Chapter 3 - Main provisions of the bills and key issues raised
Introduction
3.1
This chapter outlines the purpose and provisions of the proposed Wheat
Export Marketing Bill 2008 and the proposed Wheat Export Marketing (Repeal and
Consequential Amendments) Bill 2008. The chapter also examines the issues
raised during this inquiry in relation to specific provisions of the bills.
Purpose of the bill
3.2
The main purpose of the Wheat Export Marketing Bill 2008 is to implement
reforms to Australia's export wheat marketing arrangements. The bill will
establish a statutory entity, Wheat Exports Australia (WEA), to regulate the
export of bulk wheat from Australia though a wheat export accreditation scheme.
If this bill is enacted it will create the need to amend other existing laws.
These proposed amendments are detailed in the Wheat Export Marketing (Repeal
and Consequential Amendments) Bill 2008.
3.3
The bills create WEA and give it the power to develop an accreditation
scheme to assess the suitability of companies to export wheat. The proposed
accreditation scheme includes measures to address fair access to port terminal
facilities. Provision is made for accreditation of wheat exporters who own and
control bulk handling facilities to be subject to an access test. The bills
also give WEA the power to suspend and revoke accreditation and to place
conditions on the accreditation granted to an exporter.
Main provisions of the Wheat Export Marketing Bill 2008
Part 2 – Wheat export accreditation
scheme
Compliance with the wheat export
accreditation scheme
3.4
Clause 6 makes it an offence to export wheat in bulk without
being accredited under the wheat export accreditation scheme. Export of wheat
in bags and containers is not affected by the accreditation scheme and remains
unregulated.
Formulation of the wheat export
accreditation scheme
3.5
Division 2 of the bill provides for the formulation of the wheat
export accreditation scheme. Clause 7 permits WEA to develop an
accreditation scheme, by way of legislative instrument, to manage the accreditation
of companies to export bulk wheat. Clause 8 provides for the wheat
export accreditation scheme to empower WEA to make a range of administrative
decisions such as granting, suspending, cancelling or varying the conditions of
accreditation. Clause 9 provides for WEA to charge an application fee
for export accreditation and for the amount of the fee to be determined on a
cost recovery basis.
3.6
Clause 10 provides that an accreditation under the wheat export
accreditation scheme is not transferable.
Eligibility for accreditation
3.7
Clause 11 of the bill provides the eligibility criteria that WEA
must apply in developing the accreditation scheme. To be eligible for
accreditation a company must be registered as a company under Part 2A of the Corporations
Act 2001 and must be a trading corporation to which paragraph 51(xx) of the
Constitution applies. WEA must also be satisfied that the company is a fit and
proper company, having regard to specified criteria. These criteria include the
financial strength and business record of the company, its risk management
strategies, and its criminal record during the five year period prior to the
application for accreditation. WEA must also take into account the company’s
record in meeting importing countries’ sanitary and phytosanitary requirements.
3.8
If the applicant company, or a related body corporate, is the provider
of a port terminal service as defined in Clause 4 of the bill, WEA must
be satisfied that the company passes the access test provided for in Clause
20 of the bill.
Conditions of accreditation
3.9
Division 4 of the Bill provides that accreditation is subject to
certain conditions imposed under the accreditation scheme. Clauses 13 to 15
of the bill require an accredited company to give WEA an annual export report,
an annual report on its compliance with Australian and foreign laws, and to report
on any changes to the company which may affect its accreditation. Clause 16
provides that contravention of a condition of accreditation is an offence under
the bill.
Cancellation of accreditation
3.10
Clause 17 sets out the conditions under which WEA can cancel the
accreditation of a company. These conditions are similar to those considered in
the application process. However, while a company in administration is
ineligible for accreditation, if an accredited company enters administration, WEA
will have the discretion to determine whether accreditation should be
terminated. This provision allows WEA to assess whether the best interests of
growers may be served by allowing the administrator to trade out of the
situation. Clause 17(2) also provides for the wheat export accreditation
scheme to specify other grounds for discretionary cancellation.
Surrender of accreditation
3.11
Clause 18 provides for an accredited wheat exporter to apply to WEA
to surrender its accreditation. If a company surrenders its accreditation, it
must have met its obligations under Clauses 13 and 14 and must still
provide its final export and compliance reports to WEA.
Register of accredited wheat
exporters
3.12
Clause 19 provides that WEA must maintain a register of
accredited wheat exporters and make it available on the internet, to allow
growers to check whether a company seeking to buy their wheat is an accredited
exporter.
Access test
3.13
Clause 20 provides for port terminal access for all accredited
exporters. It sets out conditions that exporters who also operate grain storage
and handling facilities at ports have to agree to before being accredited. If
the port terminals are not already covered by an effective access regime, as
certified by the National Competition Council, the following arrangements
apply:
- for the period until 1 October 2009, such exporters must agree to
provide access to accredited exporters and publish the terms and conditions for
access to other exporters on their internet site before they can be accredited;
and
- for the period after 1 October 2009, such exporters must enter
into an access undertaking to provide access to accredited exporters. The
undertaking must be approved by the Australian Competition and Consumer
Commission (ACCC).
3.14
The notes to the bill state that the reason for the different conditions
before and after 1 October 2009 is that it is not possible for the ACCC to
receive, process and approve all of the access undertakings in time for the
2008-2009 marketing season. Under the Trade Practices Act 1974, the ACCC
must observe certain public processes in considering an access undertaking and
these necessitate the additional time.
Information-gathering and audit
powers
3.15
Part 3 of the Bill sets out WEA’s information-gathering and
auditing powers, which are generally consistent with the powers currently
available to the Export Wheat Commission under the current Wheat Marketing
Act 1989.
3.16
Clauses 21 to 24 provide that WEA may demand information and documents
from accredited exporters that it considers relevant to the performance of its
functions. Failure to provide information required is a breach of a mandatory
condition of accreditation. Clauses 25 and 26 provide that WEA may
request information, documents and reports of a person where WEA believes there
are reasonable grounds that the person has information or a document that is
relevant to WEA’s powers or functions. Clause 27 will provide WEA with
the additional power to require an external audit of accredited companies.
3.17
Clauses 29 and 30 of the bill provide for the minister to direct WEA
to investigate and report on matters relating to any of its other functions,
including the operation of the wheat export accreditation scheme. The same
power is held under the existing Wheat Marketing Act 1989.
Establishment of Wheat Export Australia
3.18
Part 5 of the bill provides for the establishment, functions,
powers and liabilities of WEA. Division 2 provides for WEA’s
constitution and for the membership of WEA. Clause 37 provides for the minister
to appoint between three and six part-time WEA members, having regard to the
relevant eligibility criteria.
Planning and reporting obligations
3.19
Division 8 sets out the planning and reporting obligations of WEA.
Clause 62 provides for WEA to prepare and publish a report for growers
each marketing year in relation to the operation of the wheat export
accreditation scheme during that year.
Review of decisions
3.20
Part 6 provides for the process though which applicants may appeal
decisions made by WEA. Clause 66 provides for a person affected by such
a decision to apply to WEA to reconsider the decision. Clauses 67 and 68
provide for the process of reconsideration of a decision by WEA. Clause 69
provides for review by the Administrative Appeals Tribunal.
Main provisions of the Wheat Export Marketing (Repeal and Consequential
Amendments) Bill 2008
3.21
This bill provides for the Repeal of the Wheat Marketing Act 1989
and for consequential amendments to the Criminal Code Act 1995 (with regard
to false statements), the Customs (Prohibited Exports) Regulations 1958 (to
amend the current prohibition on companies other than AWBI to export bulk wheat).
The bill also amends the:
- Financial Management and Accountability Regulations 1997;
- Freedom of Information Act 1982;
- Primary Industries and Energy Research and Development Act
1989; and
- Primary Industries Levies and Charges Collection Act 1991.
3.22
Provisions under Schedule 3 allow for the transition of the Export
Wheat Commission (EWC) to WEA, including the transfer of funds, the termination
of EWC members and the finalisation of the EWC’s last annual report. Schedule
3, Clause 3 provides that the EWC members will not be transferred to WEA at
the time of transition. However, Clause 3(3) provides that neither this
bill nor the Wheat Export Marketing Bill 2008 prevents an EWC member from being
appointed as a member of WEA. The notes to the bill state that permanent staff
of the EWC will be transferred to WEA.
3.23
Clause 7 of Schedule 3 provides for the EWC to begin developing
the accreditation scheme before the Wheat Export Marketing Act 2008
comes into force.
3.24
Clause 8 will allow for AWB (International) Ltd (AWBI) to export
wheat from the national pool until 30 September 2008, in order to prevent delays
in finalising the 2007-08 pool runs and the receipt of final payments by
growers. Other companies that have valid consents issued by the EWC to export
bulk wheat will be able to continue to export wheat under the conditions of
their existing consent until 1 October 2008.
3.25
Clause 9 provides for WEA to report AWBI’s performance and
activities to the minister and to growers following finalisation of the
2007-2008 pool.
3.26
Clause 10 provides that any investigation that the minister has
directed, prior to 1 July 2008, will be continued and reported on, as
necessary, by WEA.
Comments in relation to the Wheat Export Marketing Bill 2008
3.27
A wide range of views were expressed in relation to the changes embodied
in the bill. The committee noted some general support for key elements of the bill;
in particular, the creation of a contestable Australian wheat export market and
provisions to ensure equitable access to key infrastructure at ports. The
committee also received many suggestions for amendments to the bill and these are
discussed below.[1]
Objectives of the Bill
3.28
A number of submitters suggested that the bill should contain a clearer
and expanded set of objectives. In particular, the Grains Policy Institute (GPI)[2]
would like to see a statement of the broad priorities and objectives of the
regulator, including a clear definition of who the regulator is responsible to,
who it reports to, and what its regulatory priorities are.[3]
3.29
The Australian Grain Exporters Association (AGEA) also considers that WEA,
growers and the wheat industry would be better served if the bill contained
clear direction for WEA in relation to the aims of the scheme and what it has
been established to achieve. The AGEA is concerned that, in its present form,
the bill provides WEA with considerable discretionary powers in relation to the
establishment and administration of the accreditation scheme. The AGEA emphasised
the need for WEA, and the accreditation scheme, to be responsive to the
changing needs of growers and the broader industry, particularly during the
period of transition from a regulated to a contestable market.[4]
3.30
PGA Western Graingrowers (PGA WG) would also like to see the objectives
of the bill made clear, either in the bill itself or in an explanatory memorandum,
legislative instrument, or the Second Reading Speech. PGA WA suggested the bill
be amended to include the following objectives:
The purpose of the Wheat Export Marketing Act 2008 is to enhance
choice, competition, transparency and security in the export of bulk wheat from
Australia.
- Choice: to enable growers to sell
to a range of accredited exporters.
- Competition: to enable accredited
exporter [sic] to compete for grower's wheat, and export it with no
restrictions on quantity or destination.
- Transparency: to enable all
commercial participants to access aggregate information, in order to maximise
the benefits of choice and competition and increase grower confidence in the
system.
- Security: to protect the
international reputation of Australia wheat [sic]; to maintain high commercial
standards for Australian exporter [sic]; to diversify export risk across
accredited exporters.[5]
3.31
The Department of Agriculture, Fisheries and Forestry told the committee
that:
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.[6]
Committee view
3.32
The committee considers that it is desirable that the bill provides
guidance to WEA through a clearly stated objective. This objective should
reflect the policy principles which underpin the legislation. The committee
accepts that the role of the regulator is to administer the scheme in the best
interests of the bulk wheat industry as a whole. However, the committee
recognises that not all participants in the industry are on an equal footing.
The committee therefore suggests that consideration be given to framing the objective
in such a way as to recognise the interests of growers in the provision of a
competitive wheat export market, particularly with regard to the scrutiny of
the prudential and governance arrangements of exporters.
Definitions
3.33
The committee received a number of suggestions for amendments to
definitions of terms used in the bill.
Designated sanitary or
phytosanitary measures
3.34
Clause 4 of the bill provides for designated sanitary or
phytosanitary measures to mean measures applied by or under a law of a
foreign country to: protect human, animal, or plant life or health from certain
risks or prevent or limit other damage from the entry and/or establishment of
pests, to the extent that the measure relates to the importation of barley,
canola, lupins, oats or wheat. This definition is relevant to WEA's assessment
of fitness and propriety (see Clause 11(1)(c)(xiv)).
3.35
AWB submitted that the requirement should be compliance with the
standard imposed by Australian law or, if a higher standard, those expressly
required by the terms and conditions of the particular export contract. AWB
expressed concern that it is common for issues with sanitary and phytosanitary
measures to be used for political purposes or as negotiating tactics.[7]
3.36
The Emerald Group agreed with these proposed changes, but also suggested
that some consideration should also be given in situations where a bulk
handling company is a service provider for loading exports. The Emerald Group
stated that in such circumstances the bulk handling company will be responsible
for loading and testing exports, including meeting any designated sanitary or
phytosanitary measures. The Emerald Group believes that provision should be
made for bulk handling companies to accept contractual or legislative liability
for failure to meet these requirements.[8]
Executive officer
3.37
CBH suggested that the definition of 'executive officer' be amended to
specifically include 'non executive directors' regardless of the director's
involvement in the company. CBH submitted that WEA should be satisfied with the
suitability of all directors of an applicant in addition to the 'executive
officers'.[9]
Export
3.38
AWB submitted that the term 'export' should also be defined. AWB
suggested that the meaning used in the Barley Exporting Act 2007 (SA)
would provide an appropriate model for a definition.[10]
Administrative decisions - Clause 8
and Clauses 17 and 18
3.39
Some submitters sought clarification of the range of powers available to
the WEA in administering the export accreditation scheme. The Grain Growers Association
submitted that the range of powers provided to WEA under Clause 8 of the
bill should be expanded to include the power to grant conditional
accreditation.[11]
3.40
In particular, the Wheat Growers Association of Western Australia (WGA WA)
and the Western Australian Farmers Federation (WAFF) also noted that it is not
clear whether WEA will have the power under Clause 17 to impose new
conditions subsequent to an initial accreditation. Both organisations have
submitted that there may be circumstances in which applying new conditions to
an exporter's accreditation may deliver a more desirable outcome than
cancellation of accreditation.[12]
3.41
AWB also raised concerns about the breadth of WEA's discretion to
determine the grounds for cancellation. AWB considered that WEA's power in this
regard is too broad and consequently AWB does not support WEA having the power
to specify grounds for mandatory or discretionary cancellation of accreditation
as provided for in Clauses 17(1)(e) and 17(2)(b). AWB argued that the bill
should be more prescriptive regarding matters to be taken into account by WEA
when cancelling accreditation.
3.42
The WGA WA and the WAFF also raised concerns regarding the provision in Clause
8 of the bill for renewal of accreditation. The WGA WA and the WAFF submitted
that it is not clear if the accreditation scheme is to include a process of renewal.
They stated that if the bill does envisage a process of renewal of
accreditation, there must be a demonstrable benefit flowing from such a process
to justify the costs associated with it.[13]
Committee view
3.43
The committee considers that consideration should be given to clarifying
the range of powers available to WEA under the bill. In particular, the
committee suggests that, in addition to the ability to vary a condition, there
may be merit in providing WEA with the ability to impose new conditions on an
accredited exporter. However, the committee considers that the bill should
provide clear guidance to WEA regarding the exercise of such a power. The
committee considers that the WEA should not impose new conditions on an
accredited exporter without following due process.
3.44
The committee therefore favours a simple renewal process and considers that
provision of clear direction regarding the renewal process within the bill should
provide greater certainty to accredited exporters.
Eligibility for accreditation
3.45
The committee notes that there was broad support for the proposed
accreditation process. Submitters observed that the proposed changes presented
welcome opportunities to many in the industry. The Flour Millers' Council of
Australia (FMCA) submitted that the changes were well received by its member
companies. The FMCA said that:
In the past member companies, especially those with milling
activities in other countries have sought to export bulk Australian wheat for
delivery to overseas affiliate companies. The provision of the new legislation
would make this possible, within the criteria of accreditation for the purpose.[14]
3.46
The committee also received evidence in support of the accreditation of
cooperatives and of individual growers who may wish to export the wheat they
produce on their own properties. However, the bill provides that to be
accredited as a wheat exporter, an applicant must be registered as a company
under the Corporations Act 2001 and must be a 'trading corporation' to
which paragraph 51(xx) of the Australian Constitution applies.
3.47
The Grain Growers Association (GGA) submitted that such entities are
common in agriculture and the grains industry and should be entitled to apply
for export accreditation, subject to compliance with relevant corporations
legislation.[15]
The WGA WA and the WAFF expressed concern that the definition of an accredited
wheat exporter does not appear to reflect the government's pre-election commitment
that growers will be able to directly participate in bulk exports through
grower co-operatives and/or alliances.[16]
3.48
The committee also received evidence that individual growers who wish to
bulk export wheat grown on their own properties should be exempt from the
accreditation requirements. It was argued that such growers should also be
afforded equal access to storage, handling and ship loading facilities.[17]
3.49
PGA WG expressed concern that an overly literal reading of Clause 11
might limit the opportunity for niche marketing opportunities.[18]
PGA WG also submitted that the accreditation scheme should allow WEA to
distinguish between an accredited exporter who is seeking to export millions of
tonnes to multiple destinations, a niche marketer seeking to export to a single
destination and a group of growers seeking to export their own wheat. PGA WG
considers that the term 'fit and proper' needs to be read differently in each
case given the differences in risk profile in each circumstance and that WEA
should have clear instruction on how to interpret its role in such
circumstances.[19]
3.50
The Department of Agriculture, Fisheries and Forestry advised the
committee that it was examining the possibility of allowing other entities to
become accredited. Mr Russell Phillips said:
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: 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.
3.51
Mr Phillips observed that the legislation would not necessarily prevent
entities such as co-operatives from seeking accreditation, as many of them,
such as Co-operative Bulk Handling Limited (CBH) have corporations
as subsidiaries. Mr Phillips told the committee that CBH had applied for its
permits to export wheat to Indonesia in the name of AgraCorp, one of its
corporations.[20]
3.52
The committee also received evidence which suggested that growers were
not averse to setting up trading companies. Mr Halbert told the committee:
It's not something I have given a great deal of thought to at
the moment, but I would have no trouble setting up a trading company and
operating that way. It is a lot safer system. There are already a couple of
groups, like the Mingenew-Irwin Group, which I am part of, which are setting up
companies and intend to export wheat in some form. Yes, I would be quite
prepared to be part of that. I do not have any great trouble with the
requirement that it needs to be a company that undertakes that.[21]
Committee view
3.53
The committee notes that DAFF has sought advice on the ability to amend
the legislation to permit non-incorporated bodies to seek accreditation. The
committee considers that there are benefits for the industry in promoting a
competitive environment. In particular, the committee considers it desirable
that the accreditation scheme supports increased choice for growers in
marketing their wheat. The committee believes that in the interests of
maximising competition and choice it is desirable that provision to permit the
accreditation of co-operatives be included in the legislation subject to
constitutional validity.
Formulation of the wheat export accreditation
scheme
3.54
The proposed wheat export accreditation scheme was the subject of a significant
amount of evidence before the committee. In general, there appeared to be broad
support for the scheme as currently drafted. However, some submitters saw
benefits in a simpler accreditation scheme and cautioned that a heavy-handed
accreditation scheme may have unintended consequences for the industry.[22]
The committee heard that:
The less bureaucratic that body can be kept, the less chance it
has of becoming political and restrictive and full of red tape. I think there
are just four or five key points that need to be met for people to get a
licence to export. They need to be able to pay for it, they need not to be
criminals and there needs to be a market. Anything outside that becomes
restrictive.[23]
It would concern me personally if it became overly complicated.
I just think the legislation needs to set out some clear, concise, minimal
guidelines and let industry do the rest of it.[24]
3.55
AWB noted that the proposed scheme is based on the barley accreditation
scheme introduced in South Australia in mid 2007.[25]
AWB argued that the South Australian model fulfils all the good public policy
principles of simplicity, transparency, neutrality and low cost and provides a
positive model for the Wheat Export Marketing Bill.[26]
3.56
However, AWB, like a number of other submitters, considers that the
proposed bill, as currently drafted, is significantly more detailed than the
South Australian legislation and argued that there are risks and costs
associated with this.
3.57
AWB believes that there is a lack of clarity about the role of WEA in
the accreditation process, and questioned whether they are to simply administer
the approval process or whether they are to have an ongoing investigative or
monitoring role.
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 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, it is up to each individual
company as to how they can conduct their business.[27]
3.58
The Department of Agriculture, Fisheries and Forestry advised the
committee that while there are similarities between the South Australian
legislation and the proposed bill, the two pieces of legislation have different
intended outcomes. Mr Russell Phillips told the committee that:
The South Australian system was set up 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 test and spells out in more detail some of the things that
must be taken into account by the regulator.[28]
3.59
CBH does not consider that the accreditation process is too onerous. Mr David
Woolfe told the committee:
It is important in the legislation that only companies which are
appropriately qualified, have the appropriate expertise, credentials and so on
are accredited to become exporters. It should be open to all organisations
which are able to prove those certain thresholds. By and large, we have no
great problem with the accreditation criteria, save a couple of things we put
in our submission.[29]
3.60
At the other end of the spectrum, the Institute of Public Affairs
submitted that the bill should be amended to remove all of the criteria for
accreditation and that Clause 17 should be replaced with a requirement
that WEA licenses applicants who meet the single criterion of being a
corporation under Australian law.[30]
Fit and proper company – Clause
11(1)(c)
3.61
The committee received a range of evidence in relation to the considerations
that WEA should have regard to in determining whether an applicant company is a
fit and proper company. The committee received suggestions from a number of
sources about the role that the accreditation criteria could play in providing
a degree of protection to growers.
3.62
The Grain Growers Association (GGA) noted that the accreditation process
only provides for consideration of the components of an applicant company which
relate directly to its bulk wheat export business. The GGA considers that it is
likely that participants in the trade of wheat will also participate in other
areas of the wheat market: domestic, container and bulk export. Participants
may well also be involved in trading a wider range of commodities. The GGA
suggested that, in the interests of procedural fairness, all elements of an
applicant’s business should be subject to the same level of scrutiny. The GGA
argued that without this, the bill would offer no protection to growers from
potential exposure to rogue elements in the non-bulk components of the grain
trade.[31]
3.63
Mr Andrew McMillan, from the WAFF also expressed concern that without a
robust accreditation process there were risks to the financial security of
growers. He said:
It is my view that bankers will have a lot of trouble coming to
terms with who is a reliable marketer and who is not a reliable marketer given
the very skinny accreditation process and the lack of call they will have on
the financial security of these marketers.[32]
3.64
The Grains Council supported probity tests as a component of the
accreditation process, however it cautioned against relying on the
accreditation process to provide a guarantee of security of payment to growers.
The Grains Council submitted that in communicating these changes to growers,
the Government should highlight that the role of WEA does not remove the
individual grower's responsibility to perform their own due diligence on the
companies they are considering trading with.[33]
3.65
The CBH Group argued that Clause 11 of the bill should be
modified to require WEA be required to 'consider a company's record in
supporting the management of quality and development of Australian wheat and
other grains in order to enhance the quality and reputation of the Australian
grain industry'.[34]
CBH also expressed the view that any accredited wheat exporter should be
obliged to provide evidence of their ability to appropriately meet their
customers' needs in relation to the support for the production of quality
Australian wheat. CBH further argued that the reputation of, and premium return
on, bulk Australian wheat will only be maintained through the careful targeting
of wheat varieties to customer's needs.[35]
3.66
The Australian Grain Exporters Association (AGEA) submitted that maintenance
of National Agricultural Commodity Marketers Association (NACMA) membership should
be considered as an important assessment criteria under Clause 11. AGEA
stated that NACMA requires each member to comply with the NACMA code of
conduct. The code requirements include:
- compliance with laws and regulations relating to the
merchandising, inspection, grading, weighing, storing and handling of grain and
other commodities;
- maintenance and promotion of high ethical standards and
procedures in the transaction of business;
- fair and honest dealings with the public and employees; and
- consideration to the best interests of the agricultural industry
and the public in sales, purchases, promotional practices and other
transactions.
3.67
AGEA also stated that failure to comply with the code results in the
cancellation of NACMA membership.[36]
3.68
Other submitters expressed concern regarding the potential for WEA to
duplicate regulation currently undertaken by other agencies. The Grains
Policy Institute (GPI) expressed concern that there is significant scope within
Clause 11 for replication of regulation currently undertaken by ASIC.
The GPI argued that this was particularly true of those criteria which go to
corporate governance and prudential management of a corporation. The GPI also
raised concerns that WEA will not have the requisite expertise to make
judgements on such matters.[37]
It was suggested that the potential for duplication could be avoided if
provision were made within the legislation for consultation between WEA and
ASIC on such matters.[38]
3.69
WAFF also expressed concern about WEA's capacity to administer the accreditation
process successfully. Mr Andrew McMillan told the committee:
The biggest issue that we have with the draft legislation, I
guess, is the uncertainty surrounding the accreditation process. History has
shown that the Wheat Export Authority and these bodies that are appointed to
advise government, manage legislation or whatever are generally grossly
underfunded, so where they are going to find the expertise and the resources
physically to be able to do the required level of due diligence to satisfy
growers is clearly not evident in the legislation.[39]
3.70
Mr Peter Woods told the committee, in the context of a question about
consideration of a company's risk management, that there are areas within the
accreditation process where it would be clearly better for WEA to seek the
assistance of professionals to assess aspects of applications and advise the
commissioners.[40]
3.71
In the opinion of WGA WA and WAFF, an exporter should not be able to
include in their contract with a grower, an extension of prohibition clause 17
of the Grain and Feed Trade Association General Contract for Feedingstuffs in
Bags or Bulk FOB Terms (no:119).
3.72
WGA WA and WAFF proposed that Clause 11(1)(c) should be amended
to require WEA to have regard to:
- ASIC and Australian Prudential Regulation Authority (APRA)
enforceable undertakings; and
- the contract terms and conditions on which the accredited wheat
exporter purchases wheat for export.
3.73
The committee also heard that it is important that the accreditation
process is fair to both large and small traders. Mr Kim Packer, of Tamma Grains
told the committee that:
... as a small trader at this point in time, I would like to think
that we would be given some sort of consideration for a track record that we
have had in the past, because we have been doing what we are doing since 1986.[41]
3.74
AWB expressed concern at the discretion provided to WEA to take account
of other matters it considers relevant (Clause 11(1)(c)(xvii)) and to
specify additional eligibility requirements (Clause 11(1)(f)). AWB
argued that the basis for determining eligibility should be clear and
objective. AWB suggested that the rules upon which accreditation is to be
granted should be set by Parliament in the primary legislation and not in a
legislative instrument created by the body charged with administering the
scheme.[42]
3.75
AWB told the committee of its concerns about the interpretation of the
bill in subsequent regulation. Mr Hadler told the committee:
The legislation basically gives carte blanch to the current
Export Wheat Commission to determine all regulations for how the system will
work in practice around accreditation and revocation of accreditation.
...
I think the intent of the bill is quite light touch but there is
potential for that to be unwound through regulatory development.[43]
3.76
The Emerald Group submitted that it broadly agrees with AWB's comments
on WEA's discretion to vary the accreditation scheme. However, the Emerald
Group does not believe that the nature and conditions of the scheme need to be
spelt out in legislation. In its submission, the Emerald Group stated that it:
... is of the opinion that complete WEA discretion could be
avoided using a legislative instrument where Ministerial approval and industry
consultation must be sought before conditions to the scheme could be changed.[44]
3.77
The PGA Western Graingrowers group suggested that the bill should explicitly
provide for WEA to demonstrate why an applicant has been denied accreditation.[45]
3.78
Mr Gary McGill, from PGA Western Graingrowers, expressed confidence that
the proposed accreditation process is sufficiently rigorous to protect growers
and guard against possible defaults of payment.[46]
Consultation in the formulation of
the accreditation scheme
3.79
The committee was interested to understand the extent to which the industry
would be consulted in the formulation of the accreditation scheme. The
committee notes that the Wheat Export Marketing (Repeal and Consequential
Amendments) Bill 2008 provides the Export Wheat Commission with the authority
to undertake consultation with potentially affected parties to ensure that the
accreditation scheme is ready by 1 July 2008. The notes to the bill also state
that, under the Legislative Instruments Act 2003, consultation on the development
of legislative instruments is mandatory.[47]
3.80
The committee notes that the Export Wheat Commission has commenced
consultation on the accreditation process. Mr Woods told the committee that the
EWC had begun meeting with a wide range of industry groups. He said:
Over the course of the week we did meet with all the growers as
far as grower groups are concerned. It is very difficult to meet with all
growers as such. We had, from memory, 14 grower groups represented either by
teleconference or in person on Monday last week. On Tuesday we had the bulk
storage and handling providers, who also have ports and port access issues, so
that we could have the ACCC there to discuss issues there. We also spoke with
industry representatives, advisers and consultants, and then with Australian
and multinational exporters.[48]
Committee view
3.81
The committee agrees that the accreditation process should be clear and
objective and that clear policy guidance as to its formulation and
implementation should be set out in the primary legislation.
3.82
The committee notes the calls for a 'light touch' accreditation scheme
based on clear criteria contained in the primary legislation on the one hand,
and for a rigorous assessment process capable of weeding out 'rogue elements'
on the other. The committee considers that it is critical that in formulating
the scheme an appropriate balance is struck between these different interests. The
committee considers that once the legislation has operated for a number of
years it would be appropriate to review whether the regulatory balance is right
or whether a lighter or heavier touch is needed.
Conditions of accreditation
Conditions of accreditation – Clause
12
3.83
The Grains Policy Institute (GPI) submitted that Clause 12 of the
bill should be amended to provide for mutual recognition of equivalent export
accreditation or licensing schemes operated under state jurisdictions. The GPI
considers that such recognition would be consistent with National Competition
Policy provisions for mutual recognition of complementary state and
Commonwealth legislation and may speed the initial assessment of applications
for accreditation.[49]
Annual reports
3.84
Clause 13 of the bill provides that an accredited wheat exporter
must give WEA a written report each year setting out the quantity of wheat
exported by the accredited wheat exporter during that year. The report is
required to be broken down by grade and country of destination; and note the
terms and conditions on which the accredited wheat exporter acquired wheat from
growers during that year.
3.85
Wheat Growers Association WA (WGA WA) would like to see a requirement
for annual export reports to also include the following details: the wheat
variety, seasons of production, acquisitions by regions, shipping port, and
number of shipments. The WGA WA submitted that the annual export report should
also disclose the terms and conditions on which wheat was acquired from non-grower
sources for export, in addition to the quantity of wheat bought for export from
growers and non-growers.[50]
3.86
CBH noted that Clause 70 of the bill provides that the
information contained in a report given to WEA under the wheat export
accreditation scheme will be protected confidential information if the person
who provides the report claims the information to be 'commercial-in-confidence'.
3.87
CBH submitted that the bill should be amended to provide that reports
submitted by a wheat exporter pursuant to Section 13 be deemed to be
protected confidential information, without the requirement to claim that the
information is 'commercial in confidence'.[51]
3.88
WGA WA argued that Clause 14 of the bill should be amended to
ensure that, in preparing the annual compliance report, an accredited wheat
exporter is required to report on compliance in relation to the broader range
of business activities specified in Clause 11 – in particular those
specified in Clause 11(1)(c)(ix) and Clause 11(1)(c)(xvi).[52]
Committee view
3.89
The committee notes that views discussed earlier in relation to Clause
8 and Clauses 17 and 18 are relevant here. There may be circumstances where
it would be desirable, and in the best interests of growers and others in the
industry, for WEA to have the power to impose new conditions on an accredited
exporter. In particular, the committee accepts that in certain circumstances it
may be preferable for WEA to impose new conditions in preference to
cancellation or suspension of an exporter's accreditation. However, the
committee considers that this is not a step that should be taken without due
process.
3.90
The committee also notes the support for mutual recognition of
complementary state and commonwealth legislation in the formulation of the
accreditation scheme. A similar point was also made in the context of the
access test provided for in Clause 20 of the bill. As a general
principle, the committee considers that it is desirable to avoid duplication of
regulation.
Register of accredited wheat
exporters
3.91
The WGA WA would like to see the register of accredited wheat exporters provided
for in Clause 19 include the conditions of the respective accreditations
and the name in which every accreditation is made. The WGA WA emphasised that
the register should be made available for inspection free of charge.[53]
Committee view
3.92
The committee considers that the availability of a register of
accredited exporters would be of great benefit to the wheat industry, particularly
to growers. The committee considers that the register should be freely and
easily accessible and should clearly state the name of the accredited exporter
and the conditions under which accreditation has been granted.
Access to bulk storage and handling
facilities
3.93
A number of witnesses before the committee expressed concern about the
role and potential market power of bulk handling companies under the proposed
changes. It was argued that bulk handling and storage facilities throughout Australia
are owned and controlled by a limited number of companies. Concerns were raised
that, in the event that some or all of these companies became accredited
exporters under the proposed legislation, they may be in a position to limit
access to these facilities by other exporters.
Ownership of bulk grain storage and
handling facilities
3.94
There are three state-based storage and handling operators, CBH Group in
Western Australia, ABB in South Australia and GrainCorp in New South Wales, Victoria
and Queensland.
3.95
In Western Australia there are four export grain terminals at Kwinana,
the Port of Geraldton, the Port of Albany and the Port of Esperance, all
managed by CBH. In South Australia there are seven grain export terminals
located in Port Adelaide, Port Lincoln, Port Giles, Port Pirie, Ardrossan,
Thevenard and Wallaroo, all owned and operated by ABB. In Victoria there are
three grain terminals. The terminals at the Port of Geelong and Portland are
owned by GrainCorp and the terminal at the Port of Melbourne is jointly owned
by AWB GrainFlow and ABA (which is a joint venture between ABB and Japanese
trading house Sumitomo). In New South Wales there are two export terminals for
field grains at the Port of Newcastle and Port Kembla, both of which are owned
and operated by GrainCorp. In Queensland there are three grain terminals at Fisherman
Islands, Gladstone and Mackay, all operated by GrainCorp.
Access to port terminal facilities
3.96
Clause 20 of the bill is intended to guarantee port terminal
access to all exporters. It sets out the access test and conditions to be
applied in the case of bulk handlers who also operate grain and storage
facilities at ports. The notes to the bill state that the intent is to
guarantee port terminal access to all accredited exporters while at the same
time not restricting the ability of port terminal operators to function in a
commercial environment. The notes to the bill also state that while bulk
handlers currently provide port terminal access to other exporters, some
industry stakeholders have raised the possibility that, in a competitive
environment, these bulk handlers may limit access to their port terminal
facilities.[54]
3.97
As noted in paragraph 3.12, the access test provides for a different
level of assessment depending on whether the company involved passes the
accreditation test before or after 1 October 2009. Prior to 1 October 2009, a
company will pass the test if it has published a statement on its internet site
to the effect that it is willing to provide accredited wheat exporters with
access to port terminal services for the export of wheat. The statement must
include the terms and conditions of such access. After 1 October 2009, a company will pass the access test if they have entered into an access
undertaking that has been approved by the ACCC under Division 2A of Part IIIA
of the Trade Practices Act 1974.
3.98
The committee sought clarification of the reason for this watershed date
in the legislation and the degree to which access arrangements would be vetted
prior to 1 October 2009. Mr Russell Phillips (DAFF) told the committee
that in the first year of operation of the legislation there would be no
requirement for anyone to vet access arrangements.
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.
...
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. [55]
3.99
Mr Phillips explained that state based legislation would also provide a
check and balance in relation to port access.
There are requirements in, say, the Western Australian
legislation for CBH to grant access. ... The ports in Victoria are also subject
to potential scrutiny by the Essential Services Commission in Victoria. There
are some other arrangements in place.[56]
3.100
The evidence the committee received in relation to the access provisions
was split between those who considered that the proposed arrangements were
onerous and unnecessary and those who favoured an expansion of the provisions
to include access to upcountry storage.
Arguments for a less
interventionist approach to terminal access
3.101
A number of submitters presented evidence to the committee which
suggested that the proposed access test was an unnecessary level of regulation
and could have unintended consequences for the wheat export industry. The Institute
of Public Affairs (IPA) argued that mandating an access regime for port
infrastructure owners who also want to become accredited wheat exporters is
flawed. The IPA stated that while in the short term this may result in lower
access prices, in the longer term it has the potential to stymie incentives for
additional investment to either expand grain handling facilities or to upgrade
them to achieve greater efficiencies. The IPA illustrated this point by
reference to infrastructure development at BHP's Hay Point coal terminal, which
is not subject to access undertakings, and at the multiple-user regulated
facilities at Dalrymple Bay and Port Waratah. In the IPA's opinion, delays in
the expansion of the latter two facilities can be attributed to the level of
regulation applied and required regulatory intervention.[57]
The IPA also warned that mandating infrastructure access undertakings may
result in underinvestment in port facilities which over time may lead to
inefficiency and a lack of international competitiveness.[58]
3.102
Mr Donald Taylor[59]
also observed that increased regulation has the potential to impede investment
in the development of infrastructure. He said:
If you look in Queensland at recent experience, especially in
the coal industry, where they had extensive regulation to a monopoly holder of
the Dalrymple port facilities and where the Queensland government put in place
essential service regulations, it effectively delayed capital expenditure and
slowed down the port. Part of the bottleneck we see now is the result of that
government intervention, which had no real tangible benefits to the industry;
in fact, it has been quite counterproductive.[60]
3.103
While it endorses the access test, PGA WG would also prefer to see a
less interventionist approach to access to infrastructure. PGA WG favours a
system which allows commercial arrangements to govern access to storage,
handling and port facilities. It was argued that bulk handling companies will face
significant commercial pressures, which should ensure they seek to maximise
throughput in their facilities.[61]
In PGA WG's view, it is a legacy of past public policy that a large percentage
of storage, handling and port facilities are in the hands of three
regionally-based entities: CBH in Western Australia, GrainCorp in the east and
ABB in South Australia. PGA WG argued that such companies will face much
greater pressure to maintain good commercial practice than a company operating
under a commercial monopoly protected by Government legislation.
Already we have seen evidence of this. CBH developed and began
to communicate its proposed access regime (Grain Express) prior to the release
of the draft Bill. CBH has done this in recognition that throughput of its
facilities in a competitive grains market will require them to operate on
commercial terms within the wider industry.[62]
3.104
The evidence received from bulk handling companies echoed these
concerns. GrainCorp, CBH and ABB all recognised the need for all exporters to
have access to storage and handling facilities. However, the three companies
expressed concerns about the form of the access requirements in the proposed bill.
They submitted that the requirements in the bill imposed an unnecessary level
of regulation, would introduce additional costs and would provide a
disincentive to investment.[63]
3.105
In particular, CBH argued that access undertakings under part 111A of
the Trade Practices Act in different industries have also involved heavy price
regulation, and such an approach is likely to provide a disincentive to
investment.[64]
CBH further argued that there is no evidence of abuse of market position by
bulk handling companies to date. CBH suggested that before introducing what it
described as heavy handed price regulation, the situation should be monitored over
the next 18 to 24 months. Mr David Woolfe told the committee that, in the event
that there is abuse of market powers, there are existing remedies in the Trade
Practices Act.[65]
3.106
Mr David Ginns, representing GrainCorp also told the committee that
there is no issue regarding access to bulk handling and storage facilities. He
said:
I think one of the key issues that has been missed in all of the
discussion about access to ports and up-country infrastructure is the
establishment of the need for additional regulation. The commercial
arrangements that were in place yesterday, are in place today and will be in
place tomorrow will continue. There is a high degree of transparency with
regard to charges imposed on the use of up-country infrastructure and ports. If
you go to any of the websites of the major infrastructure providers, you will see
the standard terms and conditions under which they offer their services. We
have seen, I think, to some degree, the building up of an issue that is not an
issue.[66]
3.107
CBH argued that Clause 20 should be amended to provide that bulk
handling companies must not unfairly or unreasonably deny access to, or
discriminate between, accredited wheat exporters who seek access to port
facilities following the introduction of the proposed bills. CBH suggested that
this could either be drafted into the legislation, or bulk handling companies
could be required to provide an undertaking to the ACCC. CBH further suggested
that such an undertaking could be modelled on the simple form of undertaking
provided by ABB to the ACCC in relation to the Ausbulk merger or that provided
by GrainCorp to the Victorian Essential Services Commission.
3.108
Mr Stephen Bartos, on behalf of AWB,[67]
also told the committee that the access requirements that have been put in
place in Victoria and South Australia could provide a good model for port
access.
... 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...[68]
3.109
However, Mr Bartos also emphasised that access to information was just
as crucial to physical access to ports. He noted in particular:
... 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.[69]
3.110
CBH contended that as it is already required to provide open access to
its port facilities and equipment under the Western Australian Bulk Handling
Act 1967, the access test in Clause 20 is unnecessary. CBH told the
committee that Section 20 of the Bulk Handling Act requires CBH to:
... allow a person, on payment of the prescribed charges, the use
of any bulk handling facilities and equipment controlled by it at ports in the
State.[70]
3.111
Section 42(1) of the same Act requires CBH to receive all grain that is
tendered to it in bulk. CBH would welcome an amendment to Clause 20 to provide
for the recognition of state or territory legislation.[71]
Senator MURRAY—Just a clarification question
please, Mr Woolfe. As a general principle, avoiding duplicate or overburdensome
regulation is a good idea. The government is rightly focused on that. Would you
accept an alternative to your view that section 20, I think it is, should not
apply, which is the view that perhaps it would apply in the absence of any
state legislation which already had the same effect? That would allow you just
to abide by one regime which has the same effect as the other.
Mr Woolfe—That does not sound like an
unreasonable proposition. What we have also said in our submission is that,
rather than having this access undertaking regime in part IIIA, which would, as
I said, in our understanding involve very heavy regulatory burden, perhaps the
concern could be addressed by the legislation simply stating that bulk-handling
companies such as ourselves may not unfairly or unreasonably discriminate
between marketers or prevent access. It could be dealt with very, very simply
rather than through heavy regulatory oversight.[72]
3.112
In the event that the proposed access test in remains in the bill, CBH
submitted that Clause 20(1) and 20(2) be amended to provide a
third option:
(c)
... at that time there is in force a regime established by a State or
Territory for access to the port terminal service and that regime is
legislatively enshrined.[73]
Current operation of port
facilities
3.113
The committee was keen to understand the extent to which an increase in
the number of wheat exporters needing to use port facilities would impact on
the efficient operations of ports. In particular, the committee was interested
to know how competing wheat exports would be prioritised within the port
environment.
3.114
GrainCorp told the committee that it currently manages access to port
facilities. It also manages the logistics of receiving, storing and loading
grain with AWB in relation to wheat; and provides a range of service users for
barley, sorghum and for oilseeds. Mr David Ginns[74]
told the committee that the only limitation on ports is the physical capacity
of each port. Each port has different infrastructure and different processes of
accumulating grain depending on the size of the ships that can be outloaded,
the outloading rates and the storage capacity to accumulate cargoes at port. Mr
Ginns was confident that the logistics of managing this task and the complex
prioritisation and cargo accumulation protocols, are being successfully managed
under the current arrangements and that this would continue under the proposed
arrangements.[75]
... there are protocols for the booking of ships and berth space
and for the accumulation of cargoes for all of the three infrastructure owners.
Those protocols are publicly available in that there are lead times for booking
ships and accumulating cargo. It is a very complex business. That works
currently for all other grains, and the same processes will work for wheat.
There will be no shifting around of prioritisation simply because you have
limitations on the volume and the speed at which grain can be accumulated at a
port, stored and then outloaded.[76]
3.115
Mr Ginns also told the committee that an increase in the number of
exporters using port facilities will not alter the size of the export task
'because you are still going to be managing the same cubic volume of wheat'.
Expansion of access test
3.116
The committee heard equally strong arguments from other witnesses in
favour of an expansion of the access test. AWB told the committee that, given
the natural regional monopolies of each of the three bulk handling companies,
the proposed access provisions in the bill are essential.[77]
AWB would like to see significantly greater detail in the legislation about the
terms and conditions to be provided under Clause 20(1)(a)(ii), particularly
in respect to price, identification of wheat stored and its location and the
allocation of loading times.[78]
3.117
This position appears to be supported by Consolidated Grain Industries
Ltd (CGI). CGI expressed concern that as the internal logistics of grain
movement are controlled by the grain handling companies, there is potential for
a grain handler to use this to frustrate a competitor's access to a terminal or
the timely loading of a competitor's grain. CGI submitted that the definition
of access should include a requirement that the first vessel to be presented is
the first loaded. It was also argued that grain handling companies should be
required to ensure that the competitor's stocks are positioned on a timely
basis to ensure the smooth loading of the exporter's vessel.[79]
3.118
The committee also received evidence that the access arrangements in the
bill are essential and should be expanded to include access to the point of
receival at upcountry storage and handling facilities.[80]
3.119
The committee heard that, in addition to controlling the nine grain
handling ports, over 600 upcountry silos are owned and operated by the three
main grain handling companies and a further 22 upcountry silos are owned by
AWB.[81]
The committee also heard that many wheat growers only have access to one storage
and handling facility, unless the grain is transported long
distances by road.[82]
3.120
The committee also received evidence that suggested that access to rail
freight services should be subject to the access test.[83]
AWB told the committee that the there should be a legislative prohibition on
vertical integration right through the supply chain.[84]
AWB submitted that:
... the up-stream supply chain is inextricably linked to at-port
services and is vital to traders' ability to safely and reliably receive,
transport and outturn grain via [bulk handling companies] in the quantity,
quality and condition that traders require.[85]
3.121
AWB proposed that bulk handling companies should be subject to much
tighter requirements in relation to: the publication of terms and conditions, the
movement of grain, performance obligations in relation to railway car uploading
(upcountry) and discharge (at port) and notification of up-country site
availability.[86]
3.122
The committee sought clarification from DAFF as to why the proposed
access requirements do not apply to upcountry facilities. Mr Phillips told the
committee that the proposed requirements address perceived bottlenecks in the
infrastructure. He said:
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, port terminals. The legislation focuses on where
there is the perception that there may be a bottleneck that could potentially
restrict competition.[87]
3.123
GrainCorp does not accept that there is a monopoly in storage and
handling as growers have other options for storage of their grain, including
on-farm storage.[88]
GrainCorp emphasised that the current excess capacity in storage and handling
on the east coast would ensure access to such facilities.
Along the east coast of Australia there is a capacity to store
40 million tonnes of grain, and only half is owned by GrainCorp. Owners of
up-country silos are subject to considerable competition from temporary
storage, such as silo bags and on-farm silos, and competitors in the form of
local grain traders and merchants and AWB GrainFlow. Grain export ports are
running well below capacity. In the case of GrainCorp those ports running at
about 30% capacity, while every year GrainCorp has to carry the total cost of
that infrastructure.[89]
3.124
GrainCorp and CBH emphasised that grain storage and handling
infrastructure is a tonnage throughput business. GrainCorp told the committee
that every tonne that bypasses a GrainCorp silo or port is revenue lost to the
company:
GrainCorp, CBH and ABB are in the business of encouraging use of
their infrastructure – excluding companies just does not make commercial sense.[90]
3.125
This view was echoed by evidence provided by officers from DAFF:
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 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 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.[91]
Abuse of market power - the role of
the Trade Practices Act and the ACCC
3.126
The committee heard evidence from a range of witnesses and submitters
regarding the degree of protection available to growers and others in the
industry from anti-competitive practices and abuses of market power.
3.127
Views on the effectiveness of existing powers under the Trade
Practices Act 1974 (the TPA) varied greatly. For example, AWB told the
committee that the Companies Act and the TPA would provide sufficient
protection for wheat growers from market power.[92]
3.128
AGEA also expressed a preparedness to pursue remedies under the TPA and
to work closely with the ACCC with regard to access undertakings. Mr Alick Osborne
told the committee:
We will work 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 strongly
of the view that the removal of a national monopoly should not be replaced by a
regional monopoly. We note the ACCC are going to administer a scheme out there.
We have a number of Clauses 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.[93]
3.129
However, the committee notes that not all in the industry share this
confidence that the provisions of the TPA will adequately address the
competition issues they perceive. For this reason, the committee sought
clarification from the ACCC regarding the extent to which it provides an
effective remedy to abuses of market power.
Senator HURLEY —I know you have had a look at this draft
bill. Are the means to regulate posed in the bill potentially strong enough to
ensure proper competition in terms of access and regulation?
Mr Dimasi—The draft bill requires that a vertically
integrated facility which controls bulk-handling facilities provide
non-discriminatory access to those through an access undertaking to the ACCC.
Now the access undertaking is a provision which is well understood—at least by
us—and which can provide for price and non-price terms and conditions which can
be arbitrated by the ACCC if there were disputes. It is, in the array of tools
that we have to deal with those circumstances, a conventional tool that can be
used to deal with the power that could exist.[94]
3.130
The committee notes the concerns of smaller exporting companies and some
farmers that the TPA processes are too lengthy and costly to provide adequate
protections and may be out of the reach of some companies and individuals. Mr Joe
Dimasi, on behalf of the ACCC told the committee:
Generally I would agree that under Part IIIA, or indeed other
provisions of access, all the players vigorously pursue their interests and
take all options available to them. Yes, gaining access can sometimes take a
substantial amount of time.[95]
3.131
The ACCC was also asked what it its view would be if only one part of
the market was open to competition and other parts of the market continued to
be controlled by monopolies. Mr Dimasi told the committee:
Again that depends on a whole range of circumstances. We have a
number of areas where competition is introduced but there is monopoly
provision, for example of infrastructure. That is where you have arrangements
like part IIIA or part XIC, to deal with those matters. That is what happens in
other sectors.[96]
3.132
The committee also noted that the ACCC does not agree that vertical
integration is necessarily anti-competitive. Mr Dimasi told the committee:
No, we would not necessarily agree with that, and the ACCC has
made it clear that there are circumstances where vertical integration can
provide benefits that exceed any anti competitive detriments.[97]
3.133
In answer to a question on notice, the ACCC stated that:
The ACCC understands that the proposed legislation would allow
for the vertical integration of bulk handling companies into wheat export
marketing. If control of bulk handling facilities is a source of market power
then it may be the case that the bulk handlers are in an advantageous position
to compete in wheat export marketing. However, whether the bulk handling
companies have the ability and incentive to act anti-competitively in the area
of wheat export marketing would need to be considered on a case-specific basis.
3.134
The committee received a range of evidence about the potential benefits
and risks of an initiative such as CBH's Grain Express proposal. The committee
notes that CBH characterise Grain Express as an attempt "to set up a
coordinated approach to the movement of grain, the accumulation of grain, the
shipping of grain and access to terminals."[98]
The committee notes that Grain Express has received support from some quarters
of the Western Australian industry. However, the committee also received
evidence regarding the potential risks associated with this type of proposal.[99]
3.135
The committee was therefore interested to understand how the ACCC would
deal with a situation like that proposed by CBH in its Grain Express proposal.
The ACCC confirmed that exclusive dealing conduct may raise issues under the
TPA but that such conduct must be considered within the context of the
particular circumstances and balanced against any benefit to the public. The
ACCC confirmed that it had not received an application for authorisation or an
exclusive dealing notification from the CBH group in relation to the Grain
Express proposal.[100]
Supply Chain Code of Conduct
3.136
In supplementary submissions to the inquiry, GrainCorp, CBH and ABB
provided the committee with a draft Supply Chain Code of Conduct. The three
bulk handling companies stated that the draft code has been prepared to provide
a commercially based solution to guaranteeing new bulk wheat exporters access
to both port terminals and upcountry grain accumulation facilities. The
companies proposed that the code would become an integral part of the
accreditation scheme, would be enacted with the agreement of all signatories
and subject to the final approval of the minister. The three companies accept
that under this type of model, a breach of the code could lead to removal of
accreditation.[101]
3.137
The committee was keen to understand what would happen in the event that
an access problem arose under a voluntary code of conduct. Mr Joe Dimasi, from
the ACCC, told the committee that the ACCC could see a lot of issues in
relation to the proposed code of conduct.
CHAIR—Before we go, Mr Dimasi, you just mentioned that
you see a lot of issues in that code of conduct. Would you like to expand on
that?
Mr Dimasi—We very recently received it, and the only
comment I would make about it is that it looks like a voluntary set of arrangements
which provides for compulsory conciliation. That sort of arrangement can be
useful in some circumstances. But, if you believe you have an access problem
where there are a number of players that you deal with, these bilateral
voluntary arrangements may have some difficulties in resolving your—
...
Mr Dimasi—By this arrangement, we would have no
involvement whatsoever.[102]
3.138
Mr Ginns clarified for the committee that the code of conduct was not
being offered as a voluntary code but as an integral part of Section 11 of the
accreditation regime.[103]
He told the committee that:
So, if you are an infrastructure owner—here we are talking about
ports or up-country storage—and you own a significant amount of infrastructure
and you want to be an accredited bulk wheat exporter, then you would have this
code of conduct in place and attached to section 11. It would be overseen by
Wheat Exports Australia. Sanctions would apply if you did not adhere to the
provisions under the code as an infrastructure service provider and a bulk
wheat exporter. The regulator of the act, Wheat Exports Australia, would come
in and take your accreditation away if it was proved that there were breaches
of the code.[104]
3.139
AWB told the committee that the supply chain code of conduct appeared
superficially attractive because:
... it applies an industry self-regulatory approach and it applies
to up-country as well as port facilities. In fact, there is no barrier to
having a voluntary code of conduct under the current trade practices agreement,
and we would encourage all members of the industry to look at a voluntary code
of conduct dealing with not only port issues and up-country issues but a whole
range of issues that would give greater transparency and greater certainty for
growers in how wheat is priced, stored, shipped and exported.[105]
3.140
However, AWB expressed concern that definitional issues within the code
of conduct may lead to legal dispute. Mr Hadler noted the following particular
concerns:
... under this proposed code of conduct access would only be provided
to other traders where there was surplus capacity. It is not clear who would
determine what the surplus capacity was and when it would be available. One of
the other definitional issues in here is that it would only forbid
‘unreasonable’ discrimination. Who would define what is unreasonable? I have no
confidence at this stage that this would be an adequate set of arrangements
that would provide fair access to all members of the grains industry.[106]
Committee view
3.141
The committee notes the serious concerns raised during this inquiry in
relation to the access provisions in the bill. In particular, the committee
notes the concerns that access arrangements should apply to all points of the
supply chain and that consideration needs to be given to ensuring an adequate
level of regulatory oversight of protocols relating to the accumulation,
movement and loading of wheat for export.
3.142
The committee also notes that access arrangements applied to accredited
exporters will not address access issues that may arise in the event that grain
handling companies do not seek accreditation. The committee notes the arguments
presented to suggest that market forces should mitigate against discriminatory
access in such circumstances. However, the committee considers this issue
requires close consideration.
3.143
The committee considers that a consistent set of access requirements
should be applied to all owners of bulk handling and storage facilities,
whether they are located at port terminals or at the up-country point of
receival.
3.144
While the committee notes that provisions exist under the TPA to address
anti-competitive practices, careful consideration needs to be given to the
extent to which these provisions offer practical remedies to the concerns
raised during this inquiry.
3.145
The committee welcomes the attempt by the three bulk handling companies
to arrive at an alternative solution to the complex question of appropriate
regulation of access to bulk handling and storage facilities. In particular,
the committee notes the preparedness of the proponents of the Supply Chain Code
of Conduct to have the code embedded in the legislation. The committee
considers that a Code of Conduct may be an acceptable alternative to the access
provisions of the draft bill subject to the following qualifications:
- The legislation should be amended to require exporting companies
to comply with an 'industry code' as a requirement of accreditation. Industry
would be given a set period of time to come up with such a code.
- The Code would apply to those companies which have obligations
under the Code and would not be limited to Bulk Handling Companies.
- The Code would be registered by the ACCC under the Trade
Practices Act 1974 and subject to acceptance by Wheat Exports Australia.
- The legislation should require the Code to recognise and address
the following principles:
- Access to ports and up-country infrastructure on 'fair and reasonable
commercial terms';
- An arbitration process that is binding on the parties; and
- Publication of standard terms and conditions of access.
- The legislation should provide powers to Wheat Exports Australia
to revoke accreditation if the Code is breached.
- The access undertakings requirement currently spelled out in the
legislation would remain but apply only to those companies which choose not to
comply with the Code. The alternative option for companies that do not wish to
comply with the provisions of the Code is the current requirement to negotiate
an access undertaking with the ACCC.
3.146
The committee supports the current provisions relating to access at
ports. The committee believes there is a need to ensure effective competition
in relation to access to up-country infrastructure. The committee supports
additional measures in relation to up-country infrastructure such as a
mandatory code of conduct.
Review of decisions
3.147
AWB submitted that Clause 66 of the bill should be amended to
clarify who can seek a review of a decision by the WEA. AWB submitted that it
is not clear whether persons other than the applicant for accreditation or an
accredited export holder can apply for review. AWB submitted that it is not
desirable for a person other than the person who is the direct object of the
decision to apply for reconsideration. In particular, AWB submitted that it
would not be appropriate for a competitor to the applicant for accreditation to
be able to seek a review.[107]
Committee view
3.148
The committee considers that some clarification of the process for
review of decisions would be appropriate.
Review of the legislation
3.149
The committee notes that there was broad support for a review of the
legislation in 2010. PGA WG endorsed a review of the legislation in 2010 and
encouraged the minister to restate his commitment to an independent economic
review, with an analysis based on the costs and benefits of the system.
3.150
The Grain Growers Association (GGA) and the Grain Exporters Association
also support a review of the legislation. The GGA suggested that such a review
should consider:
- whether or not the legislation and regulation are providing appropriate
controls to ensure a fully functional and competitive marketplace;
- any changes that may be required to ensure appropriate functionality for
the marketplace; and
- the timeframe for continuance of the arrangements and the future review
periods.[108]
3.151
The GGA also supported a review of both the operation of the accreditation
scheme and the access test.
3.152
The GCA also suggested that the review should also include a review of
the transfer of responsibility for the provision of industry good functions.
The GCA favoured explicit provision for review within the legislation itself
and suggested that the minister be required to table a report of the review. [109]
3.153
Mr Russell Phillips confirmed that the government's policy includes a
review of the legislation in 2010 to assess its effectiveness. Mr Phillips also
confirmed that the review will be mentioned in the Second Reading Speech for
the bill, but not provided for within the legislation itself.[110]
Committee view
3.154
The committee considers that provision for the review of the legislation
is essential and that it is desirable for the minister to be required to table
the report of such a review before the Parliament.
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