Dissenting report from
Senator Whish-Wilson and Senator Xenophon
Previous
Senate committees have considered the issue of container deposits. This inquiry
provided the committee with the opportunity to interrogate the details of the
established schemes in South Australia and the Northern Territory.
Claims
of profiteering within the existing schemes have been raised by the Boomerang
Alliance in their recent reports on container deposit schemes. These
allegations precipitated the Senate inquiry. Further background to this inquiry
has been a well-resourced campaign by the Australian Food and Grocery Council
asserting that the cost of living will rise if a national container deposit
scheme is legislated.
The
committee's report states that the committee was 'not presented with any
compelling evidence to support the argument put forward by Boomerang Alliance –
that beverage manufacturers may be increasing their prices above what is needed
to operate the container deposit schemes'.
While
this conclusion is difficult to dispute on the evidence provided publicly to
the committee, the committee was unwilling to go 'in-camera' to hear
confidential evidence which may have shed more light on the operation of the
container deposit schemes. The committee has also not been prepared to require
certain witnesses attend the hearing and certain documents be supplied to the
committee. This means that it is difficult to prove or disprove whether
profiteering is occurring because the information required has not been brought
forward.
However
based on the evidence presented in the inquiry and the confidential information
provided by Coca Cola Amatil subsequent to the inquiry we believe Coca Cola
Amatil are profiteering on the container deposit scheme in South Australia via
their wholly owned subsidiary 'super collector' State Wide. While this is not
illegal this does demonstrate some problems with the structure of existing
container deposit schemes. The below outlines the reasoning for coming to this
conclusion.
Alec
Wagstaff from Coca Cola Amatil (CCA) claimed that 'we make no apology that we
recover the costs of regulation from within the markets in which that
regulation is imposed. So we do charge more at the wholesale level for our
products in the Northern Territory and in South Australia'[1]
The
full cost recovery mechanism occurs via the amount CCA charges on units of
beverages sold by CCA to the wholesalers (provide to the Senate in confidence)
CCA
have also claimed to make a profit from their ‘super collector’ State Wide, as
State Wide is a wholly owned subsidiary consolidated on their balance sheet if
State Wide profits CCA does.
We
know State wide are making a profit because Mr Wagstaff at CCA acknowledged
that ‘ we are making money out of statewide’ [2]
Mr
Wagstaff confirmed that this Super collector profit is a component of the
overall effective cost of the CDL scheme (from Cokes perspective) when he
commented on the CDL scheme costs submitted by the Recyclers of South
Australia.
“they
are not actually accurate. Both they and the Boomerang numbers are inaccurate.
If you read the last sentence of that page, it makes a very interesting
statement, saying “if profit is ignored”.
It
says -these costs are indicative only and relate to the cost of the system in South
Australia before profit is made by the Super Collector.
We
are not a charity. None of the super collectors are charities. They all need to
operate. It not only ignores profit that a super collector will make,
it ignores the costs that the super collector incurred, so these costs are
actually inaccurate”.
In
other words the costs and profits associated with their wholly owned and
consolidated ‘super collector’ are part of the regulation costs passed on to
customers by CCA.
Based
on this, it is possible to draw the conclusion that the charge by Coke to
wholesalers, calculated to recover the costs of CDL regulation, are inclusive
of their Super Collectors profit (and should this profit data be available for
South Australia we could calculate this down to a per container/unit basis).
Although
we can state with confidence that Coke must be profiteering through their super
collector arrangements, we cannot quantify this on a per unit/container basis
without further information on the Super collectors profitability and
contractual arrangements.
It
is worth noting Mr Wagstaff didn’t disclose the level of this profit when asked
by Senator Cameron
‘why
can’t you simply identify the profitability of that part of your operation [the
super collector] so people can be absolutely confident there is no price
gouging’[3]
Mr Wagstaff responded
that:
‘for
exactly the same reason that we do not identify the separate business operation
of any parts of our stream to see if there is no price gouging’ he continued on
to say ‘to test to see whether they are price gouging is the ability of people
to go to another supplier. If State Wide were price gouging, they would not
have any other customers because they would all go to their competitor’[4]
The
second part of this comment from CCA’s representative relates to companies and
price gouging within the collection/coordination regime, not the impact on
consumers through their (Cokes) wholesale prices being inflated by the level of
profit made by their super collector. In other words, apart from claiming
commercial In confidence concerns, the representative distracted away from the
key issue-whether Coke were making profits from their Super Collector and then
charging these profits as scheme costs back to the consumer (and profiteering).
The
committee’s report focuses on the competiveness of the ‘super collector’
market. Some of the witnesses at the hearing used to insisted that the ‘super
collector’ market was competitive.
While
this point is debatable, the focus should be on wholesale prices charged, how
these flow on to retail prices and whether there is transparency in the market
for consumers. Allegations by Alec Wagstaff from Coca-Cola Amatil (CCA) that
‘
we have absolute transparency in what we charge an individual customer. A
customer who is doing business with us clearly has transparency at the price we
are charging. They can compare that price from alternate suppliers. In some
cases that can be for an alternate brand of a similar product. In some cases it
can be for the same brand through an alternate source. ‘[5]
The
soft drink market is heavily brand driven and CCA is the only supplier of their
branded product. So it is unclear what transparency in this context CCA is
referring to.
A
number of witnesses in the inquiry highlighted the “inefficiencies” inherent in
container deposit schemes, which directly influence the costs of administering
CDL schemes, which beverage companies directly recoup by charging higher
wholesalers prices to customers. Inefficiencies in the CDL scheme are
therefore likely to feed into higher retail prices for beverages under a CDL
scheme, and in this sense, a Senate Inquiry into pricing and revenue allocation
practices of the beverage industry needs to acknowledge the underlying basis
for the costs of the scheme, and how these costs relate to
allegations/perceptions of price gouging at the wholesale and retail level
(especially in the Northern Territory ).
It
is therefore important to acknowledge that inefficiencies exist, they impact
cost and generally they are passed onto consumers. These inefficiencies
therefore may be responsible for allegations and perceptions of price gouging
and profiteering (especially in the NT), or they may be used by beverage
companies as an excuse to advertise that container deposit schemes are
expensive and should be replaced by other recycling initiatives, On this basis
it is imperative that any future legislation looking at a national CDL scheme
needs to address these “in efficiencies” in its legislative structure.
It
is also obvious that beverage companies who own super collectors and are
therefore part of the CDL structure could implement solutions to fix these
inefficiencies, but there is no obvious incentive for them to do so. This is
based on the fact that they are fundamentally opposed to CDL schemes and want
to see them replaced by other recycling initiatives, and the way the schemes
are structured it is not in their financial or cultural interest to improve
recycling rates (increased recycling rates lead to higher effective scheme
costs due to higher redemption rates -or lower unredeemed deposits available to
beverage companies. )
These
inefficiencies, especially in the NT, are due to Container Deposit Legislation
and the architecture of the schemes. They include (amongst many issues) the
number of splits depots are required to sort containers into, and restrictions
on bundling/crushing prior to transport from depots to super collectors.
For
example the inefficiencies in the scheme In the Northern Territory relate
directly to the fact that containers need to be sorted into 24 categories
(splits). This means collection depots sue significant resources sorting
containers. Marine Stores and Statewide two ‘super collectors’ who gave
evidence seemed reluctant to provide any insights into how this inefficiency
could be addressed and downplayed the role of technology in providing a
solution to these inefficiencies.
The
committee report also refers to the agreements that are made between beverage
manufacturers and super collectors as being conducted in an open market. While
this may be the case, two of the super collectors are majority owned by
beverage companies. Beverage companies who are on the record stating their
opposition to any form of container deposit scheme own ‘super collectors’ who
are part of the inefficiencies in the system. According to the Recyclers of
South Australia
‘the
reason for the relative efficiency [of the SA scheme] of not having multiple
splits like they have in the Northern Territory is more a function of our
association negotiating and using those contractual arrangements to make sure
that we get efficiencies with our negotiations with super collectors.’[6]
The
same beverage companies who run super collectors complain that the system is
‘fundamentally inefficient and expensive.’[7]
When
pressed on whether if the inefficiencies could be removed from the system
would beverage company Lion accept a container deposit scheme, they stated
‘we
do not believe container deposits are the solution’[8]
The
question of unredeemed deposits was also tackled by the inquiry. The South
Australian Environmental Protection Authority (EPA) stated in regards to
unredeemed deposits ‘that if you assume that unredeemed deposits are occurring
in the marketplace, then in South Australia alone it is probably about a $20
million gain that one of these parties is making.’[9]
They
also make it clear that the EPA ‘economists are continually scratching their
heads to figure out what they can assume, what sense they can make and whether
the unredeemed deposits are actually occurring or not.’[10]
The
EPA is the regulator of the container deposit scheme in SA. It is revealing
that the regulator doesn’t have visibility of where unredeemed deposits sit in
the scheme.
If
a national container deposit scheme is established or any other state
introduces a container deposit scheme, evidence from this inquiry suggests that
serious consideration should be given to excluding beverage companies from
involvement with super collectors. The evidence presented gives an impression
that there is a conflict of interest in a beverage company being subject to
container deposit legislation and running a ‘super collector.’
Recommendations:
1.
The committee should initially request and if
necessary compel beverage companies to provide in-confidence time series
information (over a period of 18 months) on wholesale prices in South Australia
and the Northern Territory and a non CDL state as a comparison.
2.
The committee should also request and if necessary
compel the ‘super collectors’ to provide in-confidence information on their
annual profits, including a breakdown by state.
This
information will allow calculation of the level of profiteering in the existing
schemes.
3.
If a national container deposit scheme is
established or any other state introduces a container deposit scheme, evidence
from this inquiry –relating to the existence of inefficiencies and profiteering
-suggests that serious consideration should be given to excluding beverage
companies from involvement with future super collection operations (ie
co-ordinator roles).
Senator
Peter Whish-Wilson
Senator
for Tasmania |
Senator
Nick Xenophon
Senator
for South Australia |
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