RESTRICTED
WORLD TRADE G/STR/Q1/AUS/4
13May 1997
ORGANIZATION(97-2004)
Original: English Working Party onState Trading Enterprises
Replies toQuestions posed bytheUNITED STATES1
concerning theArticle XVII notification of
AUSTRALIA2
Thefollowingcommunication,dated5April1997,hasbeenreceivedfromthePermanentMission
ofAustralia.
_______________
Q1. Why aretheAustralian wheat marketing arrangements themost appropriate forindustry?
A.1. Theexport marketing ofAustralian wheat through asingle desk selling system facilitates a
differentiated marketing strategy, based onsuperior quality andservice, anddelivers price premiums
andcustomer loyalty. The arrangements have also enabled long-term relationship building with
international customers andthedevelopment ofnew andsustainable market opportunities.
CoordinatedmarketingthroughtheAustralianWheatBoardhasminimizedAustralia'smarketing
coststructure byutilizing economies ofscale andhasavoided thelossofcompetitive margins, such
asfreight rateadvantages, which would happen ifmultiple Australian sellers competed against each
other. Thenon-profit nature oftheAustralian Wheat Board means thatanyeconomic rents arereturned
togrowers.
Australia 'swheat marketing arrangements, including theexport monopoly, have been reviewed
every fiveyears from 1948 to1989 bysuccessive governments and, since 1989, bygrowers, within
theframework anddirection ofAustralian Government policy.
Q.2. Review ofwheat marketing legislation in1999-2000
A.2 UnderNationalCompetitionPolicy(NCP)areviewoftheWheatMarketingAct1989isscheduled
for1999-2000.
Theguiding principle oftheNCP isthatlegislation should notrestrict competition unless it
canbedemonstrated that:
- thebenefits oftherestriction tothecommunity asawhole outweigh thecosts; and
1G/STR/Q1/AUS/3+Corr.1.
2G/STR/N/2/AUS.G/STR/Q1/AUS/4
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- theobjectives ofthelegislation (theWheat Marketing Act) canonly beachieved by
restricting competition.
Thereview willfollow certain guidelines. Atminimum, areview should:
- clarify theobjectives ofthelegislation;
- identify thenature oftherestriction oncompetition;
- analyse thelikely effect oftherestriction oncompetition andtheeconomy generally;
- assess andbalance thecosts andbenefits oftherestriction; and
- consider alternative means forachieving thesame result including non-legislative
approaches.
NCP principles specify thatthefollowing matters, where relevant, shall betaken intoaccount:
- government legislation andpolicies relating toecologically sustainable development;
- social welfare andequity considerations, including community service obligations;
- government legislation andpolicies relating tomatters such asoccupational health and
safety, industrial relations andaccess andequity;
- economic andregional development, including employment andinvestment growth;
- theinterests ofconsumers generally oraclass ofconsumers;
- thecompetitiveness ofAustralian businesses; and
- efficient allocation ofresources.
Particular tothewheat industry, thefollowing factors willalsobeconsidered:
- thenetbenefit toAustralian wheat growers andtheAustralian community asaresult
oftheoperation ofthesingle export desk; and
- anynegative impact onthedomestic wheat market orgrain prices asaresult ofthe
single desk, which adversely affect Australian consumers.
Precise details ofthereview willbedetermined closer to1999.
Q.3. When theGovernment ofAustralia 'sguarantee onAWB borrowings expires in1999, willthere
beanyremaining tiesbetween theAWB andtheGovernment?
A.3. TheAWB 'sactivities willbecarried outbyagrower owned andcontrolled company. This
company willbeaccountable toitsowners.
TheGovernment willberesponsible forproviding monopoly export powers forwheat marketing
through legislation. This power willcontinue tobeprovided subject totheoutcome oftheNational
Competition Policy Review ofwheat legislation which willtake place in1999/2000.G/STR/Q1/AUS/4
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Q.4. WilltheAWB continue tobeaccountable totheMinister forPrimary Industries andEnergy?
A.4. TheAWBwillbeaccountabletotheMinisterforuseoftheexportmonopolyforwheatmarketing.
Q.5. Will theMinister ofPrimary Industries andEnergy continue toappoint theChairman ofthe
AWB Board ofDirectors.
A.5. Members oftheBoard, including thechair, ofagrower owned body willbeappointed solely
bytheshareholders, according tothebody 'scharter.
Q.6 What measures arebeing considered toimprove thecommercialization oftheAWB?
A.6. Asatransitional steptothepost1999 structure, theAWB willestablish awholly owned holding
company in1997. Theholding company willcarry outAWB 'scommercial activities such asgrain
trading, value adding andfinancing. Itisenvisaged theholding company would then convert intoa
grower owned company in1999.
Grower contributions totheWheat Industry Fund willbeconverted togrower equity inthe
newgrower owned company in1999 when theGovernment guarantee onborrowings willcease. This
equity willprovide themechanism fortheAWB toborrow funds inorder tocontinue topaygrowers
atharvest.
Q.7andQ.8
What exactly ismeant by"commercialization"? Why areimprovements incommercialization
necessary?
A.7. andA.8.
Inthecontext oftheAWB restructure "commercialization" refers tomaking thebody responsible
foritsown activities including financing, without involvement oftheGovernment. Improved
"commercialization" isnecessary asatransition towards thepost 1999 structure.
Q.9. Willanyofthemeasures being considered improve price transparency orotherwise affect export
operations?
A.9. TheAWB isnolessandwillbenolesstransparent than UScommercial operators regarding
thepublic disclosure ofprices.
Q.10. Willprivate trading companies begiven opportunities toinvest andparticipate intheAustralian
grain export market?
A.10. Single desk seller arrangements willcontinue until theGovernment implements adecision after
theoutcome oftheNCP review.
However, private trading companies already invest intheAustralian grain export market and
these opportunities willcontinue. Private trading companies already participate intheAustralian grain
market, accounting fortheexecution ofsome 30% ofexport transactions onaverage each year. This
willcontinue andcould increase under theproposed measures.G/STR/Q1/AUS/4
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Q.11. Will price pooling activities cease in1999?
A.11. After 1999, decisions onthecontinuation ofpooling willbeamatter forthegrower owned
company. However, itishighly likely thatgrowers willwant pooling tobecontinued.
Q.12. Please explain how NCP review willaffect theAWB 'sexport sales operations.
A.12. Theeffect ofthereview cannot bedetermined until itsoutcome isknown.
Q.13. Does theNew South Wales Rice Marketing Board make advance payment togrowers upon
delivery?
A.13. TheNSW Rice Marketing Board does notmake advanced payments togrowers upon delivery.
Growers arepaiddirectly byRicegrowers 'Cooperative Limited, which purchases thecropdirectly from
itsshareholders, andisauthorized todosobytheRice Marketing Board. Currently, allofNSW rice
growers aremembers oftheCooperative, although membership isvoluntary.
Q.14. Does theRice Marketing Board practice price pooling?
A.14. TheRice Marketing Board does notpractice pooling, since itdoes notpaygrowers. Itsonly
financial transaction with thegrowers istheannual deduction ofacompulsory capital levy(returnable)
tofund erection ofspecialized paddy storage sheds. TheCooperative pays itsshareholders directly,
inmuch thesame way thatCalifornian ricecooperatives paytheir shareholders. Foreach particular
variety andgrade ofpaddy, asingle price ispaidrepresenting theaverage market value itobtains during
theyear.
Q.15. Does theMarketing Board useatendering procedure todetermine riceprices?
A.15. TheRice Marketing Board does notuseaformal tendering procedure because itdoes notsell
either milled orpaddy rice. Itconsiders individually anyapproach from potential processors ofthe
crop.
Q.16. How much onaverage does theMarketing Board pre-sell ofitsricecrops?
A.16. Since theRice Marketing Board does notsellanymilled riceorpaddy, itdoes notpre-sell either.
Asmiller andmarketer (presently) ofalltheNSW crop, theCooperative exports approximately 85%
ofitsoutput. Both indomestic andexport markets, ithasdeveloped asubstantial proportion ofits
sales inthesupermarket shelf packaged branded ricecategory. Itistherefore notatraditional commodity
trader, andtherefore rarely formally would forward sellanyofitsproduce. Rather, itdeals with
traditional anddeveloping markets onashipment byshipment basis, onthephilosophy offilling and
meeting supermarket shelf demand onaregular andreliable basis.
Q.17. Does theAustralian Barley Board (ABB) useatendering procedure todetermine grain prices?
A.17. TheABB employs tendering systems inyears where there isuncertainty about theappropriate
level atwhich toprice feed barley. TheABB uses atender ofapproximately 70,000 tonnes togain
anindication ofmarket demand.G/STR/Q1/AUS/4
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Q.18. How much onaverage does theABB pre-sell ofitsbarley crops?
A.18. Theamount ofanticipated crop tobesoldbefore harvest varies from year toyear, depending
onmarket circumstances andtheanticipated crop size. Information onexact quantities iscommercial
inconfidence.