonnes) Value ($'000 fob)

Country of ___________________________________________________ __________________

destination 1978-79 1979-80 1980-81 1 981 -82a 1982-83® 1978-79 1979-80

United Kingdom 122.4 71.7 22.8 161.3 99-9 483 296

Netherlands - 17.0 42.2 57.9 41.9 - 70

France 10.0 23-1 40.7 40.6 40.9 40 97

Germany, FR 32.1 70.8 37.4 63.6 95.4 89 300

Other 29-9 35.2 33.2 24-6 45.1 131 153

TOTAL 194-4 217.9 176.6 348.0 323.2 743 917

1980-81

93

173

169

147

152

733

1981-82a 1982-83®

626 386

234 160

154 162

244 374

123 140

1381 1222

a See footnote a of Table 3·5·

SOURCE: Compiled from data supplied by ABS

APPENDIX E

THE PROPOSED STABILISATION SCHEME1

It is proposed that a Stabilisation Fund be created by applying a levy on all sales of honey within Australia. Such a levy to be the difference between the domestic market wholesale price and the assessed export price (AEP). The AEP is the projected return from the pooling of all exports

for the year based on the Light Amber minimum price. All exports of honey are to be pooled on the basis of the ruling minimum price of Light Amber honey (LA) at the time of sale. Export permits, to be authorised by the Australian Honey Board, would include a notation of the minimum price for LA at the time of sale as well as details of the actual sale. An example

of the operation of the export pool and stabilisation fund is attached to this proposal. For pre-pack exports a minimum price structure based on LA could be applied by the Board, depending on market returns. Some premiums could be returned to the pool depending on the level at which the minimum price structure is set. The AEP based on the Light Amber price structure will form the basis for determining the domestic levy.

All premises used for the packing of honey will be registered for the purposes of the Scheme and it shall be an offence for any business or person to sell honey, that does not bear the levy. The levy shall be payable by the packer selling the honey within 90 days of date of sale.

All sales of domestic honey, regardless of grade, shall bear the levy. Domestic honey sales to be defined as sales within the Commonwealth of Australia for consumption within Australia.

The levy shall apply to all sales of honey whether liquid, blended, crystallised, creamed or candied and mixtures of honey and glucose and honey otherwise processed. Honeycomb to be exempt but chunk or cut honey with other foods (other than glucose) to be levied on the honey content

only.

Sales of bulk honey for what is known as manufacturing purposes shall be levied at the time of sale with the user claiming a rebate on declaration of use. (So that the consumption of honey in products such as confectionery, cereal, cakes and so on will not be adversely affected by the levy intended on table honey.) Such rebate to be recommended by the AHB and regularly reviewed. The vendor of such honey will deduct these

rebates from the total levy payable, supported by appropriate authorised user rebate declarations.

As there are numerous beekeepers and packers holding stocks of honey it is necessary to administer the pool and levies on a sales basis rather than production. Apart from overcoming the difficulties of stock control it

will enable the pools to be finalised shortly after the close of the year.

1 Reprinted from evidence submitted by a Working Group representing the Federal Council of Australian Apiarists' Associations (FCAAA) and the Honey Packers' Association of Australia, with the administrative support of the Australian Honey Board.

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The Scheme is to be administered by the AHB with administration costs being a first charge on the pool. Packers charged with the distribution of the Fund would receive appropriate recognition for so doing, so as not to be disadvantaged financially.

Exports at approved minimum values below the AEP shall draw the shortfall from the pool whereas exports at approved minimum values above the AEP shall contribute the difference to the pool.

When all sales for the year have been recorded and administration costs charged, if the pool funds are below the AEP, the shortfall shall be funded from the Stabilisation Fund. Any balance remaining in the Stabilisation Fund shall be distributed over both local and export sales. Similarly any surplus in the pool over the AEP shall be distributed with the Stabilisation Fund over all sales recorded in the scheme.

The joint committee recommends the scheme be based on a naked product price basis. This would require the AHB to determine average packing and handling costs when reviewing minimum price structures. By using this method the forecasted pool distributions would relate to a beekeeper's

price and would provide very useful market guidance for beekeepers in deciding when they should sell their honey.

UNDERWHITING

The Joint Committee investigating the stabilisation scheme recommends that the Commonwealth underwrite the scheme, determining the level of underwriting by taking the average return for the past two years plus the projected return for the ensuing year.

Adjustments as a result of these calculations are to be limited to 10 per cent up or down.

Provision could be made for reimbursement in later years of any contribution by utilising the excess over 10 per cent of pool returns.

Underwriting not only stabilises beekeepers' returns it enables interim pool distributions to be made at the underwritten level from the commencement of the year.

A further advantage is to finance stocks at a value based on the underwritten level rather than projected export returns.

PRECAUTIONS NECESSARY TO COVER WITHIN THE LEGISLATION

A. Substantial penalties to be imposed on persons

(a) selling on the domestic market and not declaring sales for levy contribution; and

(b) selling honey labelled otherwise than in accordance with the appropriate regulations that would enable the packer to be identified for purposes of maintaining the levy scheme.

This is of particular importance to the honey industry due to the easy saleability of honey without processing.

95

B. Imports of honey for sale within Australia should be subject to the levy applied to Australian domestic sales or some other form of legislation enacted to protect the industry.

C. Packers/marketers to have adequate voice in the determination of levy values, to avoid the possibility of overpricing on the domestic market.

D. All packers of honey whether for the domestic or export market to be registered with the AHB and DPI.

E. A gradual phase-in of the levy would be necessary.

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EXAMPLE OF OPERATION

ASSESSED EXPORT PRICE (AEP) = $850 per tonne

-3

Sale No.

Volume (tonnes)

Export sale made AHB app. min. price

of grade sold at time of sale $ per tonne

AHB app. min. price LA at time of sale $ per tonne Grade

Sale price $ per tonne

1 3 000 LA 920 900 900

2 1 000 LA 850 800 800

3 1 000 ELA 950 870 830

4

0 0 Lf\ MA 810 800 860

5 500 ¥ 1 000 960 900

6 500 A 780 750 810

7 500 DA 740 730 890

Domestic:

8 10 000 ALL N. A.

Levy $250 per tonne AEP $ 850 per tonne

Domestic price $1100 per tonne

Effect

Pool receives credit at $900 Net receipt $ 50

Pool receives credit at $800 Pays out additional $ 50

Pool receives credit at $830 Pays out additional $ 20

Pool receives credit at $860 Net receipt $ 10

Pool receives credit at $900 Net receipt $ 50

Pool receives credit at $810 Pays out additional $ 40

Pool receives credit at $890 Net receipt $ 40

StaL. fund receives $250 per tonne levy.

All sales on Australian market pay levy $250 per tonne (25 cents per kg.) regardless of grade or selling price. Premiums for superior grades and allowance for lower grades are responsibility of marketer.

STABILISATION ACCOUNTS

To Export Pool

$

By Local Sales Levy $

2 500 OOP 10 000 @ 250 2 500 OOP

EXPORT POOL

2. 1 000 @ $50 50 000 Sale 1. 3 000 @ $50 150 000

3- 1 000 @ $20 20 000 4. 1 500 @ $10 15 000

6. 500 @ $40 20 000 5. 500 @ $50 25 000

7. 500 @ $40 20 000

Pool Costs 40 000

Balance 80 000

210 000 210 000

Distribution 18 000 @ 143-33 2 580 OOP

2 580 000

Taking the illustrated sales with

1 · 3 000 tonnes

2. 1 000

3. 1 000

4. 1 500

5. 500

6. 500

7. 500

Balance B/D Stabilisation

2 580 000

80 000 2500000

the following volumes.

Local Sales 10 000 tonnes

The AEP is $850 per tonne The levy is $250 per tonne

Therefore overall distribution is $993-33 per tonne on local and export sales.

If the export pool falls below the AEP the Stabilisation Fund is first applied to meet Pool shortfall.

Based on the above example the net gain to the industry is 14-33 cents kg if one assumes that local prices follow the trend of export prices.

By administering the fund by computer the input could be:-

1 2 1 1 1 6

Volume; permit price; LA price; grade; seller; pool debit or credit with progressive totals for categories 1, 5, 6.

We understand the Dairy Corporation has time available on its computer where similar software is utilised.

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APPENDIX F

PRICE STABILISATION AND INCOME INSTABILITY

One of the objectives of the proposed stabilisation scheme is to reduce fluctuations in the incomes of honey producers. However, the success of the scheme in this respect is dependent upon the source of market instability - since aggregate gross income1 from a commodity is composed of both price and quantity components. If, for instance, the variance in

returns to honey production is primarily the result of variable climatic conditions, then a scheme which aims at price stability will not be effective in stabilising income in the industry. An understanding of the

relative importance of demand and supply factors in causing income fluctuations is therefore a central consideration in any assessment of the likely effectiveness of a price stabilisation scheme in stabilising the

incomes of honey producers.

The relative importance of price and quantity variations in commodity gross income instability can be ascertained by a number of methods. One such method which has been used extensively is that developed by Burt and Finley.2 This method is a purely statistical one which does not take

into account the nature of the supply and demand relationships in the commodity market under consideration. Starting from the identity that revenue is equal to price multiplied by quantity, it involves deriving an expression relating variance in revenue to variance in price, variance in quantity and first and second order covariance terms representing that part

of the variance which cannot be decomposed into separate price and quantity effects.5 If the covariance terms are large the method fails to isolate

1 Ideally net income stability should be the relevant target. For practical reasons however, it is necessary to concentrate on gross income variability. This is generally not unreasonable given that expenditure on inputs tends to exhibit less fluctuation than gross

receipts. 2 Burt, O.R. and Finley, R.M. "Statistical Analysis of Identities in Random Variables" American Journal of Agricultural Economics, Vol. 50, No. 3, 1968, pp. 734-744. The Burt and Finley procedure has been used

to analyse price and quantity variations in the following: . Harris,S., (Convenor), The Principles of Rural Policy in Australia, AGPS, Canberra, 1974. . IAC, Rural Income Fluctuations, Report No. 161, AGPS, Canberra,

1978.

. Houck, J.P., "Some Aspects of Income Stabilisation for Primary Producers" Australian Journal of Agricultural Economics, Vol 17, No 3» 1973, pp. 200-215. 3 The formula is as follows:

Var (R) = Q2 _Var (P) + p2 Var (Q)

+ 2 Q P Cov (PQ)

+ E [(P - P) (Q - Q) - Cov (PQ)]1 2 3

+ 2 P_E (P - P) (Q - Q)2 (1)

+ 2 Q E (P - P)2 (Q - Q)

where R is revenue; P is price; Q is quantity; E indicates expected value; and

P, Q, are the respective arithmetic means of price and quantity.

99

the separate price and quantity influences. To simplify the presentation and interpretation of the results the second order covariance terms are usually omitted and the remaining terms are expressed as percentages of the total variance. 1

In evidence submitted to the Commission, the Western Australian Department of Agriculture (WADA) presented results from an analysis using the Burt and Finley procedure which was adopted by Paust1 2 in analysing income instability in the Western Australia beekeeping industry. The Department's analysis was based on ABS data for Western Australia. For the larger producers (greater than 400 hives) during the period 1973-74 to 1981-82 the variation in revenue attributed to quantity was about 60 per cent with price variation explaining 40 per cent. The interaction term was negative with a value of approximately 40 per cent. Results were reversed for smaller producers, the price variation being 60 per cent. The interaction

term was again negative but much larger at nearly 60 per cent.

The Commission has also applied the Burt and Finley decomposition procedure to ABS data on the gross value of total Australian production for the period 1972-73 to 1981-82. These data are shown in Table 4·4 of Chapter 4-

The gross value of production series is based on the farm gate price plus the cost of freight, containers and other charges incurred by the beekeeper. It does not, however, include costs associated with secondary processing which is undertaken prior to exporting. An implicit price per tonne series is obtained by dividing the gross value of production series by the quantity of honey produced.

The variation attributable to price was found to be 69 per cent and the variation attributable to quantity was 31 per cent. However, a large positive covariance indicated that price and quantity movements were not independent but reinforcing each other in causing income variations.

These results are quite different from those obtained by the WADA. In the case of the WADA study the presence of a large negative interaction term between price and quantity renders any conclusions regarding the relative importance of price and quantity variability extremely tenuous. Nevertheless, the WADA argued that the results of their analysis consituted

a case against the proposed stabilisation scheme. On the basis of the measured negative covariance between price and quantity the WADA further argued that price stabilisation would increase the variability of gross

income from honey production.

1 Equation (1) thus reduces to:

Var (R) = Q2 Var_(P) + P2 Var (Q)

+ 2 P Q Cov (PQ)

and the percentage variation attributable to price for example is given by: 100 Q2 Var (P)_____________

Q2 Var (P) + P2 Var (Q)

2 G. Paust, unpublished honours thesis, University of Western Australia, 1975.

100

The difference between the Commission's results and those of the WADA may reflect the different data series used in each study. For example the nature of the industry in Western Australia, in particular the characteristics of honey production and the markets in which honey is sold, differs significantly from that of the Australian honey industry as a whole. Whatever the reason, it is difficult to draw any conclusions about

the root cause of income variability from the above analyses. To do so requires a consideration of the demand and supply characteristics of the honey industry.

3· Demand And Supply Characteristics Of The Industry

Despite its widespread use, the problems associated with the Burt and Finley method are well recognised. Piggott has raised the following general criticism:

"... [the] procedure provides descriptive statistics requiring subjective interpretation. Any pattern of price-quantity variability could be the result of a number of different patterns of supply and demand shifts."1

Available data suggest that Australian honey supplies are extremely volatile being dependent on the timing and duration of flowering cycles which are in turn heavily influenced by weather patterns. On the demand side about 40 per cent of production is usually exported with 60 per cent

being consumed on the domestic market either directly as pure honey or indirectly through the content of honey in other food products. Since current Australian exports represent only about 2 to 6 per cent of total

world export sales it would appear that Australian export volumes of honey are unable to influence the world price of honey.

A large number of demand and supply characteristics could explain the results obtained from the Burt and Finley procedure. For example, the strong negative covariance between price and quantity measured in the WADA study suggests supply shifts along a stable demand curve. For the variance attributable to quantity to dominate the variance due to price this demand curve would have to be relatively price elastic compared with the elasticity of the supply curve.

The WADA results could also be consistent with a combination of shifting supply and demand curves. Both would need to be shifting in the same direction, an increase in demand being accompanied by an increase in supply and vice versa. Both curves would also have to be price inelastic with again the supply curve being less elastic than the demand curve. Even given these conditions the interaction effect would still be small. However, the negative covariance would be accentuated if the price

elasticity of demand were changing, becoming more inelastic as demand increased and more elastic as demand decreased. An increase in demand and the greater price inelasticity could result from low quality honey becoming a greater proportion of aggregate production. The reverse would result from higher quality honey increasing its share of the market. However, while shifting demand and supply curves are a likely occurrence there is no apparent reason why the curves should shift in the same direction, given

that shifts in demand result primarily from developments in the world market and shifts in Australian supply are heavily dependent on domestic weather conditions.

1 Piggott, R.R., "Decomposing the Variance of Gross Revenue into Demand and Supply Components", Australian Journal of Agricultural Economics, Vol. 22, No. 3, 1978, pp. 145-157.

101

The dominant price variation and positive covariance found by the Commission may similarly be explained by shifting demand and supply curves. But this time they would need to be shifting in opposite directions. Again this implies some systematic relationship between the demand and supply

curves. Provided the demand curve was relatively more inelastic observed price variance would be greater than the variance in quantity, and price falls (rises) would coincide with quantity falls (rises).

It is obvious from the above discussion that the Burt and Finley procedure does not obviate the need for a careful consideration of the economic structure of the industry. Key aspects of this structure which need to be determined are:

. the price elasticity of demand for honey;

. the price elasticity of honey supply;

. the relative importance of factors such as real income, other commodity prices, and weather conditions in shifting demand and supply curves.

The Commission has attempted to obtain numerical estimates of these aspects of the economic structure of the honey industry from a formal economic model of supply and demand. The attempt proved unsuccessful, largely because of inadequate data.

It has been necessary therefore to resort to a less formal analysis of what limited data are available for the industry. This analysis has included the calculation of some simple measures to describe relative variability in price and quantity series. One such measure, the conditional coefficient of variation, was found to be 13.1 per cent for domestic production over the period 1972-73 to 1982-83 and 18.6 per cent for world prices (see Table D.1 )i . That is, world demand appears to have been more unstable than

domestic production over the period, a finding which is consistent with the Commission's results from the analysis based on the Burt and Finley procedure in a situation where shifts in export demand are the primary source of price fluctuations.

1 The conditional coefficient of variation is a measure of variability of a series. The higher the value of the coefficient, the higher the degree of year to year fluctuation in the series. A similar measure was used by the Commission in its recent report on the dairy industry. See Australia. IAC, The Dairy Industry, Report No. 333, AGPS, Canberra, 1983, p. 41.

102

TABLE D.1 : VARIABILITY OF EXPORT PRICES AND HONEY PRODUCTION: 1972-73 TO 1982-83

Domestic Production (tonnes) Export Price (1972-73 = 100 )

1972-73 18 083 100

1973-74 21 189 126

1974-75 20 636 101

1975-76 21 413 93

1976-77 14 929 118

1977-78 18 583 167

1978-79 18 258 182

1979-80 24 954 171

1980-81 19 558 185

1981-82 24 847 136

1982-83 22 472 157

Conditional coefficient of variation8 (per cent)

13.1 18.6

a Defined as the standard error of the estimate about a linear trend fitted by least squares, expressed as a percentage of the mean.

SOURCE: Compiled from data supplied by ABS.

The general picture that emerges from the Commission's less formal analysis of demand and supply factors in the honey industry is as follows.

Domestic honey production is quite unstable with the dominant factor in this instability being climatic conditions governing flowering cycles and hence nectar availability. Prices received by producers on the other hand seem to have played a lesser role in influencing Australian honey supply,

especially in the short term. Both export and domestic markets are of significant importance to the Australian industry. With respect to exports, Australia is clearly a price taker on world markets. Fluctuations in the world demand for honey are therefore synonomous with fluctuations in world prices. In view of the fact that about 40 per cent of Australian

honey production is generally exported, world prices are the key determinant of domestic prices.

Turning to the domestic component of Australian honey demand, that is, consumption by households, it is difficult to draw firm inferences about the nature of this demand from a simple inspection of the available data. Several witnesses expressed the view that domestic consumption of honey was

likely to be largely invariant to changes in the domestic price of honey. That is, the own price elasticity of demand for honey on the domestic market was considered to be low. However, the existence of a number of

possible close substitutes such as jams, other table spreads and sweeteners was also noted. There is a potential conflict between these two views. The greater the degree of substitution between honey and other products in consumption, the larger must be the own price elasticity of demand for

honey. In a situation in which cross price responsiveness between honey and its substitutes was high attempts to raise the domestic price via a home consumption pricing mechanism such as that advanced by the Working Group could be self defeating.

103

, ·