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House of Assembly - Fifty-Second Parliament, Second Session (52-2)
2012-09-19 Daily Xml
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Parliamentary Committees

SELECT COMMITTEE ON THE GRAIN HANDLING INDUSTRY

Mr BROCK (Frome) (11:03): I bring up the final report of the select committee, together with minutes of proceedings and evidence.

Report received.

Mr BROCK: I move:

That the final report of the committee be noted.

The select committee reiterates the recommendations made in the interim report, which was tabled on 14 September 2011. In this report, the committee's final report, the select committee strongly recommends, first:

That the Federal Government initiate a review of the Wheat Export Marketing Amendment Bill 2012 that is currently before the Federal Parliament, with the objective of developing policies and legislation that will ensure the benefits of deregulation are fully realised within a competitive and innovative framework that provides the basis for a viable and successful industry.

The committee finds that the existing regulatory arrangements imposed on the grain storage and handling systems in South Australia are failing to provide a vigorous and competitive marketplace for grain growers. There is a clear case for a review of the system. It is a system that is overly complicated and difficult to negotiate. Legislation and regulations at commonwealth and state government level are not consistent with the objectives of deregulation. There needs to be an alignment of the relevant legislation at both levels of government.

This access regime requires the approval of the Australian Competition and Consumer Commission (ACCC). The ACCC has recently endorsed an auction system developed by Viterra to allocate shipping slots. The whole of the grain supply chain that delivers grain to the ports is not subject to access regulation. Regulation is only applied at the ports.

ESCOSA recommended in its 2007 Ports Pricing and Access Review that the South Australian government undertake a broader review of the South Australian grain supply chain. The recommendation was also included in the recommendations of the draft report of its 2012 review. The committee believes it is time to act on this recommendation, particularly in the context of federal government legislation to deregulate wheat export marketing.

What becomes obvious is that a wider review of legislation that governs access to ports and also rail services is needed to fully realise the benefits of deregulation of the wheat export markets. The emergence of new traders indicates that there is competition and farmers now have a choice for marketing grain. The difficulties in the industry are around the control that is able to be exercised by the dominant owner of storage and handling infrastructure in South Australia and the ownership of rail and port services by companies that own all of the facilities.

The point to be made is that, in order to export grain, the competitors must go through Viterra because it is Viterra that controls the port loading facilities. Market parameters in the South Australian grain industry do not provide the basis for a vigorous and competitive marketplace for grain growers. Despite deregulation of wheat export markets, the fact remains that South Australian farmers will not be able to fully exploit the opportunities that deregulation should provide.

The committee has considered all of the arguments in favour of the current structure but still comes back to the fact that the effective monopoly in South Australia does not sit well with the principles of deregulation. The imposition of access regimes only adds to the costs that are then passed on to farmers without providing any productivity gains that reduce costs and increase competition. There is a clear case for a comprehensive review of the current legislative and regulatory systems that govern the wheat export market and grain handling services in South Australia. Recommendation 2 states:

That the Federal Government establish an independent body to oversee the classification of grain. The independent body would develop and implement classification policies and procedures, set grain standards, accredit grain classifiers and their training, undertake audits to ensure compliance with mandated procedures and generally ensure the reputation of Australian grain.

The body is to be funded from existing levies paid by the industry. In its interim report, the committee made two recommendations that dealt with the issue of grain classification, namely:

1. That GTA be required to mandate that, in the case of a disputed grain classification, an objective measurement is made available to the farmer at the sampling point.

2. That the relevant Commonwealth and State Ministers be requested to provide direction to the industry on the implementation and enforcement of a dispute resolution process that mandates the use of objective tests.

Neither of these recommendations have been acted on. The committee's view is that the absence of sound and reliable practices for the classification of wheat puts the Australian industry at risk of becoming a second-class producer. The state government has set as one of its objectives for the state the development of a reputation for producing premium food from a clean environment. Classification of grain and the maintenance of standards must come into consideration if this objective is to be achieved for the grain industry. However, there is still no mandatory legislative requirement for an objective test to be available on request and, given their response to the committee's interim report recommendations, little enthusiasm by authorities to go down that path appears likely.

The committee has received submissions from industry participants who believe that Australia risks gaining a reputation for providing grain that does not meet world standards. The committee is not convinced that the industry has an appropriate structure that will allow market forces to manage the classification and grading of grains. The dominance of one company in South Australia which, under current procedures, has the power to determine classifications and is responsible for turnout of grains that are not to specification calls for oversight by an independent body.

For this reason, the committee is advocating an examination of the arrangements that apply in Canada and the United States. Canada deals with these issues through the Canadian Grain Commission and, in the United States, the relevant body is the Federal Grain Inspection Service.

The committee is also recommending that the principles underpinning the Australian Wool Testing Authority (AWTA) should be examined for their relevance to the grain industry. There was no reference to these models in the Productivity Commission's 2010 inquiry report. The responsibility is on all participants in the industry to come to an arrangement that ensures Australian grain can be such that the market has complete confidence in the standard and quality of the product. Recommendation 3 states:

That the State Government review the costs and benefits of establishing an agreement with the Government of Western Australia for participation in the Australian Export Grains Innovation Centre.

Together, South Australia and Western Australia account for 75 per cent of Australian wheat exports, and there are similarities between the two states on issues such as road transport, access to port facilities and rail transport.

The deregulation of wheat export markets has greater relevance to Western Australia and South Australia because of the volume of grain exported. An investigation into the areas of common interest and opportunities for cooperation should be undertaken to establish a formal arrangement that will provide access to expertise that has the potential to improve the industry in South Australia. Recommendation 4 states:

That the State Government establish formal arrangements for consulting with the grains industry and local councils on planning for each harvest, rationalisation of grain receival centres (strategic sites) and, designation of access routes (rail and road) to port. This arrangement would extend to providing annual reports to the Parliament through an appropriate Standing Committee.

In its interim report the committee made recommendations that dealt with annual management plans. The interim report included extensive coverage of this issue and facilities in general. The general view was that facilities and operating hours were less than satisfactory. The objective is to establish a forum that allows the grain handling companies to work with the state government and local councils to share information and to work towards common goals that will support the industry. Recommendation 5 states:

That the State Government authorise ESCOSA to undertake a review of the entire grain supply chain with the objective of establishing arrangements that provide the basis for pricing of and access to grain storage and bulk handling facilities (including up-country services) that are consistent with the requirements of a competitive and deregulated wheat export market.

The committee has undertaken an active interest in the role of ESCOSA in administering ports, pricing and access arrangements in South Australia.

The committee made two submissions to the commission: on 15 March and 18 July 2012. The imposition of two levels of regulation in a system that should ideally be treated as a single system appears to be unnecessarily complicated and expensive. In its 2007 Review of Ports Pricing and Access, ESCOSA made two recommendations that have not been acted upon by the South Australian government. The draft report of June 2012 includes similar recommendations.

The committee believes it is time the government took action on the recommendations, particularly of the recommendation that there should be a broad review of the entire grain supply chain in South Australia. The need to establish a legislative system that sets the base for competitive and viable port services is important for the future of the grains industry in South Australia. The issue requires leadership from both levels of government. Recommendation 6 states:

That the State Government undertake a review of the Maritime Services (Access) Act 2000 to determine the effectiveness of the legislation in providing the basis for competitive services and investment in port facilities. The proposed review would also clarify the interaction between Commonwealth and State regulations to eliminate possible duplication and simplify the procedures that are imposed on industry participants.

Recommendation 7 states:

That the State Government in consultation with Local Councils, transport operators and appropriate grain industry representatives establish a project group to:

identify a coherent network of local government roads which provide direct and appropriate access for heavy vehicles between main roads, storage sites, railheads and ports in all council areas;

produce an agreed single policy document for the operation of heavy vehicles on access roads across all Councils;

provide a forum for local councils, transport operators and industry to work collaboratively to identify priority needs thus maximising the benefits of road infrastructure funding;

provide a single voice for local councils to present a logical and consistent argument to the State and Federal Government for road infrastructure planning and funding of heavy vehicle access routes; and

seek to rationalise and reduce duplication of the network;

The committee heard evidence from local councils that indicates there are problems in the way the heavy vehicles are regulated. Given the commercial arrangement between Viterra and Genesee Wyoming Australia for the supply of rail transport and the cost to use the service as reported in the committee's interim report, the importance of good heavy vehicle access routes cannot be overstated.

This is an important aspect of the grain industry and it is the committee's view that management of road infrastructure would benefit from an open public process that ensures that all parties have access to information and can be involved in determining policies and priorities. There appears to be a problem in communicating these processes through various levels of government and the industry.

A central problem for provision of road infrastructure is the lack of capacity of local councils, local government, to meet the cost. This is a constant theme raised by councils across all rural areas. The cost of regulating heavy vehicle movements and maintaining roads to a suitable standard places an onerous responsibility on the councils.

The whole question of managing road infrastructure for the grain industry should be seen as part of developing the industry and not managed in isolation from the objective of establishing the basis for an industry that is very important to the whole of the South Australian economy. Development of the grain industry is part of the government's stated objective of producing premium food from a clean environment. Recommendation 8 states:

That the services offered by the Small Business Commissioner be made known to farmers throughout the relevant groups representing the interests of farmers in South Australia and that the Small Business Commissioner, in preparing the current code of practice on farming, notes the recommendations from the committee.

The Small Business Commissioner will ensure South Australia's small business have a fair and competitive environment in which to grow and expand by providing low-cost mediation services to business to business, and business to state and local government disputes.

The Minister for small business may also wish to give consideration to direct the commissioner to investigate market practices in the grain industry that may adversely affect farmers. Farmers are small businesses that rely on a service provided by a dominant company that holds an effective monopoly over the classification, storage and handling of grain in South Australia. Recommendation 9 states:

That the South Australian Parliament establishes a Standing Committee on Primary Industries with the following objectives:

to ensure that Primary Industries continue to be a vital part of state's growth and economic successes;

to assist in developing policies and practices that promote the State as a producer of Premium Food from a clean environment.

The grain industry and other industries that can be classified as forming the primary production industry have always been mainstays of South Australia's economy. The work of the Select Committee on the Grain Handling Industry once again highlights the importance of primary production to South Australia.

Issues raised in the evidence to the committee are not confined to the grain industry but are generic to all forms of primary production. The provision of infrastructure to support these industries is a major challenge that will require coordination and planning across all levels of government, and the allocation of finance to implement the required changes. Many of the changes will require new legislation and revision of existing legislation. The appointment of a standing committee on primary industries would provide a forum to monitor and to keep the parliament informed of developments and issues.

Such a committee, with appropriate terms of reference relating to primary industries, will ensure parliament is kept aware and will enhance a policy and legislative framework that is supportive of primary industries in South Australia. The appointment of a standing committee would also complement the objectives of the government to promote South Australia as a provider of premium food and wine from a clean environment. Recommendation 10 states:

That the State Government establishes a formal working arrangement with Glencore International to ensure that the transition from Viterra to Glencore avoids disruptions to the grain industry and sets the basis of cooperation in introducing measures to improve efficiency.

In closing I would like to sincerely thank the committee members Mr Adrian Pederick, Mr Leon Bignell, Mr Tony Piccolo and Mr Tim Whetstone. The committee also worked tirelessly and the final report was unanimous. I would also like to thank Parliamentary Officer, David Pegram; Ms Rachel Stone, who was Assistant Parliamentary Officer; and John Parkinson, Research Officer for their tireless work. I also thank Hansard for their commitment for the duration.

Mr BIGNELL (Mawson) (11:18): I rise briefly to thank all those people throughout South Australia who came out to give evidence to our committee as we travelled around the state. It was heartfelt evidence that they gave to the committee, and I hope that we have been able to capture that in this report. I will not go into all the details of the report, as the member for Frome, our chair, has just done that.

I would also like to thank the companies like Viterra who opened up their facilities for us to go on tour and have a look first-hand at the operations, and the many other companies around state. Also, the Western Australia government and the industry over there when we visited were very open in letting us know what their experiences were; and the Canadian officials that we met with were very informative as well.

We hope that this report addresses many of the concerns that all of us were hearing through the harvest of 2010-11. What we were hearing then was very disturbing, that local farmers were not getting the money they should have been getting and that money was leaving the regions and therefore leaving our state. We all know that these farmers are the backbone of our economy, and without a profitable and successful grain industry the whole state suffers. Hopefully, what we have done with this report is lay out some things that can be improved in the future, and hopefully things have already been improved because of the work we have done.

I would also like to thank my fellow members, the member for Frome, the member for Hammond, the member for Chaffey and you, Mr Deputy Speaker. I think it was a great sign of how we can all work together, Liberal Party, Labor Party and an Independent. There was not a cross word heard in 18 months, and that is the way parliament should work.

Mr PEDERICK (Hammond) (11:20): I rise, too, to support the motion on the grain handling industry committee. I would like to commend the members on the committee: the Chairman, the member for Frome, Geoff Brock; Leon Bignell, the member for Mawson; Tim Whetstone, the member for Chaffey; and Tony Piccolo, the member for Light. We did have a very collaborative approach to this issue.

I would also like to commend the former minister for agriculture, Michael O'Brien. When I nominated in this house for this committee to take place, I negotiated with him fruitfully and we managed to get unanimous support in this house. I was very grateful for that because it was very much needed to get this committee up. I would also like to acknowledge the valuable work of David Pegram, Rachel Stone, and John Parkinson, our tireless research officer, for putting this report together around us.

This committee came about because of what happened in the 2010-11 harvest. There was a real issue with classification, where farmers were not allowed access to falling numbers machines to get an objective measurement of this grain. I mentioned in my previous speech, when we tabled the interim report, that we had constant discussions over that harvest with Paul Tierney from Viterra, and I applaud Paul for keeping up that dialogue. I think he was listening, but I think he was under the pressure of the company policy that they were not going to allow objective measurement through that harvest.

Thankfully, through the pressure of this committee, 78 falling numbers machines were purchased by Viterra and used for classification during this last season, 2011-12. One of our recommendations is that the federal government set up an independent body to oversee a classification in this country. With deregulation and overseas companies buying in, I think we do need that body to look at how we classify that grain, similar to what they do in Canada and the United States and, I note, in deregulated environments, just to make sure that we can uphold the quality of South Australian grain.

I would like to talk about some of the things that the select committee did, apart from our fruitful travels around the state and to Western Australia, and some of us went to Canada. I think the Canadian trip was vital, just to see how Viterra operates over there and why things were not working here in South Australia. Certainly, in regard to the report, it is obvious that in Canada, with the proposed takeover by Glencore of Viterra, a lot of sweeteners were put in the deal and they were still put in the deal later on—hundreds of millions of dollars of sweeteners, in fact billions of dollars of sweeteners, because the original bill of $6.5 billion dollars was diluted to something like $3.1 billion.

None of this happened in Australia, which disappoints me. The committee actually asked the ACCC and the Foreign Investment Review Board to see if we could get divestment of port assets or other divestments in this state but, no, the ACCC said there would be no lessening of competition. Well, work that out: we take one player out of the mix and there would not be an effect on competition. I am sorry; I cannot work it out.

The member for Frome has done a good job in going over the recommendations, and I expect many people will be looking over those recommendations. I think the committee has done very valuable work so that we make sure that we do not lose the perceived hundreds of millions of dollars that we think we have lost out of the rural industries in the 2010-11 harvest due to poor classification guidelines given to the classifiers. I am certainly not blaming the classifiers here: they were under the pump.

I would like to say a lot more but, due to the constraints of time, I would like to make one last comment. I am concerned about the intransigence of Viterra in communicating with anyone on the problems with the Outer Harbor ship loader. This ship loader is vital to exports out of this state, yet we are getting nothing out of them. I approached both Viterra and Glencore at the Cleve field days and I got told to just look at the website. I do not think that is good enough, and that is why we need committees like this. I applaud the fact that we have also recommended that we should have a standing committee on the very vital industry of primary industries in this state.

Mr WHETSTONE (Chaffey) (11:26): I reiterate what the members for Frome, Hammond and Mawson have said. It has been a delight to sit on a select committee with those members. I also congratulate David Pegram, Rachel Stone and, of course, John Parkinson, the senior consultant throughout the course of the committee.

I would like to begin by emphasising the importance of the grain industry to this state. It is the largest single contributor to the state's food sector. The crop produced in 2010, before the committee was established, was worth around $3 billion, and wheat is the biggest item on our export figure. Producing grain is something that South Australians have done since the colony was founded, and it is ironic that the first wheat crops grown in this state were on North Terrace where we are today. Again, we produce some of the best quality wheat in the world. Our malting barley is recognised as the world's best. I emphasise the importance of the industry to demonstrate that when it is having problems it is vital we act to address them.

I think the select committee should be commended for the work it did. We went out and travelled many miles, and consulted with many people, growers and organisations. We listened to their concerns. We brought up those concerns with industry and, in many cases, industry addressed some of those concerns. The lack of transparency is quite alarming in an industry that so important not only to this state but also to the national economy.

In 2010, after many years of drought, the grain growers across South Australia finally thought they were going to have a truly bumper season but, unfortunately, the rain fell and everyone found themselves with quality issues, particularly sprouted grain. Normally that would not be a problem, but it was compounded by what I considered a lack of preparedness by the dominant grain storage and handling operator here in South Australia, Viterra.

It did not take long for all the growers to come to all the MPs' offices and the alarm bells were ringing loudly that there was a lack of communication and a lack of streamlining in the logistics. There was concern about classification, and that lack of classification could quite easily have taken many hundreds of millions of dollars off the state's economy.

In our initial meetings right across the state, the alarm bells that rang were primarily about classification. The classification, in essence, was dealt with: it was a seasonal factor. However, the issues of road infrastructure, port access, and the lack of an information chain were highlights, and it is an ongoing process that needs to be addressed.

Again, I thank the committee. I think it was very much a worthwhile committee. The feedback I have had from the growers and industry has been that it was a success, and I think this final report will highlight the success. I commend the member for Hammond for being the instigator of the select committee. For me, being my first select committee, it was an eye-opener in respect of probably one of the state's biggest economic drivers; and, again, there must be more come out of this along the way. I know that we are time constrained, and I will sit down. I commend the Select Committee on the Grain Handling Industry.

Debate adjourned on motion of Mrs Geraghty.

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