WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Wheat Marketing Amendment Bill 1997
Date Introduced: 26 June 1997
House: House of Representatives
Portfolio: Primary Industries and Energy
Commencement: As specified in the 'Main
Provisions' section of this Digest
On 26 June the Government introduced legislation which continues
the major changes to Australia's wheat marketing arrangements first
given effect in the Wheat Marketing Act 1984 and continued
under legislation passed in 1989 and 1992. This legislation follows
the announcement on 17 April 1997 by the Minister for Primary
Industries and Energy of a new commercial structure for wheat
marketing in Australia.
The key element of the new arrangements is the Government's
intention that by 1 July 1999, its only involvement in the wheat
industry will be in relation to the export monopoly which is to be
conferred on an independent grower-owned company.
The current legislation is the first part of a two stage process
with the second round of measures, which will include the mechanism
for the export monopoly, intended to be implemented next year. Once
this process is complete, Australia's legislative arrangements for
wheat marketing will, with the major exception of the continuation
of an export monopoly, bear little, if any, resemblance to the
provisions which have characterised the wheat industry for many
decades. Consequently this Digest contains an extended discussion
on the history of wheat marketing arrangements(1) as well as
information on the present state of the wheat industry and comment
on some current industry issues.
To provide the framework for the restructure of the Australian
Wheat Board (AWB). The major provisions of the Bill provide
for:
- the transfer of the AWB's wheat marketing and financing
functions to an AWB wholly owned holding company and its
subsidiaries;
- for the AWB to retain control over export and marketing of
wheat overseas;
- the AWB to retain control of the Wheat Industry Fund (WIF)
until the WIF component of the levy on wheat sales is terminated on
30 June 1999; and
- the AWB to be treated as the agent of nominated companies A or
B in respect of new season wheat transactions (ie. wheat of a
season that began on or after 1 July 1997).
Early Federal Government Intervention in the Wheat
Industry
Wartime Arrangements
The Federal Government's first involvement in Australia's wheat
industry occurred during World War I when temporary war-time
measures were instituted. These included establishment of the
Australian Wheat Board in 1915. Similar measures were implemented
during World War II.
The war-time measures were attractive to producers because they
were freed from the dominance of wheat merchants. Several
Government inquiries in the early part of this century refer to the
existence and impact of price and shipping cartels whose collusive
actions depressed prices and controlled transport. This
exploitation of farmers was facilitated partly by difficulties
experienced with storage and transport arrangements during a period
of rapid expansion and technological advancement.
The Depression Years
The Great Depression severely impacted on Australia's external
trading position. In 1930, the Commonwealth Government sought to
overcome these economic difficulties through an expansion in
primary production, especially wheat-growing. Early in 1930
Australian wheat growers were urged to grow more wheat. The appeal
was instigated and supported at the highest levels of Government.
This was the first time that political factors interfered with
farmers production decisions.
The "grow more wheat" campaign was accompanied by obvious
patriotic overtones and included the particularly attractive offer
of a price guarantee of 4 shillings per bushel. Political leaders
were unable to keep their end of the bargain with the Senate
rejecting Australia's first Wheat Marketing Bill on July 4,
1930.
During 1930, however, world wheat prices declined significantly
and, with most producers in the eastern States already in a
financially weakened condition, the industry entered a severe
economic slump. Several other legislative initiatives providing for
assistance to the wheat industry were attempted during 1930 and
1931. The role and powers of the States were significant issues in
the failure of most of these proposals.
Although one measure, providing a price guarantee of 3 shillings
per bushel, was actually enacted, it was "still-born" because no
funds for the bounty were available.
Wheat-growers finally received their first Federal assistance
following passage of the Wheat Bounty (No. 2) Act was assented on
November 25, 1931. This provided a bounty of 4 1/2 pence per bushel
on all wheat marketed in 1931/32. Further bounty and debt relief
measures were provided by the Commonwealth Government during the
1930s. The States also became financially involved with direct and
indirect measures to assist wheat-growers.
Wheat Marketing Legislation
Major long-standing features
The comprehensive marketing arrangements which have been a
feature of the Australian wheat industry for most of the post-war
period were first brought together in the Wheat Industry
Stabilisation Act, 1948 which was assented to late in that
year. The Act embodied four main features arising from concepts of
price stabilisation and orderly marketing (that is the removal of
competition between producers in the output market) - guaranteed
prices, a home consumption price, the Australian Wheat Board and
stabilisation arrangements. These remained fundamental objectives
of most subsequent legislation.
The 1948 Act provided for measures contained therein to last
five years and this pattern has been repeated in each subsequent
Act. In all, eight fairly similar wheat marketing plans, asthey
were often referred to, were enacted from World War II to 1984.
Each was enacted in time to give continuity of the major provisions
and hence there was never any real prospect of alternative
arrangements operating in that period. All plans shared some common
features such as granting the AWB sole receival and marketing
powers for virtually all wheat grown in Australia; discriminatory
pricing of wheat sold domestically; pooling of sales revenue and
marketing costs and assistance provisions which transfer some (if
not all) of the risk of adverse (downward) price movements to the
Government.
Change in the wheat industry
The momentum for major changes to wheat marketing arrangements
appears to have been well established prior to the 1984 legislation
with several important High Court rulings in the late 1970s; a
highly critical report in 1979 from the Senate Standing Committee
on Finance and Government Operations questioning the AWB's
competence and accountability; adverse reports by the Auditor
General's Office; a 1981 report which was highly scathing of grain
handling in NSW; and, the Industries Assistance Commission's (IAC)
1978 and 1983 reports on the wheat industry.
1984
The Wheat Marketing Act 1984 was the first of three
wheat marketing plans instituted under the previous Labor
Government. It was developed at a time of great financial pressures
in the industry following, firstly, a severe drought over much of
Eastern Australia in 1982 which caused production to plummet and
the importation of wheat into Victoria from Western Australia, and
secondly, in the following season, heavy rains at harvest time in
many areas causing a marked deterioration in crop quality.
Key changes introduced in 1984 were:
- a system of permits issued by the AWB for wheat used for
stockfeed, where producers and consumers could trade directly but
under guidelines and regulations;
- alterations to the Guaranteed Minimum Price arrangements which
sent increased market 'signals' to producers;
- five separate categories of wheat for which prices were
underwritten (as against one previously) to reduce cross
subsidisation.
- Prior to the next wheat package there were two other very
important reports which served as catalysts for debate concerning
the wheat industry.
Royal Commission Into Grain Storage, Handling and
Transport
In response to the rural recession of the mid 1980s, the
Government presented its Economic and Rural Policy Statement in
April 1986. One of the measures proposed therein was a Royal
Commission into grain storage, handling and transport. On the basis
of an agreement between the Commonwealth and mainland State
Governments, the Royal Commission, chaired by Mr Jim McColl,
commenced in late 1986 and continued through 1987. This landmark
inquiry was required to advise on the most efficient and
cost-effective integrated grain distribution system for Australia's
future needs and to make recommendations about implementing such a
system.
The inquiry focused on the legislative and administrative
arrangements within which grain distribution services were being
provided. It found that, for the most part, the system of grain
distribution did not meet the criteria of economic efficiency, cost
effectiveness and integration. A quantitative evaluation suggested
that cost savings of approximately $10 per tonne could be achieved
nationally by adopting a system which provided for the greatest
choice and flexibility in all aspects of the grain distribution
system.
The Royal Commission's key recommendations were:
- marketing authorities to deal with a deregulated distribution
system and being specifically required to minimise storage,
handling and transport costs;
- removal of the requirement that marketing authorities grant
sole receival rights to State agencies for storage and handling,
thereby allowing them to utilise those agencies providing services
at least cost;
- removal of all restrictions and impediments to the transport of
grain by road; and
- disaggregation of port service and sea transport costs with
charges to growers and other users to reflect actual port costs. ie
reforms to allow charges for port and shipping services to more
closely reflect actual costs incurred.
1988 IAC wheat industry report
In February 1988, the IAC completed its third review of the
wheat industry(2). The focus of its investigations was on whether
future assistance should be provided to the wheat industry and, if
so, the nature, duration and extent of such assistance.
The IAC made sixteen specific recommendationsas well as
commenting on other matters associated with Australia's wheat
marketing arrangements. It outlined a preferred course of
action
designed to improve the wheat industry's competitiveness by
removing those regulations which impede growers and buyers of
Australian wheat from responding flexibly to market
developments.(3)
The IAC's major recommendations were:
- limiting the AWB's power to control exports to prescribed
markets;
- extending the grower-to-buyer and permit arrangements to export
sales
- extending permit arrangements to cover all domestic sales and
with no restraints on reselling in the domestic market;
- removing the AWB's obligation to supply the domestic
market;
- discontinuation of the administrative domestic pricing
mechanism;
- discontinuation of underwriting provisions;
- advance payments to be a declared proportion of the season's
expected market returns with the option of negotiable certificates
in lieu; and
- as far as practicable, individual payments to growers reflect
actual market returns and associated costs.
1989
Debate during 1988-89 over the future of wheat marketing was
possibly the most controversial in fifty years and generated
considerable hostility both within industry ranks and between the
industry and the Government. The resultant legislative package
probably contained the most significant changes ever made to
Australian wheat marketing arrangements and included:
- deregulation the domestic wheat market through the removal of
the AWB's compulsory acquisition powers and termination of
administered domestic pricing arrangements;
- introduction of a fixed government guarantee on AWB borrowings
in relation to pool wheat for advance payments, payments in lieu of
final payments and operational expenses associated with sales where
the AWB's borrowing liability exceeds money available for repayment
of the borrowing;
- removal of the requirement that there be a majority of growers
among Board members;
- establishment of a Wheat Industry Fund (WIF), funded
principally from a minimum 2 per cent grower levy, to generate a
capital base for financing the AWB's marketing activities; and
- the AWB objective of maximising net returns to producers by
minimising storage, handling and transport costs with costs to be
passed back to individual growers wherever possible.
In addition, the AWB was permitted to trade in grains other than
wheat, the composition of the Board changed from primarily growers
to commercial expertise and there was no sunset provision on the
life of the AWB.
1992
Amendments in 1992 extended until 31 June 1999 the Commonwealth
guarantee of AWB borrowings at a rate of 85% of estimated net pool
returns; continued accumulation of the WIF; and established an AWB
subsidiary for the provision of grains based value adding
services.
From 1992 to 1997
Moves towards a substantially new structure for the AWB had
their origins in 1989 when the Grains Council of Australia (GCA)
initiated the Grains 2000 project. This was in recognition of the
need for strategic planning for the future of the grains industry.
One of the main events early in this process was the Grains 2000
Conference in 1991. To the extent that the status of a conference
is reflected in the line up of speakers, then this one rated very
highly. It was opened by Prime Minister Hawke and addressed by
three Ministers as well as the Head of the EU Delegation in
Australia, a senior representative from the US Department of
Agriculture and the Secretary of the Treasury. In addition a
significant body of commissioned supporting research was presented
and provided a basis for debate.
At the conference it was recognised that the AWB would need much
greater flexibility to be successful in the medium to longer term
given the changes occurring both internationally and domestically.
Subsequently in late 1993 the grains industry established the
National Grain Marketing Strategic Planning Unit (NGMSPU).
Membership of this body comprised the GCA, the AWB, the Australian
Grain Marketing Federation, the Bulk Handling Authorities of
Australia, Australian Flour Millers, the National Agricultural
Commodities MarketingAssociation, Australian Maltsters and Brewers,
the Department of Primary Industries and Energy, and the Grains
Research and Development Corporation (GRDC).
The NGMSPU process included the Milling Wheat project which had
as one of its major components consideration of the AWB's
structure. In February 1994, consultants Booz Allen and Hamilton
began a ten-month study, funded by the GRDC, designed to culminate
in a strategic plan for the Australian milling wheat industry.
Their report was published in January 1995. Later that year the GCA
issued a discussion paper and instigated an extensive schedule of
grower meetings in September/October that year. The main options
canvassed during these consultations were re-regulation,
deregulation, maintaining the current structure, corporatisation
with retention of single deskand privatisation with retention of
the single desk.
The GCA subsequently identified as key objectives for any AWB
restructure:
- retention of single desk selling for exports;
- grower control / ownership;
- an adequate capital base to maintain the existing level of
harvest payments;
- increased commercial flexibility; and
- industry self determination.
It also expressed support for a structure based on a statutory
authority and a wholly owned subsidiary company. The next part of
the process was the establishment of a GCA/AWB/DPIE working group
which was given six months to recommend on:
- initial and future requirements of the subsidiary;
- future of WIF/revolvement/potential conversion of WIF to
shares;
- the extent to which a statutory authority can raise finance for
harvest payments;
- structural options for the subsidiary; and
- the implementation and trialing of enhanced business rules and
a tender system for pool sales on the domestic market.
The Working Group appointed independent financial and legal
advisers, Bankers Trust and Mallesons Stephen Jacques to provide
advice on the appropriate corporate and financial structure for the
AWB in line with the objectives listed above. Other possible
corporate/financial models, including the dual class and grower
corporate models were later added to the advisers' brief.
After much deliberation and newspaper headlines using terms such
as 'impasse' and 'crisis' the working party finally agreed to
recommend the grower corporate model to the Minister for Primary
Industries and Energy and this was essentially the structure
announced by the Minister on 17 April. Finalisation of a preferred
option by the working party proved an extremely difficult task.
This was due in part to differences between the AWB and the GCA but
also to lack of unanimity amongst the GCA's state affiliates. The
most vocal internal GCA critics has been the Western Australian
Farmers Federation (WAFF) who have identified eight areas of
concern with the proposed AWB structure.
WAFF considered in particular that under the proposed structure
they would disadvantaged by the weighting of A Class shares which
was based largely on the "one grower, one vote" system. WAFF's view
is based on the fact that, on average, WA growers produce
considerably more wheat than growers in other States. Indeed, such
is the strength of the WAFF's dissatisfaction that in August it
resolved to terminate its membership of the GCA effective 31 March
1988. This outcome would now appear unlikely given a reported
substantial compromise within the GCA whereby shares will now be
allocated on a delivery basis.(4)
Other contributions to the debate
Although most attention in the debate on the future of wheat
marketing arrangements has focussed on the GCA, the AWB and the
Working Party there have been contributions from a range of other
parties. In October 1995 a group of grain user and private grain
trading organisations presented their views on future marketing
arrangements for wheat and other grains.(5) The principles they
espoused included a fully competitive and deregulated grains
market, both domestic and export, and continuation of grower owned
organisations but without statutory provisions and on an equal
basis with private sector operators. The main features of their
plan were immediate privatisation of the AWB's commercial
activities; establishment of Australian Grain Industry Corporation
to administer export licences (this would be the single desk
operation for markets where premiums are obtainable) and quality
programs and be responsible for market development and generic
promotion.
While there was nothing fundamentally new in the proposal it was
advanced in an environment quite different to any previous debate.
The main relevant new factors were National Competition Policy; the
failure of one of the last bastions of statutory marketing - the
wool stockpile; the political pressure on the Government arising
from the cancellation of the imported grain trials; and, the
equivocal analysis used to 'prove' the benefits of the AWB's single
desk status.
Others grain industry participant and analysts have called an
end to the AWB's export monopoly or at least questioned its value
include. Clinton Condon, the previous chairman of the AWB and now
chair of private commodity traders Bustan International has said
that that the single desk arrangements for wheat should not be
confused with the AWB's export monopoly. He believes it is possible
to retain the single desk but improve flexibility and retain
premiums.(6)
Earlier this year the Managing Director of Clyde Agriculture,
one of Australia's largest wheat growers, claimed that if the
export monopoly was removed, private grain traders wouldbe able to
secure higher prices.(7) Shortly thereafter the head of one of the
world's largest commodity traders, Cargill Inc claimed that removal
of the AWB's export monopoly would benefit Australian grain
growers.(8)
Another regular critic of statutory marketing, particularly the
AWB's export monopoly is The Australian Financial Review's Stephen
Wyatt(9) while the Centre for International Economics recently
criticised 'adherence to outdated cultures such as price pooling
and generic promotion' and argued that when account was taken of
the effect of the AWB's single desk export power, the 'the
relatively small net benefit achieved by the AWB's single desk, in
dollars a tonne terms, would be negligible'.(10)
State Legislation
Apart from the relevant Commonwealth legislation, state
legislation also impacts on the wheat industry. In the first
instance, complementary State legislation exists to transfer
certain powers to the Commonwealth thereby giving effect to the
AWB's powers of pricing and acquisition. With the exception of
Queensland, each State's wheat marketing legislation is broadly
similar to the Commonwealth's.
State governments are also heavily involved in the transport,
storage and handling of wheat. Traditionally the bulk handling
authority (BHA) in each state was appointed as the sole authorised
receiver to accept wheat and co-ordinate handling and storage on
behalf of the AWB in that State. However, an amendment to the
Commonwealth's Wheat Marketing Act passed in 1988 now allows the
AWB to deal with whomever it chooses in regard to the provision of
storage and handling services.
The Australian Wheat Board
The AWB is a statutory marketing authority which has existed
continuously since 1948. During that period it has become possibly
Australia's largest single exporter and one of its largest
commercial entities. As mentioned previously, some of its powers
arise from complementary legislation passed by the States.
The AWB's principal function is to control the export and
overseas marketing of Australian wheat. Its other functions include
domestic trading in wheat and to export (but not control) and trade
in other grains. The AWB is required to discharge these functions
with the objectives of:
- maximising the net returns to wheatgrowers who use AWB pools by
securing, developing and maintaining markets, and, maximising
returns to growers;
- operating in a commercial manner to provide grain growers,
especially wheat growers, with a choice of marketing options;
and
- participating in value adding activities for the benefit of
grain growers.
Market situation and outlook
Production
Western Australia is Australia's largest wheat growing region.
Over the five years to 1994-95 it has accounted for an average 42
per cent of national output. New South Wales is the next largest
producing area with 24 per cent followed by South Australia,
Victoria and Queensland with 16, 12 and 6 per cent respectively.
Western Australia dominates export activity contributing almost 60
per cent of Australia's wheat exports in the four years to
1995-96
After recording both yield and production records last season,
the Australian wheat crop is forecast to be considerably smaller in
1997-98 although still well above the average for the five years to
1994-95. In its latest Crop Report (released 2 September)
the Australian Bureau of Agricultural and Resource Economics
(ABARE) has forecast a wheat crop of 16.2 million tonnes in
1997-98. ABARE notes that the season to date has been drier than
average and that this has coincided with a strong El Nino event.
Nevertheless, severe drought conditions of the type which occurred
in 1982-83 and 1994-95 are not considered likely.
In early August the AWB revised downwards its production
forecast by 1 million tonnes to 14-15 million tonnes following
below average rainfall in June and July as well as frequent and
severe frosts.Key wheat production figures from ABARE's September
Crop Report are included in Table 1.
Table 1: Key wheat statistics
Area Yield Prod'n Domestic Exports Unit Gross value
'000 ha t/ha kt Cons'n kt value$/MT of production
$ million
5 year 8376 1.60 13437 3862 9921 182 2358
average to
1994-95
1995-96 9221 1.79 16504 4126 13298 264 4476
1996-97 11327 2.08 23586 3511 19419 195 4590
(s)
1997-98 10924 1.48 16208 4439 11760 176 3136
(f)
(s) estimate
(f) forecast
Sources: ABARE Crop Report no 101. 2 September 1997, Australian
Commodities various issues, Australian Commodity Statistics
1996.
Prices
Prices received by Australian wheat growers are largely
determined by world market developments although in drier seasons
local factors may be of greater influence, at least in some parts
of the country. On occasions exchange rate variations may also
account for some of the variation in grower returns.
After reaching record levels in 1995-96, Australia what prices
eased last season but were still above the five year average to
1994-95. A further weakening of prices is expected in1997-98 due to
an increase world supplies but despite expected strong growth in
world wheat trade.
Trade
Australia is the fourth largest wheat exporter after the United
States, Canada and the European Union and, on average, accounts for
11 per cent of world wheat exports. After reaching record levels in
the early 1990s, world wheat trade slumped to 90 million tonnes in
1996-97. However a strong pickup is expected in 1997-98 with world
wheat trade forecast at 106 million tonnes.
While the domestic market is easily the single largest outlet
for Australian wheat, the major export customers are China,
Indonesia, Iran, EgyptandJapan. Australia's total exports of 19.4
million tonnes in 1996-97 easily beat the previous record of 16.3
million tonnes set in 1985-86. The forecast reduction in exports in
1997-98 mirrors the expected reduction in production.
Farm situation(11)
According to ABARE's farm surveys, in 1995-96 specialist
cropping farms comprised 20 per cent of all broadacre farms and
produced about 75 per cent of Australia's wheat crop. This compares
with 13 and 67 per cent respectively in 1994-95. Selected physical
and financial characteristics for specialist cropping farms are
reported in Table 2 while key financial performance indicators are
reported in Table 3.
Table 2: Selected physical and financial characteristics of
cropping farms - 1995-96 (Average per farm)
Area NSW VIC Qld WA SA AUST
harvested
(ha)
Wheat 365 218 170 1252 360 477
Other 240 402 296 585 291 359
crops
Wheat 746 541 170 2221 661 889
production
(t)
Cash
receipts
($)
Wheat 176 240 115 339 45 048 484 300 158 180 200 960
Other 149 520 153 327 103 151 135 030 110 260 135 520
crops
Livestock 56 530 30 378 40 880 72 670 37 150 47 390
(a)
Other 30 690 27 006 59 571 27 360 19 140 30 660
Total 412 980 326 050 248 650 719 360 342 730 14 530
(a) Includes wool.
Figures are preliminary
Source: ABARE, Australian Farm Surveys Report 1997
In 1995-96, the combination of high grain prices and expanded
crop areas resulted in crop farm cash incomes surging to record
levels (in real terms) for at least two decades.
While both farm cash income and farm business profit are
estimated to have fallen in 1996-97, they are nevertheless well
above average levels for this group of farms over the last two
decades (in 1996-97 dollars). Despite the estimated fall in farm
business profit in 1996-97, cropping farms are estimated to have
had the highest rates of return among all broadacre industries.
Specialist cropping farms have experienced relatively high
incomes in four of the past five years, encouraging new capital
investment and the buildup of farm and non-farm assets. It must be
remembered however, that the figures shown in Table 3 are national
averages and disguise considerable variation in performance between
regions, especially those affected by prolonged drought.
Table 3: Financial performance in the cropping industry 1994-95
to 1996-97 (Average per farm)
1994-95 1995-96(p) 1996-97(s)
Total cash receipts 299 355 414 530 372 200
Total cash cost ($) 216 914 260 400 260 300
Farm cash income ($) 82 441 154 130 111 900
Farms with negative
farm cash income (%) 16 6 12
Farm business profit ($) 5 789 97 880 43 400
Farms with negative
business profit (%) 53 24 43
Profit at full equity
- excl. capital ($) 27 986 122 940 67 900
appreciation
- incl. capital ($) 57 863 180 310 na
appreciation
Farm capital at 30 ($) 1030 080 1142 670 na
June(a)
Farm debt at 30 ($) 208 899 176 220 160 700
June(b)
Equity at 30 June(c) (%) 821 181 966 440 na
Equity ratio (d) (%) 80 85 na
Rate of return
- excl. capital (%) 2.6 11.0 5.8
appreciation
- incl. capital (%) 5.3 16.2 na
appreciation
(a) Farm capital excluding leased plant and equipment.
(b) Average per responding farm.
(c) Total farm capital minus total farm debt.
(d) Equity expressed as a percentage of total farm capital.
(p) Preliminary estimate
(s) Provisional estimate
Source: ABARE, Australian Farm Surveys Report 1997
Some current issues
Competition policy
The Government has announced that the review of the wheat
industry under the National Competition Policy (NCP) Principles
agreed between the Commonwealth and State Governments will be
conducted in 1999-2000. The timing of the review has drawn
criticism the National Competition Council (NCC), the independent
review body whose functions include assessment of governments'
progress in competition policy reform. The NCC has urged
governments to give priority to reforms likely to deliver greatest
gain. In its 1995-96 Annual Report, however, the NCC has cited the
Commonwealth's decision to review the Wheat Marketing Act
1989 in 1999 2000, which is near the end of the period for all
such reviews, as an example of failure to schedule an early review
of important legislation.
The purpose of the review of the wheat legislation will be to
determine whether there are net benefits accruing to Australia from
the AWB's wheat export monopoly. The overriding principle applying
to all legislative reviews is that legislation should not restrict
competition unless it can be demonstrated that the benefits
outweigh the costs and the particular policy objectives can only be
achieved by restricting competition.
With the commencement of the review still some time off, let
alone any findings, members of the Government have clearly
signalled what they expect the post-review situation to be. The
Deputy Prime Minister is reported as saying the AWB's export
monopoly "should stay beyond the 1999 National Competition Policy
review"(12) while the Minister for Primary Industries and Energy
has referred to "the Government's firm commitment to continue the
wheat export monopoly".(13)
While the view has been expressed that, as the AWB's monopoly
only applied to exports it should not be subject to review, this is
not a correct interpretation of competition policy principles.
Given the dominance of exports in the wheat industry, there is a
strong correlation between domestic and export prices. Thus the
AWB's export monopoly influences domestic market outcomes and
qualifies as legislation affecting competition.
World Trade Organisation
Another issue which may arise in the medium to longer term is
whether the proposed statutory arrangements comply with changes
concerning state trading arrangements, if any, arising from future
World Trade Organisation (WTO) negotiations. While Australia's
current statutory marketing arrangements are permitted under the
WTO, the United States has signalled that it intends to pursue the
issue of state trading arrangements in this forum. While it is
believed that these moves are aimed primarily at import
organisations, and any developments are a long way off, the
possibility that there may be consequences in the long term for the
AWB's export monopoly cannot be ruled out.
Main Features of the Bill
- Retention of AWB functions of controlling the export of wheat
from Australia and the marketing overseas of Australian wheat.
- Repeal of AWB powers to: buy wheat in Australia or overseas;
import wheat into Australia; and to sell or dispose of wheat, or
arrange to sell or dispose of wheat, in Australia.
- Establishment of three wholly owned subsidiaries of the AWB to
which the AWB's wheat marketing and financing functions are being
transferred.
- 'Nominated company A' is the most important of the subsidiaries
being created as it is given the power to subscribe for, acquire
and hold shares in nominated companies B and C. Also, nominated
company A can enter into arrangements with one of its wholly-owned
subsidiaries (other than nominated company B) to perform its
functions.
- The AWB is to be treated as the agent of nominated companies A
or B in respect of new season wheat transactions (ie. wheat of a
season that began on or after 1 July 1997). The transactions
affected include: pooling and related transactions, futures and
hedging contracts, investments and operational expenses.
- Directorships of nominated company A or one of its wholly-owned
subsidiaries require the approval of the Minister.
- The constitutions of nominated companies cannot be changed
without the approval of the Minister.
- The AWB to be responsible for the purchase of wheat for pools
and payments for wheat in respect of old season wheat (ie. pre - 1
July 1997 season) and nominated company B in respect of new season
wheat (ie. 1997 and subsequent seasons).
- Terminate on 30 June 1999 the Wheat Industry Fund component of
the levy on wheat sales and amounts of that levy payable by the
Commonwealth to the AWB.
Part 2 of the Bill is divided into a number of
Divisions, each of which pertains to a particular aspect of the
transfer of the AWB's wheat marketing and financing functions to a
wholly owned holding company and its subsidiaries. The clauses
outlined below, other than clauses 20-28, commence
on Royal Assent. Clauses 20-28 commence on a day
to be fixed by proclamation. However, where commencement does not
occur within 6 months of the Bill receiving Royal Assent, the
provisions are deemed to have commenced on the day after that end
of the six month period.
Subdivision 3A of the Bill (clauses
9-11) deals with the transfer of assets, liabilities,
rights and obligations of the AWB to a specified designated company
(ie. nominated company A, or a wholly-owned subsidiary of nominated
company A) Clause 9 governs the transfer of assets
(ie. any legal or equitable interest in real or personal property,
any right, privilege or immunity, including a contingent or
prospective one) to a specified designated company. The exception
to this is money in the Wheat Industry Fund (WIF), an investment of
the WIF, or any other asset that was acquired using money in the
WIF.
Subdivision 3B (clauses 12-18)
deals with the transfer of AWB staff to nominated company A.
Clause 13 is aimed at ensuring that AWB employees
transferred to nominated company A are taken to be employed on the
same terms and conditions as applied to them immediately before
their transfer, and retain entitlements accrued before the
transfer. These terms and conditions of employment may be varied in
accordance with relevant laws, awards, orders or agreements
(clause 17). Clause 18 ensures
that transferred employees retain mobility rights under Part IV of
the Public Service Act 1922 (the PS Act). Part IV of the
PS Act confers mobility rights to employees of approved statutory
authorities that are staffed outside the PS Act.
Division 4 (clause 19)
provides for an exemption from stamp duty and other taxes that
would ordinarily be payable under State or Territory law in
relation to the transfer of: assets of the AWB; contractual rights,
obligations and liabilities of the AWB; and liabilities of the
AWB.
Division 5 (clauses 20-26)
provides for the AWB to be treated as the agent of nominated
company A or B in respect of new season wheat transactions (ie.
wheat of a season that began on or after 1 July 1997) undertaken
before the commencement of the division. The transactions affected
include: pooling and related transactions, futures and hedging
contracts, investments and operational expenses.
Clause 36 makes the Commonwealth liable to pay
just compensation were the operation of Part 2 of the Bill would
result in the acquisition of property from a person other than on
just terms. Where agreement cannot be reached between the
Commonwealth and a person as to the amount of compensation, the
person may institute proceedings in the Federal Court for recovery
of such compensation as the court determines.
Item 16 of Schedule 1 inserts a new
Part 3A in the Wheat Marketing Act 1989 (the
Principal Act) dealing with the companies which will take over the
commercial activities of the AWB.
The most important provisions of proposed Part 3A relate to the
creation of three wholly owned subsidiaries of the AWB, namely,
nominated companies A-C.
Nominated Company A
Authority is given to the Minister by proposed section
55D to declare that a specified company is nominated
company A. The company must be incorporated, have a share capital
and be a wholly-owned subsidiary of the AWB. The constitution of
nominated company A must contain certain objects, including:
interstate/territory trade and commerce in wheat, other grains and
grain products; the export of grains other than wheat and grain
products; engaging in value adding activities for the purposes of
foreign trade or interstate/territory trade and commerce; and to
promote, fund or undertake research into matters related to the
marketing of grain, value adding activities, or to do anything
incidental to or conducive to any of the required objects
(proposed section 55J).
Proposed section 55M provides for nominated
company A to enter into arrangements with one of its wholly-owned
subsidiaries (other than nominated company B) to perform its
functions.
The constitution of nominated company A cannot be changed
without the approval of the Minister (proposed section
55N).
Directorships of a designated company (ie. nominated company A
or one of its wholly-owned subsidiaries) require the approval of
the Minister (proposed section 55P).
Nominated company A, or one of its wholly-owned subsidiaries,
will require the permission of the Minister to:
- acquire, another company, other than a wholly-owned
subsidiary;
- acquire, hold or dispose of shares or stocks in the capital of
another company, other than a wholly-owned subsidiary;
- acquire, hold or dispose of debentures or other securities of
another company, other than a wholly-owned subsidiary;
- enter into partnership, or arrange for the sharing of profits
and losses, with an individual or another company or body;
- take part in a joint venture with an individual or with another
company or body (proposed section 55Q).
A new function is accorded the AWB by proposed section
55R to subscribe for, acquire and hold shares in nominated
company A. Nominated company A is given the power under
proposed section 55S to subscribe for, acquire and
hold shares in nominated companies B and C.
Nominated Company B
Authority is given to the Minister by proposed section
55E to declare that a specified company is nominated
company B. The company must be incorporated, have a share capital
and be a wholly-owned subsidiary of the AWB. The constitution of
nominated company B must contain certain objects, including:
maximising net returns to growers who sell pool return wheat to it;
exporting new season wheat from Australia; interstate/territory
trade in new season wheat; making arrangements for the growing of
wheat for interstate/territory/foreign trade; promoting or funding
the marketing of wheat; and promote or fund the marketing of wheat
(proposed section 55K). The constitution of
nominated company B cannot be changed without the approval of the
Minister (proposed section 55N).
Nominated Company C
Authority is given to the Minister by proposed section
55H to declare that a specified company is nominated
company C. The company must be incorporated, have a share capital
and be a wholly-owned subsidiary of the AWB. The constitution of
nominated company C must contain certain objects, including:
interstate/territory trade in wheat; interstate/territory/foreign
trade in grain other than wheat; interstate/territory/foreign trade
in grain products; and promoting, funding and undertaking research
into matters related to the marketing of grain, or value adding
activities. The constitution of nominated company C cannot be
changed without the approval of the Minister (proposed
section 55N).
Part 2 of Schedule 1 Amendments
Items 1-137 commence on a day to be fixed by
proclamation. However, where commencement does not occur within 6
months of the Bill receiving Royal Assent, the provisions are
deemed to have commenced on the day after that end of the six month
period.
Objects of the AWB
Section 5 of the Wheat Marketing Act 1989 (the
Principal Act) provides that the objectives of the AWB are:
- to maximise net returns to Australian wheat growers who sell
pool return wheat to the AWB by securing, developing and
maintaining markets for wheat and wheat products and by minimising,
as far as practicable, costs;
- in a commercial manner, participating in the market for grain
and grain products, to provide Australian grain and wheat growers
which a choice of marketing options; and
- participate in value adding activities for the purpose of
benefiting Australian grain growers.
Item 32 of Schedule 1
substitutes a new section 5 in the Principal Act
and provides that the objects of the AWB are to maximise net
returns to Australian wheat growers by using the AWB's export
control powers and function of holding shares in nominated company
A to secure, develop and maintain wheat export markets.
Functions of the AWB
Section 6 of the Principal Act specifies the functions of the
AWB. Item 33 of Schedule 1 repeals certain of the
functions of the AWB and inserts two new functions. AWB functions
retained under proposed subsection 6(1) include controlling the
export of wheat from Australia and controlling the marketing
overseas of Australian wheat. New functions include providing
advice and making recommendations to the Minister about matters
relating to the marketing of wheat, and exporting wheat where the
wheat was bought by the AWB prior to the commencement of the
proposed section.
Powers of the AWB
Section 7 of the Principal Act sets out the powers of the AWB.
Item 35 of Schedule 1 repeals the powers of the
AWB set out in paragraphs 7(2)(a) to (l) of the Principal Act. The
repealed powers include: to buy wheat in Australia or overseas; to
import wheat into Australia; and to sell or dispose of wheat, or
arrange to sell or dispose of wheat, in Australia or overseas. The
powers retained by the AWB include: to appoint agents in Australia
or overseas; and enter into contracts, make agreements and
arrangements, with any person and, with the Ministers consent, with
State or Territory.
AWB Membership
The members of the AWB consists of a Chairperson, a Managing
Director, government member, and 8 members. The effect of
item 48 of Schedule 1 of the Bill is to remove the
mandatory requirement to appoint 8 members (called 'ordinary'
members, see item 53 below) and allow for the appointment of up to
8 members.
A new section 15A, dealing with the appointment
of ordinary members, is inserted in the Principal Act by
item 53 of Schedule 1. Proposed section 15A
provides that the Minister must not appoint a person as an ordinary
member unless he/she believes they have expertise in at least one
of the following certain fields, including: production, marketing
or processing of grain; production or marketing of other products;
business management; product promotion; or finance. In appointing
ordinary members, the Minister must try as far as practicable
ensure there is a balance of skills among ordinary members in the
areas of production, marketing and finance. In addition, prior to
appointing a person as an ordinary member, the Minister must
consult the President of the Grains Council in relation to the
appointment.
AWB Corporate Plans
Section 49 of the Principal Act deals with the development of
AWB corporate plans. Subsection 49(4) specifies what a corporate
plan must contain. Item 72 of Schedule 1 specifies
two new matters which a corporate plan must contain, namely, what
the AWB thinks should be the principal objectives of a designated
company (ie. nominated company A or a wholly-owned subsidiary of
nominated company A) and a broad outline of the strategies the AWB
thinks should pursued by each designated company during the
requisite period for achieving those objectives
AWB Annual Operational Plans
Section 54 of the Principal Act deals with the development of
AWB annual operational plans. Subsection 54(2) specifies what an
annual operation plan must contain. Item 74 of Schedule
1 specifies one new matter which an annual operation plan
must contain, namely, particulars of the action that the AWB
intends to take to ensure each designated company (ie. nominated
company A or a wholly-owned subsidiary of nominated company A)
gives effect to or furthers the relevant objects of the corporate
plan applicable to that company.
Responsibility for Wheat Pool Marketing and Payments
The effect of item 75 of Schedule 1 is to make
the AWB responsible for the purchase of wheat for pools and
payments for wheat in respect of old season wheat (ie. pre - 1 July
1997 season ) and nominated company B in respect of new season
wheat (ie. 1997 and subsequent seasons).
Accounting For Charges
A new section 66A is inserted in the Principal
Act by item number 88 of Schedule 1 which requires
the designated authority (ie. nominated company A or a wholly-owned
subsidiary of nominated company A) when accounting to a grower for
a payment due in respect of wheat bought for sale as part of a pool
of wheat to specify separately charges made for storage, handling,
transport and provision of port services. This requirement will not
apply if compliance would subject the designated authority to
significant additional costs.
Accounting For Dealings in Wheat
The AWB is subject to the financial reporting requirements of
Part XI of the Audit Act 1901. The effect of item
89 of Schedule 1 is three-fold:
- to make the AWB no longer subject to the Audit Act
1901 and over-ride the proposed Commonwealth Authorities
and Companies Act 1997;
- require the AWB and nominated company B to keep their
accounting records relating to wheat dealings in such a way that,
in their opinion, attributes costs and revenues to wheat of
different seasons and pools in an equitable way; and
- require the AWB to keep separate accounting records relating to
the Wheat Industry Fund.
Liability To Pay Taxation
Item 116 of Schedule 1 provides an exemption to
nominated companies from State or Territory stamp duty or other
taxes in regards to a security held by nominated company A over the
assets of nominated company B.
Wheat Industry Fund
Section 81 of the Principal Act specifies what the AWB must
credit to the Wheat Industry Fund (WIF). For example, the AWB must
credit interest earned by the investment of money of the WIF to the
WIF. Item 119 of Schedule 1 inserts the following
new sources of income which the AWB must credit to the WIF,
namely:
- dividends paid to the AWB by nominated company A and by way of
return of capital; and
- interest paid to the AWB by a designated company from a loan,
and by way of repayment of a loan, made by the AWB using WIF
money.
Section 82 specifies the purposes for which the AWB may use WIF
money. Purposes specified by paragraphs 82(1)(a), (b) and (ba) are:
any purpose connected with the performance of the AWB's functions
relating to trading in grain other than pool return wheat; advance
payments in respect of wheat of a season; and any purpose connected
with value adding activities. Paragraphs 82(1)(a), (b) and (ba) are
repealed by item 120 of Schedule 1 and new
paragraphs 82(1)(a) and (b) inserted. The new paragraphs allow the
AWB to use WIF money to make loans to a designated company and for
any purpose connected with a guarantee given by the AWB in relation
to a loan made to a designated company.
Termination of WIF Component Of Levy On Wheat Sales
The effect of items 123 and 124 of Schedule 1
is to terminate on 30 June 1999 the WIF component of the levy on
wheat sales and amounts of that levy payable by the Commonwealth to
the AWB.
Annual Report
The effect of item 125 of Schedule 1 is to
require the AWB to report annually on the operations of nominated
company A and its wholly owned subsidiaries.
- Recommended reading for those interested in an extended history
and analysis of wheat marketing and related issues: Dunsdorfs,
E., The Australian Wheat-growing Industry 1788-1948,
Melbourne, Melbourne University Press, 1956; Stillwell G. and
Sydenham D., A Shared Harvest: the Australian Wheat
industry, 1939 1989, Melbourne, Macmillan Educational
Australia, 1991 and Watson A.S., Principles of grain marketing:
some lessons from Australian experience, ACIAR Technical
Reports no. 38, 1996
- Industries Assistance Commission, The Wheat Industry,
Report No. 411, 25 February 1988
- Industries Assistance Commission op. cit p19
- Wheat growers resolve industry split, The Australian
Financial Review, 3 September 1997
- Stockfeed Manufacturers Association of Australia and
others, The Australian Wheat Industry: proposals for the future
(the commercial alternative), October 1995
- Condon questions monopoly, The Australian Financial
Review, 19 February 1996
- Monopoly on wheat exports attacked, The Sydney Morning
Herald, 6 February, 1997
- Cargill head boost grain deregulation, The Australian
Financial Review, 28 February, 1997
- See for example, 'Dinosaurs' continue to stomp on agriculture,
The Australian Financial Review, 28 July, 1997
- Marketing bodies 'outdated', The Land, 31 July
1997
- This section draws heavily on ABARE's Australian Farm
Survey's Report 1997
- Fischer defends single desk, The Land, 31 July,
1997
- Anderson announces new commercial structure for wheat
marketing, DPIE Press Release 97/37A, 17 April, 1997
Peter Hicks and Ian Ireland
16 September 1997
Bills Digest Service
Information and Research Services
This Digest does not have any official legal status. Other
sources should be consulted to determine whether the Bill has been
enacted and, if so, whether the subsequent Act reflects further
amendments.
IRS staff are available to discuss the paper's contents
with Senators and Members and their staff but not with members of
the public.
ISSN 1328-8091
© Commonwealth of Australia 1997
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Published by the Department of the Parliamentary Library,
1997.
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Last updated: 18 September 1997
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