Thursday, 16 August 2012
Australia's Food Processing Sector Committee; Report
I present the report of the Senate Select Committee on Australia's Food Processing Sector, together with the Hansard record of proceedings and documents presented to the committee.
Ordered that the report be printed.
That the Senate take note of the report.
Often these report presentations end with thanks but I think it is appropriate today that I commence my comments with thanks, because this has been quite a project over time, and the gestation of the report, and even the terms of reference, took some time. I start by thanking the secretariat; it is appropriate that there are some members of the secretariat in the advisors box this morning, because they have done a fantastic job on this inquiry for us. I specifically say thank you to all of the members of the secretariat. We have had a bit of a changeable time. We have had, I think, three secretaries over the time of the inquiry, but to pull together a substantial report like this one has taken a fair bit of work and I certainly appreciate the work that the secretariat has done in assisting the committee with this inquiry. I also thank the submitters and the witnesses who appeared before the inquiry over the last 12 months.
I have seen this as an important piece of work for some time, as I know other members of the committee have, and I hope that the work we have put out through the report bears justice to the industry—an industry that is very important to Australia.
I also thank my colleagues on the committee. Coalition members, crossbench members—Senator Xenophon, Senator Madigan and also members of the Labor Party who participated in the inquiry. Obviously there were a number of perspectives represented around the committee and that is manifested in a minority report from the opposition and a minority report from Senator Xenophon. I thank them for their input. This is an important issue. I particularly thank Senator Xenophon and former Senator Fielding for supporting the motion that put this inquiry into train. The government did not support this inquiry going ahead; nor did the Greens. but I appreciate the fact that Senator Xenophon and former Senator Fielding saw that this was an important issue for the Senate and I thank them for that. As I said, I note that the government did not want this inquiry to go ahead and voted against it, as did the Greens, who played absolutely no part in the entire inquiry, unfortunately, despite their discussions around this particular matter. As I said, a number of senators have been concerned about this for a considerable period.
The terms of reference took a bit of time to put together and they were deliberately broad. This report provided us with the opportunity to have a good look at the industry across a number of elements to consider where we might take it. There are 35 recommendations and they cover a fairly wide range of issues, but I hope that there is something in the recommendations for everyone, and I certainly hope that the report provides the opportunity to dispel a few urban myths that were presented to us as part of the overall inquiry process.
I am not going to be able to deal with all the recommendations in the 10 minutes I have, but I will deal with some of the key issues that were raised through the inquiry. The taxation regulatory environment was certainly an important part of the process that we discussed and the issue of carbon tax inevitably came into that discussion. Our recommendation is not so much critical of the carbon tax, although there was plenty of evidence to demonstrate the impacts of the carbon tax through the food processing supply chain. I know one company is spending $17 million to mitigate the impact of the carbon tax and, after they have done that, they will still have a $7 million a year bill. The impact that that will have down the supply chain is concerning to me. We have asked the government to look at how the big emitters pass the cost down the food supply chain, how the profitability of small businesses is impacted and how those businesses can work that through to recoup some of those costs that the government is imposing on them through the carbon tax.
Importantly, from my home state of Tasmania, which is significantly impacted by transport, we heard from a number of places about transport costs. I urge the government to continue to move quickly on the Deegan report, which talks about the fundamental efficiency and the cost-effectiveness of transport across Bass Strait. It is a significant factor for my home state of Tasmania and we urge the government to move on with that.
The issues of supermarkets, creeping acquisitions and the operation of the Competition and Consumer Act was inevitably an important part of the report and there were a number of opinions around the table. The significant recommendation arising, from an opposition perspective, was that there needs to be a comprehensive review—a root and branch review, if you like—of the Competition and Consumer Act. It has been a long time since there was one; the market continues to evolve and it is appropriate that we go through that process again. There were a number of issues that were continually raised with us about misuse of market power, creeping acquisitions, predatory pricing and unconscionable conduct. I know the ACCC is looking at these matters now and I look forward to its report when it comes out later in the year and the contribution that it makes to the overall debate.
The supermarkets send us glossy brochures referring to their performance and the way they look after their customers, which is vitally important as part of this overall discussion, but one thing they do not measure, and which I have not seen any measurement of, is their suppliers' satisfaction. They have asked me how they deal with that—we have had conversations about that in the past—and the perception that they are not looking after their suppliers. We are recommending that they establish, as part of their benchmarking and as part of their corporate reporting, a mechanism through their independent reporting process, which is already in place, to measure, benchmark and report on supplier satisfaction. It will help them deal with some of the perceptions that are out there in the market and, as well, will give the broader market a better idea of what is going on.
The cost of government to industry was a significant concern right through the inquiry. It did not matter whether it was export fees and charges, the carbon tax or regulation. I know the government has processes in place to deal with, say, transport across the country and providing national systems to reduce costs, but we need to continue to do as much as we possibly can to reduce the input cost of government to business. That has to be a fundamental role that government plays as part of the way it operates. So there are a number of recommendations that deal with that and which also to try to take some of the red tape and duplication of costs out of the supply chain. We recommend that the government get involved, and industry also, in the global food safety initiative so that some of the multiples of certification that are required for businesses can be condensed to remove the number of times that businesses are imposed upon for audits and things like that, and also to try to take some of the cost of doing business out of the system.
In respect of education, we are really concerned at the engagement of the agricultural and food processing sectors with the education system and Australians' more broad understanding of the food system. Where their food comes from and how it is generated is lacking. We recommend that the government work with industry—we know there is some work already occurring there—to try to draw those understandings together and to make sure it is properly funded—because it is funded in a very piecemeal way at the moment, causing divisions within the sector—to give Australians a better understanding of where all these things lie.
Inevitably, workplace relations comes as part of this. I know the government is not going to support our recommendations on that but it is a significant issue for industry and was expressed to us a number of times. One of the other things we hear a lot from government is that Australia will be the food bowl for Asia. I can tell you that at the moment there are some real inhibitors to being part of that market. The government has a significant role to play in making that easier. Our recommendation, that we embark on a 'brand Australia' type program to start promoting us into the Asian region, is a very, very positive one.
I rise to speak on the report of the Senate Select Committee on Australia's Food Processing Sector and I begin by also recognising the work of the secretariat—Richard, Ruth, Erin, Robert, John, Sandra and Tim. Thank you, and to others who assisted the committee members. I also recognise the work of Matt from my office and Frances from Senator Stephens' office: thank you both. I recognise the work of the Chair, a fellow senator for Tasmania, Richard Colbeck, for proposing the committee and the broad terms of reference.
However, I have to express government senators' disappointment that all of the terms of reference are not covered as comprehensively as they should have been. It is no secret to this place that my background is the food processing industry, both working in and later representing workers in the industry. For the opposition senators to place such importance on stripping away the wages and conditions of Australians working in the food processing industry flies in the face of the purpose of Senate select committees, which, to my knowledge, are meant to leave politics at the door and investigate issues. The sections of the report on wages and conditions show the true colours of those opposite. They are not interested in working Australians. It is clear from Senator Colbeck's, Senator Edwards's and former Senator Fisher's efforts that, as much as the Leader of the Opposition tries to pretend, if the opposition is elected Work Choices is definitely not dead, buried or cremated. Those opposite think that the only way to increase productivity in business is to drive down wages and conditions of working Australians. To that I say: think harder and think smarter.
The committee report references the comments of McCain Foods. They said:
The current penalty rates regime in Australian award structures do not encourage continuous 24 hour 7 day processing. Overtime and shift penalties are much higher in Australia than in New Zealand, which again contributes to lower productivity and lack of competitiveness in Australian made products
By including this quote, coalition senators are supporting a notion that people who work shift work should receive no extra support, no extra assistance to cope with the irregular sleeping patterns and no extra assistance to cope with not being able to access services during normal hours—just get the worker in and flog them until they drop.
The government senators' dissenting report catches out the coalition senators on their selective quotes in relation to workplace relations. Three instances are provided where a coalition senator asked a business representative about the impact of the Fair Work Act and modern awards on the business, and on each of these occasions the business representative did not express the kind of approach outlined by McCain. When questioned by former Senator Fisher on whether the Fair Work Act had hindered business, Mr Vincent Pinneri of SPC Ardmona, a major food processor, said:
No, it has been irrelevant.
Further, at the same hearing that McCain appeared at, Mr Mark Kable of the Tasmanian Agricultural Productivity Group said:
Everything seems to be more efficient over there—
in New Zealand—
than what it is here in Australia. The whole costing structure of production, packing, road transport, sea transport—every sector is cheaper than what it is here in Australia when you break every component down.
It is not just about wages and conditions, is it? It is definitely not. Further evidence of that came from the Sydney hearing of the committee, where not one question was directed by coalition senators to the AMWU about wages, conditions or flexibility—not one question to the union representing workers in the food processing sector about wages, conditions or flexibility let alone the impact of the Fair Work Act and modern awards on their members and their members' workplaces. It is as though opposition senators had already made up their minds.
As the senators are aware, the government have recently released a comprehensive independent review of the Fair Work Act. The review found that the legislation provides a number of avenues for flexibility. Under the Fair Work Act, an employer and employees can negotiate an enterprise agreement on any matters that pertain to their relationship. There are no unnecessary restrictions on what can be included in an agreement. The Fair Work Act requires that such an agreement leave employees better off overall compared with the applicable modern award. This provides flexibility to change award conditions, so long as employees are better off overall.
The independent review found that labour costs have not increased, with overall wage growth since 2009 around its decade-long average. It rejected claims that flexibility is created by cutting wages and conditions. It did not recommend the reintroduction of AWAs, or any form of individual contract that coalition senators in their recommendation No. 26 are so desperately asking for. In fact, the review identified that AWAs were bad for many employees, especially for low-skilled and vulnerable workers. The review found many of these workers have suffered the unilateral removal of conditions, a reduction in their take-home pay and were worse off overall compared with the relevant award. AWAs undermined the safety net, often for those who needed protection most. The review had no appetite to reintroduce this arrangement. Further, the review found no convincing evidence that the act impedes productivity growth. In fact, it cautiously noted some recent figures indicating improvements in productivity.
The review found that, since the act came into force, important outcomes like wages growth, industrial disputes, the responsiveness of wages to supply and demand, the rate of employment growth and the flexibility of work patterns have been favourable to Australia's continuing prosperity. Government senators noted in our report that Fair Work Australia is currently undertaking a review of modern awards, including in relation to penalty rates and flexibility. I once again express my disappointment that so much emphasis in the committee report reflects highly selective evidence on industrial relations matters.
I now turn to the other highly politicised section of the committee report: energy costs. Government senators fundamentally disagree with much of the evidence presented to the committee on the carbon pricing policy. There are many examples in the food processing sector that highlight the potential for innovation and opportunities being harnessed through the clean energy technology package. Government senators note that a significant portion of the revenue from carbon pricing is spent on industry assistance. Of particular relevance to the food processing sector is the Clean Technology Investment Program for manufacturing businesses, which provides government co-investment into new capital which lowers energy costs and improves competitiveness.
In evidence to the committee, Mrs Mac's, a large-scale bakehouse, expressed appreciation for the range of government grants to assist businesses. Mr Beros said that through investing with government Mrs Mac's had a 28 per cent decrease in water heating costs, a 25 per cent increase in one of their line speeds using the same level of energy input and a 30 per cent efficiency gain in some of their condensers. I also refer to Crafty Chef from Emu Plains in New South Wales who had received nearly $500,000 from carbon pricing revenue to install a new commercial blast freezer. This will reduce the carbon intensity of its operations by 54.1 per cent, reduce energy intensity by over 56 per cent and boost turnover by 150 per cent to $50 million.
In our dissenting report, government senators refuted claims made by Campbell Arnott's using modelling from the Australian Food and Grocery Council that pricing carbon will have about a 4.5 per cent impact on industry operating profits. This modelling did not include the assistance measures to industry and is an overestimate of the actual impacts on the sector. We also highlighted that, although Lion Pty Ltd is blaming the carbon price for increased admin costs as it is not a directly liable business, there should be not be any additional administrative burdens.
The evidence throughout the report on carbon pricing indicated the extent of community misunderstanding about the actual impacts on Australian businesses. Treasury modelling of the food manufacturing industry forecasts growth of 108 per cent by 2050 and also forecasts that carbon pricing will result in food processing outputs two per cent higher in 2050 than without it. Treasury's broad conclusion is that carbon pricing will drive a shift of economic activity towards low emission intensive sectors of manufacturing like food processing. The government senators consider that the food processing sector needs further assistance to understand the real implications of the carbon price on the food supply chain and the mechanism for determining those costs and how to pass them on to consumers.
The report highlights some areas of reform that will be critical for the food processing sector. We were provided with inspiring examples of new and emerging products that are capable of transforming parts of the sector. We need to remember, however, that the industry is best served by an innovative and adaptive business culture and a trained and supported workforce.
I rise also to speak on the inquiry report tabled by the Select Committee on Australia's Food Processing Sector. This nearly year-long inquiry took us the length and breadth of this country, where we spoke with myriad businesses, industry organisations, grower groups, academics and government agencies. We visited a diverse number of businesses across Australia, including vegetable growers in Tasmania, chocolatiers in Adelaide and the seafood industry in Western Australia.
The food industry is currently in a 'perfect storm', confronted by a high Australian dollar, making exports harder and increasing competition from cheap imported products; increasing input costs, including labour, energy and ingredients; complex regulation and taxation; high market concentration; and growing private label market share. Prospects for future growth are good, based on Australia's clean, green, safe reputation for food, a burgeoning Asian middle class and a growing global population. The industry employs around 194,300 people across 10,000 businesses. There is much work to be done if the industry is to realise its full potential and harness this prosperity. This report begins that process, but there is much more that can and should be done.
This report is nine chapters long, with 34 recommendations, and is a comprehensive investigation of the industry. I congratulate our chair, Senator Richard Colbeck, and the secretariat for preparing such a massive report that is sound and perceptive. The recommendations reflect what I believe the industry and Australia needs going forward in the food processing sector.
I first turn my attention to the skills development and labour market issues chapter. What industry told us is that there is a large shortage of suitably qualified labour. For example, there is a large shortfall between the 4,000 to 5,000 job vacancies for agricultural and food science positions and the 700 to 800 science graduates each year, so we have some work to do in this area. One reason for this shortfall, we believe, is a lack of promotion in primary and secondary schools of the careers available in the food industry. Yes, that is right—it goes right back to primary schools. Some kids think that milk is grown in a packet, that chops come from a place where they also produce polystyrene trays. Poor advice from careers advisers is also to blame for the shortfall, as is the perceived 'unsexiness' of the industry with these people which is leading them away from career choices. This is profound. This is why I am currently working with the University of Adelaide and the food industry in my home state to build stronger links between tertiary institutions and industry, assist in delivering graduates who are more job ready and foster more research with practical industry outcomes.
We have just heard a dissertation from Labor Senator Anne Urquhart about the Fair Work Act and what it is doing to protect this industry. We also heard from her about energy costs and how they are not really to blame. These people have been marginalised by retail market consolidation and lack of export ability because of the high dollar that is favouring imports into this country. I am not sure what parallel universe Senator Urquhart was in during the hearings because she was sitting there on the committee with me. Further, we have been chastised about the fact that we interrogated witnesses based on their experiences with the Fair Work Act. Well, the evidence flowed and flowed, and it kept coming the length and breadth of this country. However, there were Labor senators involved in this inquiry and they failed to interrogate those witnesses. I am not sure they thought they were going to get any other evidence. We have been chastised here in this chamber about a biased level of questioning but we were on equal time during the inquiry. They had the perfect opportunity to interrogate those witnesses themselves and they failed to do so. I am not sure that they thought they would find out anything different. So I will not accept that criticism at all.
The inflexibility of the Fair Work Act impacts on the food industry disproportionately due to the nature of the industry. Harvest time, production shift work and the seasonal nature of the industry mean that flexibility is needed to ramp production up and down quickly. For example, penalty rates are having a disproportionate impact on the wine industry. I can bear witness to that experience myself, when we shut a winery because rates have become too expensive to keep it open over the Easter period and long weekends. What happens to the fruit out there that is ripe? It just has to wait. That is evidenced in the length and breadth of the wine industry, let alone in the broccoli industry and the carrot industry through Tasmania. Broccoli does not wait, but it has to wait until you can afford to pick it. Coles and Woolworths do not pay you more because you picked it on a Sunday. You cannot recoup those costs. This is a serious problem.
One of the other experiences was backpackers being employed and superannuation being taken from their pay and producers writing cheques—in one case in Shepparton—for $30,000 for the harvest season for superannuation to people who have no hope of ever collecting that money. Where are they going to find them—somewhere in Central Europe? That was an impost on business—excessive red tape. Further reforms are required. A renewed commitment to the national, seamless economy through COAG and the simplification of taxes will help improve the competitiveness of this industry. The government's carbon tax is another impost on business, which is why we have recommended that its impact be closely monitored. And of course, this tax is something which the coalition is committed to repealing, easing some of the burden which is quite obvious out there in the evidence we took on this industry sector.
The Competition and Consumer Act 2010 is designed to address anticompetitive conduct but has largely failed to serve everyone in the food processing sector. Through this inquiry we have heard how the act has seemingly failed with regard to unconscionable conduct, predatory pricing, the use of trading terms in contract negotiations and creeping acquisitions. There is a climate of fear within the industry preventing it from bringing breaches forward, and the Australian Competition and Consumer Commission have thus far failed to address industry's concerns and provide adequate anonymity and protection for people to come forward. I must say that there has been some progress and there is some level of optimism out there in industry, with the new chairman seemingly taking a new approach to this issue. The industry strongly advocated for a supermarket fair trading ombudsman similar to that operating in the United Kingdom. The report's recommendations did not go this far, instead recommending a review of the Produce and Grocery Industry Ombudsman as to its effectiveness or lack thereof.
I and a number of the other committee members considered more interventionist regulatory changes including: structural separation of supermarkets' private-label businesses, mandatory divestiture—highly controversial—of the supply chain assets and businesses, preventing retailers achieving a market share greater than 40 per cent, and other things including price monitoring, prohibiting the sale of food below cost, and trading terms all came into the conversation. These options were strongly supported by some sectors of business and peak industry bodies but were not supported by the majority of the committee.
Food labelling in this country is confusing and misleading for consumers and prevents some businesses from gaining the benefits of being wholly Australian. The Blewett report and its findings several years ago again reinforced that the momentum must be maintained. The cost pressures put on industry have meant that the investment in research and development has been dramatically cut particularly by small to medium enterprises. R&D is critical for the future innovation, productivity and competitiveness of the industry. I seek leave to continue my remarks.
It was a real pleasure to serve on this committee and I am grateful to Senator Richard Colbeck as chair who proposed this inquiry, which has been a very important and valuable inquiry. I also thank Richard Grant and the team of the secretariat—they have done a terrific job in supporting us in relation to the work of this inquiry. I have provided a minority report—it is not so much a dissenting report—to add a number of recommendations, and I will run through those very quickly in the limited time available.
There is a crisis in our food processing sector. It is a sector that has so much potential. It is a sector that needs support, and I do not think that it is getting that support now. There is a whole range of measures that need to be dealt with. We need to deal with issues such as food labelling. We do not have truth in food labelling in this country, and that will make a real difference. Australians want to buy Australian produce. They want to have that choice. They want to make an informed choice from the supermarket shelves, and currently our food labelling laws are positively misleading. That needs to be addressed.
There is also an issue of the market duopoly we have seen in the grocery market with Coles and Woolworths. We saw what Master Grocers Australia said just a few days ago and we heard evidence—and I will be careful in my choice of words—that could not be published that raised concerns on the part of food processors. I think it says it all. When Lateline did a story about the work of this inquiry about the food processing sector, they approached over 100 food processors and not one was willing to come forward to speak on camera. In fact, one did, but pulled out at the last minute. That says that there is a real issue. It is not because Coles and Woolworths are intrinsically bad people; it is a function of the market. They have so much market share, so much market power, that it is unhealthy in terms of a competitive environment. That is why in my minority report I say that we need to go down the path of giving the courts a divestiture power where there is a proved abuse of market power. I think we actually need to look at that and it is something that I want to do more work on.
There are also issues raised in terms of unfair contract terms. We heard a lot of evidence about how terms appear to be unilaterally changed and how some producers and food processors felt they could not raise an issue about that because they relied so heavily on one or both of the big two supermarkets. That is a big issue and I think it needs to be dealt with. What is very telling is that so many food processors and farmers are saying that they do not want their kids to be involved in this business because it just is not worth it.
But there are real glimmers of hope in this industry. The produce and the quality that is produced are second to none and we need to encourage that. We need to look at our free trade agreement with New Zealand in terms of what 'product' actually means in New Zealand. That needs to be scrutinised, because the concern is that we are getting foreign goods, purported to be New Zealand goods, as part of the CER, and I think we need some greater clarity and transparency in relation to that.
Australian consumer law needs to provide greater protection for suppliers who have suffered detriment after making a complaint to the ACCC. In other words, if somebody is a whistleblower, they need to be protected. There needs to be a reverse onus of proof, in a sense, so that if they do suffer detriment it is up to the supermarket chain to show that it had nothing to do with their complaint. These are just some of the matters that need to be dealt with.
The issue of the dominance of the big two is important but there are other issues in terms of productivity. I am glad that the government had a review of the Fair Work Act. I supported the abolition of Work Choices, but I am worried that the pendulum has swung too far in some cases, particularly for small businesses in this country, and that is why I introduced a bill earlier today. I do not want to see a return to Work Choices but we need to acknowledge that small businesses in this country are doing it tough and that those small food processors that are the future of this industry in terms of innovation and quality are suffering, and they need to have some flexibility where they can pay fair wages but have the ability to survive in an increasingly globalised market.
Madam Acting Deputy President, I seek leave to continue my remarks later and I hope that other members who participated in this inquiry can make a contribution as well. It was, again, a very worthwhile inquiry and I congratulate the mover and the committee for their work.