PRIME MINISTER
TRANSCRIPT OF THE PRIME MINISTER, THE HON PJ KEATING MP,
AND THE MINISTER FOR PRIMARY INDUSTRIES AND ENERGY, THE
HON SIMON CREAN MPo PRESS CONFERENCE, 2 FEBRUARY 1993
E& OE PROOF COPY
PM: I've got a Cabinet meeting on which we've broken in thc course of the day
and it's to reassemble at 3.3Opm, so we're going to be reasonably brief with
you. The point of our press confercnce is to indicate that the Cabinet has
adopted a reform package for the Queensl and ' sugar industry, which has
been negotiated by my colleague Simon Crean, and is an interim reform
package which dovetails in with the Queensland Government's reform
program which mcets its next point of change in 1995-96. Thc sugar
industry has bcen an industry which has been substantially regulated under
laws of the State of Queensland. In a sense the Commonwealth plays, in
this industry, a more peripheral role than it does in many others because the
regulation and management of the industry has been by the industry itself
and under arrangcemcnts constructed over a lon& period of timc under
Queensland law.
We've made decisions today in consolation with thc industry. I visited
Bundaberg with Brian Courtice, the Member for Hinkler, and members of
t Takcotcs ggowers in November to get a first hand view of
the problems and to try to understand bctter the industry. Simon has had a
number of visits to the region to meet members of the industry,
representatives of the Taskforcc, the Queensland Government, and we've
developed between us a package.
Part of the Commonwealth's responsibility in this is to make decisions in an
area whcre we can, this is in relation to tariffs, which is for us the key to
unlocking a larger reform of the industry, and the larger reform goes to al
those questions which deal with assignment, which deal with single desk
selling, which deal with water articulation, which deal with the poolings, the
two pools and the price differentials, these are the key issues in reform.
So we have used the leverage the Commonwealth has, I think, sensibly to
bring togcther a reform package which will, as most of the Governments'
reforms have, over a period of time have been affccted on a phased basis
which will be the case here. But I take this opportunity to congratulate
Simon on getting this together. This has been a most contractible problem
because it has been peculiarly a State problem and certainly on the part of
Coalition Governments in Queensland in the past, no willingness to improve
the flexibility of the industry over time. This has changed of course with the
Goss Government and the Government there is working cooperatively with
the Commonwealth Government. So I'd leave my introductory remarks at
that and now invite Simon to add to them.
SC: Well the detail is there, I suppose there are just two points that are important
to make. Firstly, so far as the sugar industry is concerned the issue is not
just about tariff, that I believe is a mistake that the Coalitions Parties have
made. Tariff, as important as it is as a price support mechanism, is only
worth $ 32 million to an industry which is now in excess of $ 1200 million
dollars. But it is an important price support mechanism in the context of a
corrupted world trading environment.
I have always resisted throughout these negotiations, and for the purpose of
setting up the task force, just treating tariff in isolation. If you look at the
Industry Commission Rcport it identificd a number of impediments that had
to be addressed but acknowledged that the only thing the Commonwealth
could do was really phase clown tariff.
In essence, what we have done is to use the leverage of what we can
influence to affect change in other areas that the IC Report acknowledgcd
we had no influence over, And that is what has been achieved. So whilst
the tariff has been held, and as a result of holding tariff, if you are going to
deliver it you have got to retain acquisition. The two important
impediments to growth are the assignments systern, the means by which you
open up thc land, and we now have an arrangement whereby that can be
negotiated at the local level.
The other important issue has been thepp rce pooi aI~ f ectswheb
not only has a differential existed between that which is in the number one
pool, vis a vis the number two pool, it has also meant invariably that
growers in the number two pool who arc the new entrants get less than
world price. Now that is just a crazy signal to be sending out to ant industry
that you want to expand, that you can't even get world price. Really what
this agreement does without compensation, because the task force
recommended a compensation package for the phasing out of the price
pooling differentials, what we have achieved is a phase down by agreement
with the cane growers and the Queensland Government so that we can get
clearer market signals to the new entrants, because it is the new entrants
which are going to undertake the expansion.
So not only is this a strategy to deal with the tariff issue, because that's been
the big political issue, but it's also a strategy for growth and expansion in the
sugar industry. And most importantly, it's been a strategy developed with
all of the stake-holders, and esscntially all of those stake-holders support
the thrust of this agreement. It's been a very fulfilling exercise and
demonstrates yet again our approach to industry dcvelopment compared to
that of our components.
J1: Prime Minister, is this decision to hold $ 55 a tonne tariff good politics but
bad economics?
PM: Simon answered the question for you. The good economics is that it is
basically one of the keys to constructing a reform package which would not
otherwise be capable of reconstruction or construction. That is, the reform
of the Queensland sugar industry is largely a State matter because all the
things that matter, such as the pricing, the pools, the price signals, the
assignments, aill of the other issues, the infrastructure, are. State issues. The
. Commonwealtk's role in this is, as I said, a marginal one, but one which
we've successfully been ablc to use to change yet another industry.
J: Haven't you backed off using the stick that you had of the tariffs to get faster
reform?
PM: Put it this way, without having the leverage the Commonwealth enjoys in
tarrif, we'd have no rcform here. Simon has been ahle to construct this with
the Queensland government and the growers, something which probably
three months ago people would have thought was incapable of happening.
So getting the phase down, thc price differential between the two pools,
modifying the land assignment system, these issues are key to the sugar
industry becoming a more flexible, productive, competitive industry..
SC: But we have used the stick of tariff to affect the real reform. Understand
that in terms of tariffs we halved tho level of tariff support in a value sense
it's come down from $ 110 to $ 55 in the space of 18 months. What we are
doing now in response to an Industry Commission report and in consultation
with the industry is saying there are more important issues that at the
moment need to be tackled and we have used the impact that we have been
able to have over tariffs to achieve that pace of reform.
3: How do you see this decision impacting on the clothing and footwear
industry, are you prepared to consider tariff pauses i n -thosc industrie . s?
PM: That has got a different impact. Thcre is hardly any sugar imported, this is
not thc case with those industries. This is largely a domestic price support
mechanism and therefore the parallels arc not there. But again, the clothing,
textile and footwear has been subject to a phased reduction in tarr if over
time as has been the case with motor vehicles et cetera, which we undertook
in 1988 and reviewed in 1991. In this case wc've had a reduction from $ 110
to $ 55, we are reviewing it in 1995-96, but along the way as a rcsult we've
opened up a much morc substantial rcform.
J: Would you rule out any wider tariff pause?
PM: This is a one industry specific matter. This is a complex industry, very
much patterned upon State industry structures and State regulations.
3: So you wouldn't rule out that
PM: But the implication of the question is, Michelle ( Grattan), there are linikages
here. There are not. It is as simple as that.
1: Forgetting the linkages, would you take this occasion to rule out a tariff
pause?
PM: I've just said to you, yes. If you want simplc answers to simple questions
yes.
J1: At $ 55 a tonne there arc some that the tariff costs in domestic industry
something like $ 51 million inflates the price of sugar by 23 per cent to the
domestic market. Hlow is this sort of action going to enhance the value
adding side of our domestic industry and makc them more competitive?
SC: Because there can be an exemption from the tariff impact if the companies
using the input re-export. Direct incentive to export industries, that has
always been the case I might add, but the other thing that convinced me in
looking at these figures is that whilst that figure is dubious of the $ 51
million because it is worth $ 32 million, it's a return of $ 32 million, if you
like, to the sugar growers. The fact of the matter is it is a minuscule
component of total input costs for the food processing industry in total
costs. It is an important aspect and I'm not trying to pretend that in itself it's
not an impediment, but it's not going to be the thing that makes or breaks
that industry. What is going to make or break the sugar industry is its
ability to expand and its ability to do that through proper price signals and
you've got understand really, that the sugar industry itself is in excess of $ 1
billion. It is a huge industry in terms of our natural resource base. What
we've got to do is to secure it and at the same time insure that those input
costs arc properly identified, property addressed, and they will be over time.
J-In today's announcment, has the industry effectively been given some time
to restructure itself andl to become more competitive and efficient and that
when you do come around to review tariffs in 1995-96 you would be
hoping to cut tariff rates further then?
PM: This review dovetails in with the Qucensland rcvicw in 1995-96. Simon
made the point to you earlier, I'm not sure whether everyone here is familiar
with this industry, but all the new growers or old growers producing
marginal tonnages are paid [ 12 per cent] less than the world price. How can
you have an industry continuing on that basis? That is the key thing, if you
want the sugar industry to grow and prosper, that's one of the things that has
to be changed thc right to send your sugar to diffcrent mills. To change
the assignment system is another such thing. They are the key things,
compared to the tariff issue, the tariff issue is an infinitesimal issue
compared with those. That's what is being affccted here today.
J: but giving them time to adjust those reforms in the industry.
PM: Yes, that's right.
SC: You are giving them time to adjust in ccrtain aspects, but what you're
driving is a faster pace of reform than would have been the case. Before
this package there would have been no change to the differential between
number two and number one til 1996. We're getting it immediately. It is
important in terms of the question that Michiclle ( Grattan) asked. Just
because wc've held tarrif doesn't mean we've held the pace of reform. But
6
what you have Sot to understand is that tariff is not the only mechanism for
reform. It is not the only dimension of micro reform, there are other aspects
of micro reform. But what we've been trying to demonstrate is, areas of
micro reform are not all within the purview of the Commonwealth and
therefore what the Commonwealth has got to do if it's smart about these
things is use the leverage of its position to drive the pace of reform in the
other areas. That's why we've got the conditions to the development
allowance, that's why we've used this strategy to get the pace of reform in
sugar and in dairy, that's why we used the pace of reform, the approach that
we adopted there to also push the States. That's a sensible national
approach.
PM: It's the same thing that we are doing with electricity. Commonwe alth-State
co-operation, in this case with one State, in the case of electricity with three
States.
J: Given the benchmark nature of this agreement, I take it you will be urging
Dr Hewson to adopt it.
PM: Dr Hewson is going to do what he likes. I urge him to adopt some things,
but it's up to him to make his own judgements about this. They take the
view, they are the zero tariff outfit. they think that there should be no
protection in this country for any industry at any level. That's never been
the Government's position. The Government is a low tariff party, it's not the
zero tariff party. We made that clear in 1988 and we made that clear in
1991.
J: What are the political implications here though? Will you be able to pick up
votes in Queensland marginal seats?
PM: Whatever they are you've got about a minute to get them out of me.
J: Will you be able to pick tip certain Queensland marginal seats with this
decision do you think?
PM: This is a genuine issue in reform. It's like every other industry left by the
Coalition for years sclerotic, nothing happening. The same as electricity,
the same as ports and wharves, thc same as airlines, the same as
telecommunications, the list goes on, diary now sugar. We move through
these industries and this has come up in a natural sequence of events, rcports
et cetera. I I
J: Prime Minister, should Leo McLeay give the $ 65,000 back?
PM: The Speaker has rang me to say he's going to rclcase the statement later
today about his position.
1: potential for expansion?
SC: Yes, the potential for expansion is identified as going from somewhere
around about the 4 million tonnes of raw sugar to close to 5 1/ 2 million
tonnes. Big expansion and obviously the extent to which you get the
assignments and the freeing up in land that opens up the commitments to
investment in milling as well as refining capacity.
J: Are you confident that local arrangements will achieve this?
PM: Yes, I am because what I was very keen to insure in terms of the wording
associated with assignments was not just satisfactory to the cane growers,
but that it was satisfactory importantly to the people who have to make the
investment decision in the private sector and they believe it will provide that
important freeing up. They see significant advantage in both the
assignments dimension of this package as well as the price pooling
arrangements.
J: How many years do you think it will take for that expansion to
SC: I don't know, I think the assessment is somewhere between three and ive
years.
ends.