Transcript of Senator Richard Colbeck - Address to Australian Food and Grocery Council Forum, Canberra

October 30, 2013

E&OE..............................................................................................................................

Thanks very much for having me here, Terry I'm not sure whether you're stalking me or I'm stalking you, we've seen a lot of each other lately. You all must be significant gluttons for punishment because I'm the sixth member of parliament that you've heard from today and on the graveyard shift as well, so you'll know by now how good we are to you all and how we will regulate you, how we will de-regulate you, we've told you all you vital statistics, who the good guys are and who the bad guys are. We love you all - well most of you anyway - I am assuming the supermarkets are here!

A lot of the conversation is about what we can do for you and what you think we should do for you. You've heard today about the process that Minister Billson is putting through in respect to small business with a strong interest in the de-regulation process and also the question around who gets deregulation, whether its state or federal, and I think that is a really good question and the element that is state based is something that really does need some work. When you start drilling down into it in most sectors there is a strong level of state-based regulation.

One of the things that we found when we were working through in the food processing enquiry, that I think there is real opportunity for, is recognition through the governance chain as well as through the supply chain of various regulatory processes. One thing that we saw and made recommendations on in the enquiry relates to quality assurance systems, I'm really pleased to see that industry and supermarkets are getting together to look at rationalising that process, I think that's absolutely vital. The supermarkets tell us that they're looking to take cost out of the supply chain but by each of them having their own quality assurance system there it's actually inserting cost into the supply chain and there can be some real common sense, in my view, of managing that.

Likewise we went into a fish processing plant in Western Australia that had eight certification systems that it was complying with, so we can look at all the audits and things that go with that, the significant cost that applies to that business really was striking. But even worse was that is they were certified as an export business and on the Thursday before Good Friday, when there was 60 tonnes of fish in the plant, the local council turned up to say they had a compulsory health audit and when they questioned whether that really needed to happen on that day, they were threatened with closure and inviting the police in. Now if we can't get a local council to recognise a business that's got eight certifications so that it can export its product overseas with confidence then I think we've got a real problem. Those sorts of things can make a significant difference right through the supply chain, and that's the sort of thing I think we've really got to work on.

Also some of the cross jurisdiction issues, I was talking to the fishing industry only on the weekend, some fisheries are operating under three or four jurisdictions, why one can't do that quite frankly is beyond me. A bit of work to do, I know, but those sorts of things have to occur.

So I would certainly encourage you all to put that forward in your submissions to the work that Josh Frydenberg is doing in relation to the deregulation, because it's those practical things where I think we can take a lot of cost out of the supply chain.

When we did the food processing enquiry, not all of our recommendations were aimed at government, some of them were aimed at industry as well. There a whole heap of things you ought to be doing, or taking the advantage to do yourselves. We we've got the supply chain code of conduct and I know that the conversation between the AFGC and the supermarkets is occurring at the moment, but my view is that it would be very much in your interest that concluded before government gets its hands on it. It will be much more difficult to manage and it will be much more bureaucratic and more onerous if you don't.

One of the principles that I think needs to be considered as part of that process, or a question that everyone in the supply chain should ask themselves, is am I prepared to have that regulation applied to me in my business? It's a real awakener when you think of that and how that changes your perception of whether a regulation might exist. When you're thinking about a supply chain regulatory process it has to apply to the whole supply chain.

We hear consistent complaints about the pressures applied by the supermarkets through to the food processors but I have to say I've seen significant pressures applied by the food processors down to the farm gate in my time and I think the National Foods dairy dispute is about the best example that I can cite. It is a whole supply chain issue. I recall at the beginning of that conversation we sat down with some players in the dairy industry, I wrote in my diary 'how can I reasonably equalise the balance of power in the supply chain so everyone gets a fair crack'.

So that was one of the reasons that I embarked on the food processing enquiry because I wanted to understand how a lot of that worked, we obviously had a number of other enquiries in the dairy industry around those couple of years that looked at a lot of issues around the way that the Consumer and Competition Act worked but getting a better sense of the food industry was very valuable to me through the food processing enquiry because it gave me a better sense of all those things. I saw some great examples of how manufactures were working very closely with supermarkets, they were playing supermarkets at their own game, and one of the conclusions that I came to is there is a lot of people in the supply chain that don't understand the tools that are available to them in their negotiating processes and if they did understand those tools and utilised to them to their greatest effect then they may get some very different outcomes.

However the natural instinct for many people is to turn to government and say will you do this for us or will you protect us. The question is how much we can actually protect you in a business environment anyway and of course how much should we protect and how much cost does that apply into the supply chain. That protection is a form of regulation when it is all said and done, and in an environment when we're talking about reducing regulation and you're asking us to do that, I think that is a fair question for everyone to be asking as part of the process.

There are obvious things that we need to do. A thing that struck me recently is watching a show that was looking at the cost of labour in the United States, a young girl who had been working as an anchor in a TV studio earning $27,000 a year had quit that job to do bar work. Her pay cheque at the end of the week was between $27 and $32 bucks, earning a couple of dollars an hour, but still earning more with tips than she was as a TV anchor. We talk a lot about the cost competitive nature of Asia and some of those countries, but look at where our major, so called developed, country competition is and their cost base. Where the minimum wage in the US is somewhere between $8 and $10 an hour and ours is at $20.

I was talking to a small manufacturer of agricultural equipment at the airport recently, which is where we normally meet, he moved 30% of his manufacturing for agricultural machinery to the UK because it was about 30% cheaper for him to manufacture there. That was quite a profound piece of information for me to come across. You don't associate places like the United States or the UK as key places to do manufacturing but it was a reliable place and he was doing his manufacturing of quite innovative agricultural machines that he was exporting all over the world and doing it for a third less than what he was here in Australia. That of course took a huge chunk out of business and employment at a local level.

The other thing that I learnt as part of the time that I spent in the food processing enquiry and also observing the statistics around food, where it was moving to and where the potential markets were, was how we talk about our trading partners. I had the fortune to be on a delegation to China last year Rowan Ramsay and I grabbed hold of the agenda and asked to talk about agricultural trade and we asked to talk about food security. We had the inevitable conversation with the Chinese about agriculture and trade. They said you've got a huge trade surplus with us so why should we take more and we countered with the fact that on per capita basis there was a change in the calculation and that changed the conversation a bit, but it was the typical conversation. When we went to talk about food security they sent a delegation to talk to us about food safety.

Their interpretation of food security was food safety and it's quite pleasing for me to see that conversation come out now in the discussions that we are having in Australia around the food industry and food supply and that might be the opportunity that we have into those Asian markets now, because I think it is.

I spoke to a woman in a small provincial South-Western city in China that was buying Bellamy's baby food from Tasmania for her baby because she knew it was safe. And we've all seen newspaper reports of university students buying baby formula from the shelves and shipping it back to China because they are looking for that safe food product. It's very, very important message and by the way that small provincial city in China had 7 million people as its population.

When we talk niche markets, it's a very different context to what we talk about here in Australia and I don't think a lot of people understand what that means in a Chinese context. Picking up a city could be a niche market.

Another thing that I think industry could do some work on that is a perpetual topic, I've been chasing it since 2005 when the tractors from Tasmania came to Canberra. A lot of people think it's a silver bullet that's going to save out industry.

I congratulate the FGC on the development of the iPhone app Go Scan, but I would urge you as an industry to work out how to populate that. I think 80% of people have a smart phone these days. That is a really, really good way that it could be economically used to provide additional information into customers hands without imposing an enormous amount of cost onto business. I've had endless conversations with people in the food processing sector about the cost that they incur from providing labelling information, and again, if it's left to Government it is going to be a higher cost. We've already talked about the fact that we are a high cost manufacturing country and all the problems that brings, and then you add the Australian dollar on top of it. If you can find a way to utilise your information gathering systems and provide that out through to your customers through these forms of technology I think it will make a huge difference to them.

We're in a situation where we are developing more information around the five star rating system. That's another additional cost to the food processing sector at a time where we're saying we'd like to take the cost out. It's completely and utterly counter intuitive, and yet that information could be easily provided through that ap to the customers. For those that it's important to and those who are actively populating that ap, its high definition information and its really valuable. So again, some action that you as an industry can take to promote what is actually a customer demand, rather than government imposing the cost on you, I'm sure you can find the most cost-effective way to do it better than we can.

I just want to go back to how we talk about our trading partners. The discussions that we're having around investment into our industry here has picked up very sensibly, particularly in China. China in my view is one of the big opportunities and I've already expressed that. If you look at total food exports to China since 2006-2007 they've gone from $664 million to $2.174 billion in 2011-2012. No other market has our exports trebled to, no other. Indonesia has gone from $1.5 to $2.2 million so that's another one that's grown significantly, but the Chinese listen to everything that we say.

Two of the girls who were looking after us on the delegation, when they went back to their jobs on the national people's congress, their job was to read all the newspapers and see what we had been saying about them. So when we say we don't want your product they say why should we take yours? It's not an unreasonable assumption, and yet when you look at the supply figures from china to Australia in the same period of time $536 million in 2006-2007 and $841 million in 2011-12. So you're talking about a potential opportunity cost of $1.4 billion if we say we're not interested. I think we need to be careful about this, I understand why people run campaigns to ask people to buy a local product and that is an important part of business when you're advertising into the market, but be aware of what the potential opportunity cost is because they are listening to us all very closely and if we want to take advantage of the opportunity then we need to cognisant of that.

I'm not one of those who believe that we're a food bowl to Asia, but we do have an opportunity in the high end of the market in my view. If you look at the projections at what we can supply in food products by 2050, by then we can feed ourselves, if we double our output, and 1.3% of Asia. We're not a food bowl, we're really lucky to be the caviar on the hors d'oeuvre. But that's what I think we ought to get. I'd be happy if that's what we were and I think from a business perspective if you can take up that opportunity, that's the way to go.

Another point out of the food processing enquiry was that alternative markets were vital in dealing with the pressure through the supply chain. It doesn't need to be export, but talking to people in those industries particularly in the UK, it was market options that they used in negotiating pressure when supplying into the markets. We've got two major suppliers in Australian and Aldi is coming through very quickly and potentially some other supply chains, but those in an environment where there might be seven or eight supermarkets, they would say that one supermarket was not offering conditions that they wanted they would go somewhere else and know they could provide product into that market. That provided them with some leverage. Now there are circumstances in Australia with two or perhaps three major suppliers and independents, export is absolutely essential as far as I'm concerned. You've heard the Prime Minister talking about it in terms of the car industry and volumes going through there and I think it's an important part of what we need to do in food and agriculture.

The other thing is we need to provide a value proposition for the farmers who supply the raw product into the system because I think that's vital as well. I was at a meeting of growers a couple of weeks ago, there were 130 of them representing about 189,000 tonnes of potatoes and they were a bloody grumpy lot at the time I can tell you. The problem is that the margins are starting to get so fine that their capacity to manage agricultural risk, which Australian farmers are pretty good at, was getting so tight. They've had two or three rough seasons and a couple of reasonable ones but they need a good one. Their capacity to manage agricultural risk and have some movement and capacity to pay down their debt, their levels are high and they are all pretty toey.

That's something we need to resolve as well and that, from my perspective, is why free trade agreements are so important to open up those markets. If you have a look at the situation with the beef industry and the lamb sector and recently citrus, the feedback that I get from those sectors and those that are supplying into those value markets is that is actually providing an underpinning to their price at home, milk is the same, it is an industry right on the cusp. There is huge expectation around it, but they've had a couple of bad seasons with debt levels among the dairy farmers are high and they're all fairly testy and don't like the supermarkets much either but the thing that really underpins the milk price in this country is the export price for the product that they sell overseas.

That underpinning is really important for farmers to get a better return and that's why the work that the government does getting free trade agreements set up, removing discrepancies currently in place with tariff barriers into those countries, is so important. Where you look at New Zealand for example they have a 15% advantage over Australia with China because they have a free trade agreement. We also need to get the non-tariff trade barriers sorted out along with some of the supply chain issues.

Thank you for the opportunity to speak and I look forward to the opportunity to work with you all, I do appreciate the fact we're in regular contact and I look forward to meeting the promises that were made to you at the election because I know that from a number of perspectives they are really very important to the continued survival for some and the growth of the industry into the future. Thank you.

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