CHAPTER 2
CHAPTER 2
COMMENT ON THE LEGISLATION
Overview
Growers Views
Millers Views
Manufacturers Views
The ACCC and the Refiners Agreement, 1997
2.1 As noted in the Committee's Report, the Committee
concentrated its inquiry on the effect of removal of the sugar tariff on canegrowers. It
considered questions raised in the SIRWP Report relevant to the tariff issue, particularly
as they relate to the pricing of domestic sugar.
2.2 The Committee took evidence on the effects of the tariff removal
from the range of interests in the sugar industry, growers, refiners, millers and end
users.
2.3 The Committee's principal task was to assess the effect of the
removal of the tariff on imported sugar and sugar by-products on sugar cane farmers. The
Committee discussed this question in detail with three groups representing canefarmers:
the Australian Cane Farmers' Association, a voluntary body representing canefarmers
(ACFA); Canegrowers', the statutory body representing all Queensland canefarmers
(Canegrowers); and the NSW Cane Growers' Association, representing NSW canefarmers (NSW
Growers). In addition, the Committee also had submissions and heard evidence from several
Canegrowers' branches in Queensland.
2.4 ACFA told the Committee the sugar tariff, as it had stood before
its removal in July 1997, was not offensive as it more than met Australia's
obligations to the World Trading Organisation. The Canefarmers' Association
also noted that removal of the tariff would cost canefarmers some $30m
(and some $100m with multiplier effect).[1]
2.5 ACFA stressed that the organisation supported the majority of
the SIRWP recommendations, but had always opposed total removal of the tariff:
To the best of our knowledge, most industry organisations, and
in particular the two grower organisations, did not support the removal of the sugar
tariff in their submissions to the Sugar Industry Review Working Party. We ask the
questions: what motivated the recommendation to remove the tariff, and why following the
release of the Sugar Industry Review Working Party recommendations was there no
opportunity provided for further consultation with the industry? ...
When the recommendations were released it was quite obvious
that there was an outcry on the tariff issue. I believe that it is on record that we
supported, in general, most of the other 74 recommendations. Of those 74 recommendations,
most were of an industry nature. There was a lot of disagreement with those remaining 74,
particularly the one relating to changes to the pooling arrangements, but we recognised
that that was an industry issue and it was going to take a long time for us to attempt to
satisfy all those who had opinions about that.
However, I make the point that the one opinion that was common to all
concerned the recommendation to remove the sugar tariff. The tariff
had value as an anti-dumping mechanism. We believe that dumped sugar
is a possibility in Australia.[2]
2.6 The view taken by ACFA was that, with removal of the tariff, the
price per tonne paid to canefarmers for delivered cane had dropped, by
a yet indeterminate figure, but in the vicinity of 30 cents per tonne.
The change to pricing policy on sugar sold for domestic consumption from
a basis of import parity fixing to export parity fixing would, ACFA said,
lead to a net reduction in price to growers.[3]
2.7 ACFA's submission is that the tariff be restored, failing which an
appropriate compensation package for canefarmers be paid.[4]
2.8 By way of contrast, in its submission, Canegrowers' stressed to
the Committee the importance it attached - especially during the SIRWP deliberations -
that any removal of the tariff be connected to retention of the SDS arrangements.
2.9 Canegrowers' maintained that removal of the sugar tariff was
part and parcel of a viable package of measures which was intended to be implemented in an
integrated program. Canegrowers' comments to the Committee can be summarised thus:
- if the tariff was retained, the result could not only result in the
loss of SDS but also the ability to extract monopoly rents from that tariff;
- special support measures should be considered to alleviate the impact
of the package - particularly in light of decisions on motor vehicle and clothing, textile
and footwear tariffs;
- the pricing of domestic sugar based on notional import parity price,
rather than export parity price, as this would be the competitive price that sugar could
be imported into Australia;
- a more aggressive stance by Australia at the WTO in attempting to
reduce sugar price tariffs is essential.[5]
2.10 Mr Harry Bonnano, a member of the SIRWP and Chairman of
Canegrowers' told the Committee:
Certainly the governments, both state and federal, were
emphatic that we had to comply with the national competition policy. There is no doubt
about that. I understand the English language perfectly, and there were no ifs or buts. It
was impressed upon us that it was fairly desirable to have a unanimous decision come out
of the review. That is not an easy thing to come up with, a unanimous decision out of a
review, when there are such differing views to commence with.
We had to work through all of that and we paid a heap of money
to consultants to give us all of the opinions we could lay our hands on to show how we
could comply with national competition policy. We had to pass the public benefit test, and
there is no way that we could hold the tariff and hold single desk selling and still pass
the public benefit test for our industry, especially with single desk selling.
Export single desk selling would still be acceptable, probably, but
single desk selling on the domestic market would not comply with the
national competition policy. So, on behalf of cane growers, we could
not sacrifice single desk selling.[6]
2.11 In relation to a principal criticism of the decision to
recommend removal of the tariff - that any consultation with canefarmers did not reflect a
widely conducted consultation process - Mr Bonnano told the Committee how SIRWP had
structured this process:
The Boston consulting [consultants to the SIRWP] report was
out in the industry, then we went right throughout the state with the review committee,
talking to all of the groups that wanted to make submissions and speaking to it, and the
recommendations were all considered. If anyone thinks the review committee made a hasty
decision, they have got that wrong because it took us 141/2 months, with some of the most
intense discussion and negotiation I have ever been involved in. I do not make the
decisions on my own. I have consulted with the Canegrowers Council, who probably had one
or two waverers; but, in general, the council have voted solidly behind the
recommendations and my part in that committee.
When we signed off on the recommendations, every organisation had a
representative there. After they had signed, some of the organisations
chose not to follow, perhaps, the commitments that their chairman, or
whoever he was at the time, had made. Frankly, I believe I have made
a commitment on behalf of Canegrowers, and the Canegrowers Council subscribe
to that view because they have supported me in that determination.[7]
2.12 It was also apparent from discussions with Canegrowers'
that the question of whether the removal of the tariff was linked to retention of the SDS
mechanism had been of central importance to SIRWP's deliberations, principally due to the
apparent relationship between the SDS mechanism and National Competition Policy
Senator Woodley - Did it have to be either/or,either
tariff or single desk selling? Why was it not possible that both should have been
retained?
Mr Bonanno,The Queensland government has it under its
jurisdiction but in the end the national competition policy will dictate what happens with
single desk selling and the tariff. The only way you can hold single desk selling, if you
look at it according to the rules, is that you have to make certain that it is in the
public interest, and you cannot say it is in the public interest if the consumer in
Australia is made to pay, because of tariff, a higher price than he would otherwise have
to pay. The national competition policy would say under those circumstances the single
desk ought to go or the tariff ought to go because you could not have both. No one said
either/or, but the facts are that if you are going to comply with national competition
policy it means that either one or the other would be in serious jeopardy.
Mr Chapman,You could not take the benefit of the tariff without
single desk anyway. If you had a tariff and no single desk, you could
not extract the benefit of single desk; you would compete it away.[8]
2.13 The position taken by Canegrowers' to the tariff did not coincide
with other canefarmers' groups consulted by the Committee, but conceded
that, if canefarmers stood to gain in the long-term from removal of the
tariff, consumers may not.[9]
2.14 NSW Growers' views on removal of the tariff were determined by the
fact that NSW growers or their representatives were not represented on
the SIRWP, though it did make written representations to SIRWP process.
The SIRWP report did concede that the removal of the tariff would have
a greater impact (for growers) or the NSW industry.[10]
2.15 NSW Growers' submission advocated tariff retention for the
following reasons -
- Both growers and millers receive benefits from the tariff, and its
removal has proportionately greater effect on NSW than Queensland growers.
- The cost of tariffs has not been passed on to the Australian sugar
consumer. Because of the competition, the tariff has effectively been faded away.
- The sugar tariff can be justified on the basis that the real ad
valorem tariff of approximately 8% is acceptable within WTO and GATT arrangements.
- As sugar is a manufactured product, the tariff was moderate.
2.16 NSW Growers maintained that retention of the tariff would
produce a greater advantage to NSW growers than Queensland growers, as even a modest
tariff would act to inhibit the ability of opportunistic marketing from subsidised
producer nations to corrupt the Australian domestic market; the major part of NSW sugar
production.
2.17 Adoption of import parity pricing would `add to the domestic market
returns to producers in both Queensland and NSW' but would not achieve
the transparency and simplicity offered by retention of the tariff.[11]
2.18 In discussions with the Committee, NSW Growers highlighted
estimated losses from the removal of the tariff to the towns within the NSW sugar growing
area as some $8m directly, and some $425m as a multiplier effect:
The loss of sugar tariff will cost the industry up to $A8 million per
year of direct income and up to $A25 million of regional economic benefit.
The loss of the sugar tariff will have a disproportionate impact on
the New South Wales industry in comparison to the Queensland industry.
This has been recognised by the Prime Minister and measures of compensation
are being explored by the sugar industry task force if in fact the tariff
is lost.[12]
2.19 The NSW Government submission calculated the loss to NSW growers
of removal of the tariff (and subsequent reduction in domestic sugar price)
as $14,800 per grower, compared to a total loss of approximately $20m
to Queensland, or approximately $3,400 per grower.[13]
2.20 The principal sugar millers in Australia held differing views
on the tariff.
2.21 Bundaberg Sugar, in its submission, maintained that while the
SIRWP recommendations were accepted by the Queensland and Commonwealth Government, the
effect on local areas of production - such as Bundaberg - was difficult to predict.
The report recommended removing the tariff as part of the overall package
of reforms as it believed that the loss to the industry could be compensated
in alternative ways. However, we believe that the potential adjustment
pressures are far greater than contemplated and are concentrated unfairly
on some small sectors of the industry. There has been no compensation
offered other than the prospect of growth. For the Bundaberg area or
north Queensland there are no growth prospects under the proposed industry
arrangements. It is Bundaberg Sugar's position that it is not just the
impact of the removal of the tariff that must be examined but the impact
of the overall package of recommendations. These should be reviewed
to achieve a proper balance of natural competition consistent with fair
competition concepts. [14]
2.22 Mackay Sugar submitted that any acceptance of removal of
the tariff was under earlier circumstances, and that a case would be made out for payment
of assistance to replace the tariff element in import parity pricing.
... the sugar industry should be allowed to determine its own
future and that that future should involve single desk selling, export parity pricing for
the domestic market, and the abolition of the tariff. Mackay Sugar believes that the sugar
industry has displayed maturity and responsibility in accepting that the tariff must go.
However, when we accepted that decision, we understood that other tariffs would also go,
particularly on industries which supplied some of our inputs for our production and,
therefore, some of our costs.
Although there has now been a change of policy as far as these
other industries go, Mackay Sugar still feels that the sugar industry would be better
served in the long run by forgoing the tariff at this time. However, in light of this new
attitude by government, we believe that government should provide the industry with $75
million of transitional assistance,and I can say that without even blinking,an amount
approximately the same as the assistance that would be provided by the inclusion of the
tariff in domestic pricing over the next three years.
As we stated in our submission, assistance of this type would be more
straightforward and effective than having similar assistance provided
indirectly via a tariff. In our submission, we also expressed our strong
support for the concept of single desk selling and stated that we did
not wish to take any position which might jeopardise the current single
desk selling arrangements that prevail in the Queensland sugar industry.[15]
2.23 Sugar North Ltd put its submission to the Committee that
the tariff be retained in these terms:
The conclusion we have drawn is that there is no real benefit.
In the longer term, if there is multilateral reduction in tariff barriers and everyone is
playing on a level playing field, we have no problem at all with operating in an
environment which is free of barriers to trade. But at the present time that does not
obtain [sic]. We believe that Australia, in moving down a path towards the removal of all
trade barriers, is to some extent weakening its international bargaining position. If we
were moving on a multilateral basis, then we obviously would have no argument with that
and anything that represented a removal of tariff barriers or of barriers to entry would
sit quite comfortably with us.
We therefore propose that a tariff be retained. In our submission,
we have suggested that that be a five per cent base, which is in line
with many other goods and commodities in Australia but knowing, of course,
there are some that are at zero. We have also proposed that a different
approach to the way in which pricing is undertaken in the domestic market
with the retention of the single desk seller should be seriously contemplated.[16]
2.24 End-users of Australian sugar presented views to the Committee
which were strongly in favour of permanent removal of the tariff.
2.25 In its submission, the Australian Food Council noted that:
Removing tariffs and distortionary statutory marketing arrangements
is consistent with the efforts of recent governments to remove costs
from the Australian processed food and beverage industry. To restore
the tariff on raw and refined sugars and molasses would impose unnecessary
costs on the industry and inhibit the industry's ability to achieve
sales in the increasingly competitive markets encountered by Australian
food and beverage processors in Asia and throughout the world.[17]
2.26 In its submission the Australian Soft Drink Association
noted that:
The tariff has never been of value to the Australian Sugar Industry
for the protection support it purported to provide. Its real value was
its use as a price transfer mechanism, from the Australian consumer
to the sugar industry, due to the monopolistic marketing power and previous
pricing practices of the Queensland Sugar Corporation.[18]
2.27 In discussion with the Committee, the Chief Executive of
the Association, Mr Tony Gentile - a member of the SIRWP - noted that the effect of the
tariff removal followed careful evaluation of the benefits and losses to all parties in
the industry
2.28 He stated in evidence to the Committee:
Last financial year, the total revenue to the Commonwealth
government from the import duty was $700. Imports of sugar, as a percentage of total
production, are statistically insignificant. The only importation is for minute quantities
of specialist sugars. There is no economic reason for the maintenance of any form of
import protection.
Further, I would like to submit that, even though the tariff
has been removed since 1 July, there is no plan in existence either now or in the future
for the importation of sugar by Australian soft drink fillers. I would surmise that,
similarly, in the rest of the food and beverages sector, there is no plan either now or in
the future for the importation of either raw or refined sugar into Australia.
The only companies capable of importing sugar into
Australia are, in fact, Australia's sugar refiners. This is a vertically integrated
industry and these refiners are themselves growers and millers. Through the Queensland
Sugar Corporation they are also exporters of Australian sugar. There would not appear to
be any reason, therefore, why these companies would want to import sugar to compete
against themselves.
We further submit that the benefit that was accruing to the sugar industry
from the import tariff was as a result of the monopolistic pricing power
of the Queensland Sugar Corporation. This power allowed the Queensland
Sugar Corporation to price Australian raw sugar at import parity pricing,that
is, the export price, plus the value of the tariff, plus the cost of
transport from Australia's nearest competitor, Thailand. This resulted
in an effective transfer of income from Australian sugar consumers to
the industry. Given that the QSC has quite properly agreed to price
Australian raw sugar at export parity pricing, then the value of any
tariff is exactly nil.[19]
2.29 Mr Gentile also stressed to the Committee that the
effect of removal of the tariff would be to reduce the price of sugar to the manufacturer,
a reduction which would inevitably be passed on to the consumer, though unit costs of
sugar in the industry were too low to quantify the gain.
2.30 In 1997, the ACCC found in favour of a merged refining entity combining
refining plants owned by CSR Sugar and Mackay Sugar was permissible under
the Trade Practices legislation.[20]
2.31 The ACCC decision in 1997 followed an earlier decision, in
1993, to refuse authorisation to the joint venture. In its release, the ACCC noted that in
1993:
... the then Trade Practices Commission refused to grant authorisation
to a proposed joint venture between CSR and MRS because it was not satisfied
that the joint venture would result in a public benefit substantial
enough to outweigh its anti-competitive effect.[21]
2.32 In its July decision, the ACCC stated that the:
... removal of the [sugar] tariff, as recommended by the Commonwealth,
Queensland and industry Sugar Industry Review Working Party, was a significant
factor in today's decision. In addition, evidence supplied to the ACCC
supported the claim that freight rates have fallen considerably over
the past 18 months while there continues to be an expansion in world
and regional refined sugar capacity.[22]
2.33 The decision that the ACCC made in the sugar refiners' case was
a matter of particular interest to the Committee, as the claim was consistently
made that any reinstatement of the tariff would result in a reassessment
of the ACCC decision. In its reasons for decision, the ACCC noted that
the removal was a `.. significant development since it leads to a lowering
of the import parity price, and a corresponding increase in the competitiveness
of imports.'[23]
2.34 In response to questions Professor Fels, Chairman of the ACCC,
said:
...it is quite clear that that would be such a significant change of
circumstances that we would have to review that decision.[24]
Later he said:
2.35 During the Committee's discussions with the ACCC, the
ACCC was asked about the effect of IPP as possibly anti-competitive:
CHAIR,In terms of the import parity pricing that
existed at that particular time, is there any reason that you would believe that that is a
component of the anti-competitive arrangements that could exist, or is import parity
pricing considered by yourselves as being anti-competitive?
Mrs Smith,I think probably the best way to
answer that is to say what would happen in a free market. If you had a free market for
sugar, that is, the supply of sugar from the mills to the refiners, then presumably the
sources of supply open to the refiners are the local mill suppliers or their imports. So,
in that context, the relevant alternative price to the price that is offered by the
millers would, in fact, be the import parity price.
CHAIR,The notional import parity price.
Mrs Smith,Yes, the notional import parity price,
because it is what they can actually buy it for and get it to the refinery. At the other
extreme, if you are the grower or the miller, your alternatives are that you either supply
it to the domestic refiners or you supply it to the world market. So from their point of
view, the relevant price is the export parity price. If you have got a free market
situation,that is, a competitive market free from regulations,it is likely that if you
have relatively equal bargaining power on both sides of the table the price that would be
determined will be somewhere between the notional import party price and the export parity
price. I think that is probably the
Footnotes:
[1] ACFA, Submission 6, p. 2-3.
[2] Evidence, Brisbane, pp. 165-6.
[3] Evidence, Brisbane, p. 166-8.
[4] Evidence, Brisbane, p. 172.
[5] Canegrowers, Submission 13,
p.5-6.
[6] Evidence, Brisbane, p. 198.
[7] Evidence, Brisbane, p. 200.
[8] Evidence, Brisbane, p. 204.
[9] Evidence, Brisbane, p. 204.
[10] See SIRWP Report, pp. 80-1.
[11] NSW Sugar Milling Co-operative
and NSW Cane Growers' Association, Submission 8, pp. 6-8.
[12] Evidence, Brisbane, p. 192.
[13] NSW Cabinet Office, Submission
17, p. 2.
[14] Evidence, Brisbane, 10 October
1997, p. 175.
[15] Evidence, Brisbane, 10 October
1997, p. 180.
[16] Evidence, Brisbane, 10 October
1997, p. 186.
[17] Australian Food Council,
Submission 7, p. 3.
[18] Australian Soft Drink Association,
Submission 2, p. 2.
[19] Evidence, Brisbane, 10 October
1997, p.159.
[20] `ACCC not to intervene in
proposed sugar refining joint venture' (sourced to http://www.accc.gov.au/media/sugar.htm),
30 July 1997.
[21] Ibid, para. 2.
[22] Ibid, paras. 4 & 5.
[23] Ibid, p. 2, para. 1.
[24] Evidence, Canberra, p. 222.
[25] Evidence, Canberra, p. 224.
best answer to the question that I can give you.