A MOVE to remove the co-ops exemption in the port access code has been stymied, with a key Senator not convinced by evidence presented an an inquiry.
Nanjing Night Net

The vote on a disallowance motion to remove a special exemption for co-operatives within the federal government’s wheat port access code of conduct has been delayed to March 4.

Western Australian Greens Senator Rachel Siewert told Fairfax Agricultural Media that evidence presented at a federal Senate Committee inquiry hearing into grains logistics in Canberra last Thursday had failed to change her mind on supporting the exemption.

The Rural and Regional Affairs and Transport References Committee inquiry quizzed key grain industry figures about the merits of the exemption.

Witnesses included leaders of WA’s two main farm lobby groups, the Australian Competition and Consumer Commission (ACCC), WA grains co-op CBH and rival port operator Bunge Australia.

NSW Liberal Democratic Party Senator David Leyonhjelm introduced a disallowance motion late last year proposing to remove the co-ops exemption.

The motion was scheduled to be voted on this week when federal parliament resumed, but Senator Siewert said she heard no evidence at the inquiry hearing to “dissuade” her from voting against it.

She said too much work had already gone into developing the code regulations via a grains industry taskforce which was established via amendments the Greens achieved when voting with Labor to pass legislation in late 2012, which removed Wheat Exports Australia.

Senator Siewert said she would be concerned about supporting Senator Leyonhjelm’s disallowance motion if it repealed the entire code – but would still need to clarify whether the proposal only targeted the co-op exemption.

The code is one of the final vestiges of the legislation which empowered the former single desk arrangements for bulk wheat exports, operated by AWB.

But moves to fully deregulate the wheat export industry continue to frustrate the Coalition and divide grains industry stakeholders, especially between east and west coast views.

Senator Leyonhjelm and Shadow Agriculture Minister Joel Fitzgibbon have both criticised Agriculture Minister Barnaby Joyce for approving the co-op exemption.

But Nationals deputy leader Mr Joyce has justified his decision, saying any monopolistic behaviour by co-ops operating in their own market, such as CBH, yields benefits for growers via their inherent business structure.

Senator Leyonhjelm said he would now be postponing a vote on the disallowance motion, which had seven sitting days of parliament remaining as of Tuesday.

He said he would use that additional time to try and gain support from Labor and Mr Fitzgibbon and any “liberal Liberals” who support his views on full deregulation.

Senator Leyonhjelm conceded his disallowance would be defeated, “if the Libs all stick together”, given the Green’s continued supported for the regulations signed-off by the Coalition on October 1, last year.

“There are quite a few Liberals who would support my approach to deregulation,” he said amid speculation some Liberal Senators may abstain from any future vote on the disallowance motion.

“My feeling is that if regulation of port access was required anywhere, it should be in WA.

“I don’t think CBH should be favoured with an exemption but it looks like the Greens are not going to go with that.”

The Senate Rural and Regional Affairs and Transport References Committee’s inquiry was established in mid-2014 with an original reporting deadline of December, which was extended out to June 4 this year.

The inquiry was re-adopted for pursuit by the current parliament in late 2013, following a similar long-running investigation by the Committee into grain handling ownership arrangements.

That inquiry played a key role in raising issues of concern to growers around reduced competition and ownership of ports, during the proposed $3.4 billion takeover of GrainCorp by US multinational Archer Daniels Midland which was rejected by Treasurer Joe Hockey in late 2013.

The broad terms of reference underpinning the Committee inquiry’s latest iteration includes looking at on-farm and off-farm grain storage networks and how the movement of grain to ports impacts farmgate returns.

Reactions to co-op exemptionAt last week’s Senate inquiry hearing, WA Pastoralists and Graziers Association grains committee chair John Snooke said exempting co-ops from “certain aspects of the code” would essentially give CBH, “a licence to do as they wish”.

“It is rewarding CBH for being a co-operative rather than a corporate because the Minister favours co-operatives,” he said.

Mr Snooke said CBH’s past “bad behaviour” in the WA logistics supply chain – which the ACCC had identified and sought to rectify – “will continue”.

“If you give CBH a little bit of slack, it will take it,” he said.

“That is our concern. We have put CBH up on a pedestal. It is not back in the pack with the other bulk handlers where it should be.”

Mr Snooke said if there was no code, the ACCC would only have powers to address any issues – of market power abuse – retrospectively.

He said the PGA also believed the grains industry had taken “a slight step back from the full path to deregulation” due to the code, which should have retained a sunset clause, instead of a three-year review.

“We have given a privileged exemption to an organisation that has some track record of anticompetitive behaviour,” he said.

ACCC chair Rod Sims said an exemption for CBH was “very much a policy issue” which required policymakers having to consider the merits of “co-operation versus competition”.

“The vast majority of farmers in the west are members of CBH, so the issue of policy is whether you think those farmers in the west will be better looked after by the co-operative that they are members of or whether you think that the farmers would get a better price for their wheat if there is competition to buy their wheat,” he said.

“That is the policy trade-off: do you leave it to a co-operative to look after the farmers or do you rely on competition to buy the wheat?”

Mr Sims said the WA market had about 20 players currently trying to buy wheat from farmers and at least 10 of them are “major players”.

“It is an active market for that wheat,” he said.

“CBH, the last time I looked, exports less than 50 per cent of the wheat, so the other 50 per cent is being exported by other players. You have a lot of competition there.

“I guess the question is about whether that competition is a good thing for farmers or whether it is better to rely on CBH to look after its members in an optimum way.”

Mr Sims conceded CBH has had several matters before the ACCC quoting an example of the co-op, “acting in a way that sought to reduce competition for rail transport”.

He said he also believed in sunset clauses for regulatory arrangements and regular reviews.

“That (review) might allow you to say that there are enough extra ports being built to provide the competition,” he said.

“In general terms, we support sunset clauses.

“But, for there to be a change in circumstances and to get rid of the code, you would need a lot to happen in the wheat market.”

Bunge Agribusiness Australia general manager Chris Aucote was steadfast in repeating his personal philosophy that, “less regulation is better in the long run”.

“I believe fundamentally that that is the way the industry should go,” he said.

“Certainly other companies will have different views on that but I strongly believe that the market will work it out.

“Competition will help solve some of these issues in the long run.”

Asked by Senator Leyonhjelm how he’d feel if the port access code applied at the Bunbury where Bunge has established its own export facility, and not to CBH, Mr Aucote said, “That is something we would have to work through”.

“We have had discussions with the ACCC around what the requirements are,” he said.

“Our port in Bunbury is a boutique operation to some degree.

“The intent of the regulations is to allow for innovation and competition in the market.

“I would hope that that is what the regulations would support.”

WAFarmers grains section president Kim Simpson told the Committee that the State regulations, which govern CBH’s operations – the Western Australian Bulk Handling Act – ensured competition in marketing grain.

He said CBH had a grain handling monopoly, “simply because we built them and they do the job so well that no-one else is likely to come in in any big way and make any money out of it, unless they cherry pick parts of it”.

“In marketing, that State legislation ensures that CBH sells anybody’s grain, and takes anybody’s grain as long as it is up to standard,” he said.

“Since deregulation slightly more than 50 per cent of the State grain crop which has been handled by CBH has belonged to other traders.

“There will always be a disaffected voice here and there but by and large my understanding is that those traders find the system works very well.”

Mr Simpson said he believed concerns about CBH’s market behaviour weren’t driven by port access agreements but by the “philosophical backgrounds” of growers and whether they believe in the difference between corporates and co-operatives.

“As I have said, they have wanted to corporatise CBH from day one, I think largely because they think they can make a dollar out of it,” he said of corporate leaning growers.

“Perhaps some of them do not have kids who are going farming so they figure they can make a dollar on their exit.”

But Mr Simpson said more than 90 per cent of growers supported the co-op structure.

“The surveys done not so long ago amongst the younger growers indicate that they, and all growers, are realising, as the gap opens up between the costs of our handling system and the costs of equivalent handling systems in the country, how valuable CBH is to them,” he said.

In his opening statement to the hearing, CBH CEO Dr Andy Crane urged the Committee to remain “really cognisant of just why the co-operative exemption was included in the first place”, when considering the disallowance motion.

Dr Crane said some of the reasoning “gets forgotten in the cut and thrust of some of these grain industry deliberations as various companies and agri-political groups push their particular objectives”.

He said the co-operative and mutual business model is “fundamentally different” to a corporate model.

“Unlike Australian publicly listed companies, those assorted foreign owned and controlled multinationals and even privately owned traders, CBH as a cooperative exists solely to create and return value to growers,” he said.

“We only have one beneficiary. We are not trying to make money out of one group to provide value to external shareholders.

“We do not exist to make that profit and return dividends to those faraway shareholders.”

Dr Crane said it was “enshrined” in the CBH constitution that the co-op exists to promote the development of the WA grain industry and its purpose is to create value and return it to the State’s 4200 grain growers.

He said removing the exemption would force extra costs on growers with about $1 million annually already being forced on CBH to comply with regulations.

“Removal of the exemption will leave unnecessary regulation in place in attempts to protect growers somehow from the actions of their own supply chain,” he said.

“Our growers demand full and open access to the network so they can sell the grain to as many marketers as possible.

“We have no incentive – the board gives us no incentive – to hinder access, so the removal of the exemption will create just another layer of regulatory burden.

“Retention of the exemption recognises the inherent difference of cooperatives and that a guarantee of access is already assured.

“The Western Australian Bulk Handling Act applies solely to CBH and requires the cooperative to receive and outturn all grain tendered to the system.

“The DNA of our cooperative demands this – as does competition law.”

This story Administrator ready to work first appeared on Nanjing Night Net.