Kerry O'Brien (Tasmania, Australian Labor Party, Shadow Minister for Transport) Share this | Hansard source

The Wheat Marketing Amendment Bill 2006 has hardly been seen by the opposition, although we have seen it and were recently given a copy of the explanatory memorandum. We were expecting that the debate on this bill would not commence before 12.30 pm. For that reason, the opposition has some significant comments that it wishes to make. The opposition will be supporting the thrust of this legislation. It is important that the ability to trade without the impediment of the veto power of the AWB be enshrined in law and the opposition will be supporting that principle.

I can also say that we are giving serious consideration to using this amendment bill as a vehicle to propose another amendment to the legislation that is in fact very similar to an amendment we moved to the Wheat Marketing Amendment Bill 2003 on 26 June 2003, I think. What we wanted to occur then was a full and proper inquiry into the exercise of powers under the legislation of what has become AWB International and also AWB Ltd in its control of the wheat pool, its veto power and the exercise of other functions under the single desk in order to satisfy growers that the system under which we were operating was the best available to create proper financial returns for growers, without paying undue and excessively large commissions or other fees to AWB Ltd for their management of the wheat market in Australia.

That is a subject which has exercised the minds of many growers and indeed many senators in this place in recent times. It is a subject which I have had conversations with many senators about and I have heard others having that conversation. It has been discussed in the media and it has been discussed across the kitchen table on many farms, I am sure. It is frankly appalling that the minister did not begin his speech introducing the Wheat Marketing Amendment Bill 2006 with an abject apology from the Howard government to every Australian wheat farmer.

The mere fact that we are debating these issues today can be seen as an admission by the government that it failed to get the structure of AWB right in the first place and that, ever since then, it has failed to adequately monitor the performance of AWB. Every wheat grower deserves an apology for the failure of a succession of Nationals ministers and leaders to do the jobs they were being paid to do. It was a former Nationals leader, Mr John Anderson, as the minister responsible for agriculture, who did much of the spade work in devising a flawed structure for AWB at the time it was privatised. It was the current Nationals leader, Mr Mark Vaile, as Minister for Agriculture, Fisheries and Forestry, who took much of the legislation for the flawed structure through the parliament. It was the deputy Nationals leader, Mr Warren Truss, who was asleep at the wheel while the Wheat Export Authority failed again and again to properly do its job as a watchdog and allowed AWB to run amok. While Australia produces just less than five per cent of the world’s wheat, it accounts for approximately 15 per cent of the total world wheat trade. That is an important factor considering how important this market is.

Lest it be said that, in my criticism of the ministers, I am biased, I want to lay some of the blame for this mess at the feet of the Liberal Party as well. The current Minister for Industry, Tourism and Resources, Mr Ian Macfarlane, must also take his share of the blame. As President of the Grains Council of Australia at the time, Mr Macfarlane was heavily involved in the development of the Howard government’s flawed structure for AWB. A number of the flaws and weaknesses in the Howard government’s wheat marketing arrangements were exposed during the Cole inquiry into the wheat for weapons scandal. Commissioner Cole shone a spotlight on AWB and exposed serious problems with its corporate culture and the performance of a number of its employees. One consequence of the oil for food scandal has been a renewed focus on the fitness of AWB to manage Australia’s single desk marketing arrangements for wheat and even on the need for the continuing existence of the single desk itself.

These are important matters of vital interest to every wheat grower in this country. Through AWB, Australia exports around $5 billion worth of bulk wheat a year to around 50 countries. As I said, although we produce just less than five per cent of the world’s wheat, it accounts for approximately 15 per cent of the total world wheat trade. In addition to bulk wheat, Australia exports a relatively small quantity of bagged and containerised wheat through AWB and other traders. Not only does this trade secure the incomes of wheat growers and their families; it sustains the economies of many country towns and rural communities.

It is worth spending a little time looking at the history of wheat marketing in this country. The Australian Wheat Board was established in 1939 with legislated monopoly power over both domestic and export grain sales. Labor has been a strong supporter of the single desk ever since it was established. In July 1999 the Howard government privatised the former Australian Wheat Board. AWB became a grower owned company under the Corporations Law and retained effective control of the single desk. AWB Ltd has two classes of shareholdings. Class A shares are restricted to wheat growers while class B shares are traded on the Stock Exchange, or at least they were until trade was suspended recently. The proportion of shares held by growers has been steadily decreasing, as has the value of the shares they own.

A particular point of contention for growers is the service fee and bonuses that are paid by AWB International to AWB Ltd. The service fee is currently set at a minimum of $65 million per annum. After considerable pressure from growers AWB has announced that, because of the drought, the service fee for the current pool will be reduced to $39.5 million on a one-off basis. This service fee is part of a services agreement between the two arms of AWB. A key problem of the services agreement is the fact that its contents have been kept secret from growers and just about everybody else. This secrecy has become a hallmark of the arrogant way AWB has conducted its business.

AWB’s structure contains an inherent conflict of interest. Companies law requires AWB Ltd to maximise returns to shareholders whilst its constitution requires that it acts to maximise the return to growers. In granting a legislation monopoly to a Corporations Law company, the government has a clear duty to ensure that those monopoly powers are not abused. Central to the failure by the government to properly oversee AWB’s management of the single desk has been the failure of the Wheat Export Authority to do its job.

The Wheat Export Authority was established in 1998-99 to control the export of wheat from Australia and to monitor AWB’s performance in relation to the export of wheat and examine and report on the benefits to growers that resulted from that performance. It has considerable power, including the power to direct AWB to give it any information, documents or copies of documents under the control of AWB or a related corporate body. It must report annually to growers and the agriculture minister on AWB’s performance and it must also publish an annual report. Any individual or company other than AWB seeking to export wheat from Australia must get prior approval from the Wheat Export Authority. This applies to all wheat, whether bagged, containerised or in bulk. In the case of bulk wheat, the Wheat Marketing Act requires the Wheat Export Authority to seek the approval of AWB before it can authorise a shipment by someone other than AWB. These two right of veto proposals by AWB’s competitors to ship wheat out in bulk are the core of AWB’s single desk power.

The performance of the Wheat Export Authority in monitoring AWB has been the subject of criticism from Labor and from grower organisations for a number of years. The Wheat Export Authority completely missed the involvement of AWB in the wheat for weapons scandal, even though the potential impact on grower incomes was considerable. The incompetence of the organisation as it is currently staffed and structured was highlighted recently when it was revealed that it went through 2005 using the provisions of an out-of-date service agreement as the basis for monitoring AWB. It is important that the operation of the Wheat Export Authority be thoroughly reviewed as part of any process leading to improved arrangements for wheat marketing.

AWB has been given a legislated monopoly but we should be mindful of the fact that AWB is not the only company with experience and expertise in the marketing of Australian grain. The other key players in the industry are the largely grower owned grain handlers who control most of the storage, loading and handling infrastructure. They have large purchasing and distribution networks. These companies include Consolidated Bulk Handlers, a Western Australian based grower owned cooperative; ABB Grain, a mainly South Australian based largely grower owned company; and GrainCorp, a largely grower owned company that operates on the east coast. CBH and the other grain marketers have considerable interest in the outcome of this process. These largely farmer owned grain handling and marketing organisations have a legitimate interest in the fate of the single desk and it is important that they are given the opportunity to make their views known.

Others groups with a considerable interest have been the associations representing grain growers. Labor has held extensive consultations with these groups and has noted that there is considerable debate about the appropriate form for future grain marketing arrangements. For example, the Grains Council of Australia, which represents growers in all states and most state peak farmer organisations, strongly supports the single desk. In Western Australia growers are divided. PGA represents mainly the larger enterprises and the Western Australian Farmers Federation represents many of the smaller growers. PGA opposes the single desk and the Western Australian Farmers Federation supports it. The non-grower-owned grain traders are represented by the Australian Grain Exporters Association and are generally in favour of opening up the market. Because there is such a variety of strongly held views on the nature of future arrangements for the marketing of wheat, it is important that the consultation mechanism the government puts in place ensures that all these views are heard.

In 2003 Labor proposed an amendment to the Wheat Marketing Bill 2002 which would have had the effect of establishing a formal independent inquiry into all aspects of wheat marketing. The government opposed that amendment and the inquiry was never held. If the government had listened to good sense back in 2003 it may well be that timely action could have been taken to prevent at least some of the problems that have been exposed with AWB’s management of the single desk.

There have been a number of independent reviews of the current arrangements and they have generally recommended changes to the single desk arrangements. For example, the Productivity Commission issued a report in 2002 entitled Single-desk marketing arrangements: assessing the economic arguments. Its key findings were as follows. Most of the potential benefits of the single desk arrangements can be achieved without the compulsion of a single desk. In export markets where premiums might be obtained—for example, due to quotas imposed by importing nations—targeted export licences can be used to control exports and monopoly marketing of all exports is not required. Economies of scale and scope in marketing can be captured without monopoly selling, while premiums could still be ‘earned’ for high quality and customised service. Activities which deliver industry wide benefits, such as research and development and quality control, can be delivered and funded by more targeted mechanisms. It found that, whereas the potential benefits of single desk selling are likely to be small—or could be achieved in a more competitive marketing framework—the costs of single desk arrangements have the potential to be large. Single desk arrangements inevitably discourage product and marketing innovations; costs may be especially large in markets where product variety and value adding are essential for success; and, importantly, statutory marketing authorities can be reconstituted to operate on a commercial basis in a competitive environment, continuing to offer services to producers and providing a vehicle for continued grower ownership of marketing functions—voluntary producer organisations can continue to give producers a voice.

In December 2002, Malcolm Irving chaired a national competition policy review of the Wheat Marketing Act 1989. This review made a number of specific technical recommendations aimed at improving the operation of the Wheat Export Authority, and freeing up trade in containerised and bagged wheat and in bulk for specialised varieties such as durum wheat. Importantly, while there is much uncertainty as to whether the single desk arrangements produce a net benefit for growers, in conclusion the review stated:

On balance the Committee came to the view that the introduction of more competition into export wheat marketing in the future would ... deliver—

greater—

net benefits to growers and to the wider community than continuation of the current arrangements ...

The review specifically recommended:

• if no compelling case can be made by the time of the 2004 review that there is a net public benefit, then the ‘single desk’ should be discontinued ...

The government, might I say, accepted the technical recommendations of this review but reaffirmed its long-term commitment to the existence of the single desk.

The wheat marketing review of 2004 made a number of recommendations related to the corporate structure of AWB Limited and its subsidiary AWB International, calling for less overlap between the boards of the two entities. It also recommended changes in the way the Wheat Export Authority operates. In accordance with its terms of reference, the review made no recommendation as to the future of the single desk.

Proponents of the single desk, including AWB itself, the National Farmers Federation, the Grains Council and most state farming organisations, except PGA in Western Australia, tend to argue the case for the single desk along the following lines: the single desk allows AWB to establish an integrated marketing system which captures benefits for growers right along the supply chain; AWB’s constitution requires it to maximise returns for growers; having just one Australian player in the international marketplace ensures price confidentiality and Australian growers are not played off against each other; the single desk gives growers the market power to achieve supply chain efficiencies and reduce costs; through the single desk, AWB provides clear market signals and rewards growers precisely for the quality of wheat they produce; the single desk manages price and currency risk; the single desk underpins the market as a buyer of last resort.

These views were backed by a study by Econtech of the premium attributed to the single desk. This study was commissioned by AWB to quantify the benefits to growers of the single desk arrangements. The study found that on the benchmark of Australian premium white grade of wheat, the single desk captures a premium of between $15 and $30 a tonne. The total annual value to Australian growers of this premium on Australian premium white is $80 million. On all grades the average premium attributed to the single desk is $13 a tonne and the total annual value of the premium on all grades is $200 million.

It is clear that there will have to be some changes to Australia’s wheat marketing arrangements. The Cole inquiry has established serious flaws in the way AWB conducts itself, but there are such a wide variety of views about the best way forward for wheat marketing and the single desk that a formal and independent inquiry is needed to ensure we get the structure right. A number of organisations have proposed detailed models or sets of principles for future wheat marketing. These all need to be properly evaluated. The past record of the government and the National Party in particular cannot lead to any confidence that they will get the wheat marketing arrangements right this time. Frankly, a properly constituted formal inquiry is required.