Wheat market to be deregulated further

The Productivity Commission has recommended further deregulation of Australia's wheat export market.

In a draft report released today, the commission said the transition from the single desk system to a competition-based model had progressed relatively smoothly.

But there was now scope to reduce regulation further, the commission said.

"The commission recognises that the transition period has been difficult for some growers, particularly smaller ones.

"However, the industry has proved adaptable and resilient in the past and the commission considers that both the interests of the industry and the wider community would be best served by continuing deregulation of the bulk wheat export market."

The single desk system was abolished in the wake of the AWB scandal, which involved the monopoly wheat exporter paying more than $290 million in kickbacks to the regime of former Iraqi president Saddam Hussein.

The payments were disguised as fees to Alia, a Jordanian company partly owned by the Iraqi Ministry of Transport, and were made in exchange for access to the country's lucrative wheat markets.

To date, 29 bulk wheat exporters have been accredited under the new system, which is administered by Wheat Exports Australia.

The commission said that looking forward, the benefits of accreditation will rapidly diminish in the post-transition phase, leaving only the costs.

"There is a strong case for ceasing accreditation requirements for all exporters (including operators of port terminals), winding up Wheat Exports Australia and abolishing the Wheat Export Charge - from 30 September 2011," the commission reported.

The report also showed there had been a rise in the number of countries taking Australian wheat exports from 17 in 2007-08 to 41 in 2008-09, the first year under the current arrangements.

More than 12 million tonnes of wheat was exported in 2008-09.

The commission is calling for submissions and will hold public hearings on the draft report in late April and May, with a final report to be presented to the federal government by July 1.

Key points of the report are below:

- The transition to competition in the exporting of bulk wheat has progressed remarkably smoothly, particularly given that deregulation coincided with a pronounced commodity price cycle and the global financial crisis.

- The regulatory arrangements for marketing bulk wheat exports have generated net benefits during the transition phase. They have:

- given growers confidence in adjusting to the deregulated marketing environment

- facilitated the rapid entry of 29 accredited traders to date, with 12 million tonnes exported to 41 countries in the first year after deregulation.

- However, some growers find the arrangements challenging, particularly those selling small amounts of wheat.

- Looking to the future, the benefits of accreditation will rapidly diminish in the post-transition phase, leaving only the costs. There is a strong case for ceasing accreditation requirements for all exporters (including operators of port terminals), winding up Wheat Exports Australia and abolishing the Wheat Export Charge -- from 30 September 2011.

- During the transition period, the access test has provided greater certainty and made access potentially easier, more timely and less expensive than it could have been by relying on Part IIIA of the Trade Practices Act. Looking forward, however, the benefits will diminish and the long-term costs of the access test could be considerable without the checks and balances of Part IIIA of the Trade Practices Act.

- To embed commercial and competitive behaviour between port terminal service providers and traders:

- the access test should remain in effect until 30 September 2014

- from 1 October 2014, regulated access should rely primarily on Part IIIA of the Trade Practices Act, with continuation of the mandatory publication of daily 'shipping stem' information and port access protocols, supplemented with a voluntary code of conduct by port terminal service operators.

- There is evidence that increasing on-farm storage, and competition between road and rail in the transport, storage and handling sector, are leading to improvements in supply chain efficiency.

- The level and allocation of investment in road and rail infrastructure by governments should be based on rigorous cost-benefit analysis, with a focus on developing economically efficient logistics chains.

- Monthly information by state on wheat stocks, exports and domestic uses is facilitating the efficient operation of the wheat market, and should continue if the industry is prepared to pay for the information.

- The provision of most 'industry good' functions is best left to the industry.

- Exceptions are trade advocacy and some market information.

- Research and development is the subject of a separate Commission inquiry.