Wheat Export Marketing Arrangements

464 Pages·2010·1.54 MB·English

by  Productivity Commission

Wheat Export
Productivity Commission
Marketing Arrangements
Inquiry Report
No. 51, 1 July 2010
(cid:2) COMMONWEALTH OF AUSTRALIA 2010
ISSN 1447-1329
ISBN 978-1-74037-319-7
This work is copyright. Apart from any use as permitted under the Copyright Act 1968, the
work may be reproduced in whole or in part for study or training purposes, subject to the
inclusion of an acknowledgment of the source. Reproduction for commercial use or sale
requires prior written permission from the Commonwealth. Requests and inquiries
concerning reproduction and rights should be addressed to the Commonwealth Copyright
Administration, Attorney-General’s Department, 3-5 National Circuit, Canberra ACT 2600
or posted at www.ag.gov.au/cca.
This publication is available in hard copy or PDF format from the Productivity
Commission website at www.pc.gov.au. If you require part or all of this publication in a
different format, please contact Media and Publications (see below).
Publications Inquiries:
Media and Publications
Productivity Commission
Locked Bag 2 Collins Street East
Melbourne VIC 8003
Tel: [phone]
Fax: [phone]
Email: [email protected]
General Inquiries:
Tel: [phone] or [phone]
An appropriate citation for this paper is:
Productivity Commission 2010, Wheat Export Marketing Arrangements, Report no. 51,
Canberra.
JEL code: Q11 and Q13.
The Productivity Commission
The Productivity Commission is the Australian Government’s independent research
and advisory body on a range of economic, social and environmental issues affecting
the welfare of Australians. Its role, expressed most simply, is to help governments
make better policies, in the long term interest of the Australian community.
The Commission’s independence is underpinned by an Act of Parliament. Its
processes and outputs are open to public scrutiny and are driven by concern for the
wellbeing of the community as a whole.
Further information on the Productivity Commission can be obtained from the
Commission’s website (www.pc.gov.au) or by contacting Media and Publications on
[phone] or email: [email protected]

Terms of reference
Productivity Commission Inquiry into Wheat Export Marketing
Arrangements

I, Nick Sherry, Assistant Treasurer, pursuant to Parts 2 and 3 of the Productivity
Commission Act 1998 hereby request that the Productivity Commission undertake
an inquiry into wheat export marketing arrangements and report before 1 July 2010.
Context
This inquiry will assess the operation of the current wheat export marketing
arrangements, including the costs and benefits, and inform the Australian
Government on the effectiveness of the arrangements.
Background
The Wheat Export Marketing Act 2008 (the Act) came into effect on 1 July 2008.
The Act established a new regulator, Wheat Exports Australia (WEA), to formulate
and administer an accreditation scheme for bulk wheat exports. The Wheat Export
Accreditation Scheme 2008 (the Scheme) also came into effect on 1 July 2008.

The Scheme requires exporters to meet strict probity and performance tests to
satisfy WEA that they are fit and proper entities to hold accreditation. In addition,
to be accredited exporters that own or operate port terminal services need to meet an
access test under the Act, which requires them to have access undertakings
approved by the Australian Competition and Consumer Commission (ACCC) in
place by 1 October 2009.

Compliance of accredited exporters with the conditions of their accreditations is
monitored by WEA which has the power to vary, suspend or cancel accreditations
in certain circumstances.

Section 89 of the Act requires the Productivity Commission (the Commission) to
conduct an inquiry into the operation of the Act and the Scheme.
Scope of the inquiry
Under the Act, the Commission must review:
• the operation of the Act, including the costs and benefits; and
• the operation of the Scheme, including the costs and benefits.

In conducting the inquiry, the Commission will assess the effectiveness of the
arrangements in meeting the objectives of the Act and will consider the operation of
the Act and the Scheme, including the role of WEA, as a whole. The Commission
will also consider how individual components of the Act and the Scheme affect
relevant stakeholders and the costs and benefits they deliver. The Commission
IV TERMS OF REFERENCE
should provide comment on those aspects that are working effectively and identify
those that require change. The Commission will take into consideration recent
reports and studies into Australia’s grain supply chains.

The Commission will give consideration to issues that may or do affect the effective
operation of the Scheme including, but not limited to:
• the suitability of the eligibility criteria required for, and conditions imposed
upon accreditation;
• the appropriate level of assessment of each applicant for accreditation by WEA
against these eligibility criteria;
• the appropriateness and effectiveness of the access test requirements that apply
both before and after 1 October 2009;
• the effectiveness of, and level of competition existing under current
arrangements for the transport, storage and distribution of wheat in contributing
to a sustainable supply chain from farm gate to export load port;
• the availability and transparency of relevant market information to participants
in the export supply chain; and
• any other factors that may affect the performance of WEA.

If considering changes to the operation of the Act or Scheme, the Commission will
examine how such changes would affect arrangements to fund WEA and the use of
cost-recovery mechanisms.

In conducting its inquiry, the Commission will consult widely with interested
parties including WEA, growers, grains industry representatives, accredited
exporters, bag and container exporters, potential bulk exporters, bulk handling
companies, the ACCC and relevant government departments.

Consultation with interested parties can occur at any time but there must be an
opportunity for stakeholders to comment on the operation of the arrangements for
the export of the 2009-10 crop. This will allow consideration to be given to the
export of wheat through peak shipping periods for two harvests.

This will be done in an open and transparent manner and include release of a draft
report for public comment. It may also include public hearings in major wheat
growing areas, if deemed necessary by the Commission.

The Commission is required by the Act to commence its review by 1 January 2010
and report to the Government before 1 July 2010.

NICK SHERRY
[received 29 September 2009]
TERMS OF REFERENCE V
Disclosure of interests
The Productivity Commission Act 1998 specifies that where Commissioners have
or acquire interests, pecuniary or otherwise, that could conflict with the proper
performance of their functions during an inquiry they must disclose the interests.
Presiding Commissioner Wendy Craik has advised the Chairman of the
Commission that she holds or has interest in the following organisations:
• Dairy Australia
• Elders Ltd
VI DISCLOSURE OF
INTERESTS
Contents
Letter of transmittal III
Terms of reference IV
Disclosure of interests VI
Abbreviations XIV
Key points 2
Overview 3
Recommendations and findings 27
1 Introduction 35
1.1 What was the Commission asked to do? 36
1.2 The Commission’s approach 36
1.3 Conduct of the inquiry 39
1.4 Guide to the report 42
2 The Australian bulk wheat export industry 43
2.1 Evolution of the marketing arrangements 44
2.2 Industry overview 51
2.3 Industry performance 76
3 Marketing and pricing 79
3.1 An industry in transition 80
3.2 Key drivers of the price of export wheat and its variability over
time 87
3.3 Growing and marketing wheat is a risky business 100
3.4 Issues raised about marketing, pricing and managing risk 103
4 Accreditation of exporters 119
4.1 Eligibility criteria 120
4.2 The application process 124
CONTENTS VII
4.3 Monitoring compliance with the Scheme 132
4.4 Direct costs of accreditation 135
4.5 Evaluating the arrangements as a whole — should accreditation
continue? 139
4.6 Evaluating the criteria, conditions and level of assessment of
accreditation 159
5 Access to port terminal facilities 173
5.1 Background to port terminal access regulation 175
5.2 The current arrangements 177
5.3 The effectiveness and appropriateness of the WEMA access test 179
5.4 Access to port terminals after the transition 195
5.5 Regulatory requirements in addition to Part IIIA 199
5.6 Auctions as a mechanism for allocating limited capacity 205
5.7 Other issues 223
5.8 Alternatives to the suggested future arrangements 244
6 Transport, storage and handling 251
6.1 How does the wheat supply chain operate? 252
6.2 Recent developments in the wheat supply chain 258
6.3 Access and competition in the supply chain 268
6.4 Transport infrastructure 283
7 Information provision 293
7.1 Market information as an industry good 294
7.2 Provision of market information 297
7.3 Assessing the costs and benefits of information provision 309
7.4 The case for provision of wheat market information 314
7.5 Provision of industry goods and services 331
8 Wheat quality standards and market segmentation 343
8.1 What are wheat quality standards? 344
8.2 Institutional arrangements 348
8.3 Why are quality standards important? 350
8.4 Issues in a deregulated environment 351
VIII CONTENTS
9 Other industry good functions 365
9.1 ‘Other’ industry good functions 366
9.2 Industry good functions under the single desk 369
9.3 Industry good functions since deregulation 375
9.4 An industry-led model 384
A Public consultation 397
B Marketing and risk management tools 405
C Australian and international experiences: accreditation and
industry goods 415
References 435
Boxes
2.1 The wheat single desk 45
2.2 Non-bulk exports by consent 48
2.3 Bulk exports by consent 49
2.4 Australian wheat grades 55
2.5 Regional variations in wheat supply chain characteristics 68
3.1 Grower concerns 81
3.2 Structural adjustment in the wheat export industry 87
3.3 What is the ‘basis’? 99
4.1 Eligibility criteria 121
4.2 The access test 123
4.3 Phases in the assessment and decision process 126
4.4 Conditions imposed by WEA, 2008-09 129
4.5 Comments from accredited exporters to WEA about the
accreditation process 149
4.6 CBH’s compliance with the Scheme 164
5.1 Nature of grain port terminals 175
5.2 What is a natural monopoly? 176
5.3 Participants’ views on the need for the WEMA access test 180
5.4 Access regulation and investment 187
5.5 How should the ACCC approach the next round of undertakings? 192
CONTENTS IX
5.6 Port terminal operator views about constraints on their market
power 200
6.1 CBH’s exclusive dealing notification to use Grain Express 275
6.2 Eyre Peninsula investment package 287
7.1 Industry good functions 295
7.2 Committed wheat — ABS definitions 301
7.3 Australian Crop Quality Report, BRI 303
7.4 National Growers Register 306
7.5 Ring fencing provisions — CBH 309
7.6 Framework for assessing industry good functions 314
7.7 Grain Producers Australia 318
7.8 United States grains shortages — 1972 and 1975 323
7.9 Administrator of compulsory levy mechanism 333
7.10 Levy development and administration — the role of the
Australian Government 335
7.11 GRDC levy 339
7.12 The ABS legislative framework 340
7.13 The way forward 341
8.1 End Point Royalties 362
9.1 Single Vision Grains Australia 371
9.2 Grains Council of Australia 374
9.3 Industry Assistance Package 376
B.1 Illustrative example of a hedge using a futures contract 410
B.2 Illustrative example of a hedge using put options 411
B.3 Illustrative example of a hedge using wheat swaps 413
C.1 Information provision 423
C.2 Levies on grape producers and wine exporters 424
C.3 Information provision by Dairy Australia 425
C.4 Information provision by Meat & Livestock Australia 426
C.5 United States agencies 431
C.6 Information provision by the United States Wheat Associates 432
X CONTENTS