Mandatory Port Access Code of Conduct for Grain Export Terminals
The Department of Agriculture and Food, Western Australia (DAFWA) is committed
to supporting the success of agriculture and food sector to benefit Western Australia.
With this in mind, DAFWA makes the following brief submission to the Port Access
Code of Conduct exposure draft and Regulation Impact Statement relating to the
Mandatory Port Access Code of Conduct for Grain Export Terminals. Comments in
this submission are limited to Western Australia, as we have no experience or
detailed knowledge of operations in other States.
Western Australia is a major wheat production state and the major wheat exporter
from Australia. The small domestic market means that in most years over 95% of
production is exported from WA, mainly to Asia and the Middle East. This reliance
on export markets means that the long-term viability of the industry is dependent on
the industry being internationally competitive on world wheat markets. As Western
Australia is a price taker on world markets, it is imperative that supply chain costs
are constrained.
A recent study the Australian Export Grains Innovation Centre (AEGIC 2014)
concluded that:
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Supply chain costs in Australia for wheat, travelling 200 km from farm to port,
start at A$60–75/t. As such, supply chain costs are generally the single
largest cost item for a grain producer in a typical year.
There are differences in supply chain costs between regions. In a uniform
case study comparison for 2013–14, WA had the lowest cost supply chain
and Qld the highest. There are some sound and legitimate reasons for these
cost differences as the cost structure in each jurisdiction is influenced by
many factors, some unique to that region.
There is about 55 million tonnes of bulk grain storage capacity at 623 sites
across Australia — enough to store one and a half years’ average national
grain production. Handling efficiencies between these receival and storage
sites vary significantly.
Within grain supply chains there is only a limited disclosure of costs and profit
margins, although indications are that profit margins differ along the supply
chain and are highest at port.
Most bulk handlers now consolidate storage, freight and ports into one
business segment for reporting purposes.
Port fees are not explicitly disclosed to producers as prices are generally
quoted as free-in-store (FIS) or track at port with port fees already deducted.
Due to regional concentration of port ownership by grain handlers, most grain
ports are subject to access agreements, as required by the Australian
Competition and Consumer Commission (ACCC). There are however, new
investors in port facilities — Newcastle Agri-Terminal (NSW), Bunge in
Bunbury (WA) and Heilongjiang Feng Agricultural (VicStock) in Albany (WA).
The magnitude of supply chain costs is influenced by Australia’s volatile grain
production. This leads to building excess capacity within the chain to handle
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the large harvests. Logistics also are made more expensive, mostly due to
production volatility and uncertainties.
Australia has four main bulk handlers and more than 20 export grain
marketers. Major bulk handlers manage 70–90% of the grain in their region
but 50–70% of the grain is exported by other grain marketers. This reflects the
intense competition in international markets.
DAFWA is of the view that it is preferable for CBH to respond positively to the
potential competition by improving services to customers. WA growers have already
paid for the infrastructure built by CBH to handle the WA crop. Duplication by
competitors may result in a short term gain but raises the prospect of higher charges
in the longer term as new operators ‘cherry pick’ profitable parts of the storage and
handling system. This could result in CBH being left with the high cost areas of the
business and a lower throughput and lead to a devaluation of the asset base of CBH
that has been built up by growers over a long period of time. As such it is an
important balancing act by government to determine the level of regulation to allow
all users to utilise facilities without leading to investment in excess shipping capacity,
putting grower’s investment in CBH at risk.
Part of constraining costs in the supply chain is reducing the amount of unnecessary
and costly government ‘red-tape’ regulatory burdens imposed by government.
Indeed the Federal Minister for Agriculture, Barnaby Joyce, put out a press release
on 6 May 2014 headed “Looking for more ways to cut red tape” stating that the
‘Australian Government has an ambitious deregulation agenda, focussed on cutting
unnecessary red tape and regulatory burdens on industry and the community’.
DAFWA is of the view that a mandatory code does represent an unnecessary
regulatory burden on industry and that part IIIA of the Competition and Consumers
Act 2010 provides sufficient legislative protection for grain exporters against
exploitation by monopoly owners of port grain loading facilities. As has been
witnessed over the last two years, the issue of monopoly ownership is likely to
diminish over time as alternative service providers (or indeed a real threat of
alternative service providers) will result in existing providers being very keen to keep
as much grain as possible going through their facilities.
It should also be noted that in Western Australia the major bulk handler, Cooperative
Bulk Handling Ltd, (CBH Group) operates under the Bulk Handing Act 1967. Section
19 of this Act states ‘Subject to this Act and the regulations, the Company shall allow a
person, on payment of the prescribed charges, the use of any bulk handling facilities and
equipment controlled by it at ports in the State’.
The ACCC regulates four mandatory industry codes that are prescribed under the
Competition and Consumer Act 2010: the Franchising Code, Horticulture Code,
Oilcode and Unit Pricing Code. It is difficult to see why wheat exports, now that they
have had over 6 years to adjust since deregulation, also requires special treatment
through a mandatory code for Grain Export Terminals.
Responses to the questions posed in the Regulation Impact Statement – Early
assessment document.
In relation to the questions raised, DAFWA offers the following brief responses to
some of the questions:
2. Given the level of new investment in port terminal export facilities, is there a net benefit to retaining the
current access arrangements, which were developed to address concerns about monopolistic behaviours?
DAFWA would be pleased to see a study conducted to look at whether there is a net
benefit to the current access arrangements over and above that which would be
provided by Part III of the Competition and Consumer Act 2010. This is the defining
issue around this matter and such a study should be part of the consideration of the
Code and the necessity or otherwise of it.
5. Do you believe the principles developed by CDAC under Option 2 should be applied to all port
terminal operators, regardless of the level of competition and/or vertical integration at the port?
Why / why not?
If there is a mandatory Code enacted, it would appear that to be equitable, it needs
to apply to all port terminal operators. Otherwise, there will be endless arguments,
legal challenges and energy expended on trying to get out of having the code
applied by various operators, which could indeed result in producing a less even
playing field by unduly constraining the operations of some operators compared to
their competitors.
9. Do you believe the compliance provisions for Tier 1 port terminal operators are appropriate? Why /
why not?
There seems to be a wide gulf between the obligations of Tier 1 port terminal
operators and those that are exempt. This could have the unintended consequence
of encouraging construction of new port loading facilities if the cost of the compliance
provisions impacts significantly on the cost the Tier 1 operator will have to charge to
comply with these compliance provisions.
10. Do you think the ACCC need to approve capacity allocation systems of Tier 1 ports? Why / why
not?
DAFWA does see a need to ACCC to approve capacity allocation systems for Tier 1
ports under this option, however there is a need to allow more flexibility in the
allocation systems over time, as we are currently seeing with the push towards
longer term ‘base load’ allocations for established users.
11. Do you believe the compliance provisions for Tier 2 port terminal operators are appropriate? Why
/ why not?
DAFWA is concerned that the gulf between the requirements for Tier 1 and Tier 2
port terminal operators could be excessive and result in unintended consequences
due to the likely large difference in compliance costs. New entrants will endeavour
to ensure they are classed as a Tier 2 port terminal to avoid these compliance costs.
12. Do you think undertaking a review of the code within 2 years of its commencement is
appropriate? Why / why not?
Should a mandatory Code be implemented by Government, DAFWA would strongly
encourage a review of its operation within 2 years of its commencement. Wheat
export arrangements are in a dynamic phase following a period of inertia and ‘testing
the water’ following deregulation of wheat marketing in 2008. We are currently
witnessing a period of investigation and investment, and there is every reason to
believe that in two years’ time the landscape will have changed significantly.
This review should include a detailed independent review of the costs and benefits
that have accrued from the Code that was introduced, as any system that is not
shown to be providing a net benefit needs to be modified or removed for the sake of
our export competitiveness.