Australian Government response to the Productivity Commission recommendations on wheat export marketing arrangements

Announced 23 September 2011, by the Minister for Agriculture, Fisheries and Forestry Senator the Hon. Joe Ludwig

Overview

The Productivity Commission’s (PC’s) report on its inquiry into wheat export marketing arrangements found that the government followed good regulatory process in establishing the new wheat marketing arrangements and that implementation and transition worked very well.

Key recommendations in the PC’s report are to abolish the Wheat Export Accreditation Scheme, Wheat Exports Australia (WEA) and the Wheat Export Charge (WEC) on 30 September 2011, and remove the access test requirements for grain port terminal operators on 30 September 2014.

While the government agrees in-principle with the recommendations, it believes a three stage approach will be a more effective transition to full market deregulation and will help ensure that the full advantages of the 2008 changes are realised.

The first stage of this transition will be the introduction of a ‘lighter-touch’ (but not necessarily softer) accreditation scheme. The scheme will operate within the bounds of the existing legislation from 1 October 2011 until 30 September 2012. WEA will still have the capacity to respond to issues that may relate to the accreditation of an exporter.

During the second stage, the accreditation scheme, WEA and the Wheat Export Charge will be removed from 1 October 2012. The government agrees with the PC’s view that the transitional period relating to changes to port terminal operations has not yet ended. The access test will therefore remain in place until 30 September 2014, as recommended by the PC. During this interim period, the Wheat Export Marketing Act 2008 will be amended to maintain the link between the requirement for port terminal operators to have approved access undertakings in place and their ability to export bulk wheat. A voluntary code of conduct which includes continuous disclosure rules for port terminal operators that export wheat will also be developed and implemented by 30 September 2014.

The third and final stage will operate from 1 October 2014, when the market will be fully deregulated and access issues will be governed by general competition law. The voluntary code of conduct will also be in effect.

The government has adopted this staged transition on the basis that, in the short term, accreditation and a linked access test provide comfort to growers and customers, while reducing the level of investigation and compliance activities to bring these arrangements more in line with those for other agricultural commodities.

The government’s response to each of the PC’s recommendations is set out below.

Recommendation 4.1

The Wheat Export Accreditation Scheme 2008 should be abolished on 30 September 2011. This timing would coincide with the end of the 2010-11 marketing year and give the Australian Government sufficient time to put the required legislative changes in place.

• Agree that the Wheat Export Accreditation Scheme 2008 should be abolished but this should occur one year later than recommended on 30 September 2012.
  
  The government supports a staged approach to enable a more effective transition to full market deregulation and help ensure the full advantages of the 2008 changes are realised. It will therefore provide a further transition period to deregulation by introducing a ‘lighter-touch’ scheme, within the bounds of the existing legislation, which will operate from 1 October 2011 until 30 September 2012.
  
  The government will then abolish the accreditation scheme, Wheat Exports Australia and the Wheat Exports Charge on 30 September 2012, and will sunset the access test requirements on 30 September 2014.

Recommendation 4.2

Regulation 9AAA of the Customs (Prohibited Exports) Regulations 1958, which prohibits bulk exports of wheat unless exported by an accredited wheat exporter, should be repealed effective 30 September 2011.

• Agree that regulation 9AAA of the Customs (Prohibited Exports) Regulations 1958, which prohibits bulk exports of wheat unless exported by an accredited wheat exporter, should be repealed but this should occur one year later than recommended on 30 September 2012.
  
  Regulation 9AAA will continue to be used to enforce the requirement to be an accredited exporter in order to export bulk wheat until the removal of the accreditation scheme on 30 September 2012, after which regulation 9AAA will no longer be required.

Recommendation 4.3

Wheat Exports Australia should be abolished on 30 September 2011.

• Agree that Wheat Exports Australia should be abolished but this should occur one year later than recommended on 30 September 2012.
  
  The government believes that the future of Wheat Exports Australia is dependent only upon decisions about the accreditation scheme and agrees with the Productivity Commission’s assessment that industry is best placed to fill any gaps that might emerge in a deregulated environment without accreditation. With the removal of the accreditation scheme on 30 September 2012, Wheat Exports Australia’s role will cease.

Recommendation 4.4

The Wheat Export Charge should be abolished on 30 September 2011.

• Agree that the Wheat Export Charge should be abolished but this should occur one year later than recommended on 30 September 2012.
  
  The government does not believe that revenue collected via the Wheat Export Charge should be used to fund the provision of industry good functions when Wheat Exports Australia is abolished on 30 September 2012. It supports the findings of the 2008 Industry Expert Group which considered delivery of industry good functions and recommended a mixture of commercial and industry driven solutions, with the exception of continuation of research and development arrangements and some short-term assistance for the provision of market information.

Recommendation 4.5

If the Australian Government decided not to abolish accreditation, a system similar to that administered by ESCOSA for bulk exports of barley in South Australia would be the next best alternative.

• A less attractive alternative would be to amend the Wheat Export Accreditation Scheme 2008. As outlined in this report, this would include streamlining the level of assessment employed by Wheat Exports Australia and more clearly defining its role to ensure that its powers do not extend into matters of competition policy.

If the Australian Government decided not to abolish accreditation, the application fees and the Wheat Export Charge would need to be reviewed. A Cost Recovery Impact Statement should be formulated, in line with the Australian Government Cost Recovery Guidelines. The Wheat Export Charge should no longer be levied on exports of wheat in bags and containers, as they are not covered by the accreditation scheme.

Any new or amended arrangements put in place by the Australian Government should be reviewed after no more than five years.

• Agree to amend current arrangements to implement an interim ‘lighter-touch’ wheat export accreditation scheme for the period from 1 October 2011 to 30 September 2012 pending abolition of the scheme and WEA on 30 September 2012.
  
  As reflected in its response to recommendation 4.1, the government will provide a further transition period to deregulation by introducing a ‘lighter-touch’ scheme, within the bounds of the existing legislation, which will operate from 1 October 2011 until 30 September 2012, when the accreditation scheme will be abolished.
  
  The ‘lighter-touch’ scheme will reduce the level of ‘red tape’ for industry, and, as a result, the associated costs of export accreditation, while still meeting grower concerns about fit and proper issues as well as maintaining the link with the access test that many exporters believe is critical. It will also provide some comfort to accredited port terminal operators by reducing their compliance costs.
  
  Under the scheme, WEA would continue to monitor continuous disclosure rules but will rely on advice from the ACCC on whether accredited port terminal operators have not complied with their access undertakings. WEA would still have the capacity to respond to any issues that may relate to the accreditation of an exporter.

Recommendation 5.1

The Australian Government should proceed with the scheduled independent review of the National Access Regime. This review should commence no later than 31 December 2011.

• Note the Council of Australian Governments has agreed that the Productivity Commission will conduct a review of the National Access Regime commencing no later than December 2012.
• Note this timing will allow sufficient experience of the operation of reforms enacted by the Trade Practices Amendment (Infrastructure Access) Act 2010 – including experience of the undertakings to be submitted as part of the access test – to inform a comprehensive assessment of the effect of the Regime.
• Note that the review will be progressed by the Treasury portfolio.

Recommendation 5.2

The requirement for grain port terminal operators to pass the access test contained in the Wheat Export Marketing Act 2008 (continuous disclosure requirements and an ACCC accepted port access undertaking) as a condition for exporting bulk wheat should remain in place until 30 September 2014. Responsibility for determining if the access test is met (including the continuous disclosure requirements component) should rest solely with the ACCC beyond 30 September 2011, whether or not accreditation continues past that date.

Ideally, grain terminal operators not subject to the access test between 30 September 2011 and 30 September 2014 would voluntarily publish their shipping stems and port access protocols.

The requirement of port terminal operators to pass the access test as a condition for exporting bulk wheat should be abolished on 30 September 2011.

The requirement for continuous disclosure should continue after 30 September 2014, although this should no longer be a condition for exporting bulk wheat. From this date, the continuous disclosure rules should be applied to all grain port terminals, regardless of ownership. Responsibility for monitoring compliance with continuous disclosure rules should remain with the ACCC after 30 September 2014.

From 1 October 2014, access disputes (other than those relating to the continuous disclosure requirements) should be dealt with by the National Access Regime under Part lllA of the Trade Practices Act.

Ideally, port terminal operators would supplement these arrangements with a voluntary code of conduct from 1 October 2014.

Should the access test continue beyond 30 September 2014, it should be reviewed after no more than five years.

• Agree that the requirement for port terminal operators to pass the access test as a condition for exporting bulk wheat should remain in place until 30 September 2014, after which time it should be abolished;
• Note the current requirements for the access test will continue until 30 September 2012;
• Note that until 30 September 2014, access undertakings administered by the Australian Competition and Consumer Commission (ACCC) will be required to include the continuous disclosure rules;
• Note that the Australian Customs and Border Protection Service will control the ability of exporters that operate grain export terminal facilities to export bulk wheat until 30 September 2014, after which time these responsibilities will cease;
• Agree that general competition law administered by the ACCC will apply after 30 September 2014;
• Agree that a non-prescribed voluntary code of conduct for all grain export terminals should be developed and implemented, and that abolishing the access test in 2014 will be conditional on the code being implemented by 30 September 2014. The code should meet the needs of both growers and exporters, be consistent with ACCC guidelines for developing effective voluntary codes of conduct and include continuous disclosure rules.
  
  The government agrees with the Commission’s view that the transitional period relating to changes to port terminal operations has not yet ended. Access undertakings have only been in place for two full marketing seasons and longer-term operating practices have not yet been fully established and tested, as evidenced by continuing grower and trader concerns about anti-competitive behaviour during the transitional period.
  
  Retaining the access test until 2014 will give the industry sufficient time, and appropriate incentives, to adjust to the new trading environment and institutionalise some new features of the competitive environment, while minimising the chances of damaging future investments or undermining reasonable returns to existing asset holders. After this, general competition law administered by the ACCC will operate.
  
  The government believes a voluntary code of conduct for all grain export terminals, as recommended by the PC, would complement general competition law, improve transparency within the industry and provide security and certainty in the longer-term. It should be developed by 2014 and would need to meet the needs of both growers and exporters, comply with ACCC standards and include continuous disclosure rules.

Recommendation 6.1

The ACCC has announced that it will review the exclusive dealing notification granted to CBH, regarding the use of Grain Express. In light of market developments and concerns over the contestability of CBH’s supply chain, the Commission endorses the decision by the ACCC to review Grain Express. The Commission recommends that the ACCC makes its determination as soon as practicable.

• Note that the review of the exclusive dealings notification granted to CBH, regarding the use of Grain Express has been finalised by the ACCC under a separate process.
  
  The ACCC revoked the exclusive dealings notification regarding Grain Express on 29 June 2011. From 1 May 2012, grain growers and marketers in Western Australia will be able to use CBH’s up-country storage facilities without being required to use CBH’s transport services to deliver grain to port for export. Growers will be able to continue to use CBH’s bundled storage and transport services if they wish.

Recommendation 6.2

When considering investment in road and rail infrastructure for the transportation of grain, decisions should be based on thorough cost-benefit analysis, including both economic and social costs and benefits. Where possible, the analysis should consider the benefits that can be obtained throughout other parts of the grain supply chain.

• Note that decisions on investment in road and rail infrastructure for the Australian Government include a cost benefit analysis including the economic and social costs and benefits.

Recommendation 7.1

The Commission sees value in the provision of stocks information by state to support the effective operation of the domestic and export wheat markets. However, if the industry wants this information, it should pay for it. The most efficient approach to funding this information would be via an existing compulsory industry levy. Specifically, the GRDC levy collection framework appears to be the most practical and cost-effective option for funding stock information by state.

• Agree that the provision of market information should be handled by industry.
  
  The Australian Government’s market information project is scheduled to finish in November 2011 with the publication of September 2011 data. It is up to industry to determine whether it wishes to continue the project and how it will fund it.
  
  The Department of Agriculture, Fisheries and Forestry has funded an independent study to review market information needs, including the development of options and recommendations for the long-term delivery of market information of benefit to industry. The objective of the study is to help facilitate industry agreement on future arrangements and funding mechanisms that industry may wish to implement. The study report has been made available to industry to help it decide what future action it will take.

Recommendation 8.1

Reforms and initiatives to improve the collection and enforcement of End Point Royalties, such as those recommended by the Advisory Council on Intellectual Property’s Review of Enforcement of Plant Breeders Rights, should be implemented expeditiously.

• Note that the Australian Government’s response to the Advisory Council on Intellectual Property’s Review of Enforcement of Plant Breeders Rights was released on 3 June 2011. The Innovation, Industry, Science and Research portfolio is progressing implementation of the response under a separate process.