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Mr Trevor Flugge

Member, Australian Wheatgrower's Federation Executive and Grower Member,
Australian Wheat Board Katanning, WA

Without question the most distinctive feature of agricultural marketing in Australia is the large number of Statutory Boards which, to varying degrees, regulate or perform marketing functions. There are eleven Marketing Boards which operate under Commonwealth legislation, and there are more than fifty Boards at the State Government level.

These Boards, which include selling and related marketing activities -have been set up at the request of farmer organisations, generally to seek price stability and to increase returns by removing merchants ‘and middlemen and by using the monopoly power of Boards to raise prices.

Most of the Boards are producer-controlled or producer-dominated monopolies. One of the main reasons for having growers on the Boards is - ostensibly -to see that things will be done efficiently. That is, to protect growers against the problems of waste and inefficiency which are the hallmarks of monopolies. If growers have a majority on the Board - so the argument runs -then growers will control the Board and it will act in growers’ interests.

Unfortunately, the evidence is that the eagerness of Australian farmers for Statutory Boards to market and handle farm produce has often resulted in a transfer of control NOT to farmers, but to Governments and Public Servants. Most Boards are now subject to. - and even the instruments of - State or Federal Government policy.

More insidious and ultimately more costly is the day-to-day interference by Public Servants and the perceived need to have bureaucratic approval for decisions. Enormous amounts of valuable time and energy are spent by the managers of Boards in seeking approvals from, negotiating with and placating Public Servants - and, at times, Ministers.

The Australian Wheat Board, for instance, does not have control over hiring and firing its staff. The Wheat Board is set up as a commercial organisation to get the best price for Australian wheat growers and it is up against top rate international competition, but is prevented from paying competitive rates for the best people. The Public Service Board rules and pay scales which apply to the Wheat Board might be satisfactory for a clerk in Canberra who has never sold anything more valuable than a second-hand car, but they fall drastically short of the level and flexibility in remuneration packages which are required to attract the best skills in marketing and finance.

We have to accept the unpalatable fact that in many cases, although growers might have a majority on Boards - and here I am talking about Statutory bodies for handling as well as selling - growers do not have control. In the things that count, politicians and bureaucrats have control.

Another unpalatable fact is that the hoped-for advantages of setting up Statutory arrangements for marketing have generally gone NOT to growers, but to those who run the Statutory arrangements. I will give you an example in the Wheat Industry.

Under the wheat marketing arrangements the Australian Wheat Board has the power under legislation to acquire the Australian wheat crop, sell the wheat so acquired and pay the net proceeds to growers. Because of the residual power of the States over production and prices, the Act - which gives the Wheat Board pricing powers on the domestic market - requires complementary legislation to be passed by State Governments. The quid pro quo is that in return for giving up their pricing powers over wheat, the State Governments dictate that monopoly rights are granted to the State-based bulk handling authorities and - as far as possible - rail transport systems. These State- based monopolies behave like all other monopolies. They are able to charge higher prices than could be charged if there were competitors.

How much higher? At least 50% in the case of railways. To give you an illustration, a 650km grain haul in New South Wales costs about $25 per tonne. The same haul in the United States and Canada (adding back the subsidy under the crow rate) costs about $15 per tonne. So we are comparing $25 per tonne in Australia with $15 per tonne in North America for the same job, a difference of 67%. There are many reasons for the higher cost in Australia but they all have their origins in one basic factor; lack of effective competition.

Lack of competition has also allowed the Grain Handling Authority in New South Wales to have manning levels over five times higher than comparable terminals overseas. The cost of featherbedding is coming out of the pockets of New South Wales grain growers.

With the industry having succeeded insetting up Statutory monopolies within the orderly marketing system, the reality now is that any cost savings (through economies of scale) or benefits (from monopoly profits) which might have been available have not gone to the farmer, but instead have gone to the people who run the large number of institutions which exist under the umbrella of the wheat marketing legislation - the State-based bulk handling monopolies; the State-based transport monopolies; the coastal shipping monopoly in the case of freight to Tasmania (which is supported by a tax on domestic sales); the network of State Government controls over the release of wheat varieties and, of course, the large Federal Government bureaucracy which feeds on the amount of regulation and Government interference in the orderly marketing system.

There is no doubt that something has gone wrong. As growers, we have in many cases allowed both the control of marketing and the benefits of grower controlled marketing to slip away to other groups. It is therefore up to the farmer organisations’ to go back to basics, set some key objectives in agricultural ‘marketing and make sure that all policies and actions actually do contribute to the marketing objectives.

The role of farmer organisations is to step in and give clear, positive leadership in the setting of objectives, the establishment of policies and in insisting on full accountability of performance.

At this point we should briefly look at what marketing is. It is not just selling. It covers all of the activities involved in the flow of product from the first point of production to final consumption. It therefore involves the whole range of buying, processing, selling, transportation, standardisation, financing, ‘risk bearing and market information.

The overriding objective of agricultural marketing is to maximise efficiency. The purpose of maximising efficiency i5 to minimise growers’ costs and to maximise growers’ profitability. Marketing efficiency is therefore the measuring stick which should be put across ALL marketing schemes and proposals to see if they do, in fact, maximise growers’ net returns.

The following tests should apply to every proposal:

• Is the marketing system technically and economically efficient?

• Does it promote adoption of the latest and best technology?

• Does it transmit quickly all relevant market information to growers?

• Is it politically and commercially independent?

If the proposal passes these tests it will maximise returns to growers, and vice versa. The role of farmer organisations is to place these tests before marketing organisations and insist that all proposals match up.

I do not believe -‘ for a number of reasons - that grower control of marketing is necessarily enhanced by having a majority of elected grower representatives sitting on agricultural marketing, handling, or processing Boards.

Firstly, there can be a conflict of responsibilities in that a grower member is bound by collective responsibility as a Board member but may also have different responsibilities from the growers who elected him. You cannot serve two masters.

Secondly, there is a natural human tendency for people to become creatures of the institution with which they are associated. The result is that farmer directors on, say, a Marketing Board or Bulk Handling Authority will sometimes make decisions which protect or enhance the institution at the expense of growers. Instead of the institution serving growers - which was the original intention - growers finish up serving the institution.

Thirdly, the election process - which is based on political criteria - can result in an unsatisfactory mix of skills on the Board; the balance may not be appropriate to the Board’s commercial functions.

Fourthly, and related to the third point, success in elections or political skills may have little relationship to the commercial expertise required to make the Board operate in the most efficient way. There is not much doubt that one reason that control of some Boards has slipped out of growers’ hands is that, over the years, farmers who were outstanding politicians simply did not have the business training and experience to cope at Board level.

They were pleased with what they saw as a political achievement, were keen to secure it, but at the same time became easy prey to management manipulation and control.

It is the role of farmer organisations to address these problems openly and honestly and overcome them by implementing policies which are based on the fundamental objective of maximising net returns to growers.

With the aim of maximising growers’ returns, the role of farmer organisations is to stop at nothing to find the best people to direct the operations of marketing organisations. Membership of Boards must therefore be based on the best obtainable skills, expertise and experience. It follows that positions on marketing and handling organisations should not be determined by popular elections, but by painstaking effort and genuine commitment to find the best people for the job. As a first step, the major functions of the Marketing Board or Handling Authority should be identified, and then people selected according to those requirements.

To give a simple example from another industry: If you want to put up an office block you don’t try to do it all yourself. Instead you bring in architects, town planners, engineers, construction contractors, electricians, interior designers and so forth. Equally importantly, you use project consultants to make sure the others are doing the job properly. And you always make sure you have the power to hire and fire.

So for Statutory Boards, grower control should be achieved not by having a majority on the Board, but by having the power to hire and fire through control of the selection process. The effective exercise of this power depends on detailed and accurate accountability from Boards to the farmer organisations, so the farmer organisations have a clear responsibility to ensure that the reporting requirements are fully met and that the performance of Board members is up to the high standard required.

Whilst these comments about the role of farmer organisations in agricultural marketing may sound a little assertive, it should never be forgotten that the organisations set up to market agricultural products are there for one reason alone: that is, to serve the grower. However, history has demonstrated that such organisations can take on a life of their own and tend to promote their own internal interests, often at the growers' cost.

If growers and their organisations sit back and do nothing, if they are reluctant to get involved, if they won't insist on performance criteria for Board selection and if they think it is bad manners to ask difficult questions and insist on full and complete answers, then they will surely lose control.

But it is not inevitable. The outcome is in the hands of growers and their organisations. So let me make this point quite clear. I am certainly not suggesting that we do away with all Statutory Boards. In fact, quite the contrary. Boards can enhance grower returns and, in the case of the industry in which I am involved - the Wheat Industry - I personally support the AWB in its role of controlling the domestic market and having exclusive right to export wheat. however, we must be alert to the problems which are inherent in this type of marketing with Statutory Boards both for wheat and other agricultural products.

Farmer organisations should therefore take up full responsibility for ensuring that the growers best interests always come first. The best practical way of doing this is to set up arrangements which keep control in growers’ hands and to monitor very closely the activities and performance of Boards and Authorities. It is the role of farmer organisations to improve existing agricultural marketing structures or else find another way. In the end it is commercial performance which counts.

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