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COMMONWEALTH OF AUSTRALIA Official Committee Hansard SENATE STANDING COMMITTEE ON RURAL AND REGIONAL AFFAIRS AND TRANSPORT Reference: Wheat Export Marketing Bill 2008 and Wheat Export Marketing (Re- peal and Consequential Amendments) Bill 2008 [Exposure drafts] THURSDAY, 27 MARCH 2008 CANBERRA BY AUTHORITY OF THE SENATE

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STANDING COMMITTEE ON RURAL AND REGIONAL AFFAIRS AND TRANSPORT

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Page 1: Senate Committee Hansard

COMMONWEALTH OF AUSTRALIA

Official Committee Hansard

SENATE STANDING COMMITTEE ON RURAL AND REGIONAL AFFAIRS

AND TRANSPORT

Reference: Wheat Export Marketing Bill 2008 and Wheat Export Marketing (Re-peal and Consequential Amendments) Bill 2008 [Exposure drafts]

THURSDAY, 27 MARCH 2008

C A N B E R R A

BY AUTHORITY OF THE SENATE

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INTERNET

Hansard transcripts of public hearings are made available on the inter-net when authorised by the committee.

The internet address is:

http://www.aph.gov.au/hansard To search the parliamentary database, go to:

http://parlinfoweb.aph.gov.au

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SENATE STANDING COMMITTEE ON

RURAL AND REGIONAL AFFAIRS AND TRANSPORT

Thursday, 27 March 2008

Members: Senator Sterle (Chair), Senator Siewert (Deputy Chair), Senators Heffernan, Hur-ley, Hutchins, McGauran, Nash and O’Brien

Participating members: Senators Abetz, Adams, Allison, Barnett, Bernardi, Birmingham, Bishop, Boswell, Boyce, Brandis, Bob Brown, Carol Brown, Bushby, Campbell, Chapman, Colbeck, Coonan, Cormann, Crossin, Eggleston, Ellison, Fielding, Fierravanti-Wells, Fifield, Fisher, Forshaw, Hogg, Humphries, Johnston, Joyce, Kemp, Kirk, Lightfoot, Lundy, Ian Mac-donald, Sandy Macdonald, McEwen, McLucas, Marshall, Mason, Milne, Minchin, Moore, Nettle, Parry, Patterson, Payne, Polley, Ray, Ronaldson, Scullion, Stephens, Troeth, Trood, Watson, Webber and Wortley

Senators in attendance: Senators Adams, Fisher, Heffernan, Hurley, Hutchins, McGauran, Nash, O’Brien, Siewert and Sterle

Terms of reference for the inquiry: To inquire into and report on:

Wheat Export Marketing Bill 2008 and Wheat Export Marketing (Repeal and Consequential Amendments) Bill 2008 [Exposure drafts]

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WITNESSES

BARTOS, Mr Stephen Anthony, Director, Allen Consulting Group.................................. 1

CROSBY, Mr John Roger, Chairman, Wheat Industry Expert Group........................... 17

DRUM, Mr Patrick, Brocklesby Growers Group............................................................... 48

GOLLASCH, Mr Philip, Brocklesby Growers Group....................................................... 48

GREBE, Mr Sasha, Trade Advocacy and Government Relations Manager, AWB Ltd...1

GURSANSKY, Dr Benjamin Charles Gordon, Consultant, Grains Council of

Australia ................................................................................................................................. 64

HADLER, Mr Robert James, General Manager, Corporate Affairs, AWB Ltd............... 1

McDONNELL, Mr James William, Brocklesby Growers Group ..................................... 48

MORTIMER, Mr David Kenneth, Executive Manager, Food and Agriculture

Division, Department of Agriculture, Fisheries and Forestry ........................................... 17

OSBORNE, Mr Alick Stevenson, Director, Australian Grain Exporters Association ....57

PHILLIPS, Mr Russell, General Manager, Wheat, Sugar and Crops Branch, Department of Agriculture, Fisheries and Forestry ........................................................... 17

SHEALES, Dr Terence Charles, Chief Commodity Analyst and Manager,

Agriculture Branch, Australian Bureau of Agricultural and Resource Economics, Department of Agriculture, Fisheries and Forestry ........................................................... 17

SMITH, Mr Jamie Lachlan, Board Director, Policy Council, Grains Council of Australia ................................................................................................................................. 64

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Committee met at 9.00 am

BARTOS, Mr Stephen Anthony, Director, Allen Consulting Group

GREBE, Mr Sasha, Trade Advocacy and Government Relations Manager, AWB Ltd

HADLER, Mr Robert James, General Manager, Corporate Affairs, AWB Ltd

CHAIR (Senator Sterle)—I declare open this public hearing of the Senate Standing Committee on Rural and Regional Affairs and Transport. The committee is hearing evidence on its inquiry into the Wheat Export Marketing Bill 2008 and a related bill. I welcome you all here today. This is a public hearing, and a Hansard transcript of the proceedings is being made. Before the committee starts taking evidence, I remind all witnesses that in giving evidence to the committee they are protected by parliamentary privilege. It is unlawful for anyone to threaten or disadvantage a witness on account of evidence given to a committee, and such action may be treated by the Senate as a contempt. It is also a contempt to give false or misleading evidence to a committee.

The committee prefers all evidence to be given in public but, under the Senate’s resolutions, witnesses have the right to request to be heard in private session. It is important that witnesses give the committee notice if they intend to ask to give evidence in camera. If a witness objects to answering a question, the witness should state the ground upon which the objection is taken, and the committee will determine whether it will insist on an answer, having regard to the ground which is claimed. If the committee determines to insist on an answer, a witness may request that the answer be given in camera. Such a request may, of course, also be made at any other time.

I remind people in the hearing room to ensure that their mobile phones are either turned off or switched to silent mode. Finally, on behalf of the committee, I would like to thank all of those who have made submissions and sent representatives here today for their cooperation in this inquiry. I welcome representatives from AWB and the Allen Consulting Group. I invite you to make a brief opening statement and then the committee will ask questions.

Mr Hadler—We would like to thank the Senate committee for the opportunity to be here today. We did lodge a formal submission with the secretariat last night—you may not have seen that yet, but copies will be circulated. We will refer to some of that material today and we would be pleased to go into more detail on that in due course. Sasha Grebe and I are part of a new management team at AWB that has been there for less than 18 months. Our charter has been to rebuild the company following the oil for food program issues. Therefore, we are not closely aligned with what happened in the past and our focus is very strongly on making sure we have a good company going into the future. Mr Bartos is a consultant who has been commissioned by AWB to write two independent reports that are attached to our submission, one on fair access to storage and handling infrastructure in the grains industry and the other on an orderly transition of industry good services under the government’s proposed new wheat marketing arrangements.

AWB has publicly welcomed the early release of the draft bill. We think this is a good way of providing clarity about what the government is proposing and giving confidence to the grains industry about the process that we are going to go through over the next six months. The reality is that Australia’s wheat export marketing arrangements have fundamentally

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changed over the last 18 months and there is no longer a single desk in place. We have a hybrid set of arrangements, with a national pool that accommodates about 60 per cent of Australian wheat exports; there are bulk export permits that are given to a range of other exporters; and wheat exporting in bags and containers is deregulated. Therefore, there is effectively no single desk in place now. I think that is an important point to understand.

The accreditation scheme that is being proposed by the federal government we believe provides a good model to move forward. It is an evolution of the current arrangements. The South Australian accreditation scheme, which is what the federal model is built on, I think provides a very good example, a benchmark, of light-touch regulation of wheat export marketing. It fulfils all the good public policy principles of simplicity, transparency, neutrality and low cost. It was implemented in July and was fully running before the harvest last year. It was a very smooth implementation, and I think if we could achieve the same outcome with the federal legislation that would be a good outcome for the grains industry and for wheat growers.

If the accreditation scheme is not implemented, the reality is we will be left in a twilight zone of the arrangements I talked about before, where AWB will be required under legislation and its constitution to run a national pool but it will not have volume certainty because it will not have the bulk veto. There will be bulk permits, and wheat exports in bags and containers will be deregulated. That will be an extremely difficult operating environment for all players in the grains industry, so the default situation of not passing this legislation is not good.

We have had an opportunity to examine the draft bill in some detail and we have provided an attachment to our submission which identifies approximately 10 issues which we think are unintended consequences or potential compliance costs which this committee has the opportunity to fix before they become enacted in legislation. Briefly, and we can go back into these in more detail if the committee desires, the legislation provides very broad powers to the regulator to develop and implement regulations on the back of this legislation. On the basis of briefings by the regulator last week, there is a risk that we could eventually have a wheat industry ASIC and an attestation process that is very similar to the Sarbanes-Oxley process for banks in the US. I think we need to guard against that. It would not be consistent with the intent of the legislation and it would not be consistent with the South Australian benchmark of a light touch regulatory approach.

The legislation also proposes some potential breaches based on phytosanitary measures. We need to be quite clear about whether that is foreign laws that we need to be careful about or laws set by AQIS. Potentially we are handing power over to foreign governments to influence how Australia’s wheat export legislation is enacted.

We believe there is a need for greater detail in the legislation about the terms and conditions of fair access to bulk storage and handling infrastructure. There is a focus on price in the legislation. There also needs to be an emphasis on non-price conditions, because that is in effect where anticompetitive behaviour can be quite explicit. We also think that the legislation is a bit narrow in focusing just on port facilities. The reality is that the bulk handlers operate very integrated storage and handling processes with up-country silos and port facilities providing an integrated storage and handling system. They can influence competition up-country as well as at port.

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Under the legislation, there are provisions for any person to appeal a decision. That is a dangerous precedent. I think, in principle, the legislation should limit the ability to appeal to applicants who are refused accreditation. If anyone—including competitors—is able to appeal, you could be placed in a very difficult position.

The term ‘export’ is not actually defined in the legislation. That could create a legal minefield with a regulator about whether it is actually a sales agreement or whether it is wheat on board a ship. So there are some details there that need to be worked out.

The only other material issue at this stage, I think, is that there are unreasonably onerous reporting obligations. Under the draft regulations, companies would have to report to Wheat Exports Australia within 14 days of any possible breach that could revoke their accreditation. I think it is too broad a requirement. It needs to be referred back to the specifics of the legislation on the accreditation criteria and I think the time period also needs to be lengthened.

They are some of the unintended consequences and compliance issues that we have identified in our brief analysis.

We have attached to our submission the Allen Consulting Group report on bulk handling. I think there are a lot of misconceptions in the grains industry and amongst regulators about the actual state of affairs; this report provides a very good analysis of the current situation. Basically, the three bulk-handling companies in Australia have natural regional monopolies. Without the countervailing pressure of the single desk, they will be able to leverage that monopoly power. To give you some idea of the magnitude of their power, over 600 up-country silos and nine ports are owned and controlled by those three bulk-handling companies. AWB has 22 up-country silos and half-ownership of one port in Melbourne. That gives you some idea of the potential mismatch between the bulk-handling companies, with their entrenched power, and other traders—not just AWB but also other traders—who do not have access to storage and handling facilities and ports. So I think the fair access provisions proposed in the bill are essential.

Finally, the second paper by the Allen Consulting Group provides some suggestions for an orderly transition of industry good services. Under the old arrangements, AWB provided a range of services that were largely funded out of grower money, out of the pool, and they included things such as wheat classification, industry information, delivery standards and strategy development for the industry. The paper that the Allen Consulting Group prepared adopts a very hard-nosed economic analysis of where there is market failure in the delivery of those services if they were not provided by AWB, and it concludes that there are probably only three areas where there is potential market failure where other existing players in the grains industry could manage those services.

Wheat classification is one of those areas, and we have been in discussions with the GRDC, the Grains Research and Development Corporation, about taking over those services as part of an orderly transition. The second area is delivery standards of wheat at silo. NACMA, which is an industry association, has started work on industry generic delivery standards, and we think that is probably the right organisation—with appropriate input from grain growers themselves—to develop that sort of information. Lastly, there is a gap in the provision of information about stocks and trade in wheat. We believe that the ABS and Wheat

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Exports Australia as it is proposed, in combination, would be able to fill that information gap. The ABS has the constitutional powers to collect the information. It would require additional budget funds to do that, but I think that there is a clear-cut case of market failure where the government could provide appropriate support to the industry.

CHAIR—Mr Bartos, do you wish to add any comment?

Mr Bartos—No. I am very happy to simply respond.

CHAIR—Thank you.

Senator HEFFERNAN—Do you think that under the new legislation Australia’s wheat growers will be better off than they were under the old?

Mr Hadler—There are potential benefits for wheat growers under the new arrangements. In theory, that derives from two drivers. By providing greater choice to wheat growers on who markets their wheat, potentially you will see innovation and competition in the marketing of wheat. The second area where, in theory, there might be improved benefits from competition in storage and handling is in driving down the costs of storage and handling. As I said, that is in theory. Particularly in the area of storage and handling costs, it would depend on fair access.

Senator HEFFERNAN—Is that based on extending the port arrangements to the point of delivery?

Mr Hadler—Correct.

Senator HEFFERNAN—Do you think there is a greater risk of regional monopoly rather than collusion at the point of delivery?

Mr Hadler—Yes, I do. There are natural regional monopolies. CBH in WA basically controls the storage and handling infrastructure there. It is a long way from there to the domestic market on the east coast and they effectively have a natural regional monopoly. On the southern coast of Australia, ABB in South Australia has an established regional monopoly, and GrainCorp on the east coast has an established regional monopoly.

Senator HEFFERNAN—So your report from Mr Bartos addresses those issues.

Mr Hadler—It does.

Senator HEFFERNAN—This is a fairly emotional debate for a lot of people. Apparently there was a fair bit of emotion here yesterday. Do you think that the buyer of last resort is a thing that is fixed in people’s minds? I actually think that the buyer of last resort had some upsides and some downsides. The serious downside was that AWB Ltd, as you know, could cash-accumulate and then dump it into the pool to get rid of it, which they did. I promised Sasha I would not go through the Geneva desk rubbish today.

Senator ADAMS—Not like you did yesterday.

Senator HEFFERNAN—That was only a bit of a tickle-up yesterday. There is no decent explanation for some of that, I can tell you. Do you think there is any legitimacy to the buyer of last resort?

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Mr Hadler—I think it is a bit of a red herring, to be honest. The reality is that there is no buyer of last resort. Under the current legislation and the arrangements managed by AWB, if wheat does not meet delivery standards we do not have to accept it. That wheat is then usually discounted into the domestic market or other markets as feed wheat at a lower price or it cannot be sold, because it does not meet anyone’s quality standards.

Senator SIEWERT—Who normally does that? Who does the discounting and how does that happen?

Senator HEFFERNAN—The market.

Mr Hadler—The domestic market is deregulated, so it just happens through other traders and customers.

Senator SIEWERT—What we heard yesterday was that we have had the single desk, it has been the buyer of last resort and that if wheat is shot or sprung we have always been able to put it in the pool. So what you are saying is that, no, that has not happened; it goes into the domestic pool.

Senator HEFFERNAN—That is not quite an accurate interpretation of how it really works at the bridge. For shot and sprung wheat, sure, there will be grade set up through the accumulators, whether it is GrainCorp, AWB or whoever under the present arrangements. But generally the better buyer is the local domestic buyer.

Senator SIEWERT—That is what I am trying to work out. We have to get to the bottom of this. Are they actually the buyer of last resort? What has happened in real life, as opposed to what people wish would happen?

Mr Hadler—I think what happens in real life is that wheat growers have their cake and eat it too. What I mean by that is that they try and get a higher price on the domestic market, particularly pre-Christmas, when wheat prices spike because of the lack of supply, and then they try to stick some of it into the pool to hedge their bets. That is how it works in practice.

Senator SIEWERT—And that has been accepted?

Senator ADAMS—In the eastern states.

Mr Hadler—In the eastern states, yes.

Senator HEFFERNAN—Where there is a domestic market, yes.

Mr Hadler—There is not as big a domestic market in the west.

Senator HEFFERNAN—But obviously, under the present arrangements, financial instruments have a big place, and a lot of people get burnt by experience that they could do without in that process. Under the buyer of last resort system, I thought it was a curious security blanket for the industry if they understood that you, AWB—and I am still hopeful that some of your AWB blokes are going to go to jail—

Senator McGAURAN—I raise a point of order on that last comment.

Senator HEFFERNAN—What? That is what I think.

Senator McGAURAN—Well, it is out of order.

Senator HEFFERNAN—I do not think it is out of order.

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Senator McGAURAN—It is a slur on those at the table.

Senator HEFFERNAN—No, it is not. This is the new brigade here.

Senator McGAURAN—Whatever the reference was, I take it as such, and I appeal to the chair.

Senator HEFFERNAN—Don’t be a sook!

Senator McGAURAN—I appeal to the chair.

CHAIR—Senators, I must admit that I was talking to another committee member, and I missed that.

Senator HEFFERNAN—This is the new brigade here.

CHAIR—Senator Heffernan, carry on.

Senator McGAURAN—Don’t tell me what my point of order is!

Senator HEFFERNAN—Don’t be a sook! Under the buyer of last resort arrangements, it is a fact that AWB Ltd, as opposed to the pool, could buy wheat in the cash market and then, if they needed to, they could sell it to the buyer of last resort—that is, back to the growers. That is a fact, isn’t it?

Mr Hadler—That is a fact.

Senator HEFFERNAN—And then, of course, if it suited AWB Ltd they could buy grain from the pool, which they did to the tune of whatever it was—2.9 million tonnes—and sell it through the Geneva desk.

Mr Hadler—That is technically correct, but the motive in that is to maximise returns to growers under the legislation and the constitution.

Senator HEFFERNAN—I hear all that, but I do not see the truth of that, I have to say. As you know, the Wheat Export Authority are a bunch of pansies and could not provide any supervision of that. Obviously, in this last harvest, AWB closed the pool off before the southern harvest had commenced. We had talked about this before. Why was that?

Mr Hadler—I am not sure that is quite correct. What happened was that AWB, because of the changed regulatory arrangements with bulk permits and deregulation of bags and containers, announced prior to harvest that it would not have any guaranteed access dates. In past years, AWB has published a date when the pool delivery would close in each port zone. The way the wheat harvest works is that, because of climatic conditions and the way the seasonal conditions work, the wheat harvest usually starts in Queensland, sometimes as early as late July to mid August. It goes down and around the country, and usually the last places to complete harvest are in south-west WA, around Albany. While we said that we would not give anyone the clarity of having a published access date—because we did not want to give competitors a free ride of dumping into the pool, as Senator Heffernan has talked about—we gave a commitment that we would not close the pool until harvest had finished in each port zone. So what we did was to progressively close the pool in each port zone as harvest was largely or fully completed. That gave all wheat growers an opportunity to deliver to the pool.

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Senator HEFFERNAN—Can I just say that in practice—by the way, I have to declare an interest—

Senator McGAURAN—This is not relevant.

Senator HEFFERNAN—It is very relevant; you would not know, Senator McGauran, because you do not grow wheat. But at the bridge at Junee, when that happened, the price of wheat dropped $30 a tonne overnight. That is what worries me. I am confident that, if we think through this legislation, Australia’s wheat growers could be better off as long as we provide things like the port to the point of delivery and we somehow monitor collusion. You say, Mr Hadler, that anyone can appeal. Who can they appeal to?

Mr Hadler—The companies act and the Trade Practices Act, I think, provide sufficient protection for wheat growers from market power, but the grains industry itself could—

Senator HEFFERNAN—I would have to say—thinking of the Woolies and Coles thing—that I am not too sure about that. Bear in mind that the courts and the law system are not about the truth; they are about the law. The more you extend the law, the more you delay the process.

CHAIR—Senator Heffernan, you are probably wasting your valuable time.

Mr Hadler—Just to finish that comment, Senator Heffernan, I think that the grains industry and the legislation, in combination, could provide sufficient grower protection. What do I mean by that? I think NACMA, as an industry group, is looking at standard industry contracts, and that could be a good way, through a voluntary code of practice, of providing industry support for greater transparency on estimated silo returns and how growers are treated at silo.

Senator HEFFERNAN—Under the present arrangements where 20 per cent of the growers grow 80 per cent of the wheat—it is probably higher now—some of those growers actually want to get into the export thing themselves. Would it be fair to say that one of the great dangers to the wider wheat industry in Australia would be the management of the quality of that farm storage? Already in New South Wales—I will not name the storage facility—there is a huge weevil outbreak in one facility of the majors. Would you see some dangers in supervising farm delivered exported wheat? There could be anything from weevils to God knows what.

Mr Hadler—There are clearly some risks, but I think the reality is that the market provides a very good protection of quality. At the end of the day customers will send a clear price signal to those people who cannot deliver a quality product. That will provide a blowtorch to wheat marketers to ensure they manage the storage and handling system a lot better than they have in the past. As you are aware, the current storage and handling system is a black box. There is no transparency about it, there are no rules.

Senator HEFFERNAN—It is called commercial-in-confidence.

Mr Hadler—The more that we expose those current arrangements to greater transparency and greater market pressure the better the outcomes for wheat growers.

Senator HEFFERNAN—This is my final question: in your submission—and I have not read it if it was delivered overnight—have you made some recommendations to instruct both

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this committee and the government on betterment of the legislation to give a brighter future to Australia’s wheat growers?

Mr Hadler—Yes, we have.

Senator HURLEY—You mentioned briefly the ABS providing more information. I want to follow up on that. I have been told that in the US, because of a previous marketing disaster, information is published about crop sizes and wheat sales. Is that something you envisage seeing happening here? There has been some discussion that people will not disclose that information because it is commercial-in-confidence.

Mr Hadler—There are some gaps in the provision of industry data at the moment, notably around stocks. The ABS has tried to publish information about stocks but it is not very comprehensive. It is a national database. To be more relevant to the grains industry it needs to be broken down into port zone, because that is where all the action will happen under an accreditation system. The information that will be important to the market, which will be in part commercial-in-confidence but can be protected when it is aggregated up through the ABS, is information about where the stocks are in the storage and handling system and some of the shipping stem information around where the trade flows are going, and how much and who to. That will provide significant transparency improvements on what is there at the moment.

Mr Grebe—On that, one of the things that we need to bear in mind here is a principle that you want timely information. It is not so much the collating. A lot of what is collected in the US is probably too detailed. What we are looking for here is clear signals to the market. We want the information provided in a timely manner so people have access to it and it is useful in a commercial way.

Senator HURLEY—Will this be essential for good marketing operations?

Mr Hadler—Yes, we would see continued information flow as an industry good service. It would naturally be provided in this instance by the ABS because of the market failure aspects of that information.

Senator HURLEY—So AWB would not have any problem with disclosing what stocks it held and where its markets were?

Mr Hadler—No, we would be committed to providing it on a commercial-in-confidence basis to the ABS, and they would aggregate it up so that it would be industry information. AWB, as part of the current arrangements, has probably had the most onerous and explicit reporting requirements of any company in the grains industry. For us it is not a big leap of faith to go to a new system, as has been proposed.

Senator HURLEY—I have a question about the kinds of safeguards that are around about company information and the WEA having the ability to look at company records. You were saying that that may well be too onerous and that the WEA does not need to know that degree of detail. Could you expand on that a bit more?

Mr Hadler—The legislation basically gives carte blanche to the current Export Wheat Commission to determine all the regulations for how the system will work in practice around accreditation and revocation of accreditation. In briefings last week, members of the Export

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Wheat Commission outlined a range of proposals which would require significant compliance costs by a company up front to prove accreditation as a fit and proper person and ongoing compliance requirements in providing information to the new Wheat Exports Australia, as its successor, to prevent a breach and a revocation of accreditation. The proposals are significantly more detailed and onerous than the processes under the light touch regulatory model in South Australia. I think that this committee needs to have a look at the difference between the South Australian model and the potential model that could be put in place by the Export Wheat Commission under the new accreditation legislation. Some of the detail we provide in our submission outlines some of the potential risks and costs associated with that.

Senator O’BRIEN—Can you identify the parts of the bill rather than the regulatory model which is proposed to devolve from the bill that you say leads to that, or alternatively are you saying that that is the interpretation of the bill by the officers?

Mr Hadler—It is the interpretation of the bill in subsequent regulation. I think the intent of the bill is quite light touch but there is the potential for that to be unwound through regulatory development.

Senator ADAMS—A number of those companies that are already accredited in South Australia will be the same companies that will be applying for a market.

Mr Hadler—That is correct. There are now 10 accredited exporters under the South Australian barley accreditation scheme. That has been implemented very smoothly and without incident.

Senator NASH—How do you think pools are going to operate in the new environment?

Mr Hadler—I think there will be innovation, and I think there will be more pools—they could be regional pools or product pools. The cash market will play a bigger role. It is yet to be seen how the competitive forces will play out but I suspect there will be innovation and some of the complexities and costs built into the current system will disappear.

Senator NASH—I note that you said earlier that we will not have volume certainty with pools. One of the things that AWB said over the years is how important it is that they knew what the stocks were so they could run the pools appropriately. I gather from what you are saying that innovation will mean a different way of doing things, given that in a lot of instances there will not be that volume certainty for traders.

Mr Hadler—That is correct. The reality is that under the old single desk arrangements AWB built a Mercedes model of national pooling. It was a very high cost model and it had all the bells and whistles. Quite frankly, that was unsustainable, and growers started to complain about the cost of it, particularly in drought years, which we have had in the last two years, and we had to significantly cut back on the cost. The only way that you can manage that high-cost model is with volume certainty. In an accreditation system where there is competition you will skinny down and you will end up with a Holden model of pooling. It will do the job that wheat growers need.

Senator NASH—I think there are a lot of growers out there who would prefer the Merc! You were talking about the ABS statistics around the information on stocks, I think. Given that there is going to be potentially such a large amount of on-farm storage, how will there be

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any certainty that the statistics the ABS come up with are actually correct when that will have to be taken into account as well?

Mr Hadler—I am not underestimating the transitional issues, and I think we will need to look closely at how the government and the industry manage that issue. There is no doubt that on-farm storage is becoming a much bigger part of the market, particularly on the east coast, where domestic industry play a much bigger role as direct customers with wheat growers. So I think we will need to work through that, but I do not see that as a material impediment to this legislation.

Mr Grebe—Just on that, I think one of the areas that we are pushing about that disclosure and that knowledge of information is less from a recording or a data analysis perspective but more about ensuring that everybody has access to the same information. In terms of what the ABS will be looking at: for example, currently the bulk-handling companies will know what you have delivered into the system, what I have delivered and what every individual has put in. In the past, they have been unable to commercialise that. Moving forward, if they should gain accreditation, they will have access to that consolidated knowledge in a way that individuals do not. So what we have identified and what the Allen Consulting Group report has picked up on is that potential conflict or unfair advantage that they will have.

Senator NASH—The unfair advantage that will come from the information.

Mr Grebe—So when we talk about this data collection it is not to then do a report a year later to say, ‘This is what happened’; it is to ensure that they are not able to cherry pick or have an unfair advantage of knowledge to commercialise.

Senator NASH—You mentioned the receival sites in your opening remarks, too. Just backtracking, I have the same concerns you do about access to the port facilities. I think that absolutely would have to be nailed down. I asked the EWC yesterday and also GrainCorp—so that can’t be named!—what appropriate access is. Currently, looking at the legislation at the moment, the Export Wheat Commission had no idea. This, to me, is absolutely vitally important. What is appropriate access at the port facilities for other traders so that this competition that everyone says will work—which I sincerely doubt—has an ability to actually work?

Mr Hadler—We cover that in some detail in our submission. I suggest that Mr Bartos quickly answer that for you. He has done the work.

Senator NASH—I am happy to leave it to the submission if you just want to do that.

Mr Bartos—That is an excellent question because, although there is in general a consensus that access is needed, what exactly does that mean in practice? That is the heart of your question. Our report goes into that in quite some depth. It is probably different at different parts of the supply chain, whether it is at up-country receival sites, the transport or the port facilities. With the ports, there are actually access regimes in place at the moment. Taking for example the Western Australian one, which is legislated in the west, one of the interesting things about that is that the terms and conditions of access are not actually stated in the legislation. It has not arisen as a policy issue to date, I suppose because AWB has been the exporter. It will arise in the new market.

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What kinds of access regime would you put in place? We go through that in our report, and we suggest that some of the models would include basing it on the voluntary undertakings that have been put in place in Victoria and South Australia in particular for the handlers, the South Australian system being a good model. Voluntary undertakings under the Trade Practices Act are, in a sense, a slightly weak instrument, but they are enforceable in the courts—they are disclosable—so that provides a basis. But the other thing that is really crucial is not simply the physical access but also this whole question of information that is held, particularly at ports, in relation to arrivals and departures of ships and their location with respect to the grain. That information is absolutely critical, and we are suggesting in this report that the solution there is a much better regime of transparency about that information, including regular publication, at least weekly, of some of that key information. There is quite a considerable section in this report, to which I would refer you, to explain that in more depth.

Senator NASH—Chair, I do have a lot more questions, and I will come back to them if there is more time at the end, but I am happy just to ask one more quickly now. In terms of access, there is all the focus on the port facility, but I also have concerns about access at the receival sites and how that is going to operate, which I think is going to be a key part of all of it. Can you run me through the numbers of receival sites again.

Mr Hadler—There are more than 600 receival sites up country that are owned and controlled by the three bulk-handling companies, and 22 by AWB.

Senator NASH—What are the current arrangements at, say, a GrainCorp receival site for other traders to come in and use that site? What are the current access arrangements?

Mr Hadler—Under the current access arrangements, AWB posts a price at the receival site and growers have the opportunity to deliver to AWB at that receival site or to deliver to the bulk handler.

Senator NASH—Is that by agreement, though? And does that work in reverse for the AWB site?

Mr Hadler—Yes; and, yes, it is by agreement. But I would have to say that the agreements have not worked very well under the current regime.

Senator NASH—What concerns me is that there is nothing I can see in the legislation to provide for any kind of guarantee for these other traders—who are going to provide the competition—of ongoing access to all of those receival sites that are currently held by the grain handlers.

Mr Hadler—That is correct. One of the key principles of this bill is to provide that freer access, and there is probably a need to look at that in more detail.

Senator NASH—But am I right that in the current legislation there is no provision at all for any kind of access guarantee at the receival sites?

Mr Hadler—That is correct.

Senator NASH—Thanks, Chair.

CHAIR—Senator Nash, once again you have got me—I fell for it again: one became five. Senator Siewert.

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Senator SIEWERT—Senator Nash has just covered part of what I want to cover about the receival points. We have not got your submission yet, so if you have covered this in your submission I apologise. In your report, Mr Bartos, you make some important points about infrastructure. Do you think the legislation should be amended to cover the receival points?

Mr Hadler—Yes, we do.

Senator SIEWERT—So, requirements for access provisions at receival points. What about transport infrastructure? You go into that as well; I think it is conclusion 2 that talks about infrastructure. My understanding from what you say in your report is that you do not class that as being as important as some of the other infrastructure. Is that correct?

Mr Bartos—Only in the sense that the rail transport has a substitute in road. It is not a perfect substitute. In economic terms, there will be an element of monopoly rent that control of the rail infrastructure will allow people to extract, up to a limit, at which point it is economic for road to substitute. So there is at least that possibility of substitution. But there are concerns and we have raised them in our report. For example, in Western Australia, there are reports we received during the course of our project that CBH might have an exclusive rail haulage agreement and also own the ports and also own the up-country receival sites. That means it would control every aspect of the supply chain, which might give rise to concerns about competition in the west.

Senator SIEWERT—So you have said, yes, you think the legislation should be amended for receival points. Should there be something in the legislation around transport infrastructure?

Mr Hadler—Yes. We make a specific recommendation in our submission, based on the work done by the Allen Consulting Group, that the legislation should look at prohibiting vertical integration right throughout the storage and handling supply chain. That is clearly an issue that the ACCC will need to keep a close look at.

Senator O’BRIEN—If I can jump in there, how do you use this legislation to regulate the transport sector when the transport sector is not owned by the infrastructure owner? That is a pretty basic question. The legislation is only going to regulate those who seek accreditation. The operators of the railways will not be doing that.

Mr Hadler—That is a good point. It is only in consideration where an accredited company under this legislation seeks to have an exclusive rail agreement that provides vertical monopoly dominance. If this legislation cannot cover it then I think the ACCC clearly needs to have a greater look at it.

Senator O’BRIEN—Under current legislation?

Mr Hadler—Yes.

Senator ADAMS—I would like to make a comment on that. I think when we go to Western Australia the committee will be hearing from CBH about their new solution called ‘grain express’. Certainly, the paper I have here in front of me does spell out a lot of the concerns that people have. I will not pre-empt what they are going to say in Western Australia, but they have certainly come up with some very good ideas as to how they can be fair with access at receival sites and at the ports.

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Mr Hadler—AWB has not seen full detail of the proposed grain express model and how it might work. We are only responding here to industry information. If greater information comes out that dispels concerns about those issues then that would be an important development.

Senator SIEWERT—I want to touch on a couple of the issues that you have mentioned. I am sorry we have not got the submission yet. There are a number of points that you have mentioned, and I want to take them further because we are trying to see whether this legislation is adequate or not. You talk about transparency and publication of information; that comes up in a number of submissions and you have touched on it again. Do you believe that the legislation goes far enough, or are there changes to the legislation that are needed to deal with the issues that you have raised about transparency and access to information?

Mr Hadler—As a whole, I think the legislation is necessary and appropriate, but it may not be sufficient in some areas. Our submission identifies some potential gaps, particularly around bulk-handling information, information at port and the industry good services. There are some areas that are not sufficiently covered at the moment.

Senator SIEWERT—Our job is to look at the legislation to see whether it is adequate or whether there are gaps or unintended consequences. What you are saying, if I understand correctly, is that you do think there are amendments that are needed to the legislation to deal with this issue around information accessibility.

Mr Hadler—Correct.

Senator SIEWERT—You spoke about the ABS and the WEA having ultimate responsibility for provision of information. You are saying that ABS should be the collection point, whereas the WEA should be the body responsible for ensuring that the information is accessible and transparent.

Mr Grebe—And timely.

Senator SIEWERT—Yes, and timely. That is a good point—it is no good getting the information six or 12 months down the track.

Mr Hadler—That is correct.

Mr Grebe—In our submission we recommend that this information be posted daily for receival or weekly for shipping stem. But it has to be in such a way that you can make a commercial decision around it—proactively rather than after.

Mr Hadler—We apologise for the late delivery of the submission. As you can see it is quite comprehensive, and it did take some time to pull the detailed analysis together. We apologise that you could not get it before this morning. We would be pleased to answer any other questions at a later date.

CHAIR—We are scheduled to be back in Canberra on 22 April. Senators may wish to read the submission and we may call you back on that day.

Mr Hadler—We would be pleased to do that.

Senator SIEWERT—It would be an excellent idea to have you back on the 22nd. There is a lot of detail here—you have supplied substantive information, which I think is very useful.

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The growers put on notice to us a series of questions yesterday, and I would like to be cheeky enough to hand them over to you. Rather than taking up time—I know we have only 10 minutes left—I am wondering whether you could look at, in particular, the Queensland growers’ questions. They actually gave us a list of unanswered questions on notice, and now I want to chuck them back to you and get your opinion as well. Could you look at those and give us some feedback? That would be very much appreciated.

Mr Hadler—We would be pleased to do that.

Senator McGAURAN—From yesterday’s hearings and from your own submission, it is quite clear that this legislation is going to spin on access—its success or failure will depend on access to the ports for open and fair competition for the benefit of the growers. We all agree on that. Is it possible for investment at the ports for storage? Is there room for new players? Is there anything in your own business plans for that?

Mr Hadler—I think the reality is that we have a surplus of storage and handling infrastructure. What we really need is better access to the existing infrastructure. There is a lot of capital tied up in the current industry—probably too much given the structural changes in the industry. And the existing storage is not in the right place. There might be some scope for new investment in new infrastructure in some areas, but in overall terms we have more than sufficient infrastructure and the key issue is fair access to that infrastructure.

Senator McGAURAN—So AWB does not have its own plans to invest in infrastructure?

Mr Hadler—Not at this stage. If we were precluded from fair access then a contingency plan would be to look at establishing our own port infrastructure if that was allowed by state governments. This is an important point for the committee to understand: dual infrastructure is currently prohibited in practice if not under law at a state government level.

Senator McGAURAN—What is?

Mr Hadler—Dual port infrastructure.

Senator McGAURAN—That sounds anticompetitive.

Mr Hadler—In practice they are also discouraging road competition to rail, either through policy or through legislation.

Senator McGAURAN—What does the competition policy say about that? That is something we have not drilled down to, obviously.

Mr Hadler—It is an issue that I think the committee should look at.

Senator McGAURAN—Indeed. Nevertheless, in this transitional period your own company has made significant steps to prepare for the new competitive world. If this new legislation were stopped in the Senate, would you be capable of reverting to being the sole exporter, creating a pool?

Mr Hadler—I think the genie is out of the bottle; I do not think we can put it back in.

Senator McGAURAN—You are not capable, or you do not want to?

Mr Hadler—I think it is not commercially feasible for AWB to go back to the old arrangements. Let us remember the default set of conditions is a national pool—not a single

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desk—with bulk permits and deregulated bags and containers. It would not be commercially feasible to manage under those arrangements.

Mr Grebe—What you are reverting to, Senator, is the 2007 Wheat Marketing Amendment Bill, where the veto will transfer from the minister to the regulator, but there have not been additional legislative measures introduced that would spell out how the regulator would apply that veto, and that is the missing part of the picture at the moment.

Senator ADAMS—I would like to pick up on that. You spoke about the default position. It is very important; I do not think a lot of people understand what happens on 30 June if this legislation does not go through. Would you like to expand a little on what you said before?

Mr Grebe—The original 2006 Wheat Marketing Amendment Bill and then the 2007 Wheat Marketing Amendment Bill temporarily transferred the bulk of veto powers to the minister with a sunset clause. Subsequent amendments moved to the 2007 amendment bill mean that the veto cannot return to AWB—it either goes to a new entity, which was foreshadowed by the previous government, or it returns to the regulator, to the authority. What was always intended under the previous government’s policy is that there would be additional legislation required in 2008 to give effect to those policy directions, and part of that would then have been the conditions under which the regulator would have approved permits. At the time it was stipulated that they would be things like the lockout of a market and the development of a new market. That additional certainty, which we state is missing at the moment, was always going to be required if we were to default back. It is an incomplete set of arrangements.

Mr Hadler—It is also important to understand that under that default scenario there would be no probity or governance requirements for the issuing of permits. It would be a very incomplete set of arrangements.

Senator ADAMS—Thank you. You spoke about the risk of the wheat industry forming an ASIC group. Would you like to expand on that?

Mr Hadler—As I said before, the current bill provides a lot of scope for the current regulator, the Export Wheat Commission, to develop the regulations and the processes for accreditation and revocation. On the basis of a presentation to the grains industry last week by the EWC, there is potential for a heavy handed approach to regulation to be developed by the regulator, which would be inconsistent with the light touch intent of the legislation.

Senator ADAMS—Something that arose yesterday and seems to be a big problem is the fact that, with a deregulated market and accredited marketers, Australian wheat may be being bartered by two companies dealing with the same buyer and pushing the price down. Could you give us some examples of that?

Mr Hadler—That can happen under the current arrangements. With the regulation of bags and containers, and bulk export permits, wheat can go out in competition with wheat marketed by the pool. I think it is a bit of a furphy—the potential is there for it to already happen. At the end of the day good quality wheat and the best commercial offer for growers will be the order of the day.

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Senator ADAMS—Are you putting forward a submission to the Wheat Industry Expert Group?

Mr Hadler—Yes, we have submitted to the expert panel the Allen Consulting Group report on the industry good services. We know that it is not a specific issue for this committee, but we have attached that report for the consideration of this committee as well, because of the overlap. I will ask Mr Bartos to briefly touch base on his report on that issue, if we have time.

CHAIR—We have two minutes left, Mr Bartos.

Mr Bartos—In that case I will just note that we cover all of the industry good services that are currently provided and look at the rationale for each—whether there is a market failure or not for each of those—and analyse them in depth. I refer you to that, and I would be happy if the committee secretariat wants to ask questions about it offline.

Mr Grebe—One of the other things the report touches on is future industry good services, and that is where we touch on information access. Some of these were applicable under the old arrangements, but under new arrangements we will need to look at other things.

Senator FISHER—Mr Hadler, you have expressed your view that the accreditation and revocation requirements of the bill are intended to be a light touch to replicate the South Australian barley model but in effect they can be interpreted and in your view are likely to be a more heavy touch. Mr Woods gave evidence yesterday—we do not have the Hansard, so I may not be quoting him correctly—and my notes say that he said the accreditation and reporting requirements body will not be monitoring what individual exporters will be doing, like AWB currently does. That is somewhat at odds with your prediction. Do you have a comment on that?

Mr Hadler—I might ask Mr Grebe to comment on the briefing provided by EWC last week. He attended that briefing, so he will be able to give you a better idea of the potential risk that we are talking about.

Mr Grebe—One of the risks here is that in South Australia there is a very general test that is applied quite subjectively by ESCOSA about whether you are a fit and proper person. One of the risks is that, the more specifics that are included in the legislation, the more compliance and technical breaches will occur. What is unclear at the moment in this legislation is which way it wants to go. I think to be a light-touch regulatory approach it would potentially need to just rely on broader principles. I think that at the moment there is uncertainty within the industry and within the regulator in particular about what exactly their role is, particularly around things like the monitoring and investigative role—that is, whether they are simply there to give initial approval and then, beyond that, it is up to each individual company as to how they then conduct their business. Certainly at the moment it is not clear whether they have that ongoing investigative or monitoring role or it is simply an initial approval process.

Senator FISHER—Thank you, Messrs Hadler and Grebe.

CHAIR—Mr Hadler, Mr Grebe and Mr Bartos: thank you very much.

Proceedings suspended from 10.01 am to 10.14 am

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MORTIMER, Mr David Kenneth, Executive Manager, Food and Agriculture Division, Department of Agriculture, Fisheries and Forestry

PHILLIPS, Mr Russell, General Manager, Wheat, Sugar and Crops Branch, Department of Agriculture, Fisheries and Forestry

SHEALES, Dr Terence Charles, Chief Commodity Analyst and Manager, Agriculture Branch, Australian Bureau of Agricultural and Resource Economics, Department of Agriculture, Fisheries and Forestry

CROSBY, Mr John Roger, Chairman, Wheat Industry Expert Group

CHAIR—I now welcome officers of the Department of Agriculture, Fisheries and Forestry and the representative of the Wheat Industry Expert Group. I remind senators that the Senate has resolved that an officer of a department of the Commonwealth or of a state shall not be asked to give opinions on matters of policy and shall be given a reasonable opportunity to refer questions asked of the officer to superior officers or to a minister. This resolution prohibits only questions asking for opinions on matters of policy and does not preclude questions asking for explanations of policies or factual questions about when and how policies were adopted. Officers of the department are also reminded that any claim that it would be contrary to the public interest to answer a question must be made by a minister and should be accompanied by a statement setting out the basis for the claim. Does anyone wish to make a brief opening statement before we go to questions?

Mr Phillips—During the recent election campaign the government detailed its wheat-marketing policy in the document Australian wheat export marketing and summarised it again in the document Labor’s plan for primary industries. I have copies here if you would like them. The main objectives of the policy as detailed in Australian wheat export marketing, page 8, include greater selling options for growers, more cost efficient marketing services, additional transparency of price and cost information, long-term transition of industry development functions to industry control, reduced risk compared with a single buyer, and the opening up of new markets for the sale of Australian wheat. The policy sets out the main components for implementing these new arrangements, such as the accreditation scheme.

The department is now implementing the government’s policy. This includes preparing the necessary legislation, providing advice to the government as needed, liaising with stakeholders on the development and operation of the new arrangements and managing the machinery-of-government issues associated with all legislation. We are managing the process to meet a 1 July 2008 commencement date for the new arrangements. The key steps in that process from here on are the public comment period on the exposure draft of the legislation, and that period closes on 3 April; this Senate inquiry; finalisation of the report by the industry expert group, chaired by Mr Crosby, on the delivery of industry development functions under the new arrangements; consultation with industry over details of the accreditation scheme, which is to be a legislative instrument under the proposed act; selection of members for appointment to the new regulator, Wheat Exports Australia; refinement of the draft legislation in the light of comments received on the exposure drafts; and the introduction of the bills into parliament during the winter sitting period.

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The draft bills, which are available on the department’s website, specify the key elements of the proposed arrangements and include the creation and composition of the new regulator, Wheat Exports Australia; the powers for Wheat Exports Australia to make the accreditation scheme; the power for Wheat Exports Australia to grant, suspend and revoke an accreditation; the power for Wheat Exports Australia to place conditions on an accreditation, including some mandatory requirements; the power for Wheat Exports Australia to audit an accredited exporter at any time; the power for Wheat Exports Australia to demand information from accredited exporters; the exemptions from requiring accreditation for the first three months of the new arrangements—that is, up until the end of September this year; the power for the minister to direct Wheat Exports Australia to undertake an investigation into a matter that he or she considers necessary; the requirement for port terminal operators to provide access to their port terminal facilities if they wish to become an accredited exporter; the requirement for Wheat Exports Australia to report to growers and the minister on the operation of the scheme; and the penalties that will apply for breaching the legislation. That concludes our opening statement.

CHAIR—Thank you, Mr Phillips.

Senator ADAMS—Firstly, there has been quite a lot of comment as we go through on access, of which you would probably be aware. It is not so much the access to ports as the access to inland terminals and the problems associated with that—that is, they are owned by the three major players rather than by other private organisations. Could you comment on that? I have to be careful, because we cannot ask policy questions, but, as far as the department and the legislation go, it really does not spell out this. Would anyone be able to comment on that?

Mr Phillips—What the legislation does is reflect an access requirement for where there are perceived to be bottlenecks in infrastructure. In the case of the up-country storage and also the up-country transport, they were not seen as being the same bottlenecks in the system that may be able to lead to a restriction of competition. As was pointed out by Mr Bartos, on the transport side of things, rail is substitutable for road and vice versa—maybe not perfectly, but they are substitutes. Up-country storage does not have the same barriers to entry as port terminal facilities. For example, there is adequate land. The cost to build up-country storage facilities is not as great as what it is at, say, the port terminals. The legislation focuses on where there is the perception that there may be a bottleneck that could potentially restrict competition.

Senator ADAMS—Another issue that has arisen is regarding accreditation and that it must be for a company. A number of private growers have spoken to me about this and are wondering just how they can cope with that and what their situation would be. Could you explain that in more detail?

Mr Phillips—At the moment, it has been drafted so that the accreditation process will be applicable to companies that are subject to Australian law. That has been done for two major reasons. The first is to ensure the enforceability of the act by making sure that whoever has accreditation has a presence in Australia and is subject to Australian law. The second is that, in drafting the legislation, we were relying on certain constitutional powers for the right of the Commonwealth government to make laws in this area. It has been drafted around two arms:

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the export powers arm and the corporations powers arm. Some of the other legal entities in Australia, such as cooperatives, are not actually under Commonwealth Corporations Law; they are under state laws. To give another constitutional base to the legislation, the use of corporations was included. Whilst there are some cooperatives, such as CBH, many of them also have corporations as subsidiaries. For example, CBH applied for its permits to export wheat to Indonesia in the name of AgraCorp, one of its corporations.

Senator McGAURAN—Will that exclude applications for accreditation from formations other than companies?

Mr Phillips—At the moment, the way it is drafted, it is companies. We have received submissions already relating to the possibility of allowing others to become accredited, and we are examining that possibility.

Senator ADAMS—On accreditation, we have had comments today regarding the South Australian accreditation system, which some organisations considered to be adequate—they think the accreditation system described in this legislation is possibly a little cumbersome—and the fact that a number of the companies that are already accredited in South Australia will be possible applicants for accreditation under the new legislation. Could you comment on that?

Mr Phillips—The South Australian system was set up with a very clear statement that it was seen as a stepping stone to full deregulation of the barley industry. It is being administered by the Essential Services Commission of South Australia with that in mind. The arrangements we have here are not seen as that. But, if you like, the essential basis of the test in both instances is similar—that is, ‘Is the person fit and proper to be accredited?’ Our legislation spells out a few more of the things that must be included in that assessment process. There is scope in the South Australian legislation for it to be as fulsome—if not more fulsome—if they chose to administer their system in that way. Our draft legislation has the same fit-and-proper-person test and spells out in more detail some of the things that must be taken into account by the regulator.

Senator ADAMS—If this legislation is not passed by 30 June, what will the process will be from then on?

Mr Phillips—If nothing has changed between now and the end of June, then what happens on 1 July is that the minister’s current power to grant or refuse applications for export permits will lapse and the Export Wheat Commission will become the sole determinant of whether or not an export permit should be issued. The test it will have to apply is the one in the existing act, which is whether or not the application for a bulk permit will complement the objectives of AWBI in running the national pools or whether it develops niche markets.

Senator ADAMS—After 30 June, would AWBI, as a company, be forced to run a national pool?

Mr Phillips—The legislation will still require them to run a pool. The way the current legislation is drafted is that they have that obligation until their exemption from acquiring an export approval from the Export Wheat Commission occurs. There is one section of the act that basically says it is illegal to export wheat without the approval of the Export Wheat Commission. That prohibition does not apply to AWB. That is one part of the act. In another

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part it says that AWBI is required to operate national pools for as long as it holds that exemption referred to earlier in the act. So, yes, it would still be required to operate a national pool.

CHAIR—Mr Crosby, would you like to make a brief opening statement as Chair of the Wheat Industry Expert Group?

Mr Crosby—The Wheat Industry Expert Group was set up about six to eight weeks ago in order to deal with those functions which used to be called the industry good functions, which were carried out essentially by AWB on behalf of AWBI as part of their pool responsibilities. There are 11 of those functions that have been identified by AWB and by other people as being the industry good or industry development functions. Our committee has recently released a paper which covers what we think should happen to those 11 functions and has made some other comments as well. That is now out for discussion.

The committee has decided that items 1, 6, 7, 8, 9, 10 and 11—this is the order they are in in the paper—are essentially functions which the commercial operators of the industry and the various other industry organisations that currently exist will take up or not take up on the basis of whether they believe they are important. The ones that we feel need to be directed are research and development—we have endorsed GRDC as a competent and well-organised part of the wheat industry that needs to remain in that position, and we believe its current funding, which is part government and part industry, is a logical way to go.

Point 2 is about variety classification. It is very important for the whole wheat industry that we understand which varieties can be sold as what. AWB has been the secretary and the organiser of that group, and we are suggesting that GRDC should essentially just transplant itself into what AWB did in that committee and make sure that that committee is representative of the industry so that we get a sensible and logical declaration about new varieties coming into the system as to what they should be allowed to be classified as.

The fourth one is about receival standards. We have suggested that NACMA are the logical body, in the grains industry generally, to set standard parameters for delivery of grain at silo and standard terminology about those grades and those receivals of grain. They do that already in all of the other grains except wheat, and in wheat AWB has done that. We are suggesting that NACMA are not only well placed but already experienced in how to have standard contracts and how to describe grades in a standard way. So we are suggesting that they should take that over.

The fifth one—which we are still seeking advice on—is information. One of the very important planks of a heavily deregulated industry, as compared with what we have had in the past, is that it is very important that the major industry players and the minor industry players—and I mean that in terms of size, not importance—have a reasonably even base of information upon which they can make their decisions about what price they should sell their grain at or buy their grain at, whether there is enough to carry through to the next harvest or whether there is going to be a shortfall, and all those sorts of issues which, in the end, determine the price. We are suggesting that there is an important role in that for ABS, as the independent collector of information, to be able to publish figures on a regular basis—we are suggesting monthly. That would spread information across the whole industry on how much

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grain is available in the system—not who owns it but how much is there—and therefore people could make their own estimates about whether that is going to make up the next harvest or not. So we are suggesting that that sort of base level of information needs to be made available to everybody and that ABS is the logical body to collect it because that is its charter and it has also got the constitutional capacity to ask people and insist that people give it information.

We recognise people like ABARE as having a role in dissemination of a different type of information, particularly making sure that things like the USDA crop reports are available, and also the value-added services which they provide now in terms of information. On top of that, again, we have the private providers—the people who actually charge money for their weekly or monthly newsletters and give advice on what growers should do. One of the very important factors which have occurred in that process in recent times is feedback, particularly from Western Australia but also from South Australia, that a very large percentage of growers now use a professional adviser to help them with their marketing decisions. That, in a nutshell, is where we have got to. Submissions have to be in by the 27th, which is today, and we have to report back to the minister by, I think, 24 April.

CHAIR—If the information is available monthly—which is the expert group’s desire—how will that be forwarded on to growers?

Mr Crosby—We have not directly canvassed that issue, except that the current ABS report—which is only done twice a year—is available on their website. We would suggest that there is an information process that has to go on, alongside these sorts of changes that we are talking about, where organisations such as farmer organisations, AWB, the grain-handling authorities and all of the grain marketers need to make sure that that sort of information is available. Either it should be on their websites or they should alert growers that that sort of information is available.

CHAIR—Currently that information is available, but it is published biannually?

Mr Crosby—They do two surveys a year. Yes, it is on their website. They do one in the early part of harvest, in about November, and they do another one at the completion of harvest in about February-March which is available in early April. That is by request, essentially. They have been requested to do that by various parties in the feed-grain industry. What we are suggesting is that that needs to be monthly.

Senator HEFFERNAN—But they are not obliged to tell, are they?

Mr Crosby—Do you mean the ABS or the grain-handling authorities?

Senator HEFFERNAN—Is there a legal obligation for the people who warehouse grain to say what they have in store?

Mr Crosby—My understanding from our discussions with ABS is that if ABS asks then they have to deliver.

Senator NASH—What happens if they do not?

Senator HEFFERNAN—Could we ask ABS?

Mr Mortimer—We can take that on notice. I think that what Mr Crosby says is—

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Senator HEFFERNAN—I think it is a furphy if you think people are going to breach their own commercial-in-confidence, when they are competing in the one marketplace, as to what they have got and what blends can come out of it—the blending of wheat is important. That is all part of getting a quid. I had better be a bit careful of what I say, but I do not think that is a reality. You need a reality check there.

Mr Crosby—Senator Heffernan, the point is: what level of information do we think it is important to the whole industry to know? We are not suggesting, for instance, that the grade-by-grade break-up of every country silo is known. What we are suggesting is that the marketplace needs to know, within its draw area, the general quantity of wheat that is available and the general product that is available for it to purchase.

Senator HEFFERNAN—But you would agree that it is in the interests of the marketeers rather than the people who are marketed—in the sellers’ rather than the buyers’ interests—to have some commercial-in-confidence advantage over their competitors?

Mr Crosby—There is absolutely no question about that—absolutely no question—

Senator HEFFERNAN—And that would be a reality.

Mr Crosby—and that is what we are suggesting is the reason why there needs to be a base level of information available to everybody. It is also the reason why we have endorsed a four-point code of practice which has been put together by the major grain handlers, AWB and NACMA. That is in our submission, under point 2. Mr Chairman, do you want me to read the four points out?

CHAIR—We have a copy of your discussion paper.

Mr Crosby—Under point 2, you will see four points. Those four points, I am informed by a large number of people that are involved with those organisations, have been signed off at the most senior levels.

CHAIR—I would say for simplicity, Mr Crosby, if you have them in front of you, please go through them. We have plenty of time.

Mr Crosby—Okay. The first point is: • prominent listing and use of standardised language and means of expressions for all fees, charges

and statutory deductions applicable to all types of transactions in material promoting these products to growers …

Senator HEFFERNAN—Could you point to where that is in your paper?

Mr Crosby—It is on page 7. The second and third points are: • posting on silo boards and on the web, the transparent net return figures for all types of transactions

to allow growers to make better informed market decisions; • expression of base marketing costs charged against all types of transactions as either a flat figure

per tonne or a percentage of the gross value …

And the fourth one is: • reinforcement of current equitable access undertakings for bulk handling and storage facilities and

ports, consistent with section 45 of the Trade Practices Act—

which is the point that Senator Adams was talking about earlier, in relation to availability of port space for non grain handlers. Those four points have been agreed to by all of the major

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grain handlers and AWB, as a grain handler and marketer, and also NACMA, as the representative organisation of all buyers.

Senator HEFFERNAN—Can I go back to point 5. By the way, who authored this?

Mr Crosby—The committee—

Senator HEFFERNAN—No, who actually wrote the report for you—the department?

Mr Crosby—Russell Phillips and his team.

Senator HEFFERNAN—The department wrote the report and you signed off on it?

Mr Crosby—That is right.

Senator HEFFERNAN—How did you arrive at this? Did you have a committee meeting and say, ‘We want this, this and this,’ or did they put it forward as a recommended draft report?

Mr Crosby—No—sorry, the first of your two options. We have had now two face-to-face meetings, and we have one coming up in a couple of days. We have had a phone hook-up essentially every week until two weeks ago. It was not a blank-paper exercise.

Senator HEFFERNAN—Yes, I understand that.

Mr Crosby—We had as a starting point a paper from AWB, a paper from the Grains Policy Institute and a paper from NACMA, all with opinions about what should happen to the 11 points. The 11 points, incidentally, are the 11 points which the Wheat Board designated. We looked at two or three other points—

Senator HEFFERNAN—You have done well to get it onto one bit of paper!

Mr Crosby—We do have a very good committee. They are very straightforward.

Senator HEFFERNAN—Who is on your committee, by the way, just out of interest?

Mr Crosby—You are now going to test my memory, without having them in front of me.

Senator HEFFERNAN—You have had two meetings.

Mr Crosby—Yes. There is Geoff Nalder—they are all Geoffs!—from VFF; Gail Dowie, from Queensland; David Thomas, from South Australia, who is also on the Barley Australia group; Graham Shields, from Western Australia, a large wheat grower and also a large marketer of grain from Western Australia; Dan Mangelsdorf, head of Australian grains—

Senator HEFFERNAN—I know Dan.

Mr Crosby—and me.

Senator HEFFERNAN—When were you presented with this draft report? We got it yesterday.

Mr Crosby—We signed off on it at our last meeting and released it on the website on the 13th.

Senator HEFFERNAN—To go to point 5, on the production, forecast and actual, for ABARE: under the new arrangements—this may even be a question for someone else—do you think it will be possible to collect that information reliably?

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Mr Crosby—Perhaps in the way it is worded it sounds very complex, but in fact the world accepts the USDA crop reports as being extremely accurate, and that is the base upon which that information is based.

Senator HEFFERNAN—Okay, but I do not think that in practice that part of it is going to work. What influences forecasts more these days? With the competing aggressive public companies that will be in the wheat market—and AWB is a classic example of that; as I said earlier, I thought some of them should get locked up—do you think physical or financial will have the most influence on the pricing decision at the weighbridge? Do you think—I do—that financial instruments have an increasing role to play? Gold, silver, wheat—it is just another tradeable commodity, and there is a lot of speculation in the market. How much is that interfering with the wellbeing of farmers?

Mr Crosby—I think if you looked at the last couple of weeks you would suggest that the influence of financial traders has had an amazing effect on commodity markets of all types.

Senator HEFFERNAN—So where is there much danger from the financial markets because of the way they have now built the market? The fertiliser thing is a really good example. I am interested, by the way, if Mr Brian Packer, who was here yesterday, is listening—I will be giving him a ring. We have got an inquiry into fertiliser, because obviously there is some cartel behaviour in fertiliser and chemical. But do you think that one of the greater concerns for Australia’s farmers is not only their inputs—and the higher their inputs, the bigger the risk? I have seen the bullshit Incitec Pivot have put out telling the farmers they can afford to pay more for the super because they are getting more for the wheat. But the financial risk is higher, the higher your inputs, if you have a failure—you would agree with that?

Mr Crosby—It is self-evident that if the cost of production per hectare goes up then the risk of failure gets higher.

Senator HEFFERNAN—So how much greater risk under the present proposed legislated authorities will be playing into the hands of the commodity traders rather than the physical marketers?

Mr Crosby—Perhaps I could seek a clarification from Senator Sterle. My job in this—

Senator HEFFERNAN—I am not necessarily directing it to you; I can direct it to whoever would like to step up to the plate.

Mr Crosby—The point I would like to make is this: my job in this is as chairman of a group which is looking after a specific part of the non-legislative part of the industry. I am a farmer with 35 years knowledge and interest in the industry, as Senator Heffernan is—

Senator HEFFERNAN—It looks a bit like that.

Mr Crosby—and I am in the difficult position where that is not something that we covered here.

CHAIR—Mr Crosby, I think very clearly your expertise is sought as to the bill that is in front of us.

Mr Crosby—Okay.

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CHAIR—I know Senator Heffernan has a passion for all things farming, as most of us do.

Senator HEFFERNAN—So who is going to answer the question? I have just had an interesting discussion with some of the people downstairs on wool. Australia’s wheat growers are passionately concerned about where they are being taken—and a lot of blokes who grow 200 or 300 acres of wheat haven’t got time to be mucking around in financial markets and going to meetings like this. How much extra influence from speculation in commodity trading is their future going to be dependent on?

Mr Mortimer—I think Dr Sheales from ABARE might be able to give some comment on that question.

Dr Sheales—I cannot answer all your questions, obviously, but there are a couple of things. First of all, on this point 5 that you raised, on the transparency issue: it is absolutely essential to the well functioning of the market that it is transparent, that people do have an idea of how much grain is around. We do not need to know how much each individual trader has, but we need to know how much is in the country. We went through a lot of this discussion in the last two years with drought and worries about supply.

Senator HEFFERNAN—Yes, I appreciate that.

Dr Sheales—What ABS can do and have done is aggregate. They collect data from a range of participants and then aggregate it up so it cannot be identified with a single player. So, for example, if there are two players in one state, they will not even provide the aggregated data because, if you provide that, clearly both players know how much the other has got. So there is that sort of proviso on what they do. The other thing is that my understanding—and this is just my understanding—is that, while they have compulsion over traders to provide information, I think they are fairly reluctant to do that. They would rather it be a goodwill exercise, for obvious reasons.

Regarding the crop forecasting, a whole range of organisations put out crop forecasts. ABARE is obviously one, but some private sector organisations put out forecasts. State departments of agriculture put out forecasts on crops in their own states, and the USDA also puts out crop forecasts for Australian crops. So there is a range of information out there that is continually being fed out. In our case we typically put it out once a quarter, but if things are difficult, as they were in the last two years, we will put it out more often to try to inform participants in the market about what we at least think is happening. So I am of the view that transparency is an important issue that has to be dealt with.

Senator HEFFERNAN—More driven by good will than—

Dr Sheales—It is not up to me to say how you drive that, but it is in the interests of an efficiently functioning market, which everyone—

Senator HEFFERNAN—We are all likeable rogues in the market!

CHAIR—I would ask Mr Crosby as the expert to quantify that statement!

Mr Crosby—It is a very important issue that is being raised. But there is one point: I have now spent a significant amount of time speaking to all but one of the major grain handlers about market information because of their sensitivity to dispersing information that they might see as an advantage to them commercially. They have come out with that four-point

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statement because they have, I think, in all fairness to them, recognised that, whilst they do have a significant information advantage over potentially a number of other players in the marketplace, they are also themselves caught by the bits of information they do not know. I hope I am not off the mark here, but one of the points made to me by the chief executive of GrainCorp was that they only hold 55 per cent of the storage capacity in the eastern states. The rest is held by other people. So their greatest problem is in understanding what is in the other 45 per cent.

Senator HEFFERNAN—That is right, and that is why I think this four-point statement is just a meaningless motherhood statement. The first point is: ‘Prominent listing and use of standardised language’—I mean, der! I want to ask Dr Sheales to continue on the line of market influence, because a lot of Australia’s farmers are seriously and passionately worried about their future. A series of things are bothering them—and certainly these changes and the voyage, as they see it, into the unknown. A lot of people, like me, are not up to date with the latest global technology and into financial instruments and markets. I just wonder how much wheat growers’ destiny in terms of the commodity pricing has been taken away by the greater speculators in the commodity traders. There is obviously money going into commodities now from currency for a safe haven. In the future, how much do you think our future will depend on those markets?

Dr Sheales—That in fact has always been the case. In a certain sense that has nothing to do with whether or not we have single desk export marketing. This is the marketplace we are dealing with and people have to manage that. I would like to go back to one small point, which is usage of what has been AWB as the manager of the single desk. In the farm survey that ABARE does—we do an annual survey of grain growers and all other broadacre farmers—we took the grain growers and split them up between the smallest third, a middle third and the biggest third. Amongst the small producers, in 2005-06, which was the last year we had a big crop across the country—the second biggest ever—

Senator HEFFERNAN—Three years ago?

Dr Sheales—Three years ago; I will leave out the two drought years. We only know one drought year, and I do not think that is relevant to thinking about how they might behave in a normal situation. The second biggest crop ever was 2005-06. In New South Wales only 11 per cent of the smallest growers sold wheat or delivered wheat to AWB. It varied a bit between states. New South Wales was the lowest. The highest was in South Australia, where 68 per cent delivered their wheat to AWB. The others were all in between. Across Australia as a whole, only about 28 per cent got delivered, of the small growers. If you go to the big end of the scheme of things, the biggest growers, about 67 per cent across Australia delivered to AWB.

Senator HEFFERNAN—What is a small grower?

Dr Sheales—I can tell you how much on average across Australia. The smallest third delivered 156 tonnes of wheat. The largest was about 2,350 tonnes. So there is a big difference.

CHAIR—Dr Sheales, could you table that information for the committee?

Mr Mortimer—We are happy to get the agreement of the minister to provide that.

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Dr Sheales—We can do that.

CHAIR—Take it on notice.

Mr Mortimer—Yes.

Senator HEFFERNAN—Part of the voyage into the unknown for Australia’s farmers is to understand what has been going on. A lot of blokes simply do not have time to get their minds around all this stuff. Senator Nash, I am sure you would agree.

Senator NASH—Exactly right.

Dr Sheales—Certainly in my mind, the bottom line is that we have had a very active deregulated, unregulated, domestic market for some time now.

Senator HEFFERNAN—There is no question that the domestic market has worked well.

Dr Sheales—By and large, as a general comment, people are pretty familiar with operating in that environment. It is not their entire business, but they are pretty familiar with it.

Senator HUTCHINS—Dr Sheales, you used the terminology ‘small grower’ and ‘large grower’. Is that a statistically consistent definition? If you had used those terms five years ago, would they be comparable now?

Dr Sheales—The average wheat-growing operation has got larger over time.

Senator HUTCHINS—So, in five years time, if someone looked at the Hansard and was trying to compare, would they be comparing apples with apples? I just want to know whether it is a consistent definition, that is all.

Dr Sheales—It is consistent in that we collect the information on a consistent basis. Clearly, if you just took the total spectrum and said that one-third of the growers are the smallest and there is another third who are the biggest and the others are in the middle, that is a consistent approach. But bear in mind that over time wheat-growing businesses and grain-growing business, like the rest of farming, are getting larger. You have to keep that in mind.

Senator HUTCHINS—I just want to be clear that you can actually measure that from period to period. Whatever the consistent figure is, can you define it? That is all I am interested in.

Dr Sheales—That is not a problem. Bear in mind that the tonnages would be different.

Senator HEFFERNAN—Yes. A big wheat crop last year might have got 2,000 tonnes, I can tell you!

Dr Sheales—Exactly.

Senator HEFFERNAN—Then there is the manipulation of the GM argument when we have had two or three seasonal failures in canola, compared with overseas growers. Anyhow, I will not get into that.

Senator ADAMS—With the amount of grain delivered to AWB, you would then have to take into account Western Australia versus the eastern states, with the eastern states having their domestic market and Western Australia having nowhere else to go. Do you differentiate between them?

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Dr Sheales—Yes, we do. We have figured out a breakdown by state from our surveys here. In Western Australia in 2005-06, because it was the biggest year in recent times, a bit over 70 per cent delivered to AWB.

Senator ADAMS—Where else do they go? At that time they could not go anywhere.

Dr Sheales—Clearly, it was going somewhere.

Senator ADAMS—We will not go there.

Dr Sheales—The sorts of questions we would ask would not go to the specifics of: ‘If you did not sell to AWB, who did you sell to?’

Senator HEFFERNAN—Do you track the double accounting? For instance, two or three years ago we had a wheat inquiry and we discovered that about a million tonnes had been purchased in the cash market by AWB Ltd and, for whatever reason, delivered back into the pool. Do you account for that?

Dr Sheales—No, we do not. We are dealing with growers themselves. We are asking growers, ‘Who do you actually sell this to?’ So in that question you raised they would have said that they had sold to AWB. What AWB did with it after that we do not know.

Senator O’BRIEN—And the 30 per cent in Western Australia might have been 20 per cent buying at a lower price, at a cash price—but more than 80 per cent of pool estimate—and then selling it later.

Dr Sheales—Conceivably someone could have bought it off a producer, for example, and then resold it themselves to AWB.

Senator O’BRIEN—That is right.

Dr Sheales—That is quite possible, but we cannot track that. Once it leaves the farm there is no way we can track that sort of thing.

Senator HEFFERNAN—I am still wondering about this. Under the deregulated market, which obviously is ahead of us, is there a greater risk of manipulation? In the purest of forms—some years ago before the corporatisation of AWB and all the conflicting positions they had to deal with—is there the potential for financial instruments to interfere with the physical market more now?

Dr Sheales—Clearly, as I referred to earlier, there are a lot of players out there affecting quality markets.

Senator HEFFERNAN—So there are no added dangers under these deregulated markets?

Dr Sheales—No, I would not think there would be any.

Senator HEFFERNAN—Mr Crosby, in your advice to the government have you identified a process to deal with potential facilitation in the market—that is, graft?

Mr Crosby—No.

Senator HEFFERNAN—Let us be very blatant about this. We are dealing with aggressive public companies who will do whatever it takes—and there are some fantastic examples of that all around the planet. In competing to avoid collusion at the bridge or monopoly—it is

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either monopoly or collusion—are there any safety mechanisms you have thought through to identify people getting marketing edges in particular markets with facilitation graft?

Mr Crosby—Most of that question is outside of what we have looked at.

Senator HEFFERNAN—Can I say that Australia’s wheat growers are very interested in the answer.

Mr Crosby—Yes, and I am as a wheat grower too. The bit that we have looked at and the bit that we have made recommendations on is the very significant importance of a base level of information being available to all players in the wheat industry. The bit that we are taking further advice on is: what is that base level that reduces the sort of thing that you are talking about to a level that we can all tolerate? That is a very important question, and we are seeking advice on it.

Senator HURLEY—I have a question for the department. Has there been any costing of how much it would take to provide the information system outlined by the Wheat Industry Expert Group?

Mr Phillips—The cost of the current information collection by ABS is known, and in the discussion that the industry expert group had with ABS some figures were quoted. But those would need to be extrapolated up to get a figure for the monthly collection. So there is a figure but it is yet to be refined because it will depend on the final nature of the information collection.

Senator HURLEY—Can you give me a ballpark type figure?

Mr Crosby—Perhaps it is better if I give the ballpark figure because then Mr Phillips does not have to wear it. Our calculation of doing it monthly clearly depends on how wide the survey is and how far you go down the tree. You have three major grain handlers. You have AWB with their own storage. You have the five major international grain marketers. All of them have some storage. Then you have the disparate market of feedlotters and all those sorts of people. If you just look at the top 10 then it is a very cheap exercise—it is a few thousand dollars each time you do it. If you take a much bigger survey then of course the issue is whether you can have that as an electronic form that goes out every month that people fill out and send back. If you can do that then I suspect we are still not talking about telephone book size numbers. My own view, and I have taken this into account in our recommendation, is that the type of review that would be useful to the marketplace would cost in the order of $100,000 not $1 million.

Senator HURLEY—AWB wanted daily receival and shipping figures.

Mr Crosby—I am very sorry; they are not going to get it. My own personal view and the view of the majority of the committee at this point in time, and what is in the paper, is that monthly is best. The reason why I think monthly is best is that the USDA crop monthly report is hung on by everybody around the world. To use some of the work that Senator Heffernan was talking about, the financial market hangs on that report every month. I think in the long run we will find that happening in Australia too. Therefore, I think monthly is the better way to go and we should start with monthly. However, we are still seeking views from all sorts of people on that issue.

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Senator HURLEY—Thank you.

Senator NASH—I want to start with the accreditation scheme. Yesterday we had Mr Woods from the Export Wheat Commission talking about developing the accreditation scheme. My understanding is that with this legislation that basically is it; that is all this legislation does—set up the accreditation scheme to make sure we do not have dodgy exporters. Is that primarily the point? That is putting it very simplistically, I know.

Mr Phillips—The accreditation scheme is designed to make sure that those people who are allowed to export wheat in bulk pass certain—

Senator NASH—Yes, I understand what it is going to do. My question was: is there anything else of any great significance within this legislation apart from that? My understanding is that that is really all the legislation does.

Mr Phillips—The legislation allows Wheat Exports Australia to develop a legislative instrument which will detail all of the scheme. That will need to be tabled and it will be a disallowable instrument.

Senator NASH—The scheme itself is obviously being built, if you like, at the moment. The accreditation scheme is very thin at the moment, and certainly yesterday Mr Woods was very light on the ground in giving us any detail around what the accreditation scheme would actually look like. Once it is actually determined, what checks and balances will there be to determine that that final scheme is appropriate? Will it just be that it is a disallowable instrument? Will there be any other checks and balances before it gets to that point?

Mr Phillips—The process that the Export Wheat Commission is going through is consulting with industry to develop it. It will release it for comment as well, so they will see it in a more refined form. When it is finalised it will be disallowable, so that is the ultimate check.

Senator NASH—At this stage, by what date is the scheme looking to be finalised?

Mr Phillips—The actual detail and formulation of it will happen between now and the time that the legislation is finally introduced into the Senate. The legal making of the scheme must wait until after royal assent to the legislation.

Senator NASH—There has been quite a bit of comment around the importance of making sure that appropriate access to the port terminal facilities is right, given that the whole nature of this is going to be opening it up to competition. Does the department have any view about or is there an understanding at this point what appropriate access will be?

Mr Phillips—Terms and conditions of access undertakings are a matter for the ACCC to determine when it is discussing the matter with the access provider.

Senator NASH—Doesn’t that only kick in at the end of 2009? Doesn’t the ACCC have the requirement from that point up until September 2009? I am sorry; I am going from memory here. Can you explain that for me?

Mr Phillips—It is splitting into two time zones between commencement of the legislation and 1 October 2009 and then from 1 October 2009 onwards. You are right: from 1 October 2009 onwards there will have to be an access undertaking accepted by the ACCC. In the first

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year of operation the requirement is that companies seeking accreditation will have to publish the terms and conditions under which they will grant the access.

Senator NASH—So they just have to publish them. So who is going to agree whether or not they are appropriate up until the time the ACCC becomes involved?

Mr Phillips—In the first year there is no requirement for anyone to vet them.

Senator NASH—Just so we get this absolutely clear: up until October 2009 there is no requirement for anyone to vet the access undertakings from the holders of the port terminal facilities?

Mr Phillips—That is the situation because it is not possible for the ACCC to accept any access undertakings and go through all of the steps outlined in the Trade Practices Act prior to 1 October this year.

Senator NASH—Hypothetically, then, the operator of the port terminal facility could grant no access. I am speaking perfectly hypothetically.

Mr Mortimer—Mr Phillips is actually setting out a process to provide comparable protection between the initiation of the legislation and October in the first year. This is an alternative way of providing that protection to deal with the fact that the other route, which will be available under normal circumstances later, is limited by time constraints under the trade practices legislation.

Senator NASH—I understand all that. What I am looking for here is some requirement, some vetting process or some protection to ensure that there is some check and balance on what the current port terminal facility operator thinks is appropriate access up until October 2009. You are telling me that there is not any.

Mr Phillips—The check and balance will be the greater transparency under the terms and conditions that they are required to publish. I am sure that if they are unreasonable we will be hearing very quickly about that.

Senator NASH—Who from?

Mr Phillips—From the people who seek access.

Senator NASH—What recourse do they then have in that period of time? I am sure you will be hearing from them very quickly too, but what recourse do they have at that point in time?

Mr Phillips—The way that the legislation operates, and the way access undertakings with the ACCC operate, it is not possible to do any more than that prior to 1 October this year. There are certain processes that have to be gone through in determining an access undertaking.

Senator NASH—So, within this legislation, up until October 2009 there is absolutely no vetting process, no check and balance and no protection for any of those other traders who want to export in terms of their dealings with the port terminal facility holder?

Mr Phillips—There are requirements in, say, the Western Australian legislation for CBH to grant access. There is a check and balance there. The ports in Victoria are also subject to

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potential scrutiny by the Essential Services Commission in Victoria. There are some other arrangements in place.

Senator O’Brien interjecting—

Senator NASH—Senator O’Brien, I know that you have lots of good thoughts, but perhaps you could talk to me afterwards, because I am asking the witnesses the questions.

Senator O’Brien interjecting—

Senator NASH—Senator O’Brien, lots of senators ask the same questions of many witnesses, as you well know. I will just move on. Yesterday, the witness from the Export Wheat Commission said that they were working in the interests of growers. He agreed that—apart from ensuring that there were no dodgy exporters—that was the sole thing that the Export Wheat Commission would be doing in terms of working in the interests of growers. Do you have a different view or the same view?

Mr Phillips—The role of the regulator is to administer the export of bulk wheat from Australia through making, administering and enforcing the accreditation scheme. It does not have a charter written into the act that it is working for anyone in particular. It is there to administer the scheme for the bulk export of wheat.

Senator NASH—Just on the access arrangements, which we have obviously discussed at port, what is there in the legislation that relates to access actually at receival sites, at the silos?

Mr Phillips—There is nothing there, as I explained to Senator Adams earlier. It focuses on where the bottleneck is likely to be in the export chain. Receival sites up country are used for far more than just exporting. The legislation seeks to address the issue of where the potential bottleneck in the export chain is and where there is potential to frustrate the intent of increasing competition in the export market.

Senator NASH—So there will be no legislative requirement for the current holders of those receival sites to grant access to traders? That will become a purely commercial arrangement?

Mr Phillips—Are you referring to up-country sites?

Senator NASH—Yes.

Mr Phillips—Yes.

Senator NASH—Jump in if you want, Chair.

Senator O’BRIEN—He can jump in but I cannot.

CHAIR—We are faced with the same dilemma—

Senator NASH—No, it is on the same issue. We do this a lot, Senator.

CHAIR—that we faced with coal exporting regarding access.

Mr Mortimer—I think what is being said is slightly different.

CHAIR—How is it different?

Mr Mortimer—What Senator Nash was asking about was access and enforceable access to receival points up country. I draw a link there between the information that Dr Sheales gave

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earlier about the nature of transactions that farmers have when they make a decision to grow their wheat. Clearly a lot of wheat is being sold to people other than AWB. There is a real question as to whether there would be a need for legislation to deal with arrangements around those receival points.

Senator NASH—Sorry, can you just say that again. Did you say that you think there is a need for legislation?

Mr Mortimer—No, I did not say that actually; I said rather the opposite. I said that the information that Dr Sheales put on the table about the observed behaviours of wheat sales by growers, which was essentially showing that in many parts of Australia not much actually does go to AWB, would raise a serious question as to whether you would need to have a new legislative arrangement there for a system that currently operates in a non-legislated way perfectly reasonably. There is no legislation around those receival points here and now.

Senator HEFFERNAN—This is a brave new world we are about to enter.

Senator NASH—I am not sure if you quite got my point, Mr Mortimer. There may be an owner of a receival site up country that up until now has operated in such a way that other traders have had access to that receival site. My understanding is that that has been by agreement—there is no legislative requirement. If we now move into this brave new world that Senator Heffernan quite rightly refers to and we have a player in the market who is the owner of those receival sites who then has the capacity to go right through to port, where is the requirement that they allow other traders to use their facilities?

Mr Mortimer—I guess what I am saying is that at the moment we have exactly that same situation—those corporations, the bulk handlers, currently have that capacity to operate vertically through the chain. AWB interacts commercially with them. It is hard to imagine that the same commercial interactions will not be had after the event.

Senator HEFFERNAN—But they are now about to become exporters themselves, you see. They are about to become market players, so it is not the same arrangement. The points that Senator Nash makes are perfectly sensible and legitimate.

Senator O’BRIEN—Are you going to make a speech or are you going to ask a question?

Senator HEFFERNAN—With great respect—

Senator O’BRIEN—You are just making a speech, as usual.

Senator HEFFERNAN—Australia’s wheat farmers are worried about this stuff.

Senator O’BRIEN—Okay, so ask a question.

Senator HEFFERNAN—I will throw back to Senator Nash.

CHAIR—Senator Nash, please carry on. There are other senators waiting patiently.

Mr Mortimer—I am not in any sense or shape trying to trivialise the comment Senator Nash is making; I am just making an observation about the nature of the arrangements at the moment and a comparison between the reach of the legislative arrangement at the moment and what might be. At the moment, the legislation focuses on AWBI, but essentially AWBI can buy and sell from lots of people, including GrainCorp and CBH—for wheat along with

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everything else—if it so wishes, so the commercial transactions are going to be multifarious and have many different dimensions.

Senator NASH—I might be being rather negative here—who knows?—but is there anything in the legislation that would deal with any potential collusion or issues around regional monopolies? Is there anything at all in the legislation that would deal with those occurrences?

Mr Phillips—This legislation does not cover those issues. That is left to the normal trade practices laws.

Senator NASH—Whereabouts do the normal trade practices laws deal with those issues?

Mr Phillips—Under section 45 of the Trade Practices Act, any agreement that substantially lessens competition is illegal. In terms of acquiring assets, section 50 of the Trade Practices Act is about mergers and acquisitions. Then there is the whole part IV, which is about restrictive trade practices and covers things such as collusion, misuse of market power, mergers et cetera.

Senator NASH—Do you think that there will be sufficient powers within that to deal with this, given current situations around, say, Coles and Woolworths?

Mr Phillips—To give you an example: when ABB acquired AusBulk some years ago, the ACCC insisted on a court enforceable undertaking—I think it is under section 87B of the Trade Practices Act—concerning access to ports in South Australia. So there are examples of where the trade practices law has been used in those areas.

Senator NASH—In terms of delivery standards for wheat at silo, Mr Crosby, you mentioned before that NACMA would be doing that. Obviously, you have had discussions with them and they have agreed that that would be an appropriate course of events. Is there a cost to NACMA in doing that?

Mr Crosby—Essentially no. I would like to correct the original record: Geoff Honey, who is on our committee, is the head of NACMA, so we have had direct relationships with them on this issue. That is what they were essentially set up to do: to put together a set of standard commercial contracts which have standard commercial clauses in them—such things as what tolerance is allowed for the amount of screenings, what moisture levels are allowed and the conditions of payment. That is their bread and butter; that is what they do—those sorts of commercial contracts. We see no reason why there should be any change to any cost or any change to the process, other than what they get from their current members now which funds that.

Senator NASH—In the view of the department, if there were potentially—I am playing the devil’s advocate—a rogue operator at a receival site who would not adhere to the standards set by NACMA, what is a grower’s recourse if they feel they are being unfairly treated at silo?

Mr Crosby—One of the things that we are very clear about in our committee is that we have said NACMA should be the custodian of the standard contract. We have deliberately stayed away from an instruction, if you like, that you cannot deliver to any other standard. One of the things that can happen when you split a market up like we are doing is that you

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will get people that want a very specific type of wheat. It might be 12½ per cent to 13 per cent protein with less than 11 per cent moisture. There is no reason on this earth why they should not be able to put that standard up on the board and insist that that is what they get. But what we are saying is that for the normal run of business we need a standard set of contracts that everybody knows and understands, and which we have lived with in the past—originally with the Wheat Board and then AWB. We are saying that that is the standard but if you as a buyer do not want grain of that standard but you want another standard and you are prepared to pay and you are prepared to find some people who will deliver to that standard then that is your right.

Senator NASH—For those that are posted there is a standard contract. What is the process if a buyer sets up an entirely different standard that they want very specific wheat delivered to? What is the process and what is the arrangement between the buyer and the seller?

Mr Crosby—It is a direct commercial arrangement between the buyer and the seller.

Senator NASH—Are they contracts quickly written for that particular situation?

Mr Crosby—Well, they can be. It is less likely to happen at what you might call a standard grain handler; it is much more likely to happen if you are delivering directly to, say, a feedlot or a flour mill. Those sorts of direct one-to-one contracts are where those sorts of things will happen. The grain handlers will probably say to Joe Blow buyer who comes in and wants a very specific grade, ‘That is going to cost you because we will have to put it in a separate bin and look after it separately,’ or they might just say ‘No, we do not have segregated storage.’ That is their right as a commercial organisation. But what we are saying is that it should not be banned—it should not be outlawed in the industry. You should be able to do it.

Senator NASH—I agree. Is there any capacity for a buyer to manipulate that—again I am looking at the worst-case scenario—in order to change the standards to potentially make it look like a lower grade to then be able to offer less money? That is a bit convoluted; do you understand what I mean? Is there the ability for them to manipulate the standard so they can actually offer less money to a grower because of the standard they are requiring?

Mr Phillips—If they are trying to do something to manipulate issues to, say, mislead the grower, the Trade Practices Act makes it clear that misleading and deceptive conduct is illegal, and there would be recourse under the Trade Practices Act for such conduct.

Senator SIEWERT—Senator Nash has covered the questions I was going to ask about access so I will not ask too many questions on that issue. AWB and a number of the people presenting yesterday said that they thought access to up-country facilities as raised in the Allen report should be legislated for because of the issue that Senator Nash touched on, and also Senator Heffernan—that the difference now is that there is competition between traders. So there is the possibility of restricting access. I would have thought that the same philosophy would apply to access to receival points as it does to port facilities. I am concluding from your previous answer that you are not considering any amendments to the bill to incorporate access to receival facilities.

Mr Mortimer—I will say at the outset that the department has no fixed view and has not come to any conclusion about potential amendments to the bill. Indeed, that is not the department’s final decision. The minister will make that decision when he considers all the

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suggestions and advice to him, including clearly the report of this committee. In terms of the actual particularities of access, I will pass to Mr Phillips.

Mr Phillips—On access to up-country storage, if you go through the criteria that are normally applied under the NCC guidelines on whether access is likely to be an issue for a particular facility, you can see whether an up-country storage facility would qualify under the criteria. As Mr Mortimer says, all these things will be reconsidered, but the current view is that the barriers to entry to up-country storage are not great and nowhere near those of port terminal access. The other issue that is worth considering is that this bill is about export of wheat, and up-country storage is used for the domestic market as well as export. It is not currently regulated and to impose a regulatory framework on up-country storage operators when they may not actually be handling any export wheat would be an increase in the regulatory burden over what currently exists.

Senator SIEWERT—In Western Australia, that is not the case.

CHAIR—Do you mean in the real world?

Senator SIEWERT—In the real world that is in fact not the case—I am stealing Senator Adams’s thunder here. Some facilities will be used for exports, so there is the potential there to limit access, so I would have thought that the issue was still relevant.

Mr Crosby—As a practising farmer who has been dealing with the handling system for well over 30 years, I am not aware of any circumstances in any state in any part of Australia where any farmer has been refused the right to deliver grain to anybody that they wanted to deliver it to as long as that person on the other side had a contract with the handling authority. These grain-handling authorities are in the business of providing space for money. That is what they do. As I said earlier, 45 per cent of the space in the eastern states is owned by people other than GrainCorp, which is the standard grain-handling authority in that area. There is a fierce understanding of the value of space. This is my personal view: what we will see in Western Australia as we have seen in the eastern states is an enormous increase in on-farm storage.

CHAIR—Why?

Mr Crosby—Because it is the most economical place to store grain other than the place where you use it. What we will see is that the bigger farms particularly—and this is an issue, big and little—will within five years have their own ability to store at least two-thirds of their crop. Why? It makes economic sense to do so. The grain-handling authorities are under an enormous pincer movement that they have not quite worked out yet. They will be providing very expensive intermediate storage and they need to work out how to get their costs down and their volume up. If they do not do that then their businesses will suffer dramatically. We can already see that in the other grains—we can see that in the eastern states where there is a very diverse marketplace and we are seeing it in South Australia right now as more and more South Australian farmers realise how important it is to be able to control their own rate of delivery of grain. I really believe the marketplace will sort that out very quickly, and it is already doing so.

Senator SIEWERT—The issue that we were presented with yesterday comes back to the definition of small and family farms. A lot of the people that we saw yesterday were smaller

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farmers who said that they are not going to be able to afford to do it. You probably heard some of the media yesterday reporting about people saying that they are going to be driven off the farm et cetera. One of the many points they raised is that they are not going to be able to afford to do that.

Mr Mortimer—Could I also make a comment, while Mr Crosby is preparing other comments, just to draw the committee’s attention back to some of the comments made by Mr Hadler of AWB just before the morning tea break. In his discussion about access and facilities, he made the observation—I think when one of the senators asked about the adequacy of potential investments in the area of transport, handling and storage—that AWB thought there was considerable overinvestment in storage and handling facilities and that there were considerable competitive pressures, which I think is actually linked to the observation that Mr Crosby was making.

Senator NASH—Could we go back to Mr Crosby about those smaller growers? I am interested in what the response will be.

Mr Crosby—About what smaller growers are going to do in this event?

Senator NASH—Yes.

Mr Crosby—One of the things that they will continue to do is supply grain through the current system, because they may make a financial decision that that is their most economic option. Given that the bigger growers will vacate space out of those storages, I cannot imagine that the grain-handling people with the grain storage are going to find it difficult to deal with those people who still want to use them. We will have empty silo space, and the reason we will have that is because those farmers who make the decision to put in on-farm storage actually increase the entire pool of storage. As soon as that happens, the people who had the previous storage have less grain to put in it, so they will fight harder for that business. So, in my view, the smaller farmers will find no difference in their current arrangements with the current grain-handling authorities, because they will be required customers, even though they are small.

Mr Mortimer—Perhaps Dr Sheales will make a comment from ABARE’s perspective, because the question seems to be about what smaller growers might do, not withstanding anyone else.

Dr Sheales—Apart from what I said earlier about small growers in every state making a lot of use of other methods of marketing their grain, the bottom line of all this is that it will be a competitive market. If someone tries to take advantage of what they think are captive suppliers in that market, others will step into the breach and outcompete them. That is the beauty of a competitive market: in a sense it keeps everyone honest. You cannot pad out your charges and hope no-one will notice and pass them on in the form of lower prices, because, in the more open market that we are talking about here, someone else will step up and say, ‘I can do a better deal for you,’ and they will do it.

Senator NASH—Won’t that work in reverse, though, in a situation with oversupply? I know you are talking about the silos themselves, but I am talking about a situation of oversupply when there will not be that requirement? Doesn’t it work in exactly the opposite way from what you were just saying?

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Dr Sheales—We will have years in which a lot of grain will be stored in carryover stocks. I think that is what you are talking about. That happens now and that gets reflected in the prices that growers receive under pooling arrangements or whatever arrangement; it gets reflected in those returns. Nothing will be different in that sense.

Mr Mortimer—Dr Sheales is taking us to the fact that at the moment that is all done in a centralised way, if I can call it that, by AWB, which, because of the export monopoly and the operation of a national pool, makes a decision about when to close the pool, how much to sell from this year’s pool and how much to carry over to next year’s pool. They do all that on the basis of their estimations of world prices and everything else. Essentially what will happen under the legislation that is before you is that those decision-making issues will be decentralised, so growers themselves will be able to make those decisions rather than relying on the pool and the pool manager to decide how much they sell this season, how much they put aside, how much they put into next year’s pool and so on. Indeed, as some members of the committee might remember, there has been considerable controversy over the years as to whether AWB has made the right call in terms of selling this year as opposed to the following year or what they put into one pool as opposed to another, and all that sort of thing. Essentially the role of a central operator will be diminished and farmers themselves will be able to make more of those decisions and have a whole pile of more options in front of them.

Senator McGAURAN—I want to follow up from Senator Siewert’s example—or yours, Mr Crosby—so that I get it clear in my head. You are quite right that the importance of on-farm storage is becoming even more critical, and it is proven in other industries. Under your scenario—that is, the farmer can play the storage game or the market game—you speak of GrainCorp owning a great many of the up-country facilities, but what of AWB, who I think will initially be the favoured purchaser of many of the farmers because they are used to it? They will be buying at the farm gate. They will be delivering to these facilities, won’t they? So it is not the farmer who will be holding back; it is grain merchant versus grain merchant, not the farmer versus the grain merchant.

Mr Crosby—I think it is fair to say that one of the things that happens when you open up a market is you get all sorts of variants. We saw that when we opened up the domestic market many years ago—where everybody made their individual decisions about what was the best way to go. The point that you, I think, are alluding to is what happens when you get into a situation where there is not sufficient storage and you start getting competition between the buyers about that storage, and, if you like—if I am reading your question correctly—the grain handler, as also a buyer, has an advantage over all the other players that might be trying to hire storage. It is conceivable that that can happen. The reason why AWB built its big receival centres at places like Crystal Brook and Nhill, I think, and those sorts of places, where there are very large receival centres which on the surface do not look all that economical but in fact are because they have a huge draw area and they charge a little bit less than what the Grain Handling Authority was doing before—

Senator O’BRIEN—Subsidised, in fact.

Mr Crosby—They were certainly subsiding that. They were doing it for a very good reason: the competitive position that they did not want to be in—that is, totally reliant upon the grain handler. That is exactly what is going to happen now. Those buyers in the

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marketplace that think that they might be threatened by the Grain Handling Authority will build their own storage or hire somebody else. But the point about it is that the grain handlers themselves will then have airspace, and there is nothing more expensive than airspace. So what will happen is you will get that balance that comes back. A few people will have to build their own storage to make that happen, as AWB has already done, but once that happens you get the balance back in. Selling grain space is worse than selling airline tickets. If you do not sell it while the crop is on, you do not sell it; you have got it until next year.

Senator McGAURAN—On another point, Mr Crosby, before I get to the legislation: you mentioned GrainCorp crying over the fact that they only had 55 per cent of the storage market and that they were up against 45 per cent. It does not bear well for what the definition of ‘market concentration’ is. Wouldn’t you think 55 per cent is dominant?

Mr Crosby—If they were an equal player with all of the other people in the industry, perhaps. But the point about the matter is that the other 45 per cent is either owned by farmers, who can make independent decisions, or it is owned by end users who can also make independent decisions. One of the great problems that GrainCorp have is that they are the storer of last resort, if you like. If I as a farmer have got storage, I will use it first. If I as a grain buyer have got storage, I will use it first. So they end up with what is left over. So 55 per cent suddenly becomes 55 per cent of what is left after the 45 per cent has been used. So, if the entire crop is only 70 per cent of the total airspace that is available to be used, the 45 is still going to be used and they only get 25, so they are half-full. That is the issue. That is the market force that will keep it in check. Certainly the eastern states are an easier example, because we have had a really diverse domestic market, because of the feedlot industry, the pig industry and the chook industry being heavily in those areas—and the milling industry being heavily in the eastern states. We have had that for 20 or 30 years now. We know it and understand it. It is less well known in South Australia and it is even less well known in Western Australia, so there is some catch-up to happen. But it will happen, as we have seen in the eastern states.

Senator McGAURAN—Getting back to the legislation: did you consider a review in three years? It usually is written into legislation of such importance and moment.

Mr Phillips—The government’s policy includes a review in 2010, which will be mentioned in the second reading speech.

Senator McGAURAN—That is separate. That is not a review of this legislation and these marketing arrangements necessarily, is it?

Mr Phillips—It will be.

Senator McGAURAN—That was the previous government reviewing the single desk, wasn’t it?

Mr Phillips—No. The previous government had scheduled a review by 2010 under the national competition requirements. What the current government’s policy says is that there will be a review in 2010 of these arrangements to assess their effectiveness.

Senator McGAURAN—Where is it written that that applies to the accreditation system, the appointments system, in this legislation?

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Mr Mortimer—It does not need to be in the legislation, necessarily. The government has considered this. It has affirmed a position and that will be in the second reading speech, as Mr Phillips has outlined.

Senator McGAURAN—Is that normal practice?

Mr Mortimer—It is quite common.

Senator McGAURAN—I would like to see it written into the legislation. My understanding is that the 2010 review was proposed under the previous government for a whole different marketing arrangement. I know it is under the competition policy, but is not a specific review of this legislation.

Senator HEFFERNAN—Is it a review that has the capacity to attempt the unscrambling of the egg if it all turns to custard? What sort of review is it? I have to say that I think it will be a phoney review, because you will not unscramble the egg.

Mr Mortimer—The wheat marketing arrangements have been reviewed on a number of occasions over the last period of time, even since privatisation.

Senator HEFFERNAN—But there has been some consolidation of the market up until this point.

Mr Mortimer—I accept what you are saying. I guess what I am saying is that all reviews will be comprehensive of the arrangements in front of them. The arrangements that are in front of them are the starting point and they are what are reviewed. Governments make whatever change they see as necessary in light of that review. I am not sure there is a whole lot more we can say on that.

Senator HEFFERNAN—Could you inform the committee about what some of the potential changes might be, given the capacity of this legislation to free up the market.

Mr Mortimer—Potentially anything could be changed if it is in legislation. Any piece of legislation can be changed in any shape or form if governments so wish. Essentially, governments go through a process of determining that and deciding on the merits whether they want to do it.

Senator HEFFERNAN—But you are not trying to say to us that there would be the capacity in the review to legislate to consolidate the marketing again.

Mr Mortimer—I would not make any comment on that. That is an open question.

Senator McGAURAN—I want to talk about the intent of the legislation, as distinct from the policy, so I hope this does not cross the line. The intent of the legislation is not clear. We found that out when we met yesterday with the potential chairman of WEA, Wheat Exports Australia. What is the intent of WEA? Is it to represent the best interests of the growers, as former bodies have done?

Mr Phillips—As I stated earlier in response to a similar question, the objective of the new regulator, Wheat Exports Australia, is to administer the bulk export scheme—to make the scheme, administer it and enforce it.

Senator HEFFERNAN—I hope it will do better than the Wheat Export Authority.

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Senator McGAURAN—And it is not in the interests of the growers, necessarily.

Mr Phillips—It will be in the interests of all industry participants who want an effective scheme in operation.

Senator HEFFERNAN—All likeable rogues.

Senator McGAURAN—The growers can now properly say that they have lost all interest in what was once theirs in such marketing arrangements. It truly is the end of an era.

Mr Mortimer—I make the observation that all the arrangements, regardless of whether they operate through a statutory authority or a privatised body, essentially revolve around the same exercise—namely, around managing, regulating, wheat exports. The outcomes for growers will be central to that, because the outcomes for growers are central to the outcome for Australia. So that is accepted. Indeed, the reporting mechanisms will remain in the legislation, and that will be important also so that growers are informed and understand what the consequences of the operation of the scheme are.

Senator McGAURAN—Quite frankly, it is critical for the growers in this new era that we have as many buyers as possible. If we are going to go into this new world, we have to have as many creditable accredited buyers as possible for their advantage. I guess that is a common basic market rule. Another aspect of the legislation—and many witnesses have brought it to our attention—is that the accreditation clauses are seemingly heavy-handed. What is the intent of the legislation? Is it in fact to establish the WEA as basically replicating ASIC and other such bodies or as relying on them? Is the intent to be heavy-handed so that they carry out all these investigations, risk managements, definitions and probing? Or is it to be less than that—light-handed? What is the intent?

Mr Phillips—The intent of the legislation is to put in place a regulator that can effectively administer the export of bulk wheat. Whether or not it needs to be light- or heavy-handed is a matter for the regulator in determining how it can best achieve its objectives.

Senator McGAURAN—But can’t you see the difference? As I read it, if WEA have to undertake every one of those clauses, they will be poring over company accounts, making subjective judgements according to risk management and going through the business records. You will have to double their budget for starters.

CHAIR—Senator McGauran, can you ask your questions as directly as possible, please.

Senator McGAURAN—Can’t you give us some indication of the intent?

CHAIR—I think Mr Mortimer and Mr Phillips have answered that, Senator McGauran. Gentlemen, I will give you the chance if you wish to add—

Senator McGAURAN—I will take it that a heavy-handed approach is intended. It is to absolutely replicate ASIC and other bodies—

Mr Mortimer—Can I make a comment?

Senator McGAURAN—and therefore you will restrict entry. You are going to restrict accreditation—

CHAIR—Senator McGauran, you did ask Mr Mortimer the question; please give him the opportunity to answer.

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Mr Mortimer—I think it would be unfair to suggest that the intent is to be heavy-handed. The intent is to set out a series of criteria that the regulator will need to have regard to.

Senator McGAURAN—He has no idea whether—

Mr Mortimer—Sorry? The legislation will set out the criteria that the regulator needs to have regard to. Of necessity, the regulator will need to apply some judgement as to how far they dig down into corporate records and looking at risk management strategies and anything else. At the end of the day, a group of properly qualified, reasonable people have to look at the information in front of them, look at the intent of the legislation and say, ‘What is a reasonable way of getting the outcome the government has charged us with here?’ Suggesting it is light or heavy handed is not really the most sensible way of looking at it. Rather, it is a matter of being businesslike and getting the outcome.

Senator HEFFERNAN—But the Wheat Export Authority failed miserably because it was not equipped. You would agree with that?

Mr Mortimer—I will not make a comment on that.

Senator HEFFERNAN—But it was not equipped to do the task that it was supposed to. What assurances can you give the committee that, under this legislation, they will be better equipped?

Mr Phillips—Unlike the original legislation for the Wheat Export Authority, this legislation gives the regulator the power to audit the accredited exporter at any time and to obtain any information that they like from an accredited exporter. Most of those powers were not present for the original Wheat Export Authority.

Senator HEFFERNAN—With the capacity to invade commercial-in-confidence information?

Mr Phillips—A total audit.

Senator HEFFERNAN—All right.

CHAIR—Senator McGauran, you still have the call, but I remind you that your colleagues still have a couple of questions.

Senator McGAURAN—Still on that same point, why are WEA appointments so general and rambling? Quite frankly, anyone could get on. Why aren’t they more job specific so that they can do the onerous job that is now upon them?

Mr Phillips—The requirements in there are not such that anyone could qualify. If you look at the first two leading parts you will see that they are about expertise and significant standing in those fields of endeavour. It will be up to the minister when he is considering who to appoint to decide the best mix of those particular skills that he can put together. It may be possible to find one person, for example, who qualifies under two of those categories, so you will not need another person to cover one category. Those categories are considered as being suitable for appointment to Wheat Exports Australia.

Senator HEFFERNAN—Could I ask another question?

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CHAIR—No, Senator Heffernan. Senator Adams has had only eight minutes compared to your 32—but no-one is counting! Senator McGauran, I would ask you to draw your questions to a close.

Senator McGAURAN—I would signal a concern: it says ‘one of the following criteria’, and I believe it should be more job specific than it is. I am concerned about what appointments the minister will make to such an important body. There is certainly no room for a farmer on it.

Mr Crosby, in your paper you mention the importance of an industry peak body, and then you go on to say that the government has no part in creating this peak body. Due to the mere fact that such a peak body would, I suspect, require a levy to finance itself, the government would play a big part. Can you outline the importance of a peak body, the possibility that, within an industry, such a peak body could and will come together and can you say why the government should not play a part?

Mr Crosby—The view of the committee is that if there were a peak body in the grains industry—the grains industry generally, but we are talking about the wheat industry here—which was able to cover growers, grain handlers and exporters and various intermediaries that operate in the industry and which could provide a point of common policy then it would make the job of industry-government relationships a lot easier. Our view was that we could not see any group of people that was in a position to pull that together in the time frame that we are dealing with.

Senator McGAURAN—Except the government.

CHAIR—Mr Crosby, please finish your answer, because I am going to ask Senator Adams if she has any questions.

Senator McGAURAN—It just shows that you should not have given some longer than others.

CHAIR—Senator McGauran, I do keep a log of times. When the witnesses have finished, you are more than welcome to count up what I have written here. Senator Adams?

Senator McGAURAN—He was in the middle of an answer.

CHAIR—Mr Crosby, you did finish your answer?

Mr Crosby—I thought I had finished it, yes.

Senator ADAMS—Mr Crosby, congratulations to your committee on a very concise report and discussion paper. It is very good. I would like to ask about the levy. I note that you say that there needs to be a transparent annual review of the levy for GRDC and to make sure that some growers are not subject to unreasonable costs. With wheat prices being up, a lot of growers think that they have had to pay extra for the levy. Who would do the review?

Mr Crosby—We have not been specific on that. We certainly are not suggesting that a completely new body be formed just to do a review. We think it should be done within the currently available grain industry organisations. Because growers pay the levy, clearly we are talking about grower representatives’ organisations doing that sort of review.

Senator ADAMS—Thank you.

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Senator O’BRIEN—I want to turn to a few matters that were raised by AWB in their submission about the nature of the legislation and specific provisions. One issue raised was the ability for any person dissatisfied with a decision to appeal that decision. I wanted to find out the rationale for the terminology in the legislation in the context of their concerns.

Mr Phillips—It is existing policy of government and Attorney-General’s to have merits based review of decisions where they can affect the business operations of a company. That is through the AAT rather than under normal administrative law, which can only look at process issues.

Senator O’BRIEN—So it is consistent with other legislative provisions?

Mr Phillips—Correct.

Senator O’BRIEN—Another point raised was the lack of a definition of the term ‘export’, given that in their submission it is referred to as a critical term in that it is the basis for a prohibition carrying a fine of up to $330,000 for companies. Is there a reason that it was decided not to define the term ‘export’ or, alternatively, is there some other provision which would be relied upon to interpret that term in other legislation for the purposes of this legislation?

Mr Phillips—I think the answer is that there is no definition of ‘export’ in the current act, and we have carried that over. It is the common usage of the term and standard legal interpretation would apply.

Senator O’BRIEN—I take it there has been no issue taken at law, if indeed there have been any prosecutions.

Mr Phillips—Not that I am aware of.

Senator O’BRIEN—One of the other issues raised was the time period within which an entity would be obliged to report certain notifiable matters in clause 11 of the legislation. An issue was taken with, I think, a 14-day period within which such notification should be made, and a complaint was made that that was too onerous a provision and would put entities at risk of noncompliance because of the time period. Can you make some comment about that in the context of the rationale for the drafting of the current exposure draft?

Mr Phillips—That time limit was put on as it was seen as reasonable in the circumstances. We are talking about a material change of something—just as if a company is listed on the share market; there is a material change and they are obliged to report it immediately if it is going to impact on their trading. So 14 days was seen as reasonable but not so long that they could get away with having something that is potentially material to their accreditation and being able to carry on for months and not let the regulator know.

Senator O’BRIEN—Is it the intention that these notifiable matters will become public and therefore not only influence their accreditation but inform the market as to a material change in their circumstance?

Mr Phillips—There is no requirement in the legislation at the moment for that matter to be made public. It could be a commercial issue—for example, a bank may withdraw certain funding lines. That may need to be known to the regulator because it can go to the basis of whether or not they should continue to be accredited but would not necessarily be information

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which should be publicly available. The intent is to have the regulator informed of something that may impact upon the accreditation.

Senator O’BRIEN—Is it envisaged that the provision of such information might lead to a suspension of accreditation very quickly?

Mr Phillips—Yes.

Senator O’BRIEN—Presumably people would have to be notified publicly that such a suspension had taken place.

Mr Phillips—Indeed. The legislation requires Wheat Exports Australia to maintain a register of accredited exporters, so if there is a change in their status they must change that public register.

Senator O’BRIEN—In terms of the costs of accreditation, can you inform the committee as to the basis for the construction of the cost basis for processing of an application for accreditation?

Mr Phillips—The legislation as drafted allows them to charge a fee for application for accreditation, but it must be cost based. There is a specific clause that indicates it cannot amount to a tax. We, the department of finance and the Export Wheat Commission are working through a budget for the new regulator to try and determine what its needs are. Then it will be a function of trying to work out the costs associated with each of the steps in an accreditation assessment.

Senator HEFFERNAN—Would that be an hourly rate?

Mr Phillips—I cannot say at the moment; that work is still ongoing.

Senator HEFFERNAN—How much are you worth an hour?

CHAIR—Carry on, Senator O’Brien.

Senator O’BRIEN—That is all I have at this stage. I understand the department is coming back, and after we have heard from more witnesses there may be more questions.

Senator NASH—Currently you have the arrangement where there has been one Australian exporter exporting into overseas markets. Within the legislation or any of the arrangements that are going to be put in place, is there any restriction at all on how many Australian exporters can bid for a market in another country?

Mr Phillips—If I can start with the first statement you made: we have had more than one Australian exporter selling wheat into overseas markets. Bags and containers have been deregulated for some time.

Senator NASH—I understand all that. I mean aside from that. I am talking about bulk exports.

Mr Phillips—CBH has been competing in Malaysia, Vietnam and Indonesia with AWB.

Senator NASH—We know all that and that is fine. You know what I mean, Mr Phillips.

Mr Phillips—In the legislation it is not envisaged that there will be any geographic limits or licences or anything like that. There is nothing to stop more than one Australian exporter competing for sales in another country.

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Senator HEFFERNAN—Gina Rinehart learnt to her great distress that there are actually some restrictions that can come into a market through no fault of your own. It took her 15 years to sort it out. My question goes to a couple of things. Could you provide the committee with the onerous time line that you say cannot be mounted to overcome the problem that Senator Nash raised earlier of no protection up country—until whenever it is—through the ACCC? I am sure that, if people stayed at the office an hour longer, you really could press the process if you wanted to. It is full of bureaucratic hyperbole and I would shoot two out of three lawyers if I was in charge.

If there is non-protection up market, which is the point which concerns a lot of farmers at the moment, and whoever the bulk handler is has got the area tied up—I do not agree that the first 45 per cent will go into the other silos because people warehouse grain for all sorts of reasons: to get it into the next financial year or whatever—do you envisage pools operating?

Mr Phillips—All of the major bulk handlers have said they will be operating pools.

Senator HEFFERNAN—Yes, but, if I want to run a pool at Junee and whoever owns the facility at Junee says ‘bugger off’ because they do not have to have me there, how can I run the pool?

Mr Phillips—You can either strike a commercial agreement with the provider of the storage facility or you can construct your own storage facility.

Senator HEFFERNAN—In other words I could be prevented from running the pool by them agreeing not to come to a commercial arrangement.

Mr Phillips—As Mr Crosby said earlier, there are other storage facilities around and you can construct your own.

Senator HEFFERNAN—Mate, give me a break! We are not going to go a hundred miles. Bear in mind that AWB would do that. They took wheat from Junee over to Stockinbingal with a $10 a tonne subsidy. It does not necessarily follow that there will be regional pools conducted.

Mr Mortimer—If I may make a comment there: to put it in its most empirical sense pools are essentially an aggregation of wheat.

Senator HEFFERNAN—That is right.

Mr Mortimer—Anyone can aggregate wheat anytime they like. The question then is: where do they put it? We have had quite a discussion here about where they can put it and whether they can put it in a spare space somewhere near a railway track—if that makes sense—or whether they can buy some space from GrainCorp or put it somewhere else. There will be a whole array of options there.

Senator HEFFERNAN—But it is a reality that if there is not any requirement legally—as Gina Rinehart found out all those years ago—you can play the growers on a break. I do not want to hold the committee up but, if you could provide me with reasons why the ACCC cannot get that in place earlier, I would be bloody amazed. I went to a meeting the other day and it is just bureaucratic crap.

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Can I also ask whether any consideration has been given—and to their great distress some people have learnt about this in recent times, especially in central New South Wales, Senator Nash—to warehousing protection for the person who has got their grain warehoused in the event that the warehousing person goes broke?

CHAIR—You have a minute to answer, Mr Mortimer and Mr Phillips.

Mr Phillips—That is a much broader question than the export marketing of wheat.

Senator HEFFERNAN—It is a very succinct question.

Mr Phillips—It has not been considered as part of this legislation.

Senator HEFFERNAN—Why not?

Mr Phillips—This relates to the export marketing of wheat.

Senator HEFFERNAN—Can I just say it is a very integral part of it, and if we are going to open the market up there will be all sorts of golliwogs in the market in due course. If I am going to warehouse my grain with Whoever-it-is Pty Ltd, I want to know I have got protection if they go belly up when it is warehoused in their facility—unlike those people in central-western New South Wales where the receiver said: ‘No, I’m sorry. We’ve taken possession of your warehoused wheat.’ That is a very critical position.

Mr Phillips—As I understand the situation—

Senator HEFFERNAN—Or don’t you know what I am talking about?

Mr Phillips—The issue has been raised at ministerial council level in the past. New South Wales has actually enacted some legislation to try and resolve the situation in New South Wales, and it is up to the other states—

Senator HEFFERNAN—Can you provide that brief to the committee.

Mr Phillips—Yes.

CHAIR—Take that on notice, Mr Phillips. It being 12 o’clock, I thank representatives from the Department of Agriculture, Fisheries and Forestry and Mr Crosby from the expert group. Thank you very much for your input. The committee is back in Canberra on 22 April, and we would like to take the opportunity to invite you both back so further questions can be asked.

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[12.02 pm]

DRUM, Mr Patrick, Brocklesby Growers Group

GOLLASCH, Mr Philip, Brocklesby Growers Group

McDONNELL, Mr James William, Brocklesby Growers Group

CHAIR—I now welcome the Brocklesby Growers Group. Do you have any comments to make on the capacity in which you appear?

Mr Gollasch—I am a wheat grower from Milbrulong, west of Wagga, north of Albury.

Mr Drum—I am a wheat farmer and I am closer to Brocklesby than any of us.

Mr McDonnell—I am a wheat farmer from Lockhart.

CHAIR—I invite you to make a brief opening statement, and then we will go to the committee for questions.

Mr Gollasch—I would like to make the opening statement, which may be added to by my colleagues. Let me say from the outset that we are not here to defend AWB for their actions in Iraq but we do intend to oppose, in the strongest possible manner, the abolition of the export monopoly and the single desk marketing system and the consequential demise of the national pool.

Firstly, the initiative of AWB in introducing incremental payment scales for protein, moisture and screenings quality parameters led to the industry adopting quality payment scales and eliminated the cliff-face drop in prices between wheat grades. Secondly, AWB initiated varietal payment scales not only for the pool but also for its fixed tonnage contracts. The rest of the trade ultimately had to adopt at least quality payment increments. It is of note that, generally, international traders operating in the Australian domestic market did not offer varietal payment contracts, as it would have meant they would have had to purchase out-of-spec grades of wheat.

The assumption made in article 6.04 of the Wheat Industry Expert Group discussion paper that AWB and others will continue this type of payment is questionable. The loss of the national pool has already cost growers money, as currently neither AWB nor any other buyer, to my knowledge, is offering forward pricing for wheat with incremental or varietal pricing. These two initiatives together have underpinned the production of quality wheat in Australia, as they have provided growers with the incentive to make the investment in the extra input costs required for high-grade wheat production. The penalty of cliff-face grade pricing was removed and, if factors outside a grower’s control contributed to a lower grade outcome, such growers were not penalised. Monopoly exporter status was fundamental to offering such a payment scheme, as it ensured, through the national pool, reduced supply risk for the exporter and access to all grades.

Just as I mentioned with the domestic market example, there is no incentive for an international trader to offer varietal payment scales if they only want to export premium grades of wheat. Conversely, there is also no incentive for a domestic pool that accumulates grain simply for the intensive stock industry. For example, the 2006 GrainCorp grade based

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pool did not perform as well as the AWB varietal based pool. In fact, GrainCorp sold wheat from its pool back to AWB.

Because of climatic uncertainty, state based pools cannot provide customers, including export customers, with surety of supply. North America and Europe can produce a lot of wheat in a short time, and a single-desk marketer is best suited to competing against the rest of the world when dealing with single-desk buyers. The Australian wheat grower is faced with climate uncertainty as well as the pressures of dramatically increasing fuel and fertiliser costs. In the past, collective marketing and the incentives mentioned earlier have provided industry stability and quality certainty.

Those wishing not to participate could market their grain through a range of other avenues domestically. It should be noted that the national pool was the instrument that put a flaw in the domestic market price. As the Cole inquiry progressed, a question mark fell over the future of AWB and the pool, and many growers used hedging through the Chicago Board of Trade and Australian derivative products, such as bank swaps, but the losses have been absolutely staggering—I would suggest in excess of $100 million. These losses are enormous compared with any perceived shortcomings in the previous operation of the national pool.

If the proposed industry reforms are designed to corporatise farming in Australia, they may well succeed, but the social as well as the economic cost to rural Australia will be enormous. If the proposed industry reforms are designed to transfer profits from the Australian wheat industry to multinational traders, they will succeed. If the proposed industry reforms are designed to drive young people from the industry, they are already succeeding.

CHAIR—For the benefit of the committee, could you let us know how many of the growers in your area you represent?

Mr Gollasch—Between the three of us here, at least 100 to 150 growers are represented, I imagine. But I know that our views are widely held by all the people around me, certainly.

CHAIR—What came out of the hearings yesterday, through all the witnesses, was the belief that growers were not represented by the bodies that everyone thinks they are represented by. I just wanted to clarify for the committee—also for my own personal assistance—how many growers you represent in your area.

Mr Drum—Perhaps I could comment on that. In arranging for three of us to be here, I contacted people from the Murray River to the Murrumbidgee River and, in the west, to as far as Jerilderie.

CHAIR—Mr Drum, you do not have to justify why you are here; that is fine. It is just so that we understand how many growers—

Mr Drum—It has taken us 150 days to get here—that is, since the Labor government got into power.

CHAIR—It has taken you 150 days to get here?

Mr Drum—The Labor government has been in power for nearly 150 days, and we have been flat out getting here to give evidence for half an hour. That is how much representation you are getting.

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Senator Heffernan—So let us get on with the half-hour.

CHAIR—Senator Adams?

Senator ADAMS—I do not have any questions at the moment.

CHAIR—Senator Siewert?

Senator SIEWERT—No.

CHAIR—Senator McGauran?

Senator McGAURAN—We have had many farmer groups and representatives come before us espousing the virtues of the single desk, but, to be realistic, we are just not in that situation. As you rightly point out, it is 150 days of the Labor government—and don’t we know it! You may have heard the previous group, and AWB before them, talk about the consequences if this legislation does not go through the Senate. Are you aware of those consequences? It does not bring it back to the single desk—that is my point.

Mr Gollasch—The consequences either way now are, I believe, devastating for many southern New South Wales producers. The earlier group mentioned on-farm grain storage a lot. That is something that can only be achieved by large-scale or corporate-driven farming. If I put up grain storages to store all my harvest, I am not going to get paid for any of it until somebody buys it from me. And what you have to understand is that once I put all that wheat, whatever grade it might be—some of it will be very good prime hard wheat and some of it will be general purpose stockfeed wheat—into one silo on my property, it all becomes feed wheat. That means it is basically only suitable for the intensive stockfeed industry, because I cannot segregate it back out again. It is in the bin, the bunker or whatever I build.

Senator HEFFERNAN—You can have individual silos, though, surely. I mean, 100 tonnes or 150 tonnes is a reasonable silo—I have them.

Mr Gollasch—With due respect, Senator, I do not have protein-testing facilities and all the equipment I need to segregate each load.

Senator HEFFERNAN—But surely you can take a sample to town.

Mr Gollasch—Harvest time is high pressure.

Senator HEFFERNAN—I have been driving a header for 35 years.

Mr Gollasch—I realise that, Senator. We deliver grain to a receival point, where it is tested. If I am in the truck or some member of my business is in the truck, they or I know where we want to put it, who we want to sell it to and whether we want to pool it. If perchance it is going on a carrier’s truck, I can say: ‘Warehouse it. I will look up the prices tonight and do a transfer tomorrow,’ and I deliver that wheat into its best market position at that point in time. Once I pool my grain on my farm, I am limited in how I can split it up again. I do not have people running around doing all these jobs for me; most of us do not.

Senator NASH—One of the things that was raised yesterday was the issue—once we move to this brave new world, as Senator Heffernan now calls it, with this change in the marketing arrangements—of the flow from north to south at harvest. The harvest comes earlier in Queensland and moves down, getting later and later from north to south. Because you come from the south of New South Wales, I am interested in your views on that flow and

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your thoughts on how the loss of the buyer of last resort will affect the operation of the market by the time we get through the harvest time line and down to the south of the state, given that quite often the buyers will have filled their requirements before it actually gets further down south.

Mr McDonnell—That is quite correct. When the wheat is sold up north and they then come down to the south of the state, the price will have fallen if it is a massive harvest. As the previous gentlemen were saying, you then store your wheat at harvest on farm because of the price coming down, in the hope that you are going to get a better price if more people come into the market. If you sell the wheat later on, it will be a flat price and there will be no premium. If you have downgraded quality wheat, you will lose out also.

Senator NASH—There has been a lot of discussion about storage—and I think one of the previous witnesses even said that it will suit the bigger growers better. My concern is for the smaller growers who will not have the capacity to adjust to these changes as easily as those bigger growers with the economy of scale—and, off the back of seven years of drought, they might not be able to find the finance even if they were able to do that. From a community point of view in the region where you live, how is the community travelling financially? I know you cannot speak for everyone but, in general, are farmers in a position to cope financially with changes such as having to move to some kind of on-farm storage capacity?

Mr McDonnell—With on-farm storage, there are a lot of issues to consider. If you pay freight for somebody to cart grain to the local silo and the local silo is not efficient, you are paying the driver to sit there. If it is your own truck and you are paying him by the hour, he is sitting there reading a book and not delivering. People then go for storing grain on their farms. If they want to build a bigger silo that is okay, but a lot of people are going for the cheap option of silo bags. The minimum size for a silo bag is approximately 200 tonnes. You can put less in them, but then there is the issue of efficiency. But with silo bags you have to consider the quality of the plastic and, considering that we have the greenhouse debate, the amount of plastic that is used. Other issues include the containment of weevils and the high cost of storage at GrainCorp or AWB silos.

Senator NASH—I have grave reservations about competition delivering what those who believe in it say it will. Mr Gollasch, in your opening statement you mentioned your view that the bill had set a floor for the market. Could you expand on that.

Mr Gollasch—It is not a view. Anybody who follows the daily pricing of domestic wheat can see that in a normal production year, where the domestic market is likely to be oversupplied, on any one day only the bids which are in excess of the estimated silo return from the national pool are achieving any sales. Nobody would sell to a private buyer for less than what they expected to get from the pool. It simply has underpinned the domestic market because, by definition, the domestic market is virtually always oversupplied, except for maybe the last couple of seasons, when we have had pockets of drought that have limited the supply of wheat to particular domestic markets—and we have seen some big prices paid. In that case, it is the import price that underpins the domestic price.

Senator NASH—With the drought being so long, a number of farmers that I have spoken to are pushed to the wall financially—and you just mentioned the estimated pool return. How

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do you think that is going to affect the relationship between banks and farmers and how the banks are viewing it? There has been some comment that the banks had at least some kind of surety that a farmer doing a budget can give at least a rough EPR in terms of their income. With that gone, do you think that is going to make a difference in how banks view farmers and their budgets and how they are working?

Mr Gollasch—In the last couple of years, or perhaps 18 months, the banks have pushed their derivative products as a means of underpinning the price of wheat. Unfortunately, these products are Chicago board price based. The Chicago Board of Trade has recently become just a hedge fund speculators’ market. Its limits have been increased from 30c a bushel to 90c a bushel and the losses amongst growers trying to roll from one contract month to another have been enormous.

That is the way the banks wanted us to go, and a lot of the banks are running around now trying to cover their bases. Quite frankly, I know growers who are going out of business over this bank swap business. Personally, my losses have been extensive. I cannot talk to two growers without one of them saying they are in a similar position. While ever we are making a loss on our farm income because the losses on the bank swaps exceed our production, the government will have to put their hands in their pockets and find the Centrelink payments to keep those families going in the interim. This is a major problem, if the industry is expected to hedge its own grain. Everybody I know who has been hedging did all the hedging courses, understood what they were doing, had a good idea, had a sound knowledge of it, talked it through with their managers and had financial advisers. We have all lost money, big money. If that is the way the industry has to go, it is going to go backwards.

Mr McDonnell—I want to make one comment, going back to the issue of on-farm storage. If there was on-farm storage, the grain would be carted at harvest time, when it is generally dry weather, on roads which are only good in dry weather. If the grain is carted on roads later in the season, especially if the following year has a wet winter or wet spring, the roads will cut up like blazes. It will cost a lot of money to keep those roads upgraded when that grain should be going on trains. Because of Pacific National pulling out, apparently that is not going to happen, which I think is another issue.

Senator NASH—That is a very good issue.

Senator HURLEY—I think it was Mr Gollasch who was talking about your work since the Labor government came to power. You were saying that, under the interim arrangements put in place by the former government, already people had experienced worse environments. Was that the hedge funds that you were referring to or was that something else?

Mr Gollasch—As the Cole inquiry became a public affair, there was a question mark over AWB’s future and over the future of the national pool. It was in that circumstance that many of us turned to hedge methods other than the pool. The pool was a great way of hedging because they were the buyer of last resort and ultimately had to take my grain if I did not find a better home for it. Grain prices increased after that up to $250 a tonne, port based, early last year and it seemed like a good opportunity to invest in these derivative products or Chicago futures options. Even though investment in those products was done at levels quite acceptably

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low or safe, hedging 30 per cent of safe anticipated production, the fact that there was no production last year caused some dramatic problems.

Senator HEFFERNAN—Who sucked you into that: the banks or a financial adviser? I know blokes at home whose banks have said, ‘We’ll fund you as long as you forward sell.’

Mr Gollasch—The products were initially pushed by the banks. I can name banks, but I will not.

Mr Drum—They were pushed by the banks because AWB had no guarantee of what they could do this coming season.

Mr Gollasch—That is right.

Mr Drum—AWB had been running the pools for years and hedging and doing that part of it.

Senator HEFFERNAN—But in the last couple of years, you would agree that, since the corporatisation of AWB, farmers have not been getting a fair go. Three years ago they purchased in the cash market a million tonnes and then dropped it into the pool to get rid of it. That would not have helped the pool. Then in the 18 months prior to last May, as you probably are aware, AWB bought from the pool and resold, for whatever purpose, 2.9 million tonnes through the Geneva desk. I find it hard to believe that that sort of stuff is in the interests of growers.

CHAIR—I would say that that is more of a statement than a question. Senator Hurley has the call. I will come back to you, Senator Heffernan.

Mr Gollasch—I am happy to address that if you would like it addressed.

Senator HURLEY—We had AWB here earlier. One of the people from AWB said that there was really no buyer of last resort—that they set the quality and that it was really a bit of a furphy.

Mr Gollasch—I have never agreed with the term ‘buyer of last resort’ but that is the term that is used in the description. In my instance, they were basically the buyer of first resort unless there was some lucrative premium that I could achieve in the domestic market, but my location generally precluded that. The deregulated domestic market was great for people who lived next to feedlots and so forth, but for most of us AWB’s national pool set the bench price and the bench quality parameters.

Senator HEFFERNAN—You would go to Bunge from there, wouldn’t you?

Mr Gollasch—I live next door to Bunge. They do not have contract prices anymore.

Senator HEFFERNAN—They are in deep shit now.

Mr Gollasch—I do not know whether they are or not, but they have been there for—

CHAIR—There would be a town named Bunge, I take it, Senator Heffernan?

Senator HEFFERNAN—No, that is a pig—

Mr Drum—They have been there for 25 years.

Senator HEFFERNAN—The pig job’s buggered.

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Mr Drum—We are not talking about the pig job; we are talking about the price of grain. They had contracts until about five years ago. I could buy a contract in March and deliver in February the next year for a price, but now you cannot.

Senator HURLEY—People have variously talked about the commercialisation of AWB and the Cole report and all of that having triggered some change, but it sounds like you think that the former government, the Howard government, instituted some interim arrangement and you now believe that we should go back to the original AWB. Is that what you are saying?

Mr Gollasch—I do not think we can go back; I think the wheel has turned too far. Ideally, the marketing system we had pre Cole—take it away from AWB and give it to some other entity, with some finetuning of the slight conflict of interest between being a cash buyer and a pool operator—worked very well for me and my business and all the businesses around me for many years. I cannot see the systems that are proposed now offering me the kind of choice I had before. They will basically offer me prices on grades that I may or may not be able to produce. I do not think they will offer me—I cannot understand why they would—any incremental payments between grades. There was some discussion in the earlier group that the grades may well be different. We as farmers set out to produce quality wheat and we did it because we were driven by the incentives given to us through the national pool and through the forward contracts, with the same incremental payments and the varietal payments. You must note that to grow prime hard wheat I have to grow a prime hard variety, and to grow prime hard wheat I have to feed that crop more fertiliser and grow it on my best quality ground, and I have to spend more money to do it. I could grow lower grades of wheat. They will not fit into the prime hard category; they are not allowed to, even if the protein level gets to that point. Growing wheat is a complex issue and it takes a complex marketing system.

Senator HURLEY—It seems to me from the evidence we have heard that, even if we could go back to a substitute for AWB, the difficulty would be in finding one group that would satisfy all of the different requirements of the industry. You are saying that the previous arrangement satisfied you, but it clearly did not satisfy others in the industry.

Mr Gollasch—It did not satisfy a few. Perhaps they were growing prime hard wheat. If I were able to draw you a graph, I could show you that under the Golden Rewards system, the varietal payment system, many of us who set out to grow prime hard wheat did not quite fall into the category and still got a very good price for that wheat. Others who set out to grow prime hard wheat and exceeded the specification were rewarded in some respects. Different ones who set out to grow prime hard wheat and made it just over the spec could well argue that, if another system of marketing this prime hard wheat had been available, they would have got an extra $10 or $15 a tonne for it. But they do not take into account the 60 or 70 growers, out of a group of 100 growers, who may well have got a premium price for the wheat that was just out of spec or got an extra price for the wheat that was well over spec.

Senator HURLEY—But AWB could only sell if they had a market for that wheat. They could only give you a premium price if they could in the end sell at a profit themselves, so why wouldn’t other companies be able to do that?

Mr Gollasch—AWB’s role was completely different. They had to buy my grain if I wanted to sell it. AWB’s role was to accumulate the grain and find a market for it. The other traders’

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role is to find a market and then go out and buy the grain to fill that market, and that is how those traders will work.

CHAIR—Thank you. We have gone over time, but I know there are two burning questions from two senators, one each from Senator Heffernan and Senator Adams.

Senator HEFFERNAN—I have a question, and I will have a yarn to you afterward. Are you concerned about fertilisers and chemicals? I would just like a comment on that.

Mr Drum—Even though it is shocking, it is not our biggest problem.

Senator HEFFERNAN—We have a fertiliser inquiry underway.

Mr Drum—We are very concerned about it, certainly.

Senator HEFFERNAN—Do you think farmers will make a submission on that to the fertiliser inquiry?

Mr Gollasch—If any of us are left after this review.

Senator HEFFERNAN—That is now. It is on now.

Mr McDonnell—As farmers, we are in an input industry game. As Philip said before, we have to beef up our crops with fertilisers and we have to try to maximise our profits by making sure there are no weeds there. But people do not mind paying that price for fertiliser and chemical, providing that they know that they are going to get $X for their wheat.

Senator HEFFERNAN—But do you give consideration to the fact that, in the event of a crop failure, your failure is a lot larger? You are not worried that this might be global cartel behaviour in fertiliser and chemical?

CHAIR—I think that is a very good question. You can take that on notice, and Senator Heffernan will have a talk to you at the conclusion.

Senator HEFFERNAN—I am just advertising the fertiliser inquiry.

CHAIR—Which is also of great importance to the farming community, I have no doubt.

Senator ADAMS—I am from Western Australia, and of course our wheat growers do not have a choice—well, they do, with deregulated bags and containers now, but it is a very different scenario. I appreciate that you are from here, but we are trying to look at it as a global inquiry. I am just interested, Mr McDonnell: what percentage of your wheat harvest goes to the domestic market?

Mr McDonnell—That is an extremely difficult question to answer. Between me and my brothers, we have 7,000 acres. If it rains two inches tonight and we are going to start harvesting tomorrow, and all the wheat is then classified as black tip, it all goes to the domestic market.

Senator ADAMS—Yes, but what do you normally do? I really want to just get an idea from the three of you: do you support the domestic market more than you support AWB? This is just generally. You have obviously been farming for many years, as we have. Our grain has to go to AWB.

Mr Drum—Where I come from, the majority of farmers try to get it into AWB. Up until the last couple of years, they have been growing those grades of wheat and those varieties of

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wheat which are not prime hard—they are hard wheat—and their first option is AWB or the GrainCorp pool.

Senator ADAMS—And yours?

Mr McDonnell—The first option is to AWB and to the pools, but you cannot always deliver that because of circumstances.

Senator ADAMS—What about you, Mr Gollasch?

Mr Gollasch—In the last couple of seasons, we have been flat out to grow any wheat—

Senator ADAMS—Yes, I realise that.

Mr Gollasch—but obviously most of it goes to the domestic market. But, prior to that, I would say two-thirds of my wheat would go to the pool or to some other AWB mechanism and one-third would go into the domestic system, which is basically what happens with Australia’s wheat, in proportion.

Senator ADAMS—I just wanted to know how the system worked.

CHAIR—Mr Drum, please make a comment in wrapping up.

Mr Drum—The last pool system we had in the grain was 2005-06. It was quite a massive crop, and it was the best price we could get at the time. It took 18 months to wind it up. The initial up-front payment for a start was a little bit behind the cash market, but it turned out quite a bit better. I think you will find that that pool, the last major pool in eastern Australia, particularly, was far better than the cash market.

CHAIR—Thank you for your presence today. If you wish to ask the senators any questions in the break, please feel free.

Proceedings suspended from 12.35 pm to 1.31 pm

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OSBORNE, Mr Alick Stevenson, Director, Australian Grain Exporters Association

CHAIR—I welcome the representative from the Australian Grain Exporters Association. Do you have comments to make about the capacity in which you appear?

Mr Osborne—I appear as a director of the Australian Grain Exporters Association. I am also a director of Louis Dreyfus Australia and a commercial manager with Louis Dreyfus Australia.

CHAIR—Thank you. Would you like to make a brief statement before the committee asks you questions?

Mr Osborne—Yes, thank you. The Australian Grain Exporters Association represents the major international trading companies. Our members are Bunge Agribusiness Australia Pty Ltd, Cargill Australia Ltd, Glencore Grain Pty Ltd, Louis Dreyfus Australia Pty Ltd, Noble Resources Australia Pty Ltd and Elders Toepfer Grain Pty Ltd. The Australian Grain Exporters Association has argued for open and contestable grain export markets in Australia for many years. In November 2006 we commissioned the report Marketing Australian wheat, which advocated the introduction of an accreditation scheme for wheat exports. We have provided copies of that document to the members of this committee, and we will also provide a submission by the closing date—in due course.

It will come as no surprise that the Grain Exporters Association is supportive of the key elements of the draft bill—specifically, a contestable Australian wheat export market created by the accreditation of multiple exporters and the protection provided to accredited exporters seeking competitive access to key infrastructure at export ports. We have witnessed the successful introduction of a similar system for barley exports from South Australia. Our members have been keen participants under that system in South Australia, with four having already been licensed and the other two having applications in process.

The AGEA believes that the accreditation scheme for wheat will benefit the vast majority of Australian wheat growers and the industry more broadly. The points where we see that benefit accruing would be: that competition amongst accredited exporters to purchase wheat will create a more active and vibrant market in Australia; in particular, a full range of risk-management products will become available, and bids will be in the market not simply pre-harvest but year round; growers will be empowered to make better decisions and control their businesses more effectively; clearer market signals will flow through, and lower costs for services are possible; and we would expect commercial solutions to become more evident in the supply chain.

Finally, people should be aware that the single desk has, in fact, already been dismantled. There is no single exporter with the capacity to export the entire Australian wheat crop. For this reason, it is critical for the industry to move forward and for there to be as many accredited exporters as can meet the criteria—the ‘fit and proper’ test—operating in the Australian wheat market well in advance of the upcoming harvest. That concludes the statement.

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Senator McGAURAN—I see in your submission that you have ‘protecting growers’ real interests’ and it boils down to ‘competition will resolve the day’. The more buyers you have, the better off the growers will be. They will be in great demand.

Mr Osborne—Yes.

Senator McGAURAN—Therefore, for your theory to work, I suspect that it is important we get as many buyers accredited and in the field of buying as possible. Can you comment on the accreditation scheme? The witnesses thus far have said that it is a heavy-handed scheme. The WEA are not sure how they should administer it and, at the moment, it is really a black hole for them. Can you comment on whether you think it is heavy handed and what parts of it you think could be amended?

Mr Osborne—We recognise the similarities between the scheme that is proposed here and that which exists in South Australia. We believe that Wheat Exports Australia could interpret it to be, at either end of the scale, heavy-handed or a relatively light touch of regulation. Because of our belief that as many accredited exporters are needed as can meet the criteria, we would advocate that Wheat Exports Australia should not try to replicate the processes that bodies such as ASIC, the ACCC and others may have and, specifically on that point, that the review of the financial capacity of the company really focuses on its financial stability rather than on a highly in-depth or quantitative analysis. For instance, we think that directors’ and managers’ responsibilities for operating a company as set out under the ASIC regulations are quite sufficient in that regard. We are concerned that Wheat Exports Australia will have a very wide discretion to impose an as yet unknown list of conditions on exporters, and we do not want to see that being used to knock people out who should reasonably be accredited.

Senator McGAURAN—What about the specifics of the accreditation system, such as the subjectiveness of the risk management arrangements—do you think that is necessary?

Mr Osborne—The risk management policy that one company operates may be quite suitable for their needs, their business structure and the business that they intend to do, but it would not necessarily be suitable for another company that is looking at different markets or a different scale of operations, for instance. Therefore, we do not see a one-size-fits-all policy being applicable to risk management policies and we acknowledge the need for that to be somewhat subjective.

Senator McGAURAN—You acknowledge that—

Mr Osborne—It needs to be subjective and sufficient to the operation and the task that that company intends to participate in with exporting wheat.

Senator McGAURAN—I suspect that you cannot answer this question, but I am going to ask it anyway. People have told me that they have some concern in that, once this legislation goes through and the market opens up a great deal more than it is now, we will have a flurry of takeovers and, therefore, our worst nightmare—or the farmers’ worst nightmare, quite frankly—will occur: the concentration of power, similar to that in other industries. I notice that you do represent some very big names: Cargill, yourself. We know that Cargill has a relationship with—is it GrainCorp?

Mr Osborne—GrainCorp, yes.

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Senator McGAURAN—In fact that is the one that has been pointed out to me as a target—an immediate target—for Cargill. Are you in a position to comment on that?

Mr Osborne—I cannot speak to what Cargill’s specific intentions may or may not be with GrainCorp. I have no knowledge of that. I would note that there have already been a large number of takeovers, or consolidation, within the Australian industry—most notably the joining of the bulk handling companies in particular regions with the former statutory trading operations in those same areas. So the history of the industry has been that the structures that were created on a state or a regional basis have consolidated but the private companies and certainly the international companies have not played a part in that consolidation.

Senator McGAURAN—I guess the Trade Practices Act is there to protect concentration of the market in that area but, as I said, it has been said to me enough for me to believe it that there will be a flurry of activity, which is not in the farmers’ interests. Would you agree with that?

Mr Osborne—I think what is in the farmers’ interests is that at all times there are a broad range of accredited exporters such that there is competition to buy grain within Australia.

Senator McGAURAN—That is all I have for the moment.

Senator HURLEY—A lot of the concern that we have heard expressed in the last couple of days from smaller farmers has been the loss of a floor price, the price that has been set by AWBI that gives them some security in what price they are going to get for their wheat. There has also been talk that in some ways it sets the price for domestic wheat as well. I think some farmers are looking for some security instead of that floor price. There is obviously the estimated pool return, but there are also some proposals to have a kind of set minimum trading terms. Do you have a view on that?

Mr Osborne—As to the floor price that the pool used to set, I would say that the early pool indications were usually very conservative and often quite low. So I would argue that a competitive and contestable market is going to price forward to the upcoming harvest with higher prices than would otherwise have been the case if there were a regulated market. The fact is that all of the trade used to look at the AWB pool price and say, ‘If I am bidding a little bit more than that, I will get some grain,’ and so did the domestic market. For the domestic market, if that underlying pool price or that early estimate was low, so much the better. I think it goes to the point I made earlier about accurate market signals. The views of many people who are actively marketing Australian wheat to the world market and their view of valuation for that wheat I think will more closely reflect the true price and true value of that wheat than the view of one single individual operator alone. What was the second part of your question?

Senator HURLEY—There was discussion about minimum trading terms.

Mr Osborne—I believe that those are already essentially in place with NACMA trade rules and the standards for grain quality that NACMA sets. I note that the industry expert group has recommended that the GRDC take on variety classification and management of that program and that NACMA take on the role of setting the receival standard. So I think that industry can work within those parameters to create those minimum standards, minimum trading terms.

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Senator HURLEY—There was also some discussion earlier about farmers being unsecured creditors, and they were indeed under the AWBI system as well. Will they have any more security under the new regime, or will that continue to be the case?

Mr Osborne—Farmers will continue to have the responsibility to undertake some due diligence on the people with whom they are dealing. As you quite rightly point out, they were unsecured creditors to the single desk operator for the last 10 years approximately, I think, but certainly in recent years that was the case. As they look to deal with more people, they will have to undertake the same due diligence that they should have been doing anyway.

Senator HURLEY—There was some suggestion—and you mentioned the South Australian situation—that the barley price dropped considerably following deregulation. Was that your understanding?

Mr Osborne—The barley price followed the world market price very closely. The world market price from June-July through to September-October rose dramatically. I have been in this industry for 15 years and have not seen anything like it. That was caused by the reduction in the Australian wheat crop and the reduction in the supply from the Black Sea, particularly the Ukraine, which is one of our major competitors. At different times and including leading into and immediately post harvest, the main buyer, Saudi Arabia, stepped away from the market because prices got too high for them to be able to afford to feed their livestock. So they stepped away from the market for a period, and prices did subsequently decline. But I would say that the prices in the South Australian market very closely and clearly followed the world market movements.

Senator NASH—You made a comment earlier around the EPRs. You were saying, I think, that your assessment was that there would be a higher price under the new arrangements, as compared to the EPRs, which you felt were really historically on the lower side.

Mr Osborne—Yes.

Senator NASH—What did you base that assessment on?

Mr Osborne—If you are the only person operating a pool and you have no competition and no other benchmark—if you are in fact the benchmark—and nothing is going to be really transacted in your pool at that level at that time because it is a long way prior to harvest, there is no incentive for you to set a high early price. You set a price which is modestly reflective of the world market and which encourages growers to plant a certain size of crop, given the prices of barley relative to wheat or wheat relative to canola or livestock—they are competing enterprises. But there is not that real competitive pressure to post the true world market value, plus it is also quite nice to be able to set the scene that, as you get closer to harvest, prices move up and, post harvest, prices move up. That creates the sense that the pool has performed well, but you cannot do that if you start too high.

Senator NASH—How do you think the pools will operate in this new environment?

Mr Osborne—Against a competitive market people will in fact have to operate pools which compete to attract tonnage to them, so the service they offer, the financing terms and the repayment schedules will have to compete with—at a minimum—the world cash market.

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Senator NASH—On that, there was some comment made earlier, I think, around AWB, saying that the lack of knowledge about the volume made it difficult to operate the pool in years gone by. They have made that comment. Isn’t it going to be a very different environment, though? Aren’t you comparing apples and oranges a bit? I think the department talked earlier about innovation but did not actually say what innovation was going to be. Isn’t it comparing apples and oranges, because from what we can see they are going to be entirely different things?

Mr Osborne—I think it is going to be a very different environment for pool operators, because the market will actually be set by the competing cash bids. That will be the real choice that market participants have as to whether they reserve their grain for a pool, commit to an early contracting pool, sell for cash or hold their grain off the market until they see a price that attracts them. I would say that the pool operators never knew the exact size of the pool anyway, because none of us knows what the crop is going to be in December. We can have a view, given normal weather conditions and given current pricing, about how much is going to be planted and what the resulting crop might be, but we never know the actual amount until we get there and sometimes not until well after, in fact. The domestic market and then more recently the container market have been competing to take that grain away from the pool, so to that extent the pool operators never operated in a situation of certainty. They will have to be more sharply on their game to understand what is happening in the market and how they operate their pool in the future.

Senator NASH—In your opening statement you talked about the fact that, in this new competitive environment, competition would benefit the vast majority of growers.

Mr Osborne—Yes.

Senator NASH—Can you expand on that a little?

Mr Osborne—There are two main things it will do. One is that Australian wheat is in demand not just up until the pool closes but every day of the year, so farmers will be able to find a bid in the market that represents the world demand for wheat long after harvest. There will be a price there for them in December and January at harvest, certainly, but also through March, April, May, June and right out to September. We have seen a small amount of that already in the container market. Importantly, that means that farmers do not have to force their cash pricing decisions into marking alternatives that are pre-harvest or pre-closure of the pool. That, in turn, means that there is the alleviation of some of the pressure a farmer gets whereby they have to lock in forward prices before they know what their actual production will be.

It then becomes the farmer’s choice: ‘When do I market my wheat? If I like the price today and think it is a good forward price and I have confidence in the season or what I may be likely to produce, I can lock that price in. I can sell or pool at harvest. I can hold wheat post-harvest for sale throughout the year because there will be a bid there.’ I do recognise that, particularly on the east coast, not all farmers are in a cash flow situation where, at this point, they can necessarily hold wheat for later sale; but I would point out that, even from the last very small harvest, a number have done that.

Senator NASH—You are talking in principle rather than in actuality, given the number of farmers who, due to financial constraints, might not be able to operate in that environment.

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Mr Osborne—Western Australian farmers and a number of South Australian farmers will have the cash flow capacity to do that.

Senator NASH—I take it that some will, but a significant number will not. Doesn’t this issue of competition, including the so-called benefits that go with it, have a flip side? In your view, what would happen if we have a bumper season—and it looks like we might; I think there is some talk about 27 million tonnes this harvest. In terms of supply and demand, if there is a surplus to the requirements of those buyers, isn’t that going to mean potentially that many growers, particularly growers in the south, will have no market to sell into?

Mr Osborne—No. There will definitely be a market for them to sell into.

Senator NASH—Purely hypothetically—

Mr Osborne—I am saying ‘a market’. I did not say that it would be the highest price in the season. It may be at a lower price than had been there earlier, and that harvest price may be lower than the price that is bid for by March, April or May. That may occur. Equally, there may be a very strong market at harvest because of people wanting to refill. The world market has not had much Australian wheat for the last two years and it could demand very strongly—and I expect it will demand very strongly—early Australian wheat. We could then see very strong prices during the harvest period, then a lull in pricing perhaps in March, April and May and then a return to pricing at whatever level the market needs in order to clear stocks later in the year.

However, the point is that there will be a bid in the market because, even if a customer in Japan, Egypt, Indonesia or wherever does not want wheat today, they will tomorrow. By forming a view as to what the price of wheat is going to be in the future and deducting the cost of storing and the cost of interest on that wheat, we can formulate a price for today and that will be the bid in the market in the near term. So there will be a bid in the market. If people do not like that bid in the market, they can choose to wait until circumstances better fit their operation.

Senator NASH—That is my point. I think an awful lot of growers do not have that ability to choose at the moment.

Senator ADAMS—I am sorry I missed your opening statement, Mr Osborne. I would like to go to Western Australia now and ask you what advantages under the new system Western Australian farmers would have against what they have had in the past.

Mr Osborne—There would be a bid for their wheat all year round—Western Australia is one of those areas where the market stops dead once the pool closes, apart from the container market operating at the periphery; certainly more cash prices for their wheat and a deeper market for that because people will know that they can stand there and take tonnage against what they can ship in bulk rather than the limitations of what they could previously ship only in containers; a number of different pool products developed to better reflect that competitive market and the fact that pools will have to pull up their socks relative to where they have been previously in order to attract grain competing against the cash market; more participants in the market; and more people living in regional areas to buy grain. I can see all of those things occurring.

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Senator ADAMS—Just on the regional areas, do you have a problem with the current infrastructure with the inland terminals as an access point? As a marketer do you have a problem with that?

Mr Osborne—We will work very closely with the ACCC when they are ready to get going past September 2009 to make sure that issues such as access to up-country storage are not used as another way of restricting competition. We are very strongly of the view that the removal of a national monopoly should not be replaced by a regional monopoly. We note that the ACCC are going to administer a scheme out there. We have a number of items that we would look to take up with the ACCC, specifically that exporters cannot be given access to the port but denied access to the up country. That would be an issue I think of third-line forcing or bundling of services, but I think those are already covered in the Trade Practices Act. We would look for those to be incorporated in the access regime administered by the ACCC.

Senator O’BRIEN—The ACIL Tasman report that was commissioned by your organisation has been submitted to us. On the second half of page 28 it states:

Bulk wheat exporters have strong incentives to set themselves aside from their competitors ...

There are then six dot points outlining methods of differentiation. At the bottom of that page it says:

Evidence of all of the points above can be seen in the Victorian barley market following deregulation in 2001.

Are you able to further elaborate on the nature of that evidence?

Mr Osborne—Yes: the development of innovative new products; cash prices certainly became more prevalent in Victoria post deregulation; multi grade for feed barley and malt barley, and spreads between the two of those offered in one contract; and I believe clearer signals were shown of the value of malt barley in particular according to its specific attributes and at different times when it was in strong demand and when it was not. Since Victoria has opened up its barley market, Barley Australia has come into formation. I am not suggesting that that happened solely because of deregulation in Victoria, but it is an example of the industry working to create new bodies and activities that support industry needs. And we have seen people specialise in particular areas of the market. In Victoria we saw people exporting significant volumes of particular malt barley varieties in containers and working very hard to do that, which was something that was not evident previously. Those are a few examples of what we drew on there.

Senator O’BRIEN—Did that mean that there were more exporters in the market and more choices for growers?

Mr Osborne—Previously there had been only one, and I think in Victoria I can see more than 10 exporters bidding for barley at any one time. That does not mean that that barley necessarily ends up being shipped away, because on occasion the domestic market will become a stronger demand point for that barley, and it gets turned back to the domestic market. It is quite reasonable that that should happen.

CHAIR—Thank you, Mr Osborne.

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[2.01 pm]

GURSANSKY, Dr Benjamin Charles Gordon, Consultant, Grains Council of Australia

SMITH, Mr Jamie Lachlan, Board Director, Policy Council, Grains Council of Australia

CHAIR—I now call the Grains Council of Australia. Do you have any comments to make on the capacity in which you appear?

Mr Smith—Yes, I am also the vice-chairman of the South Australian Farmers Federation Grains Council and a wheat grower from Yorke Peninsula in South Australia.

CHAIR—Do you wish to make a brief statement before the committee asks questions?

Mr Smith—Yes, I do. On behalf of the Grains Council of Australia, I would like to thank the members of the committee for the opportunity to present evidence to the inquiry into the Wheat Export Marketing Bill 2008 and the Wheat Export Marketing (Repeal and Consequential Amendments) Bill 2008.

GCA is the peak national grain grower body, with membership from state farming organisations in South Australia, Victoria and Queensland and associate membership from the Tasmanian Farmers and Graziers Association. Historically, GCA has supported the intervention by government in the export marketing of wheat. GCA continues to support the regulation of wheat exporting through a process described in legislation rather than a fully deregulated process. The events over the past two years necessitate a pragmatic acceptance that wheat-marketing arrangements must change. GCA is therefore prepared to support the introduction of an accreditation scheme for multiple wheat exporters. We acknowledge that the draft legislation, which is the subject of the inquiry, will see the introduction of the Labor policy of accreditation of bulk wheat exports, a policy which was articulated prior to the 2007 federal election.

The GCA Policy Council have recently adopted a series of principles that outline our position on key requirements of the new arrangements. These include: (1) direct and official linkage must be reinstated in legislation between the regulator of wheat exports and the growers through GCA; (2) licences granted to exporters should be issued to any exporter who meets the criteria set for that licence, and noncompliance with the criteria should result in that licence being revoked; (3) there should be maximum security of payment to market participants; (4) net returns to market participants should be maximised through the development of efficiencies in the supply chain, and an advantageous market position should be developed for Australian wheat by maximising competition in the market at all points in the supply chain; (5) minimum standard trading and contract terms should be adopted by the industry, including truth in pricing and minimum standard payment schedules; (6) all pool products should immediately be classified as financial products and come under the financial services legislation to improve the position of growers as unsecured creditors; (7) compulsory stocks, sales and exports reporting needs to occur on a monthly basis; and (8) there is a need in the wheat market for industry development activities to be undertaken and managed by independent organisations.

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For the purposes of this statement, I would draw the committee’s attention to three areas of concern for growers in the implementation of changes to wheat marketing arrangements. Under this new arrangement, fair and equitable access to port infrastructure by accredited exporters under this new arrangement is an imperative. History has left us with only three regional monopolies. Our grains industry is heavily reliant on its ability to service our export markets; therefore, equal and fair access arrangements to the grains supply chain must be provided to all exporters of bulk wheat.

Security of payment for growers is a key component associated with the single desk. Mechanisms need to be available for growers to manage risk and to have confidence in payment security, which is a strong driver of why GCA supports continued regulation through the accreditation scheme. Clear and transparent reporting of information is required for the industry to operate in a more efficient manner. GCA advocates regular and timely reporting of grain stocks and export movements, which should be collated by an independent agency. This will lead to more-accurate information, improved transparency and improved market signals for the industry.

In closing, GCA would urge the parliament, as a matter of priority, to put aside the philosophical arguments surrounding wheat marketing and to deliver a pragmatic decision to support the introduction of these changes so that wheat producers have more surety as they enter the 2008 season. GCA will provide a more detailed written submission to the inquiry by the advertised deadline. Thank you for your time this afternoon.

CHAIR—Thank you. I am sure that a South Australian grower may wish to ask a question or two.

Senator FISHER—I presume there is no need to again declare my interest in this matter. Mr Smith and I are familiar with one another in an entirely professional sense; he is familiar also with my links to industry. Mr Smith, evidence has been given to the committee about the representative nature of industry organisations. In that context, I take you back to the first point in your submission that suggests that a direct and official link must be reinstated in legislation between the regulator of wheat exports and growers, through the GCA. Before I ask you on what basis the GCA seeks to make that point, I put to you that one of the witnesses yesterday, a grower from New South Wales—and I hope I am not misquoting him—said words to the effect that ‘your organisation’, which is the organisation you are representing today, ‘represents nobody’. Do you have a comment to make about that?

Mr Smith—I suppose that comes from a long history of divisiveness over this issue in the agricultural sector. One of my comments in the past has been that agripolitics is actually spelt with an ‘i’ and not an ‘o’, which seems to be something that escapes a lot of people. The reality is that, at the moment, the Grains Council of Australia is the only peak body in Australia for the grains industry. It has the membership of the state farming organisations of South Australia, Queensland and Victoria and the associate membership of Tasmania; therefore, it represents a portion of the farming organisations. Western Australia and New South Wales were both members of the Grains Council of Australia. However, due to various philosophical and other considerations, they decided to leave GCA.

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As you are probably aware, all agricultural representation from the state level through to the national level is under a state of review. Due to the nature of agriculture, advocacy is changing and we have to make sure that we are relevant. We believe that we have gone through the constitutional and due processes to come to this decision. There has been quite a watershed within the South Australian Farmers Federation with its view on this. At our recent AGM, we had a motion that supported moving forward down this track, which was supported by 80 per cent of the members.

Senator FISHER—In the context of this debate, some might suggest that it is significant that the Western Australian segment of the market—given its significance in this debate—cannot be represented by your organisation. What do you say to that?

Mr Smith—That is a fair point. The reality is that Western Australia represents a large portion of the export wheat market. As the senators may know, Western Australia is in a fairly divisive sort of position as far as farm representation is concerned. Various bodies claim to represent the interests of growers in Western Australia. At the moment, due to GCA’s constitutional arrangements, they are able to draw their representation only from the farming organisations of those states. Therefore, with the position of Western Australian farmers being different, the argument then goes to whether they represent growers in Western Australia.

CHAIR—Mr Smith, I may just jump in here. The Western Australian growers will have their opportunity to have questions put to them and they may answer for themselves on Monday. Through no fault of your own, Senator Fisher, we are short of time and your question does not touch on the bill. I would ask that we limit ourselves to one question per senator. If there is any time left then we can always come back.

Senator HURLEY—Mr Smith, can you just answer Senator Fisher’s question about how you wanted legislation.

Senator FISHER—They are suggesting an amendment to the legislation, Chair, as I understand it.

Mr Smith—In relation to the direct link, the constitutional requirements and business rules of various organisations including the wheat export organisation will require them to consult with the growers. There needs to be some formal recognition of that linkage. We believe that that will form a strong link—growers will need to be consulted through the GCA.

Senator HURLEY—You want it to be mandated in legislation that GCA would be the peak body.

Mr Smith—Yes.

Senator SIEWERT—Regarding the three main points that you say are the areas of concern about the implementation of the changes and particularly the fair and equitable access to the port infrastructure, are you happy with what is in the bill or are you raising that because you think it needs further attention?

Mr Smith—We have flagged that as a serious issue of concern. It is of concern to our members and it is of concern to the policy council of GCA. It has also been flagged as a concern—as you will probably be aware—by various other industry participants. As I said, we have been left in a position where three regional monopolies have been left in place.

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Senator SIEWERT—I understand your concerns. The point of my question was to find out whether you are happy with the provisions that are provided in the bill to deal with access or you think it should go further.

Mr Smith—That is something that we are currently debating. We are currently consulting with our membership and also consulting with other members within the industry on this issue. It is something that we will be dealing with in a detailed way in our submission.

Senator SIEWERT—Could you also then look at the access issue. I have been asking a number of people who have appeared before the committee whether they think there should be legislative access to receival points as well.

Mr Smith—Yes, I think it is the whole value chain that we will be looking at, including ports, rail and up-country sites.

Senator SIEWERT—Okay, because up country is not dealt with in the legislation; only the port facilities are dealt with in the legislation. Thank you, Mr Smith. I look forward to your submission.

Senator NASH—Regarding the representation, I do have the same concerns as Senator Fisher that while you claim to be the peak grain grower body, you have neither Western Australia nor New South Wales at this point in time, which to all intents and purposes are the biggest wheat growing states. That is a bit of a difficulty. I do understand the history of how that came about but I would say that makes it very difficult for you to claim to be the peak grower body. Can you outline for the committee the process by which Grains Council has arrived at its position?

Mr Smith—Grains Council has a policy council which is made up of two members of the membership—

Senator NASH—When you say ‘of the membership’ do you mean of those three states including Tasmania?

Mr Smith—Yes, of the three states.

Senator NASH—So there are two from each state?

Mr Smith—Two from each state, yes. Obviously, those states have their own positions, which they bring to the table of GCA from their own organisations. That is then fed into the debate through the policy council of GCA. In a February meeting of the policy council, a decision was made to review the policy of wheat marketing and—in view of the election of the Labor government—to support the legislative changes that the government has put in place.

Senator NASH—This is just clarifying the same question: so there are six people—two from each state. Who else makes up the policy committee that has made this decision?

Mr Smith—There is the chairman. I will have to refer the exact make-up of the policy council to my colleagues.

Senator NASH—Just provide us with rough numbers, while they are checking.

Mr Smith—About eight.

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Senator NASH—Out of those eight people, was there unanimous agreement for this position?

Mr Smith—Yes, there was. There was a consensus and unanimous view that GCA go down this path.

Senator NASH—So eight people made the decision.

Senator O’BRIEN—On page 2 of the statement which you distributed to us, you proposed in point 6 that all pool products should immediately be classified as financial products and come under financial services legislation to improve the position of growers as unsecured creditors. Can you elaborate further as to what that would entail and how that would improve the position of growers as unsecured creditors?

Mr Smith—One of the issues that we have looked at is that obviously the participants within the market will need to be accredited. Therefore, due to the fact that they will be incorporated bodies, they will be under the Corporations Law and also the Trade Practices Act. Pools are a little bit of a different beast in that they are about the ownership of the asset and of the grain. The Financial Services Reform Act 2001 gives a high level of probity to the care of those assets. Therefore, one of the issues that we have looked at and that has been a concern in the past is the retention of title and how that applies through pools. We believe that the financial services act has the mechanisms to overcome those issues and, in the event of a default, it gives the grower a preferred position as a creditor.

Senator ADAMS—Thank you for your submission, Mr Smith. Has your group put a submission to the Wheat Industry Expert Group discussion paper? Do you have any views on that?

Mr Smith—Yes, we have. We are in the process of finalising a detailed response to the Wheat Industry Expert Group. We have had some input to the Wheat Industry Expert Group and we have also had a report from them. As I said, we are in the process of a detailed response to the Wheat Industry Expert Group, which I can make available to this committee as soon as we have delivered it to them.

Senator ADAMS—That would be good if that could come to the secretariat. Are you in agreement that that covers all the services that AWB formerly provided?

Mr Smith—Yes. Obviously we need to look at the implementation of that further. That is something that we will be detailing in our submission to you, and it is a consideration that we have flagged in the response to the Wheat Industry Expert Group. It is something that we will be following up.

Senator McGAURAN—I think you attempted to answer the question. Senator O’Brien’s question was very similar to mine. It comes under the heading of ‘security of payments’. I did not quite follow the scheme. On the other part of security of payments: has your group had meetings or discussions with the banks with regard to your growers’ and the banks’ views on this ‘brave new world’, as we call it, and financing new crops?

Mr Smith—Certainly we have had discussions with the Bankers Association. Their view is that they want surety about where this legislation is going. They want, as growers do, to be assured of the direction that will take place, and then the appropriate risk management

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processes can be put in place. Various pooled operators will put out estimated returns, and ultimately the market will sort out the integrity of those estimates. But, certainly, the one thing that the growers and banks want is some confidence about which way this legislation will go and what they will be dealing with post June.

Senator McGAURAN—You spoke of seeking a linkage with the new WEA. Do you believe that the legislation assures or allows a grower representative in the appointments to the WEA which the minister will undertake?

Mr Smith—We do not believe at this time that it is set in stone in the legislation. We believe that a formal link, which is currently not proposed, should be put into the legislation.

Senator McGAURAN—This is not intended to be derogatory towards you: in the past your association has been funded to some point by AWB; am I right?

Mr Smith—It was at a point in the past. There was a linkage between the national farming organisations through GCA to AWB. Obviously AWB was then a grower owned cooperative. It went further from there when AWB was fulfilling those functions on behalf of growers. It was fulfilling the industry good functions, so there was a direct linkage to AWB.

Senator McGAURAN—How do you finance yourself now?

Mr Smith—One of the challenges for advocacy organisations in the future is the financing. Currently we are financed by direct membership from the state farming organisations. Some of their funds are derived from direct membership. In the case of the South Australian Farmers Federation, the Grains Council there is funded by a levy on grain sales of 5c a tonne. Ultimately this is one of the challenges. We are all currently under review. A lot of the state farming organisations and national representative bodies are under review because, to make that actually sustainable, to provide professional governance and the required structure and to recompense the people involved satisfactorily, those arrangements will need to change. But, on the other side of the coin, the advocacy groups need to demonstrate that governance and also need to have outcomes. They need to make sure that the outcomes are achieved for their stakeholders.

Senator McGAURAN—In the Wheat Industry Expert Group’s discussion paper they highly recommend there being an industry body, but no-one else that I have asked the question to seems very enthused by it at all. Do you recommend it? Can it come about without government initiation?

Mr Smith—I think it needs to be a cooperative approach between government and industry. Certainly the Grains Council of Australia has done some work to developing the Grain Industry Alliance, which is a group of industry players and growers which also includes government. It was supported by Grains Council and DAFF, who held a summit to discuss the critical areas of the whole of the industry. I think it is imperative that that be developed. Obviously, all these agencies are going to be doing the industry good functions. There needs to be one body that is actually coordinating and reporting on the process and also just looking at disseminating the information and looking at forums where people can get together.

The other issue is that, obviously, in the transitional arrangements all these various agencies that are required to take on the industry good functions will need budgetary

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requirements to fulfil those functions until such time as they basically put them into core business and review their budgets. In the past, deregulated industries have been afforded restructure packages, even to the point that those restructure packages have looked after individual businesses within those industries. What GCA is looking for the government to do is to assist in an industry-development phase where we can get all these things in place that will give it a transitional period to make the market work in the short term.

Senator McGAURAN—Very good. Thank you.

Senator FISHER—Senator McGauran took you very close to my point, Mr Smith. As a South Australian, you will be familiar with the experience following dealings with the barley market in South Australia. Neil Andrew is in charge of a committee that has, in part, responsibility for educating South Australian growers in the transition in South Australia. I understand from Mr Andrew that education forums were essentially cancelled due to lack of interest in South Australia. You have talked about dissemination of information. In this context, does your organisation have a view as to the wisdom and utility of educational programs per se should this legislation proceed in one form or another?

Mr Smith—I think that that is the very point. Those who want the information will find the information, so I think the important thing is to have the information available, either in written form or on a website, from the export tonnage and the stocks held right through to the reporting of each of the organisations that are responsible for industry-good functions. Also, the specifications, varieties or whatever need to be available. In South Australia we have obviously dealt with a deregulated pulse market for a number of years. People were quite okay with the contractual arrangements of a deregulated market. The barley legislation in South Australia, I have to tell you, was treated with a bit of a yawn. Everyone got up the next morning, wondered what all the fighting had been about for the last 10 years and just got on with it. We had quite a good outcome there. There was not a great uptake of the education processes because, I think, people indicated that they were comfortable with the process.

CHAIR—Dr Gursansky, I notice you have come to the table with your name tag. It is not just to look at us. Do you have anything to say about the capacity in which you appear today?

Dr Gursansky—I am currently doing some work with the Grains Council of Australia, assisting them with the development of responses to this process. I have previously been an employee of the South Australian Farmers Federation in their grains section. I thought I might be able to assist in answering Senator Fisher’s question in relation to the education program.

CHAIR—Please do.

Dr Gursansky—My involvement in South Australia was assisting with the coordination of the information program following the implementation of these changes. You are quite right: the program of workshops that were prepared at the time did get cancelled because of the low response. The workshops were one of three components of an information program that we ran there. There was a series of columns that we did in conjunction with the state government and also a brochure that we mailed to all farmers. I think there were a couple of reasons the workshops were cancelled aside from low attendance. It was probably a timing issue and a few other issues. However, there were a number of elements that we included in the information program.

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Senator FISHER—Sorry, I misheard: your second limb, was that a series of ‘columns’ with the state government?

Dr Gursansky—We did a series of columns. We used the Rural Press in South Australia and regional newspapers. The other was a direct mail-out to growers, through the National Growers Register, of a brochure.

Senator FISHER—Thank you.

CHAIR—Thank you, Dr Gursansky and Mr Smith.

Dr Gursansky—Mr Chair, if you can give me a minute I would like to clarify an earlier question from Senator Nash in relation to the policy council and the decision making process. There are seven members of the policy council of the GCA, as Mr Smith indicated: the chairman and two representatives from each state. My understanding of the policy process is that each of those state representatives works with their own state committees as well on policy development. So the process is that of not only the GCA Policy Council but also each state based policy council.

CHAIR—To the Grains Council, thank you very much for your time today. That concludes today’s hearing. On behalf of the committee, thank you very much to the secretariat and to Hansard.

Committee adjourned at 2.31 pm