Submission to the Productivity Commission 

Review of 
National Competition Policy Arrangements

June 2004 

Grain Growers Association Limited

The Grain Growers Association Limited (GGA) represents over 17 000 grain producers across Queensland, New South Wales and Victoria.

The major sector of the farm economy that affects our members and has been subject to review under the Competition Principles Agreement are grain marketing arrangements.  

The Association supports structural arrangements in the grain industry that will provide the best net public benefit to grain producers. The Association supports the wheat single desk but has critically examined the administration of the Wheat Marketing Act of 1989 by the AWB Limited group of companies. 

The Association’s policy development is based on commercial principles and the best business solution to problems faced by our members, the grain producers.  

This Association contends that in the grains industry, the application of National Competition Reforms has resulted in net public benefits for our members. 

Grain marketing reform has been particularly contentious but clear benefits have emerged and can be observed in both Victoria and Western Australia. 

The export barley industry in Victoria is now totally de-regulated. The state government in Western Australia has chosen a different regulatory approach but some liberalisation of the bulk export market for canola, lupins and barley was evident over the 2003/04 harvest. 

Competition in the wheat harvest finance market has provided clear benefits to wheat growers with millions of dollars in savings. The attached research paper models these savings. 

This Association contends that further reform of regulatory arrangements in the Australian wheat industry would stimulate the provision of competitive services to producers, greater choice and cost savings.     

Grain Marketing 

The mere suggestion of review of statutory grain marketing arrangements has traditionally been enough to provoke vocal opposition from proponents of the status quo. 

The decisive action by the Victorian State Government from 1998 to 2001 in relation to the export single desk for barley has since seen a relatively smooth transition to an open and contestable export market.

Many of the claimed reasons given by opponents of de-regulation have proven to be baseless. Some of the polemics prior to de-regulation and respective outcomes are discussed here. 

Pooling 
It was claimed that pooling arrangements would not exist under a de-regulated export market environment. This is clearly not the case as ABB Grain Limited, the former statutory marketing organisation runs voluntary pools that are well patronised. There are also farmer co-operatives that come together to pool grain and market it on a voluntary basis. 

Pools are likely to continue to operate whilst ever farmers desire such a marketing tool. 

Grain Trade Standards  
It was claimed that with multiple exporters, grain receival standards would decline and the reputation of Australian grain would suffer in export destinations. This has not been the case. Grain quality standards and specifications are agreed to by the National Agricultural Commodity Marketing Association (NACMA). This is a voluntary trade organisation that all of the major grain exporters and many smaller domestically focused organisations are members of. 

Together they agree on standard grain descriptions, trade rules and dispute resolution procedures. NACMA members must agree to trade using the NACMA language and standards. 

Barley trade standards in Victoria have not declined following export de-regulation.  

Grain Storage Standards 
Grain storage and handling agents are under contractual obligation to out-turn grain to the same specification that it was received. Failing to do so is a breach of contract. 

Whether the owner of the grain is a statutory organisation with compulsory acquisition powers, or a private entity freely conducting commerce with grain producers, their requirements of the storage and handling agent are the same. Graincorp is the main storage and handling business in Victoria. It simply meets the standards as set by the trade.

The standard of barley storage and handling in Victoria has not declined following export de-regulation. 
  
Security of Payment 
Many of the participants in the barley trade are well-established and substantial companies that have strong balance sheets. Should contractual disputes arise, NACMA members must agree to submit to dispute resolution procedures that include avenues for appeal. 

No major problems relating to security of payment have been reported in Victoria.

Opportunities following de-regulation in Victoria

New market emergence 
Barley export de-regulation from Victoria has allowed exporters to explore and pursue new market opportunities. One of these revolves around the strict receival standards for malting barley that were applied by the Australian Barley Board before its conversion to the corporate ABB Grains Ltd. 

Consistent quality of malt barley is important for maltsters to achieve reliable and consistent results in the manufacturing process. Colour of the grain and protein are important considerations for malt production and the Australian Barley Board would reject barley it did not meet all quality requirements. Wet weather during harvest could result in such a down-grade. This barley could only be used for animal feed and thus suffered a price discount.
utoThis strategy failed, in excess of $100 million was lost, and a number of senior Grains Board staff are awaiting a decision by the NSW Director of Public Prosecutions as to whether criminal charges will be filed against them.

This Association can only speculate as to whether the New South Wales Government, being more resolute early in the review process may have prevented the worst of the financial losses from being incurred.  

Review of Federal Wheat Marketing Arrangements 

In 2000, the Wheat Marketing Act of 1989 was subject to comprehensive review by an independent panel. The review team concluded that it could not find, nor was it presented with clear evidence that wheat growers were best served by the current arrangements under the Wheat Marketing Act of 1989. 

In addition, the Allen Consulting Group provided support to the review panel in the form of economic modelling and analysis. The results from that work did not support the claims made by AWB Limited during the review process. 

The review panel made a preliminary report that proposed a trial de-regulation period for some grades of wheat over three years. This recommendation however, did not appear in the final report. 

An opportunity for reform was lost through that review period and a number of structural  problems in the wheat industry have since become apparent.    

Conclusions

Reform of grain marketing arrangements in Australia has been resisted by the incumbent statutory marketing authorities, a strong grower lobby and politicians at various levels. Prior to the National Competition Policy Review process, supporters of grain export liberalisation had difficulty building the case for choice when no alternative system in Australia could be assessed.

The discipline placed on the Federal and State governments by the Competition Principles Agreement has resulted in rigorous and independent study being carried out on existing arrangements. Often it has been the first time that the relevant statutory marketing arrangements have been so thoroughly reviewed. 

The benefits to grain growers, domestic users, exporters and the broader industry are supported by observable evidence.

The Grain Growers Association would be pleased to provide further information to this inquiry should it be required.