THE Australian Competition and Consumer Commission (ACCC) could grant as many as seven exemptions from the federal government’s port access code of conduct for wheat exports.
ACCC Regulated Access Wheat Ports director Michael Eady answered questions about the port code’s various machinations, along with ACCC chair Rod Sims, at the recent Senate committee hearing into grain logistics in Canberra.
Mr Eady said “a good six or seven port operators” would be looking for exemptions from the code with the ACCC, with formal applications already received from GrainCorp and Emerald in relation to Victorian ports.
He said GrainCorp had applied for an exemption in relation to ports at Geelong and Portland, while Emerald had applied in relation to its Melbourne port facility.
Mr Eady said a one-year transitional period existed whereby ports without access undertakings in place under the previous legislation - including Bunge Australia at the Bunbury port in Western Australia – are not required to comply with the code.
“Until 1 October 2015, the code does not apply,” he said.
“The only exception to that is that we are able to do an exemption assessment during that period, so if we reach a view that, because of competition reasons there is no need to regulate that port, we would be able to do that assessment.
“Then, if we did that assessment and decided that an exemption was warranted, the ongoing regulation would be relatively small: it is only two parts of the code, mostly disclosure obligations.”
Two key supply chain issues
NSW Liberal Senator Bill Heffernan asked to see recent ACCC modelling on how it reached decisions to exempt ports from the code.
Mr Sims agreed to take that question on notice and provide details to the Senate inquiry on how the Newcastle port was assessed, but said it was “largely a competition assessment rather than a modelling assessment”.
“The two key issues are: are there competitive ports or is this a monopoly; and secondly, the level of vertical integration,” he said.
“If the port is not owned by somebody competing in the upstream market - if the port is owned by somebody who is disinterested in foreclosing competition - vertical integration and competition are the two key issues that we would look at.
“We do look at the whole supply chain.”
Senator Heffernan also asked how the ACCC examined the impact on the integration of up-country receival and storage networks with port terminals, when considering any applications.
Mr Sims said under the old port access undertaking regime, the ACCC had to decide whether the undertaking needed to extend to up-country storage.
“We would look to see how much storage there is to see whether you have a competitive market and there are competitive constraints on the port, so we would factor in the storage ownership in that overall competition assessment,” he said.
Mr Sims said with the Newcastle Port, the ACCC judged that there was sufficient competition in making it exempt under the previous undertaking process and with the code.
He also explained the code’s basic purpose in terms of regulating fair market competition, saying if there were no monopolies, the ports wouldn’t need regulation.
But he said where monopolies exist and a wheat port is owned by an operator that’s also seeking to buy the farmers' wheat and is competing against other traders seeking to do the same, “we believe it is regulation that makes markets work”.
“Some regulation, of course, impedes markets working,” he said.
“In our view, this is not it. The wheat code plays a very valuable role. The importance of the wheat code governing wheat ports is that it allows for a competitive market for grain.
“It allows for a lot of different players to buy the grain from the farmers, which helps them get a better price and maximise production.
“If they did not have a competitive market for buying their grain, you would argue that they really get the price they are given.”
Mr Sims said the 12-month consultation period to decide exemptions could be shortened considerably but “there is a lot of controversy usually”.
“On the one hand, you have those who own the monopoly wheat ports basically arguing for less regulation, and you have some of their competitors and often farmer organisations arguing for regulation in a whole range of different forms, and we need to work through that,” he said.
“It is (about) getting around to give everybody a chance to have their say.”
CBH, Bunge in same boat
CBH general counsel Richard Codling said his organisation understood Bunge itself wasn’t caught under the new port access regulations but rather an entity called WA Chip and Pulp Co Proprietary Limited, which owned the ship loader at Bunbury port.
“That is a subsidiary of Marubeni Corporation, which is a Japanese multinational trading house - and that they are the entity that is actually caught by the regulation,” he said.
Mr Codling said the ACCC had scheduled hearings in May or June in relation to WA exemption applications.
“One would imagine that, if CBH were exempt, Bunge's application for exemption would probably succeed,” he said.
Bunge Australia general manager Chris Aucote said there are some “peculiarities” around Bunge’s structure and the port arrangement and definitions in the Act, “and we have to work through that with the ACCC”.
“The issue is that we do not own and control the ship loader,” he said.
“Certainly, our fundamental is around investment, particularly in the woodchip industry, which has been under pressure over the last five to 10 years.
“There was excess capacity in those ship loaders so we viewed that as a very attractive option to be able to enter the market and provide grain loading capacity through those ship loaders.”
Plans to build infrastructure
Mr Aucote said Bunge had been operating at the Bunbury port since last July last year and had so far put through 170,000 tonnes of grain.
“I think CBH are putting out 1.5 million tonnes a month, so it is very much a start-up business that we are operating in WA and in Bunbury,” he said.
“Our plan is to build up. The maximum capacity, which is constrained by the ship loader - there are already woodchips going out there - would be 1 million tonnes a year of grain through Bunbury.”
Mr Aucote also addressed a recent report which said his company was looking to invest in up-country storage facilities in WA.
“We are going through local council planning approval at the moment for two facilities, one at Arthur River and the other one at Kukerin-Dumbleyung, which is out within what I suppose you would call the Bunge or the Bunbury catchment area - They will be bunker-style storage facilities,” he said.
Mr Aucote said Bunge was also in the process of establishing facilities in Victoria and had recently established export facilities in Queensland, with more under construction.
“There is no doubt that investment is being driven by market demand for export capability at the right time of the year,” he said.
“The facilities that Bunge is building are designed to enable us to offer growers a more attractive supply chain to the market and a higher net return for their grain.
“If we cannot they will not use us and we will not succeed.
“I can tell you that in Victoria right now we have growers telling us to hurry up and get on building the sorts of facilities that we have built in Bunbury, because they want to sell through it.
“Our view is that that is how the market words in a deregulated environment.”
Mr Aucote said his company was motivated to invest $40 million in a 50,000-tonne grain storage facility at the Bunbury port to increase its export capacity via its own farmgate to port logistics facility, minus constraints.
He said supply bottlenecks had become a “major constraint on the industry”, particularly with export markets changing due to Black Sea competition and prices “really tailing off in August to January, or December-January”.
“The demand for Australian grain is very much what we call 'front-ended' now within the export cycle,” he said.
“The issue is - and really the basis for our investment is - that the market wants the grain in the first half of the year, and you need the export capacity, or the transport capacity, to be able to put that grain out in that period of time,” he said.
“That is really the fundamental. Certainly our view is that the market will continue.
“In Russia and Ukraine - take out political uncertainty - the capacity for them to increase production is there, so the market is going to become much more in a six- or seven-month period.”
Mr Aucote said Black Sea exporters had emerged as substantial exporters with wheat and barley that tends to be priced very competitively by comparison to the historical origins of the US, Canada, Australia and the EU.
“This means we need the maximum export capability in that period, with land transport performance and ship-loading capacities at their highest level,” he said.
“I reiterate that that has been a big change in our industry since the deregulation of the wheat market about seven or eight years ago.
“A short marketing window in a competitive market place means that traders need to be well organised, flexible and adjust to changing circumstances and have confidence in the supply chains that we are going to use.
“By being directly involved in the supply chain right back to the farm we have gained much more confidence in our export program, being able to plan what we do with less exposure to risk from decisions made by others.”