This article was first published in FARMONLINE on Monday the 22nd of September 2014.
THE most complex issues can often be made simple by applying good public policy principles. The current debate over the regulation of bulk grain ports is a timely example.
First, markets work best and most efficiently in the absence of government interference, but where there is market failure - like the inevitable consequences of unchecked monopoly power - they work most efficiently if the government intervenes to prevent market power abuse.
Second, the regulatory response should be as 'light touch' as is possible - just enough to address the imperfections of the market without creating other inefficiencies by placing too great a regulatory burden on the entities which operate in the market.
Third, it’s best to ensure government intervention is well targeted to prevent unintended consequences. Exceptions to the rule and possible exemptions should be sought where appropriate so as not to capture parts of the market unaffected by the market failure being addressed.
Finally, if the market is young, any potential for future maturity should be recognised, and provisions made for an easy path to a less regulated environment.
This was the former Labor government’s plan for the ports used to export the nation’s wheat after the Wheat-for-Weapons scandal and the dismantling of the single desk.
Our 2008 legislation recognised the monopoly of companies which market wheat and own the ports, and the risk they would use their ownership of the ports to deny the entry of competitors in grains marketing. That would be a bad thing for the sector, growers and our economy.
But the legislation also recognised that, over time, new port facilities would emerge, reducing the monopoly of the older players and triggering a three-stage approach to promoting competition.
Stage one (2008-2014) involved curtailing the power of the monopolists by forcing them to provide legally enforceable undertakings on port access and other matters to the Australian Competition and Consumer Commission (ACCC).
The second stage (2014-2019) was to be a period in which the market was subject to a prescribed port code of conduct established under the Competition and Consumer Act.
The code was to set rules for behaviour, disclosure, mediation and dispute resolution.
The third stage was to be the dawn of a totally deregulated environment, one in which many more players in a much more mature and competitive market would be subject only to the general pro-competition provisions of the Competition and Consumer Act, as is the case in most markets.
A decade seemed to be more than enough time to allow the market to grow and mature.
Under these arrangements, port operators would have had a capacity to apply to the ACCC for an exemption from the code on the basis a port zone already had sufficient competition to guarantee fair dealings in the absence of a code.
This makes sense: why burden the market and its players with regulation where the market works fine without it?
We have faith in the ACCC’s ability to make such decisions, in the same way we trust it to accept undertakings under the current regime.
But now the Abbott government wants to change our legislated plans.
First, the government wants to remove the certainty we provided on deregulation by removing the five-year sunset clause on the code. It seems the sector will remain subject to the whims of the Minister of the day.
Second, the government wants to leave it to Barnaby Joyce to decide who will be covered by the code and who won’t be. Indeed, Barnaby thinks the largest vertically integrated player in the market, and the market where there are least players, should be exempt from the code because it is a co-operative.
I doubt the ACCC would see this as a reason to grant an exemption.
This is an extraordinary proposition. It raises the spectre of a code covering all the players on the east coast where there are more players and more competition, but potentially covering no players on the west coast where there are less players and less competition.
This of course is the government's political fix - providing east coast Coalition MPs and Senators the ongoing regulation they yearn, and effectively delivering west coast MPs and Senators the de-regulated environment they seek. It's a plan for the party room, not one for the national interest.
The wheat industry is critical to the Australian economy, annually earning around $6 billion in foreign exchange and meeting our domestic consumption needs.
Developing the most efficient market and supply chain is critical for our international competitiveness and grower returns.
Labor wants to work with the government to ensure the regulatory regime is effective, that the sector has certainty, and there is a clear and timely path to full deregulation.
In this space last week Senator David Leyonhjelm was threatening to use a disallowance motion to scuttle the governments’ poorly constructed plan.
Disallowance is a poor solution because it will leave us with the current regime despite a changing and maturing market.
But arguably that would be better than a new market distorting regime which suits almost no-one.
It’s over to you Barnaby, the clock is ticking!
This article was first published in FARMONLINE on Monday the 22nd of September 2014.
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