Wednesday, 4 March 2015
Regulations and Determinations
Competition and Consumer (Industry Code — Port Terminal Access (Bulk Wheat)) Regulation 2014; Disallowance
I, and also on behalf of Senator Day, move business of the Senate notice of motion No. 1:
That the provisions of subclauses 5(1), 5(4) and 5(5) of the Competition and Consumer (Industry Code—Port Terminal Access (Bulk Wheat)) Regulation 2014, as contained in Select Legislative Instrument 2014 No. 136 and made under the Competition and Consumer Act 2010, be disallowed.
Acting Deputy President, could I have some guidance as to whether there will be other speakers. Senator Day and I are both ready to speak. I understand there is a right of reply at the end.
Thank you. The disallowance motion moved by Senator Day and me will prevent the Minister for Agriculture, Barnaby Joyce, from exempting monopoly grain marketer, CBH, from port access conditions that will apply to other port operators. Passage of this disallowance motion would remove the minister's power to exempt cooperatives from the code. I would make CBH subject to the same conditions as GrainCorp—no more, no less. This would ensure fairness in that the same rules would apply to all who seek access to ports for the export of their grain.
The government might mouth words about free markets and capitalism, but in agriculture the lure of agrarian socialism is never far from the surface. Since the end of the single desk, in 2007, various changes to legislation were made that took the wheat export market towards deregulation. We have moved far beyond the old days of the single desk. I support this progress.
One of the interim measures in the transition was the adoption of mandatory port access codes for the export of grain. Following the expiry of undertakings to the ACCC last October, access to port services is now governed by the code and general competition law. Adoption of the code last year was seen by the government as:
… a significant step towards free and open competition in the wheat export industry, which is a longer-term goal to which we have committed.
However, CBH was exempted from the code.
My disallowance motion does not relate to the entire regulation. I have no concerns about that. It seeks to remove the part that implies CBH, as a grower and cooperative, is somehow more virtuous in its dealings with grain growers than, say, a company limited by shares, and should therefore be given special consideration. Those who claim to welcome competition, when the exporter is a profit-oriented business, especially if it is a foreign multinational, recoil in horror when it is suggested the same competition rules should apply to a farmer-owned cooperative. This is despite the fact that the grower-owned cooperative is just as committed to making money.
The Minister for Agriculture is an agrarian socialist, ready to use rules, regulations and special exemptions to protect his constituency. In Mr Joyce's eyes, all grain exporters are equal, but some are more equal than others. Government authority is being invoked to prevent grain growers from having the freedom to deal with CBH's evil corporate competitors.
Let us take a moment to look at the central player and sole beneficiary of the minister's exemption from regulation. CBH handles 90 to 95 per cent of the grain produced in Western Australia. It is a cooperative, owned by around 4,500 wheat growers. CBH owns and operates the only wheat export facilities in WA, apart from the recently opened Bunge facility. It has 197 receival points and four bulk export terminals. It employs 1,000 permanent staff and has a turnover of close to $2 billion. It is no minnow.
On the east coast, GrainCorp handles about 70 per cent of the grain produced. That proportion is declining. At least GrainCorp operates in a competitive environment. A new terminal at Newcastle has been established, owned by the same CBH, plus Olam and Glencore. All these bodies compete with each other. Another privately owned storage facility also operates at Newcastle.
All of these players operate without special exemptions, in a free and competitive market. This means that the port operator with the greatest market power in Western Australia, CBH, is exempted from the port access code, even though it has the most scope to squeeze out competitors. Notwithstanding the perception that a growers' cooperative would act in a virtuous manner, CBH has form as a corporate bully. In 2013, the Australian Competition Tribunal removed the company's ability to tell those WA growers and marketers who use CBH's up-country storage facilities that they must use CBH transport services to deliver grain to port.
If any of the wheat export markets requires protection from monopoly practices, it is Western Australia, and yet that is exactly where the Minister for Agriculture is proposing a special exemption applies. It is ridiculous. Shadow minister Joel Fitzgibbon wrote recently:
The government wants to leave it to Barnaby Joyce to decide who will be covered by the code and who will to be. Indeed, Barnaby thinks the largest vertically integrated player in the market, and the market where there are the least players should be exempt from the code because it is a cooperative. This is an extraordinary proposition. It raises the spectre of a code covering all the players on the east coast, where there are more players and more competition, but potentially covering no players on the west coast, where there are less players and less competition.
This demonstrates that he gets it. Mr Fitzgibbon called the exemption 'a new market distorting regime' and that 'exempting cooperatives generally, or CBH specifically, was hard to comprehend.' I agree. The proposed exemption is an extraordinary proposition and I encourage his Senate colleagues to support the disallowance.
The reform process that this disallowance seeks to amend is one which has been corrupted by the Abbott government. The former Labor government had a plan for the ports used to export the nation's wheat post the wheat-for-weapons scandal and the dismantling of the single desk. Our 2008 legislation recognised the monopoly power of companies which market wheat and own the ports, and the risk that they would use their ownership of the ports to deny the entry of competitors in grains marketing. That would be a bad thing for the sector, for growers and for our economy.
The legislation also recognised that over time new port facilities would emerge, reducing the monopoly power of the older players, so it gave birth to a three-stage approach to promoting competition. The first stage—that is, 2008 to 2014—involved curtailing the power of the monopolists by forcing them to provide legally enforceable undertakings on port access and other matters to the ACCC. The second stage—2014 to 2019—was to be a period in which the market was subject to a prescribed code of conduct established under the Competition and Consumer Act. The code was to set rules for behaviour, disclosure, mediation and dispute resolution. The third stage was to be the dawn of a totally deregulated environment, one in which many more players, in a much more mature and competitive market, would be subject only to the general pro-competition provisions of the Competition and Consumer Act, as is the case in most markets. A decade seemed to be more than enough time to allow the market to grow and mature.
Under these arrangements, port operators would have had a capacity to apply to the ACCC for an exemption from the code on the basis that a port zone already had sufficient competition to guarantee fair dealings absent of a code. This makes sense. Why burden the market and its players with regulation when the market works fine without it? We have faith in the ACCC's ability to make such decisions, in the same way that we trust it to accept undertakings under the current regime.
Now the Abbott government wants to change our legislated plans. Firstly, the government wants to remove the certainty we provided on deregulation by removing the five-year sunset clause on the code. It seems the sector will remain subject to the whims of the minister of the day. Secondly, the government wants to leave it to Minister Joyce to decide who will be covered by the code and who will not. Indeed, Minister Joyce thinks that the largest vertically integrated player in the market and the market where there are least players should be exempt from the code because it is a cooperative. This is an extraordinary proposition. It raises the spectre of a code covering all the players on the east coast, where there are more players and more competition, but potentially covering no players on the west coast, where there are less players and less competition.
The wheat industry is critical to the Australian economy, annually earning around $6 billion in foreign exchange and meeting our own domestic consumption needs. Developing the most efficient market and supply chain is critical for our international competitiveness and grower returns. Senator Leyonhjelm's disallowance seeks to knock out Minister Joyce's power to exempt co-ops.
On balance, Labor will not support the disallowance; rather, it will give the government's proposal an opportunity to work—but we do issue an appeal. The government has removed the five-year sunset clause for the code. It has been replaced by a review in three years time. We urge the minister to provide certainty by reinstating the sunset clause. Labor believes that within five years sufficient competition will exist in all port zones to allow the removal of all regulation beyond the general provisions of the Competition and Consumer Act.
In summary, Labor believes the government has erred in providing the minister with the power to exempt certain market participants, but will not stand in the way of its right to be proven wrong to have done so.
The government opposes the disallowance motion. Australia's $6.8 billion wheat export industry is a reliable supplier of high-quality products. The coalition government released a mandatory port access code of conduct for bulk wheat exports on 19 September 2014. The code is made under the Competition and Consumer Act 2010, and penalties from that act apply to breaches of the code. The code applies to all port terminal service providers.
The code limits red tape by exempting port terminal operators that meet certain conditions from having to comply with certain code requirements at particular ports. Exemption significantly reduces the regulatory burden. However, exempt port terminals still have to comply with parts 1 and 2 of the code, including transparency and fair-dealing obligations, as well as our requirement to have standard terms and prices. There are two pathways to exemption: a competitive analysis by the Australian Competition and Consumer Commission, the ACCC, or by satisfying criteria relevant to cooperatives, as decided by the Minister for Agriculture. Exemptions are made on a port-by-port basis.
Cooperatives follow significantly different business models, which work to benefit members who are growers rather than shareholders. In recognition of this, subclause 5(1) provides for grower owned cooperatives to have their regulatory burden and associated costs reduced and, therefore, maximise returns to growers. The exemption only applies to cooperatives with sound governance arrangements and whose members account for more than two-thirds of all growers in the relevant grain catchment area. This power rests with the Minister for Agriculture, as it is not appropriate for the ACCC, which has specialised skills in undertaking competition assessments, to fulfil this role. The Minister for Agriculture needs to be satisfied that these conditions are met before approving the exemption. The Minister for Agriculture made a determination on 17 November 2014 to exempt all four of CBH Limited's ports in Western Australia. The code includes safeguards that enable the minister to revoke a determination made under subclause 5(1).
Under subclause 5(5), exemptions can be revoked by the Minister for Agriculture if the circumstances for granting the exemption no longer apply, or if the minister is satisfied that the continuation of the exemption is not in the interests of relevant grain producers. Subclause 5(4) provides for grain producers, or groups of grain producers, to write to the minister if they are concerned about the impact of an exemption. I advise the Senate that, since the minister's determination on 17 November 2014 to exempt CBH Limited, no grain producers have raised concerns with the minister.
I rise to make a contribution to this debate on the disallowance motion and also to let the Senate know that the Greens will not be supporting it. The Greens and I personally have been engaged in this debate on wheat export deregulation for almost all of my time in this place and I have seen the gradual deregulation of the industry.
I would also like to put on the record that one of the issues around the deregulation process has been the difference in the sector between the wheat growers and producers across Australia, with the east coast market being very different to the west coast market. That is what divided this place probably more than anything during the debate on the deregulation process, on getting rid of the single desk, because we are different in Western Australia! We export almost all of our wheat crop, whereas the eastern states do not export as much and they produce, largely, into the domestic market. Therefore, that has always complicated this issue. It has not been straightforward over the years and, for the people who are reading this transcript later on, unless you are deeply involved in the discussions you probably will not understand the trajectory we have been on over the last number of years as the deregulation process has unfolded.
I know colleagues across the chamber, from both major parties, who, within their own parties have different views on the deregulation process. So it has been a complicated process to get to where we have now got to. Wheat growers across the country have certainly been divided on this issue as well.
The Greens believe that it has taken a long time to get the Competition and Consumer (Industry Code—Port Terminal Access (Bulk Wheat)) Regulation 2014 to the point that we are at. The code is an important step that helps address the impact of both the deregulation process and the potential monopolies in port access which the wheat industry is still currently exposed to and has been concerned about for some time.
However, having said that, I also believe that allowing the minister, as well as the ACCC, to make an exemption for cooperatives such as CBH, will support a port access regime that reflects the operation of the WA wheat market—and I have already explained why WA is different—and does not distort the market in a way that would hurt WA growers.
Before I continue my remarks, I do want to note that this code makes provisions for the minister to consider all cooperatives. The cooperative in question, which we are presently talking about, is CBH, in my home state of Western Australia. It is an important part of the grain industry in my home state, so I will talk more about the specifics of this example in a moment. But I would like to be clear that if other cooperatives are formed and follow a similar trajectory to the CBH experience, then they should also be considered for an exemption. The provisions in the regulation make allowance for that. This code, as it is written, does not privilege CBH and I would expect the minister to apply the objective criteria in determining exemptions for cooperatives.
The Greens will not be supporting this disallowance motion because it fails to acknowledge the work that has gone into developing the code over the years. The whole process to date, including the exemption for cooperatives, does not seem to respect the unique role that CBH has played and continues to play in the WA market as a grower cooperative that has operated in Western Australia since the 1920s.
During the deregulation process, the Greens amended the bill to introduce an independent industry advisory task force, which compiled a body of evidence and formulated recommendations for the good functioning of the industry. This task force used the residual fund from the dissolved WEA to investigate the next steps that government and industry should take towards better operational efficiency, as well as ensuring that future reforms provided a fair return to all wheat growers and producers, including those who are presently disadvantaged by the legacy of the single desk market arrangements and, in particular, the significant amount of infrastructure that is still under monopoly structures.
This compulsory port access code has been developed as a result of that work and has involved all aspects of the wheat industry, from growers to exporters and all those in between.
Given the vertically integrated supply chain, there are genuine competition concerns and the Greens continue to believe that, as I stated during the debate on the WEA repeal bill, in 2013, that the industry continues to require some oversight. Even CBH requires oversight. However, that oversight also comes from the WA government and so, even with an exemption, CBH will continue to be subject to state legislation that ensures that all growers can participate in the cooperative. It is still required to operate in a transparent, competitive manner and in alignment with many of the clauses in this code.
I would also like to say here that the issue was raised about CBH's apparent non-competitive behaviour over transport infrastructure. That question was asked during the grains inquiry and the consideration of this code and CBH actually provided an answer as to how that particular situation eventuated. I do not think it was fairly represented in the comments that Senator Leyonhjelm made in talking to his disallowance motion.
Ultimately, farm gate prices are the most important thing here, and we have seen the pressure that big players in the market can put on our farmers, particularly smaller operators. The Greens, as I said, continue to support a level of government oversight in the market that prevents duopolies from engaging in the sorts of price wars that have occurred over other produce.
We know that cooperatives are one of the best ways for farmers to guarantee good prices. In WA, CBH operates for the benefit of WA grain farmers. Under state law, CBH must take all grain, so no farmer is excluded. In effect, there is no price distortion for WA farmers, as explained by Mr Simpson—he is the President of the Grains Section of the WA Farmers Federation—to the Rural and Regional Affairs and Transport References Committee earlier this year. He said:
I can sell to whoever I want to, from my farm. I can sell to any one of 15 or 20 different buyers. That grain then goes to port through CBH's facilities, because they are the only ones there. And it all, whether I sell to CBH or whether I sell to anybody else, gets charged the same price.
CBH is mandated to sell everybody's grain. You do not need any extra regulation to provide that. It is there and has been there since the market was deregulated. Most of the exporters in that state are very happy with it. You can find people out there who still believe the world is flat. There will always be people who will disagree with whatever system you have in place. But I think that system works very well. Growers do have a choice about who they sell to and who handles it. Except for the amount of profit they can make, there is nothing stopping any company from setting up grain storage systems in the West.
So, in this case, it makes no sense to put an additional impost on CBH when the state legislation already ensures that it has to treat all exporters equally.
Furthermore, we were reminded again at the committee inquiry that there is competition in the WA grain market, with over 50 per cent of WA wheat being bought and exported by organisations other than CBH. When speaking to the grains inquiry, Mr Simpson said:
I do not think the issues are in access agreements. I think the issues go back to philosophical backgrounds and whether they believe in the difference between corporates and cooperatives. As I have said, they have wanted to corporatise CBH from day one, I think largely because they think they can make a dollar out of it. Perhaps some of them do not have kids who are going farming so they figure they can make a dollar on their exit. … The surveys done not so long ago amongst the younger growers indicate that they, and all growers, are realising, as the gap opens up between the costs of our handling system and the costs of equivalent handling systems in the country, how valuable CBH is to them.
The foresight of the CBH Group has been shown through their acquisition of supply chain assets and port terminals and should not be punished. We believe that supporting this disallowance motion would indeed do that—that is, punish WA farmers.
We believe that we have got to this point in our wheat deregulation process through a long process of engagement with wheat farmers across the country. I do not always agree with everything that has happened through that debate, but I think that, on balance, we have tried to meet the needs of all growers throughout Australia. As I said at the outset of my contribution, it has been a very complex and intricate process to get where we are, because of the different needs of growers across Australia. The Greens will not be supporting this disallowance motion. We do not think it is the right move. We do support the exemption and believe that there are appropriate checks and balances for CBH already.
Having said that, I do not agree with everything that CBH does—I am not here to do that or say that—but I believe that there are enough checks and balances in place to ensure that the best outcome for growers in Western Australia is to support this regulation process. I must say that I believe we have the overwhelming support of farmers in Western Australia, my home state, for this regulation. It is only a minority of farmers in Western Australia who are asking for this disallowance to proceed.
I rise to speak to the disallowance motion I have moved along with Senator Leyonhjelm. I do so because I believe there is no reason to treat two corporate entities differently under the law. In doing so, I am compelled to draw upon the life and times of a great South Australian, the late Mr Bert Kelly, a former member for Wakefield. Bert went into politics knowing at the time what needed to be done, and for the next 20 years he educated his colleagues and the nation about the evils of protectionism. His leadership in this area was so successful that everyone thought protection would be irreversible. They were wrong, of course; it was not irreversible. Many years after the protectionist debate was over, Bert was still on his guard. 'The really bad ideas,' he once said to me, 'never go away.' Exempting CBH from port access conditions that apply to GrainCorp and other bodies is another one of those really bad ideas.
People who wish to make a profit have a variety of corporate structures from which to choose. They may opt to work as a sole trader, form a partnership, incorporate a company and limit it by either shares or guarantee, or adopt a cooperative or mutual structure. GrainCorp is a company limited by shares. CBH is a cooperative, owned by its members. Both organisations are successful and profitable. And both, because they are not charities or not-for-profits, should therefore be treated identically.
There is a widespread but erroneous perception that CBH, because it is a cooperative, must be good, while GrainCorp, because it is a corporation, must be bad. But, as Senator Leyonhjelm has already pointed out in his contribution, this is simply not the case. Like any large business entity, CBH is more than capable of throwing its considerable weight around.
Ideally, Senator Leyonhjelm and I would prefer port access markets in Western Australia to be unregulated. However, if they are to be regulated, like cases must be treated alike. This is one of the most basic principles of the rule of law. Our disallowance motion prevents the Minister for Agriculture, Barnaby Joyce—who I see is present in the chamber—from exempting CBH from port access conditions that apply to GrainCorp and other bodies. Cooperatives are not deserving, Minister, of this special treatment.
Mr Acting Deputy President, companies are not deserving of special treatment. Cooperatives are not deserving of special treatment. Business entities formed with a view to making a profit are not deserving of special treatment. They should all be treated alike.