Bills Digest No. 43   1997-98 Wheat Marketing Amendment Bill 1997


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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

Passage History

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

Introduction

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.

Purpose

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).

Background

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 Provisions

Main Features of the Bill

  1. Retention of AWB functions of controlling the export of wheat from Australia and the marketing overseas of Australian wheat.
  2. 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.
  3. Establishment of three wholly owned subsidiaries of the AWB to which the AWB's wheat marketing and financing functions are being transferred.
  4. '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.
  5. 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.
  6. Directorships of nominated company A or one of its wholly-owned subsidiaries require the approval of the Minister.
  7. The constitutions of nominated companies cannot be changed without the approval of the Minister.
  8. 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).
  9. 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.

Endnotes

  1. 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
  2. Industries Assistance Commission, The Wheat Industry, Report No. 411, 25 February 1988
  3. Industries Assistance Commission op. cit p19
  4. Wheat growers resolve industry split, The Australian Financial Review, 3 September 1997
  5. Stockfeed Manufacturers Association of Australia and others, The Australian Wheat Industry: proposals for the future (the commercial alternative), October 1995
  6. Condon questions monopoly, The Australian Financial Review, 19 February 1996
  7. Monopoly on wheat exports attacked, The Sydney Morning Herald, 6 February, 1997
  8. Cargill head boost grain deregulation, The Australian Financial Review, 28 February, 1997
  9. See for example, 'Dinosaurs' continue to stomp on agriculture, The Australian Financial Review, 28 July, 1997
  10. Marketing bodies 'outdated', The Land, 31 July 1997
  11. This section draws heavily on ABARE's Australian Farm Survey's Report 1997
  12. Fischer defends single desk, The Land, 31 July, 1997
  13. Anderson announces new commercial structure for wheat marketing, DPIE Press Release 97/37A, 17 April, 1997

Contact Officer and Copyright Details

Peter Hicks and Ian Ireland
16 September 1997
Bills Digest Service
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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.

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ISSN 1328-8091
© Commonwealth of Australia 1997

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Published by the Department of the Parliamentary Library, 1997.

This page was prepared by the Parliamentary Library, Commonwealth of Australia
Last updated: 18 September 1997

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