House debates

Wednesday, 31 October 2012


Wheat Export Marketing Amendment Bill 2012; Second Reading

5:07 pm

Photo of Craig KellyCraig Kelly (Hughes, Liberal Party) Share this | Hansard source

I rise to speak on the Wheat Export Marketing Amendment Bill 2012. It is a pleasure to follow the member for Groom, who has more knowledge on this industry at his little finger than the entire combined knowledge of those who sit on the other side. From the outset, I will say that I believe, along with the rest of the coalition, that there is simply no going back to the Australian wheat industry being centrally controlled under a single desk. For, although the Australian Wheat Board were founded back in the 1930s and for many years successfully promoted the export of Australian wheat, their excesses, their waste and their mismanagement are just reminders of the dangers of monopoly, the dangers of centralised control and the dangers that come from overly concentrated markets.

However, the coalition supports the deregulation of the export of Australian wheat. But in doing so we should be reminded of the words of Adam Smith, from 250 years ago, in The Wealth of Nations:

The proposal of any new law or regulation of commerce … ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention.

Smith was right, especially when it comes to new laws seeking deregulation of our agricultural sector. For, although the free market is the greatest force we have to lift prosperity, to create wealth and to develop a strong middle class and a vibrant democracy, we should not be naive enough to believe that free markets simply evolve by themselves. Often, to protect the workings of the free market, we need some type of regulation to stop it becoming overly concentrated and to stop predatory conduct to make sure that the market works as it is meant to. That is why we must heed Smith's warnings, especially in deregulating the wheat industry. We need to tread carefully and, in doing so, be sure that we do not repeat the mistakes of the past. And we should look at the mistakes of previous deregulations of our rural sectors.

So let us take a quick look at the deregulation of the dairy industry and the deregulation of the egg industry to see if there are lessons to be learnt for deregulating the wheat industry. Firstly, let us look at the Australian dairy industry, which was deregulated on 1 July 2000 at the cost of $1.94 billion to the taxpayer. Back then, we had all the self-proclaimed competition law experts saying that it was the consumer who was most likely to benefit significantly from the lower cost of fresh milk. Let us have a look at what happened. We know what happened to the farmer. We know that before deregulation the farmers were getting $1.011 billion of income for their market milk. Yet two years later, in 2002-03, their income had fallen to $521 million. So we saw the dairy industry lose $500 million of income after deregulation—almost one-half was wiped out virtually overnight. But, much worse, far worse, was that within two years of the deregulation of the dairy industry a health department report showed that every four days a farmer in this country was committing suicide. Between 1990 and the year 2002, ABS figures show that 202 farmers and farm managers committed suicide.

What were the benefits to the consumer from the deregulation of the dairy industry? If you look at the ABS data, it shows that retail prices not only increased but continued to increase faster than the rate of inflation. In fact, between 1990 and the year 2007, while the CPI rate of inflation was only 60 per cent, the retail price of milk actually increased 114 per cent, almost double the rate of inflation.

Secondly, let us look at the example of the deregulation of the egg industry, which occurred in the early 1990s. Certainly sufficient time has now passed for us to assess the full effects of deregulation. Again, when the deregulation of the egg industry occurred, we heard those who were strong on theory but weak on practice rabbit on about increasing efficiencies and about those efficiencies being passed on to the consumer through lower prices. In 1989-90, just prior to deregulation, the ABS reported that the average farm-gate price for a dozen eggs was $1.53. Fast forward to June 2005, when the ABS last published such farm-gate prices for eggs. The average farm-gate price had increased just 9c, to $1.62—an increase over 15 years, for the farmer, of just six per cent, at a time when our CPI was running at 48 per cent. But what happened to the retail price over the same period of time? It skyrocketed by an incredible 70 per cent. So in the 15 years following deregulation we had the farm-gate price increase by just six per cent and the CPI increase by 48 per cent but the retail price—what the consumer was paying—increase by 70 per cent.

There are other lessons to learn from past deregulations, especially how those who supported some of these deregulations were prepared to distort, to mislead and to cover up when things did not turn out how they expected. Take the ACCC's 2008 inquiry into the competitiveness of retail prices for standard groceries. In that report, the ACCC concluded, in relation to eggs, 'It is not true to say there is an increasing gap between the farm-gate and the retail price.' But the truth was the exact opposite of the ACCC's conclusions. The facts were that over that period of time, from 1990 to 2008, when the ACCC did their inquiry, the farm-gate price had increased by just 12 per cent, but the retail price had increased by 100 per cent. So after deregulation we had a 12 per cent increase at the farm gate and a 100 per cent increase at the retail end. The truth is that there has been a massive increasing gap between the farm-gate price and the retail price, yet the ACCC's findings showed the exact opposite.

It is interesting to look at how the ACCC actually arrived at these misleading and erroneous conclusions.

One way to manipulate data to mislead or deceive is to cherry-pick the base year from which you start an analysis over time. In the ACCC's analysis of eggs, the ACCC chose the base index as the year 2000-01. Surprising, this was the year that was selected, despite this year not being used for anything else in their inquiry. So why did they pick this year, when ABARE's Australian Commodity Statistics for 2007, the very source which the ACCC cited in their report, has data going back to 1989? Surely, you would have used all the data that was available to you, and you would have gone back to this date—but they did not. Alternatively, ABARE used 1997-98 as the base year with the index of 100, so it would have been quite simple for the ACCC to choose that year. So why did they pick the year 2000-01 to start their analysis? Well, surprisingly, that year was the lowest farm-gate price in 20 years. Picking the absolute lowest farm-gate price in 20 years was just a happy coincidence that enabled the ACCC to reach their conclusions.

But the coincidence did not stop there. In fact, the ACCC had actually shifted the base year for various items. In their studies of milk they used the base year of March 2002 and for beef they used 1998—and, surprise, surprise, if you look at ABARE's numbers, these are either the lowest or the second-lowest prices in the farm-gate cycle. What an amazing coincidence! The odds of randomly selecting the base years which conveniently match up with the lower point in the farm-gate price are about 1,000 to one. The only conclusion is that the ACCC's inquiry into the competitiveness of retail prices for standard groceries under this government was either a shameful whitewash or was grossly incompetent.

The reason that the deregulation of the milk and the egg industries merely delivered an asset transfer from producers to our supermarket duopoly was the failure to understand that you cannot just deregulate one part of the supply chain and leave other parts of the supply chain regulated, especially when these other parts of the supply chain are controlled in the hands of a small number of players. For the milk and egg industries, while it was the production of these commodities that was deregulated, the retailing of these commodities remained highly regulated, where the Australian supermarket duopoly enjoys special legislated protection from competition.

Mr Deputy Speaker, let me give you two examples from my electorate of Hughes of how this protection from competition works. Firstly, there was the infamous Orange Grove affair, which occurred under the watch of the New South Wales Labor government, run by now Senator Bob Carr. Without getting into the sordid tale of the Orange Grove affair, the New South Wales government shamefully forced the closure of an operating shopping centre, with the loss of 200 jobs, simply to prevent them competing in the market.

Secondly, Mr Deputy Speaker, take the shopping centre at Sappho Road in Warwick Farm, also in the electorate of Hughes. To protect the interests of the supermarket duopoly, the regulations at this shopping centre included:

The display and sale of the following item classifications is strictly prohibited: [including] grocery items …

It was also at this shopping centre at Warwick Farm that the so-called champions of the free market and deregulation, the Woolworths corporation, took their smaller competitors to court for no other reason than to protect themselves from completion.

We had the farcical situation in this country where we deregulated our rural commodities, but, at the retail side, we had three judges at the New South Wales Court of Appeal and a platoon of QCs, barristers and lawyers arguing about what goods could be sold from a retail shop. I will quote directly from the decision the goods that the court said were not allowed to be sold:

Small plastic storage containers; garbage bins; vegetable peelers; electric light globes; sandpaper; baby bibs; child's potties; dog kennels; bathmats; pre-recorded CDs; Christmas cards; Christmas trees …

So, while we come into this place and say we are the champions of the free market, we have regulations and courts making laws about where children's potties can be sold. We need to learn the lessons, when we are looking at the deregulation of the wheat industry, that we cannot just leave other parts of the supply chain regulated or controlled in the hands of just a few players.

This is certainly currently a concern when it comes to port access and rail transport, especially in Australia, one of the few nations that have no effective laws against anticompetitive price discrimination. The dangers to the free market, the dangers to growers, of price discrimination on rail freight have long been recognised in the home of the free market, the USA. In fact, it was concern about price discrimination in rail freight of agricultural commodities that led to the very first law to combat anticompetitive price discrimination. This was the Interstate Commerce Act 1887, which was the forerunner to the Clayton Act 1911 and the Robertson Patman Act 1936. Basically, this law provided that, for a grower filling one rail car—the equivalent of a modern-day 20-foot container—because there were no true economies beyond that, they would be able to get the same price and would not be discriminated against compared to a grower that could produce a larger quantity.

The other issue that growers should be concerned about is the quality standards for export grain. We have recently seen the Indonesians express a concern about the perceived lack of quality of Australian wheat—and I say 'perceived' because we do have in this country the highest-quality wheat in the world. But we know that, in many markets, perception becomes reality—and this provides a real threat to Australian exporters, who are at a disadvantage against American and Canadian wheat exports, where we have the American and Canadian governments having attested quality controls and guarantees on their exports.

We should heed Adam Smith's warning that we should proceed with any deregulation with great caution, and any such deregulation ought never to be adopted until long having been carefully examined, with not only the most scrupulous but the most suspicious of intentions. We must learn from the past. We must learn from the previous episodes of deregulation of agricultural commodities and the disaster that they have resulted in for our producers. And there are issues that this bill fails to carefully consider—port access arrangements, the inappropriate transportation standards in relation to stock information and minimum quality standards for grain. Therefore I cannot support this bill. However, I support the coalition giving a commitment that, if elected at the next election, the coalition in its first term will implement measures agreed by the industry to ensure that we have a well-managed, deregulated— (Time expired)


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