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Wednesday, 5 October 1983
Page: 1335


Mr McVEIGH(11.16) —The three Bills before the House are fairly straightforward in their intent. The Dairying Industry Research and Promotion Levy Amendment Bill proposes to increase the maximum rate of the levy to 24c per 100 litres of milk and the operative rate to 19c per 100 litres of whole milk. The increases were sought by the Australian Dairy Farmers Federation, and I am pleased that the Government has accepted that request. The Opposition also supports these amendments. The Dairy Industry Stabilization Levy Amendment Bill contains two main amendments; one is to include in the definition of 'dairy products', and therefore in the stabilisation scheme, buttermilk powder and whole milk powder which have been produced by the removal of water from a mixture of buttermilk or whole milk and one or more other substances. The other amendment provides for a refund to be made in certain circumstances of the stabilisation levy on dairy products contained in other products that are exported. In fact I am advised that this amendment merely formalises a practice which the Australian Dairy Corporation has been following for some time in any case.

Some points should be made about this amendment which is contained in clause 4 of the amending Bill. Under current marketing arrangements use of a manufactured dairy product as an input into another product is regarded as a domestic sale and triggers payment of the levy. If the product is then exported the Australian Dairy Corporation, the ADC, offers a rebate only of the levy on products which have at least 50 per cent leviable dairy component and at least 7.5 tonnes of leviable dairy product in any shipment. This amendment proposes to fix these minimums at 50 per cent and 15 tonnes. The Australian Dairy Farmers Federation believe this arrangement is too restrictive in that it discourages rather than encourages the export of high value added products such as Ovaltine which contains 18 per cent mixed solids and is therefore ineligible for any rebate of the levy. The manufacturers of Ovaltine, a company called Wander (Australia) Pty Limited of Melbourne, has submitted that milk powders and butter oil should be available to all exporters of milk products at export prices.

I am aware that the Dairy Corporation argues that the minimums are necessary on the grounds of administrative efficiency. I must say I am not too convinced by that argument, especially when we consider that a perfectly suitable system exists for export sugar rebates which does not require high minimum limits. Wander (Australia) has claimed that continuation of the present system will eventually cause a loss of all export Ovaltine contracts, probably during 1984. The company says that this will have the immediate effect of causing the loss of 11 jobs and will put at risk, because of reduced throughput, the company's entire operation at Devonport in Tasmania on which 300 to 400 jobs are dependent .

All of this information was submitted by Wander (Australia) to the recent Industries Assistance Commission inquiry into the dairy industry. This raises the surprising point about the Government bringing forward this amendment at this time. The Government is bringing down a legislative change on an issue which has been covered by the IAC and which is the subject of a draft report. It is reported on page 39 of that draft report:

The Commission considers that if exported dairy produce is to be exempt from the levy then all dairy produce exported, irrespective of its level or whether it has been processed into another product, should be exempt. The only cut off point should be the cost of administering such an arrangement.

Clearly the IAC does not support the existing system, yet the Government has brought forward amendments to entrench the system before the final hearing of the Commission is held on 11 October 1983 and before the Commission's final report is prepared and submitted. Members of the Industries Assistance Commission must be wondering why they bother to undertake any inquiries at all. The Opposition is of the view that this clause should not be proceeded with until after the IAC has made its final report and a proper opportunity has been given to consider the Commission's final recommendations in this regard. We shall accordingly seek from the Minister for Primary Industry (Mr Kerin) an assurance that this clause of the Bill will not be enacted at present. I hope the Minister will respond to that point in his reply.


Mr Kerin —I will be moving an amendment.


Mr McVEIGH —The Minister indicated that he will move an amendment to this clause . I look forward to seeing a copy of that amendment so that the Opposition can state its point. But it is an anomaly; it was brought to our attention and it was difficult for us to understand how the Minister, bringing in legislation, had not taken cognisance of that draft IAC report. However we will look forward to that amendment in due course.

Mr Deputy Speaker, I now turn to the Dairy Industry Legislation Amendment Bill. In the main this Bill enhances administrative procedures under three Acts, the Dairy Produce Act 1924, the Dairy Industry Stabilization Act 1977 and the Dairy Industry Research and Promotion Levy Act 1972. From the Opposition's point of view there are no fundamental problems with the proposed changes as far as they go. However, a serious question arises with regard to clause 6 and the proposed new section 24A of the Act. The clause can relate to two basic situations. On the one hand if it is applied to straightforward, simple trading operations such as the Australian Dairy Corporation's attempts to sell cheese products to Japan, the legislation is quite acceptable. In this case the ADC is trading on a day to day basis in exactly the same way as private companies trade on behalf of Australian producers. In other words, if cheese were not sold to Japan exclusively by the ADC acting as a sole trader, it would be handled by private traders. If private traders sold that commodity at a loss, without question the industry would bear such a loss. Therefore, if the ADC should trade at a loss it is fairly well accepted within the industry that the loss should be borne in this case by the cheese export pool. There is therefore no problem in the situation I have outlined. The Minister may direct the Corporation to credit or debit surpluses or deficits to accounts kept under the export return pooling system. I note that provision is made for the Minister to receive advice with regard to this sort of direction from the Corporation which in turn is required to consult with the Australian Dairy Industry Advisory Committee. I seek an assurance from the Minister that he will in fact follow this course. I feel very strongly that not only should industry be consulted but also that, wherever possible, agreement should be reached before any trading losses are covered by export pools. I hope that the Minister can give the House this assurance during this debate.

The second aspect of this legislation is far less simple. It concerns how losses that are not purely trading losses should be covered. It is an open secret within the industry that a major reason for clause 6 is the declining financial position of a company known as PT Australia Indonesian Milk Industries Inc. otherwise known as PT Indomilk or PTI. PT Indomilk is a joint venture milk recombining plant operated by the Australian Dairy Corporation and an Indonesian company PD and I Marison N.V. know as Marison. The ADC and Marison each hold 50 per cent of the shares in PT Indomilk. The ADC's interests in the company are managed by its wholly-owned Asian subsidiary Asia Dairy Industries (Hong Kong) Ltd known as ADI. The Australian dairy industry, through ADC and ADI, supplies PT Indomilk with raw materials. The fact is that at present PT Indomilk owes ADI in excess of $13m for raw materials supplied, technical fees, interest and other matters. It is a debt which has been accumulating over the past three years and which, very importantly, is still growing. The danger is that these debts might- and I stress the word 'might'-materialise into actual losses.

Given that situation, under the legislation currently before the House provision would be made for those losses to be accounted for through the export pools. The industry is very strongly of the view that use of the pools in this way would be totally and utterly unacceptable, indeed inequitable. The reason is basically that the industry would not regard any losses incurred by PT Indomilk as merely trading losses. Rather, they would be losses incurred in supporting the overall industry's total investment in PT Indomilk. They would be investment as opposed to straight-out trading losses. Given this differentiation, the industry believes, I think quite rightly, that any investment losses would be more appropriately covered by other means such as from the Dairying Industry Stabilisation Fund-or DISF, as it is commonly called-rather than through the export pools. This seems a perfectly logical argument.

The initial finance required to set up Australia's shareholding in PT Indomilk came from the DISF. On 16 September 1982 the then Minister for Primary Industry made a statement in this place in which he said that, as the funds originally used to establish the DISF were derived from export sales of dairy produce and were at that time the property of the industry, the ownership of the DISF should be regarded as belonging to the dairy industry. The Minister in that statement to this Parliament also stated that agreement had been reached in May of last year that the DISF should continue to be used for the benefit of the industry generally and in accordance with section 11 of the Dairy Industry Act. The present Minister, in response to the then Minister's statement on 16 September- this is terribly important-generally agreed with the then Government's decision regarding the ownership, future use and control of the DISF. Also on 16 September the then Minister tabled a set of guidelines that had been drawn up by the Department of Primary Industry-honourable members should note this-in consultation with representatives of the Australian Diary Industry Conference and the ADC. Under these guidelines expenditure from the DISF continued to be on the recommendation of the ADC after consultation with the Dairy Industry Conference and required ministerial approval.

I give that background to the definition of the DISF, its ownership and role because it is relevant to the industry's arguments about who should pay for any losses that might occur with regard to the operations of PT Indomilk. Any profits or dividends from PT Indomilk or ADI go into the DISF. Furthermore, the Australian dairy industry's shareholding in PT Indomilk is held by the ADC on behalf of the DISF. Therefore, if the Australian shareholding in PT Indomilk is sold, any proceeds would also go into the DISF. Therefore, the industry contends that, as profits are channelled into the DISF, so too should any losses be deducted from it if the need arises. This is especially so as any losses incurred by PTI would not be simple straight-out trading losses but would be losses incurred in supporting the overall investment in PT Indomilk. What I am saying-and I will mention some of the complicating factors with regard to PT Indomilk's financial situation in a moment-is that those financial problems are inextricably bound up with the overall investments in PTI. Therefore, should any loss occur it should be borne out of the export pools as an absolute last resort .

What the Minister has not done but what he should have done is make separate provision to cover the possibility of losses incurred by PTI in the above circumstances. All the other options must first be considered. There must first be recourse to the assets of PTI, of ADI and of the DISF before there is any call on the export pools, should the need arise. Furthermore, the Minister must seek the concurrence of the industry through the Australian Dairy Industry Conference and the Australian Dairy Farmers Federation before he makes any decision on how any loss that might have occurred should be paid. Therefore, in the Committee stage on behalf of the Opposition I will be moving an amendment to safeguard the above procedures.

It is quite unbelievable that the Minister has put this legislation before the Parliament in the way that he has. He made absolutely no mention of the financial difficulties facing PTI and the obvious fact that those difficulties were a major contributing factor to the drafting of these amendments in the first place. It is almost as though the Minister wanted to mislead the Parliament by omission. He has explained nothing to the House about the difficulties involved. From my conversations with industry representatives from all over Australia, I am advised that he never even bothered to consult with them before deciding on the path he would follow. Had he done so I am sure he would have realised that there is a clear need for a separate set of procedures that can apply in the PT Indomilk case should the company's current debts turn into actual losses.


Mr Hollis —That was Nixon.


Mr McVEIGH —With respect, I am talking about the Bill that this Minister introduced. He was the person who did not mention it. I regret that it is too difficult for the honourable member to follow. As I said, the Minister never even mentioned PT Indomilk and, therefore, I feel I must raise some of the issues concerning this company's financial position so that honourable members may get a full appreciation of precisely what is involved in this situation. There is a highly complex set of circumstances surrounding PT Indomilk's current financial dilemma. The fact is that PT Indomilk competes in the Asian market with two other companies, Nestles and Fresian Flag which also owns the 'Foremost ' operations. PT Indomilk's share of the Indonesian retail market for processed milk products has fallen from 81 per cent in 1973 to 18.3 per cent in 1981. By contrast, Nestles' share rose from 18.9 per cent in 1973 to 33.8 per cent in 1981 and Fresian Flag's share from 36 per cent in 1974 to 48 per cent in 1981. Both competitor companies since 1974 have shown an annual average net profit of about 10 per cent, whereas PT Indomilk's has been less than 2 per cent with operating losses of 7.8 per cent in 1981 and 5.4 per cent in 1982. No dividend has been declared by the company since 1977. By contrast, Foremost, whose production and turnover is very similar to that of PT Indomilk, has paid dividends of over $US8m over the two years 1981 and 1982.

A number of factors could be seen to have contributed to this situation. One is the fact that PT Indomilk pays a distribution fee of 15 per cent to a company owned by the Indonesian partner Marison for the distribution of its finished products. I understand that this arrangement has been in existence for several years. The company which receives this distribution allowance is known as PT Marison Nusantara Agency. I understand that it currently owes PTI some $5m.


Mr Lusher —How much?


Mr McVEIGH —Some $5m. The point is that the normal rate for this sort of distribution activity is about 5 per cent rather than 15 per cent. It could therefore be assumed that the arrangements between PTI and Marison Nusantara are nothing short of a rip-off. Furthermore, it is a rip-off which has a greater impact on the Australian interests in PTI than on the Indonesian interests. The profitability of PT Indomilk is vital to the ADC and the Australian dairy industry. However, it is nowhere near as important to Marison because its major return on its investment in PTI comes from the distribution allowance.

The increasing PTI debt to Asia Dairy Industries is also a matter of concern. As I said earlier, PTI currently owes ADI in excess of $13m and unfortunately this debt is growing. Indeed, since about March-April-that is when the Hawke Labor Government came into office-the debt owed by PTI to ADI increased from $11 .4m to the present level of $13m. So to emphasise the statistics, I remind the House that during the time when the Hawke Labor Government has been in power, the debt has increased from $11.4m to $13m, that is, a short period of six months. Of course, I am in no way suggesting that this Government is responsible for the increasing debt. What I am saying is that it should be noted that the Labor Government, despite highly vitriolic accusations while it was in opposition, also seems to be unable to do anything to try to contain this spiralling situation.

PTI is keeping its day to day operations going through finance provided by non- banking financial institutions-called NBFIs-in Jakarta. Under these arrangements entered into in late 1981, the NBFIs agreed to provde PTI with finance on the understanding that for every $1 they provide, ADI agrees to provide $1.40; in other words, there is a debt ratio of one to 1.4. However, my understanding is that this debt ratio has not been maintained. PTI has extended the amounts it owes to ADI and reduced what it owes to the NBFIs. This must be a contributing factor to the increasing debt of PTI to ADI. It amounts to the Indonesian side of the partnership unfairly using the Australian side, all of which is against the interests of the Australian dairy industry, whose investment is at stake.

There is also the question of the proposed sale of the ADC's 50 per cent shareholding in PT Indomilk. It is well known that the ADC signed a heads of agreement with a company known as PT Kebun Bunga in September 1981 for the sale or purchase of its shares in the company for a total of $US10m. PTKB made a deposit, on the direction of the ADC, of $US1m to ADI to be held in trust as a performance bond. I should state that there is speculation in the industry as to what has become of that $US1m. I ask the Minister, not with any sense of achieving political mileage, whether he would clarify that matter for the Parliament and the industry-the Australian manufacturers and the Australian dairy farmers.

The proposed sale to PTKB required the approval of the Australian Minister for Primary Industry under section 25A of the Dairy Produce Act. The Hon. Peter Nixon, as Minister, stated that his approval would be given provided the proposed transfer was approved by the relevant Indonesian authorities. All of this, of course, is public knowledge. So, too, is the fact that at the time the present Minister, then in opposition, accused Mr Nixon of interfering in a normal commercial transaction, costing the Australian dairy industry, as he said , $5.5m. This is terribly important, and it is honest and factual. Now that he is in government, the Minister has changed his tune. He is following the Peter Nixon line. He confirmed to me in a letter dated 11 July 1983 that his policy in this regard was exactly the same as that of his predecessor.

This issue is currently the subject of legal action and it is therefore not appropriate for me to enter into further detail, except to stress that the Minister, when in opposition, expressed criticism, and when he became Minister, sent a letter to me saying: 'Peter Nixon was right and I will follow him'. I recall that the present Minister when in opposition used to try to catch headlines by accusing Mr Nixon of trying to cover up the issues of the Asia Dairy Industries affair. I have since heard on very reliable authority that he has expressed the view that, while he previously thought Mr Nixon was trying to cover things up, he has now realised that he, Minister Kerin, was wrong and has indicated that Mr Nixon was trying with every possible endeavour to clean things up. At least he has been educated. In opposition his voice was that of the empty vessel making a lot of noise. When he became Minister and obtained the facts, he came around to the responsible attitude and realised that the Honourable Peter Nixon was a great Minister. I hope the Minister will confirm that view to the House. We know that he stated it.

We on this side of the House appreciate that a highly complicated situation is involved in this issue. We realise very importantly that dairy farmers' money is involved. We are not satisfied that everything is running as it should. We in government were working on these problems and trying to rectify them. The Minister has now admitted that that was so. We would like to know what he will do now that he is in government to continue that work. I look forward to his response. For instance, on 16 September 1982, the present Minister, in speaking on the problem of having the Chairman of the ADC also the Chairman of the ADI, made certain comments. What has he done in the past seven months to change this situation? Similarly, we found that because ADI was registered in Hong Kong there was virtually nothing that the responsible Australian Government Minister could do to influence or control its operation. It was a world unto itself. Prior to the election, we were in the process of reviewing general guidelines for statutory authorities through an interdepartmental committee.

I inform the Minister that we would be most interested to know what is the present Government's view towards Asia Dairy Industries. Does it believe that ADI should continue? If so, does it intend to change its charter? All of these issues appear to point to the fact that the Australian partners in the PT Indomilk venture-and therefore, the Australian dairy industry, made up of manufacturers and dairy farmers-is being taken to the cleaners by its Indonesian partners. There are clearly some very important issues involved in this situation. I hope the Minister will fully advise the House of them and that he will answer in detail the questions that I have posed to him.

I find it extremely disappointing that the Minister in introducing this legislation into the Parliament made absolutely no reference to the PT Indomilk situation, despite its very obvious relevance to the legislation. It was one of the reasons why the legislation was introduced. If PT Indomilk is reaching the point where its debts could imminently become losses, the Parliament should be fully informed. Above all, we require from the Minister detailed replies to the questions that I have raised in this debate. I formally advise that, in the Committee stage of the Dairy Industry Legislation Amendment Bill, we will move an amendment to cover the points that the Minister has not seen fit to cover either in his second reading speech or in his indications to me across the table .