Bills Digest no. 186 2006-07-Wheat Marketing Amendment Bill 2007

Wheat Marketing Amendment Bill 2007

Date introduced: 14 June 2007

House: House of Representatives

Portfolio: Agriculture, Fisheries and Forestry

Commencement: Sections 1 to 3 of the Act commence on Royal Assent. Commencement dates for the Schedules vary, so these are detailed in the relevant part of main provisions section.

Purpose

To amend the Wheat Marketing Act 1989 to change Australia s wheat marketing arrangements by:

Terminology

In this Digest:

Background

The Wheat Marketing Amendment Act 2006, which was passed in December 2006, gave effect to temporary changes to the Wheat Marketing Act 1989 (the Act). The changes transferred the right to veto bulk wheat export applications from AWB(I) to the Minister for Agriculture, Fisheries and Forestry until 30 June 2007. Further background to the temporary arrangements including a short history of Australian wheat marketing is provided in the Bills Digest prepared for the Wheat Marketing Amendment Act 2006.⁽¹⁾

The Wheat Marketing Amendment Act 2006 was enacted as a result of the Volker report into the UN Oil-for-food program and the subsequent Cole inquiry instituted by the Commonwealth Government. The matters addressed by these inquiries and the subsequent wheat industry consultation have been the catalysts for the changes to Australia s wheat marketing arrangements as proposed by the Bill.

Further specific background is provided in the following sections in relation to:

Industry Consultation

When the temporary measures were introduced by the Wheat Marketing Amendment Act 2006 the Government stated this would:

On 12 January 2007, the Government announced the appointment of the Wheat Export Marketing Consultation Committee (WEMCC), its purpose being to provide:

The WEMCC was chaired by prominent businessman John Ralph AC and also included Roger Corbett AM (former CEO of Woolworths), Peter Corish (former President of the National Farmers Federation) and Mike Carroll (former General Manager of National Australia Bank s Agribusiness Division).

Under its Terms of Reference the WEMCC was required to:

The Terms of Reference also advised that the WEMCC was:

In addition the Government specifically stated the WEMCC would:

The Government also released a discussion paper on 12 January to provide some guidance for those people wishing to participate in the consultation. It listed the following as among the issues and principles on which industry views were sought:

The discussion paper also briefly outlined the three broad options for wheat marketing arrangements: single desk; some form of multiple licensing system and deregulation.

The WEMCC held 26 public meetings in five States between 31 January and 1 March. It also met with eight other key industry bodies including grower organisations, grain exporters and AWB Ltd.⁽⁶⁾ Almost 1200 written submission were received.⁽⁷⁾

Although the final report of the WEMCC has not been made public, the Government has said that:

New export monopoly arrangements

The proposed legislation provides for a continuation until 30 June 2008 of the temporary measures instituted in late 2006 which gave the Minister for Agriculture, Fisheries and Forestry veto power over non-AWB(I) bulk exports. The extension of the temporary measures is intended to:

The one component of Australia s wheat marketing system which has endured the longest is the marketing monopoly, although it should be noted that this has been somewhat diminished over the last two decades. The first instance was in 1984 with the introduction of the permit system for feed wheat. This was followed by total deregulation of the domestic market in 1989 via the Wheat Marketing Act 1989. Since July 1999 the export monopoly has been confined to bulk shipments.⁽⁹⁾

Prior to July 1999 the monopoly power was conferred directly on the statutory body the Australian Wheat Board. Since then it has been conferred legislatively on AWB(I), which is entirely a commercial entity, and exercised by way of AWB(I) having the legislative power to veto applications by other firms for permission to export bulk wheat while not being required to gain approval for its own exports.⁽¹⁰⁾

The Government had long indicated that wheat marketing arrangements would be changed as a result of the Cole Inquiry.⁽¹¹⁾ And given the controversial and often hostile nature of the debate which spawned the Wheat Marketing Act 1989 and later amendments which replaced the statutory AWB with the current corporate structure, seasoned wheat industry observers would not be surprised that the Cole inquiry, the foreshadowed change and the subsequent consultation process have triggered an extremely vigorous - to the point of acrimonious debate.

Even prior to the Volker and Cole inquiries the issue of wheat marketing policy was very much a live one with significant and heated debate stimulated firstly by the National Competition Policy review of wheat marketing legislation in 2000 and more recently by the 2004 Wheat Marketing Review which examined AWB(I) s performance as commercial manager of the monopoly on bulk exports.⁽¹²⁾ And, although Commissioner Cole observed it was not his function to comment on the grant of monopoly power to part of the AWB group he did observe:

The Government has stipulated that the new entity which will operate the export monopoly on bulk wheat exports will have to have complete legal separation from AWB Ltd . It has further indicated this entity may be either a completely new, grower owned and operated body, or completely demerged AWB (International) Ltd (AWBI) .⁽¹⁴⁾

As has been acknowledged by the Minister⁽¹⁵⁾ creation of the new entity poses a significant challenge. This is especially so given that the Grains Council of Australia (GCA) will not be the lead industry organisation. This role has been taken up by an alliance of the grain sections from Victorian Farmers Federation, New South Wales Farmers Association, AgForce (Qld) and WAFarmers. This group was formed in early May 2007. It was initially referred to as the GCA de-merger facilitation working group but is now formally known as the Wheat Export Marketing Alliance.

The fluid state of wheat industry relationships and organisations is highlighted by the fact that establishment of another lobby organisation, the National Grains Alliance (NGA), was announced on 20 April 2007. NGA members are WAFarmers, the New South Wales Farmers Association Inc, and the Wheat Growers Association (WGA).⁽¹⁶⁾

The Wheat Export Authority

Powers and functions

One of the five recommendations made by the Cole Inquiry related to wheat marketing. It outlined the relevant issue and associated recommendation thus:⁽¹⁷⁾

Among the issues which emerged during the Cole inquiry that specifically pertain to Australia s wheat marketing arrangements and the Act was the adequacy of the WEA s regulatory functions and powers, and the extent to which these were exercised in relation to wheat exports to Iraq. In particular the WEA s information gathering and control powers were examined by Commissioner Cole. These matters have also been addressed in Senate committees.

One of the key elements of the Bill is the proposed broadening of the scope of the WEA s existing information powers to allow it to request information from parties other than AWB(I), where it believes the request relates to the performance of its functions. This is a response to Commissioner Cole s comments who stated inter alia:

In relation to WEA Commissioner Cole concluded:

Nevertheless Commissioner Cole also concluded:

Governance

Another significant element of the Bill is the proposed changes to the WEA s structural and governance arrangements in line with the principles espoused by the Uhrig Review. Background information about the Uhrig Review has been provided in several recent Bills Digests. See for example Australian Centre for International Agricultural Research Amendment Bill 2007.

In the case of the WEA:

The Government considers that converting the WEA into a Commission will provide a measure of independence from the Government.⁽²²⁾ With up to six Commissioners all appointed on the basis of relevant skills, the Commission structure will be considerably different to that of the WEA Board which currently comprises:

The Export Wheat Commission is scheduled to come into existence on 1 October 2007.

Deregulation of bagged and container (non-bulk) wheat exports

The Government is proposing to fully deregulate exports of bagged and container wheat by removing the requirement for prior consent from the WEA for such trade to occur. ⁽²³⁾While the Minister says this move is in response to a request by industry the GCA initially had strong concerns about the matter and claimed the move would remove prudential assurances and decreases the security of payment to growers .⁽²⁴⁾

In response to concerns about the potential for rogue traders to undermine the good reputation of Australian wheat the Government has included provision for a quality assurance (QA) scheme. The purpose of the QA scheme is:⁽²⁵⁾

Basis of policy commitment

Following months of media reporting on commentary/proposals by a range of stakeholders in the wheat industry, especially those of various grower organisations, the Government formally announced the main elements of the new wheat marketing arrangements on 22 May 2007.⁽²⁶⁾

Position of significant interest groups/press commentary

The GCA, the peak industry organisation of grain farmers, has welcomed the proposed amendments saying they should prevent any repetition of the Iraqi Oil for Food scandal .⁽²⁷⁾ Specifically the GCA has welcomed the changes involving the WEA and the deregulation of bagged and container exports.

The GCA also supported the Australian Labor Party s move to refer the legislation to the Senate's Rural and Regional Affairs and Transport Standing Committee.⁽²⁸⁾

Nevertheless wheat growers are far from unanimous in their views about wheat export arrangements. For example, in April, the Pastoralists and Graziers Association of Western Australia (PGA), which has been one of the significant voices of dissent indicated it was banking on a decision to allow more licensed exporters into Australia s wheat export business. ⁽²⁹⁾

PGA is not a lone voice. On 2 February 2007, the South Australian Farmers Federation (SAFF) announced it no longer supported the existing wheat marketing arrangements and stated its preference was for a phased in period of accreditation of multiple wheat exporters, leading to full deregulation.⁽³⁰⁾

The Australian Grain Exporters Association (AGEA), which represents the major private grain exporters in Australia, has not issued a press release specific to this Bill or the earlier announced policy. However in November 2006 AGEA released a report calling for an immediate end to the export wheat monopoly veto and a rapid transition to open competition in the export market for Australian wheat. The main points argued in that report were:

Any consequences of failure to pass

Failure to pass the legislation, or at least the single provision in Schedule 2, would see a return to the arrangements operating prior to last year s temporary transfer of the veto from AWB(I) to the portfolio Minister.

Financial implications

The Explanatory Memorandum states that the Bill will have no financial impact.

Main provisions

Schedule 1 Information-gathering and investigative powers etc.

Schedule 1 commences on Royal Assent.

One of the functions of the existing Wheat Export Authority (WEA) is to monitor nominated company B's performance in relation to the export of wheat and examine and report on the benefits to growers that result from that performance. Nominated company B is currently (AWB(I), the organisation responsible for operating the national wheat pool, which is the system of collective marketing of most of Australia s wheat including all bulk wheat exports. As previously mentioned, AWB(I) is a wholly owned subsidiary of AWB Ltd, the latter being a public company listed on the Australian Stock Exchange.

Existing section 5D of the Wheat Marketing Act 1989 (the Act) empowers the WEA to require nominated company B to provide it with information for the purpose of reporting on the operation of the wheat pool operated by nominated company B. The scope of this information is potentially very wide-ranging.

Item 2 inserts proposed sections 5DA-DC to expand the WEA s information-gathering and investigative powers.

Notably, proposed section 5DA enables the WEA to request any person to provide them with information relevant to WEA s functions. However, the WEA cannot legally require the person to supply the information in question the person could simply refuse the request.

Proposed section 5DC enables the portfolio Minister to require the WEA to investigate into certain matters where the Minister considers that such an investigation is in the public interest . The matters that may be investigated are wide in scope, and include events occurring before the commencement of Schedule 1 of the Bill. If the report about the investigation, or part of it, relates to an alleged contravention of Commonwealth, State or Territory law, the WEA may give the report, or part of it, to various listed law enforcement or regulatory agencies.⁽³²⁾ The report is to be given to the Minister on completion, and the Minister may also publish it, or part of it, on the internet as long as this does not disclose information that could reasonably be expected to cause financial loss or detriment to a person or reduce wheat pool returns. In addition, where the report relates to a person s affairs to a material extent , the WEA may provide them with the report or part of it. There appear to be no restrictions in the Bill about whether such a person can in turn publicly release such part of the report as they received from the WEA.

Schedule 2 Veto power etc.

Schedule 2 commences on Royal Assent.

Item 1 extends the temporary period in which the Minister may direct the WEA to approve or reject bulk wheat export applications. This power was inserted by the Wheat Marketing Amendment Act 2006 and was due to expire on 30 June 2007. Item 1 extends this to 30 June 2008.

Schedule 3 Replacement of nominated company B etc

Schedule 3 commences on 1 March 2008.

Item 1 inserts a definition of the designated company into existing section 3 to effectively replace the concept of nominated company B as the operator of the national wheat pool.

AWB(I) will continue be the designated company until the portfolio Minister declares that a specified company - which according to Government policy, will be a grower owned organisation - is to be the designated company: proposed subsection 3AA(12). The Minister has the power to revoke a company s standing as the designated company and accordingly substitute a different company: proposed subsections 3AA(6) and (10). The relevant company must be registered under the Corporations Act 2001. proposed subsection 3AA(3)

The remainder of the provisions in Schedule 3 are mainly consequential and administrative amendments.

Schedule 4 Non-bulk export of wheat etc

Schedule 4 commences on a single day to be fixed by Proclamation, or six months from Royal Assent, whichever is the earlier.

Existing section 57 of the Act provides that export of wheat must be approved by the WEA. However, only exports of bulk-wheat had also to be approved by nominated company B (since the enactment of the Wheat Marketing Amendment Act 2006, this veto function has been performed by the portfolio Minister rather than nominated company B). Thus non-bulk export wheat is not subject to the single desk policy.

Item 14 inserts proposed new Part 6 Non-bulk export of wheat. It establishes a statutory quality assurance (QA) scheme relating to the export of non-bulk wheat. The scheme is to be developed by the WEA, in consultation with the Minister, via legislative instrument (proposed subsection 67(1)) and as such is presumably disallowable by Parliament.

Proposed subsection 67(3) provides that the QA scheme may require exporters of wheat to obtain certificates regarding quality from accredited laboratories. If a person exports non-bulk wheat in violation of any requirement imposed by the scheme, they commit an offence. The maximum penalty is 600 penalty units ($66 000), or for a corporation, 3000 penalty units ($330 000). The Explanatory Memorandum comments:⁽³³⁾

Proposed subsection 66(2) provides that regulations may specify circumstances in which the scheme is not to apply to non-bulk wheat exports. The Explanatory Memorandum states that this:⁽³⁴⁾

Schedule 5 Governance review implementation

Schedule 5 commences on 1 October 2007.

Schedule 5 effectively abolishes the WEA and replaces it with the Export Wheat Commission (the Commission). The Commission s functions are largely the same as the functions of the WEA, but its governance arrangements are different. Currently the WEA has an independent board and operates under the Commonwealth Authorities and Corporations Act 1997 (CAC Act). The board will be abolished and replaced with a statutory commission operating under the Financial Management and Accountability Act 1997, with staff employed under the Public Service Act 1999.

Under existing section 6, the current WEA is made up of five persons. Notably, two are nominated by the Grains Council, and one represents the Commonwealth Government. Item 32 repeals existing subsections 6(1)-(4) and substitutes proposed subsections 6(1)-(4A). These set out the membership of the Commission which will consist of a Chairperson and between three and five other members. They will be appointed by the portfolio Minister for a period up to three years. Before appointing a Commission member, the Minister must be satisfied that they have substantial experience or knowledge and significant standing in at least one of a very broad range of fields specified in subsection 6(3). However, the Minister must ensure that either one or two members are appointed on the basis of a substantial knowledge or experience and significant standing in the field of grain production.

The Act currently contains no explicit obligations on WEA board members to disclose conflicts of interests, however, they do have disclosure obligations under the CAC Act. Item 37 inserts, amongst other provisions, proposed sections 9A and 9B.

Proposed section 9A provides that a member must give written notice to the Minister and other Commission members of any direct or indirect pecuniary or other interest which could conflict with the proper performance of the functions of his or her office . Notice is required whether or not there is any particular matter under consideration that gives rise to an actual conflict of interest, and must be given as soon as practicable after the member becomes aware of the potential for conflict of interest. It does not matter if the interest was acquired before or after the Board member s appointment. Where there is potential conflict of interest, a member must not play a role in the deliberations or decisions about the relevant matter unless all of the Commission s members have consented to this. The Minister must be advised, as soon as practicable, whether the members have consented or not. The Minister must terminate a member s appointment if they fail to meet their disclosure obligations without reasonable excuse.

Item 43 inserts provisions relating to staff. Proposed section 14 requires that Commission staff will be employed under the Public Service Act 1999. However, the Commission may also be assisted in its functions by staff from other Commonwealth agencies or authorities: proposed section 15.

Item 46 requires the Commission to produce a Corporate Plan and an Annual Report. The Corporate Plan, which must be produced at least once a year, covers a planning period of three years. The Chairperson of the Commission must keep the Minister informed about changes to the Corporate Plan and any matters that might significantly affect the objectives set out in the Corporate Plan. The Annual Report must be tabled in Parliament within 15 sitting days of the Minister receiving it: proposed subsection 18(2). However, it appears there is no such requirement for the Corporate Plan.

Schedule 6 Transitional provisions

Schedule 6 commences on 1 October 2007.

Schedule 6 contains a fairly standard set of transitional provisions dealing with, amongst other matters, the transformation of the WEA into the Commission and relating financial matters.

Concluding comments

From an economic and public policy perspective the Bill would result in little change to Australian wheat marketing as it retains a marketing monopoly on about 65 per cent of the national wheat crop. The main effect of the proposals is to change the entity which exercises that monopoly.

One of the demands of the pro single desk camp has been that any new such entity be owned and controlled by growers.⁽³⁵⁾ What appears to have been quietly overlooked is that both AWB Ltd and AWB(I) are also grower controlled companies and hence the Oil-for-Food scandal happened within this framework of grower control, albeit that AWB Ltd is also listed on the Australian Stock Exchange.⁽³⁶⁾ It is not evident how retention of grower control will, of itself, make a difference to either governance arrangements or commercial outcomes for wheat industry participants.

A further question that arises in connection with the intended changes and the foreshadowed demerger of AWB Ltd and AWB(I) is whether it is appropriate to continue the dual share class structure of AWB Ltd.

In relation to the proposed quality assurance system for bagged and container (non-bulk) exports, no explanation has been given as to the deficiencies in the existing body of commercial/contract law which warrant special treatment of rogue traders. Exports of other agricultural and food products such as meat, rice, sugar etc do not involve a targeted approach to ensure exporters comply with the provisions of their contracts as a means of preserving Australia s good reputation as a supplier.

Endnotes