Re: Review of the Competition and Consumer (Industry Code Port Terminal Access (Bulk Wheat)) Regulation 2014 I Issues Paper

Transcription

1 17 January 2018 Wheat Port Code Review Taskforce Department of Agriculture and Water Resources GPO Box 858 Canberra ACT 2601 To whom it may concern, Re: Review of the Competition and Consumer (Industry Code Port Terminal Access (Bulk Wheat)) Regulation 2014 I Issues Paper Port Terminal Access (Bulk Wheat) Code of Conduct (the Code) Grain Producers SA (GPSA) is the peak industry body for South Australian grain producers. It is unique in that it is a non-political body that represents all grain producers to government, the community and industry. It is funded via the SA Grain Industry Fund (Primary Industries Funding Scheme) which nearly all grain producers in this state contribute to. GPSA is a founding member of Primary Producers SA. The State s grain industries are large and diverse, making a significant contribution to the economy. Total grain production in South Australia (SA) from an estimated 3,000 grain producing businesses for the 2016/17 season of 11.1 million tonnes is a new record for SA. The grains industry is not only a major contributor to this state s economy it is also a significant export earner. As the peak body for grain producers in this State, GPSA would like to make a written submission on questions posed in the review of the Competition and Consumer (Industry Code Port Terminal Access (Bulk Wheat)) Regulation 2014 Issues Paper, September 2017, as follows: Q1: Should the Wheat Port Code be repealed and if so, when? No, the Code should not be repealed as a function remains for the Code. It is necessary for the Code to remain in place to achieve its original intent, which was and is to regulate the behaviour of bulk wheat port terminal service providers, with the aim of ensuring that exporters of bulk wheat have fair and transparent access to port terminal services (as set out in the Issues Paper issued by the Department of Agriculture and Water Resources in September 2017). There are three port terminal service providers for bulk wheat in the Port Adelaide zone and in regional South Australia all bulk wheat port terminal services are controlled by Viterra. The removal of regulation at this stage in the creation of a contestable market would deter the development of competitors in South Australia. 1

2 Q2: What are the benefits and costs of retaining the Wheat Port Code? Emerging South Australian port terminal service providers are faced by considerable cost pressures and are vulnerable to the influence of market power. Retaining regulation and encouraging competition can been seen as an improvement towards more efficient prices, costs and investments. Q3: Are there alternative options, including non-regulatory options, that could deliver the same (or better) outcomes as the Wheat Port Code, but at lower cost? An option to encourage new wheat buyers is to consider the limited publicly available stocks information for buying contestability to the benefit of grain growers. Using open, up to date stocks information to promote certainty and transparency should encourage wheat buyers to isolate and target export markets. Grain growers would also be able to determine a value in holding grain in upstream storage for later sale or selling immediately into downstream markets. Recent proposals by GrainCorp concerning stocks reporting models and CBH s tonnage received by class and port zone and aggregated quality information by grade and port zone are steps in that direction. Q4: Have there been changes to market conditions or business arrangements in the port terminal services sector in the past three years that obviate the need for the Wheat Port Code (in-full or inpart) or which strengthen the case for retaining it? Market conditions or business arrangements in the port terminal services sector in the past three years in South Australia have not materially changed and obviated the need for the Wheat Port Code. South Australian wheat prices lag interstate locations: Figure 1 Source: 2

3 Port Zone Wheat APW MG % Compared with Pt Adelaide Port Adelaide SA $243 Wallaroo SA $238-2% Pt Giles SA $243 0% Pt Lincoln SA $246 1% Thevenard SA $236-3% Portland VIC $257 6% Geelong VIC $262 8% Pt Kembla NSW $294 21% Newcastle NSW $299 23% Figure 2 Source: Stock Journal, Glencore Agriculture contract prices, November 7, 2017 Figure 3 Source: Q5: What justification is there to continue the operation of the Wheat Port Code over and above the protections provided under Part IIIA of the CCA? Review of the port terminal access (bulk wheat) code The Wheat Port Code provides a more comprehensive set of protections. 3

4 The Reference Prices referred to in Viterra s /18 Port Terminal Services Agreement for Standard Port Terminal Services (PTSA); the standard Long-Term Port Terminal Services Agreement (LTA); and the Port Loading Protocols provides the wheat industry in South Australia with an indication of the charges and fees associated with bulk wheat export services. Other exporters can negotiate non-standard agreements from commercial negotiations for port services. The owners and operators cost and profit relationship to the delivered price deduction for wheat export services to wheat growers is unknown. A justification to continue operation of the Code over and above the protections provided under Part IIIA is to assist with moderating any dominant behaviour in the supply chain because of the level of control the owner and operator of the main port terminal facilities has over the infrastructure in South Australia for exporting bulk wheat. Q6: What effect has the Wheat Port Code had on the promotion of competition in upstream and downstream markets? In the ACCC S Bulk wheat ports monitoring report it is stated: In the absence of sufficient competitive constraint, ensuring port terminal access for all exporters on a fair and transparent basis is critical, especially where there is limited competition in other parts of the supply chain. GPSA await the outcome of the Essential Services Commission of SA (ESCOSA) inquiry to determine the reasonableness of the costs underpinning the South Australian bulk grain supply chain, the final report on part 1 (and part 2 if needed) is due for submission no later than 30 March It would seem sensible to wait for ESCOSA to find areas where bulk grain supply chain costs are identified as inefficient, and what options should be provided for addressing those inefficiencies, before recommending, amending or repealing the Code. Q7: What effect has the Wheat Port Code had on the economically efficient operation of, use of and investment in port terminal facilities? The ACCC has granted exempt service provider status to Patrick at its Port Adelaide port terminal facility (Patrick ceased operating as the port terminal service provider at this port terminal facility); LINX Cargo Care Group at its Berth 29, Port Adelaide facility; and Semaphore Container Services Pty Ltd at its port terminal facility at Osborne Berth 1, Port Adelaide. To date investment development that can be viewed by the public appears to be temporary in nature and does not seem to be of a scale that is likely to offer efficient and effective provision of port terminal services. Q8: Has the Wheat Port Code led to any unintended, negative consequences? No comments to Q8 Q9: How do the costs associated with the operation of the Wheat Port Code compare with those under the former access test regime? No comments to Q

5 Q10: What amendments should be made to improve the operation of the Wheat Port Code? Any amendments to the Code should reduce barriers to entry for new entrants otherwise prospective wheat grain exporters may not be able to enter the market contest and simply be forced elsewhere or for smaller exporters into niche containerised export grain businesses. Q11: Should the power to exempt cooperatives under subclause 5(1) of the Wheat Port Code be retained? No comments to Q11 Q12: Should the additional regulatory requirements under Parts 3 to 6 of the Wheat Port Code be retained or amended? The Code does not under Part 3 to 6 influence the prices charged for port terminal services. Going beyond that, to what extent to amend the Code s access regime and address imbalances of bargaining power for participants must be the regulatory focus to support a lowest cost for export wheat grain growers. Clause 5(2) of the Code should be retained as it provides that ACCC may determine any port terminal service provider is an exempt service provider of port terminal services at a specified port terminal facility. The strength of the non-exempt port terminal operator s availability of quantity and quality superior infrastructure, financial, physical and human resources potentially diminish or eliminates the opportunities of its competitors. In its turn, amending or revoking the advantage an exempt entity has in avoiding regulatory burden and cost for maintaining full information disclosure requirements would remove a barrier crucial for potential new competitors. Q13: Should the requirement for all port service providers to make available a port loading statement each business day under clause 7 of the code be retained or amended? Yes, a port loading statement each business day under clause 7 of the code provides an insight into the current levels of competitiveness and should be retained. Monday 6 November 2017 Loading Statement published by Viterra Operations Pty Ltd, for example: Monday 6 November 2017 i Tonnes % of Wheat Total Glencore (Barley) Glencore (Wheat) % COFCO (Wheat) % Bunge (Wheat) % 1 Source: In the loading period published only three exporters are operating with the port terminal service provider (Viterra) being an associated entity of an exporter (Glencore) for 65% of wheat exported and noted on the loading statement. 5

6 GPSA seeks further discussion with Wheat Port Code Review Taskforce on the need to advance the competitiveness of South Australia s Grain Producers in export supply chains. There is commitment from GPSA to work cross industry and deliver productivity outcomes to agricultural industries and the South Australian economy and community. If you have any queries or need any further information, please don t hesitate to contact Mr Shane Gale, Policy Officer, GPSA on Yours sincerely Wade Dabinett Chairman Grain Producers SA Ltd 6