Rosemary Richards Bowman Richards & Associates Impact of non-tariff measures on the Australian grains industry
ROSEMARY RICHARDS: I'm actually really talking today on behalf of the Grains NTM project as part of that-- project managing for that steering committee. And really, this was a bit of a landmark report for the sector, and what I'd like do is just try and share some of our findings with you.
So we've heard quite a bit over the last couple of days about how the trade policy environment is changing, and certainly yesterday I think a couple of talks in the morning spoke very much about how we've really moved from trying to reform the whole trade environment to around tariffs-- with free trade agreements, whether bilateral or multilateral, have reduced the emphasis on tariffs. And some of the policy environment's moved to other aspects that have caused us more problems. And we talked yesterday, they talked yesterday about the influence of our domestic support policies, and that's certainly a key issue for the grains industry and something where we have seen some NTMs develop.
So I guess for the grains industry, we've certainly seen tariffs reduce, and for our industry, really, tariffs are still important in some markets, but in terms of the trade policy issues that are getting out of our industry or restricting trade in our industry today, it's shifted much more to the NTMs. I put that little box up there about FTAs. I want to come back to that. Certainly, our government at the moment has a very strong emphasis around FTA negotiations, and we do see FTAs as one way, or one element that we can use or one tool we can use to address NTMs.
Don touched on this issue about are NTMs legitimate or not. I think the bottom line, really, for us is that even though sometimes NTMs can be legitimate in trying to protect either human health or plant health or environment, they can also have adverse consequences for trade. In other cases, they're just not legitimate in our view. So I think we've got to deal with both of those things in a little bit of a different way.
So what I'd like to do is just before I move on to the NTM project and the findings is just give you a little snapshot about the Australian grain trade. We are a trade-exposed sector, and our trade has certainly been shifting to Asia. And we heard about that yesterday, the shift to Asian-- I think the question was asked, are we putting all our eggs in one basket? Really, for the grains industry, if you look at where demand's going to be in the future, Asia is where we're playing.
So we are one of agriculture's most important industries. As I said, we are a very trade-exposed sector. Well, in total we export around about 75% of our product.
In some states, it can be much higher. So for example, in Western Australia, it's really around 90% of our trade. So our industry is very trade exposed, and therefore market access is very, very critical to us.
The shift to Asia has really been a combination of a couple of things. You can see there on the slide our traditional markets in the Middle East for our traditional commodities of wheat and barley have moved very much to Asia, but also we've had growth in a lot of our smaller crops like canola and pulses, and, really, their core markets are in Asia, including Asia and the subcontinent.
We also heard yesterday about the importance of China and India, and definitely for the grains industry that's been a player the last decade or five to 10 years. We've certainly-- obviously, we have a free trade agreement with China, and certainly our products and our trade into China has expanded on the back of that and adjusted for changes in the Chinese market, as we heard this morning in the policy section. Also, to India, you can see there-- obviously, India's a very core market for our pulse crops. We also see opportunistic opportunities there for some of our other products, and certainly for wheat in 2016 and '17 year, it was a very key market.
So those two markets are very important to us. They have delivered value back to the industry, but they do also have some increased risk profiles for the industry as well.
So turning on to the core of the project-- of this talk in terms of the Grains NTM project. As I said, this really was a landmark report for the sector. It really was the first time that we've done a comprehensive look at trying to catalogue all of the NTMs that impact on the grains industry and importantly, to understand where the impacts of those are falling and to prioritise them.
So our objectives in doing this were to improve the transparency-- and we heard a lot about that yesterday in transparency-- so improving transparency by understanding from exporters where the NTMs are impacting and what it means for individual businesses as well as our industry in total-- and through that, to provide a better line of sight to the breadth and nature of the NTMs impacting on the industry. And really, that's important for us as an industry so that we can utilise that knowledge to better inform policy and interactions with government.
And I think the Senator this morning was talking about the need for industry to communicate to the government what our issues are, and that's certainly been a key driver of this project is as an industry, so we can communicate where our priorities are and what we would like the government to do about that. And I think one of the messages I'll come back to in the end is that if we're going to address NTMs, it has to be industry and government working together. It can't just be industry on its own.
So we did do a major data gathering exercise. We also did a major survey of exporters and industry organisations to try and identify NTMs. And you can see there in that box the scope was pretty broad at the end. I think it probably gave us a bit of a surprise. So I think in total, we identified 54 separate NTMs impacting across 15 markets, and within those 15 markets, they really included a lot of our core markets that we trade mostly with.
The next few slides will just give you a bit more visibility around the outcomes of the report. So if we look first in terms of the NTMs by commodity-- and really, this is just the number of NTMs identified by commodity as a percentage of the total-- and really, shouldn't be any surprises here. Obviously, wheat, barley, and canola are our three major export crops, and we've no surprise, that's where the greatest number of NTMs are.
But I think importantly-- again, for policymakers-- you can't ignore the small crops that might only show one NTM, but if that one NTM is in that crop's major market, it can impact on nearly all of the trade and put all of that trade at risk. And we saw that with cottonseed with an issue that we had into China last year that really-- where that market represents the bulk of that commodity's trade, it can really put at risk. So we can't just look at numbers in total. We've got to look at the impacts on a crop-by-crop basis.
Don spoke a little bit about the UNCTAD classification, and again, if you look at our NTMs in terms of the classification, you can see that we are very strongly focused in that category A, the SPS-- so the sanitary and phytosanitary elements-- and in the B category, which is the technical barriers to trade. And within those-- so the A and B categories essentially are all about protecting consumer, animal, or plant health and environment health. But some of the things that really had the greatest impact is it also picks up those measures that are related to the conformity assessment, if you like-- so the certification, the testing, the inspection, and the quarantine.
And I think Don raised the issues around the harmonisation of sampling and testing. And just certainly for the grains industry, that is one of our greatest challenges and something that we've been trying to work on, not only domestically or with our own governments but on a regional basis through organisations like APEC and others. So it's something that is going to take a long time to address, but it's something that we need to do.
And the other issue around the TBTs, the Technical Barriers to Trade, some of the key issues there really relate to transparency around regulations and the implementation of those, sometimes with no consultation and no warning. And again, we saw that with our pulses into India recently in December and subsequently with some other changes.
So we break this down a little bit more into what does that really mean for industry. Well, if you like, we put our own classification on top of the UNCTAD classification. So the right-hand side is sort of breaking-- graph is breaking up that dark green A box, and the graph on the left-hand side is breaking up the B box.
And you can see in that that the biggest categories for us in the A boxes are MRLs and disease, pests, and weeds. And this is really all about food safety. And I think-- we heard yesterday the statistic that 2/3 of the world are concerned about food safety and environment. And that's certainly something that we can see within the markets that we trade.
MRLs are a specific problem for the grains industry, and I'm sure for every other agriculture commodity as well. And this is, again-- they were talking in the session this morning about how one market might set standards and that flows on into other markets. And we've certainly seen that with MRLs. So countries like Japan who have put in their positive list system, that's flowed on to other markets and really causing some tightening of the MRLs across a lot of our trading markets.
But the MRL issue is quite complex, and it's really something that we have to tackle globally. We can do some things ourselves, but it's very much a global industry, and the grains industry does work globally with the International Grain Trade Coalition on MRLs. So we have issues around missing MRLs. We have lack of default policies. We have tightening MRLs. So it's a very complex area and something that's going to take a long time, probably, to address.
In terms of disease, pests, and weeds, we've seen a number of these issues arise for us in a number of our markets over recent years, and I guess this is where it becomes a bit challenging as to whether those are legitimate or not. And we would argue that in some cases, they are not legitimate, because the country that's imposing the restriction, like India on ergot, already has that pest or that disease present in its marketplace. So again, it's quite complex, and as Louise said, quite opaque sometimes in the impacts of these things.
In terms of the technical barriers to trade, again, we had a discussion this morning about domestic support policies and countries protecting their own industries. And this is certainly something that is causing us some issues around new access or expanded access for some of our products. Particularly in Southeast Asia, we're certainly seeing instances where markets are trying to protect their own domestic production, particularly corn. And recently Thailand put in place a restriction where an importer has to import on a three to one-- has to buy domestic corn on a three to one ratio if they want to import feed wheat. So we're seeing a lot of these things emerge across those markets, and transparency is often the issue around these.
So more looking at the impact of the NTMs, and-- oh. That's the old presentation, but that's OK.
[LAUGHING]
So I guess the impacts can be quite broad, but really, a lot of it actually really centres around increasing the operational and commercial risk for exporters. So a lot of the barriers that we're facing, a lot of the NTMs that the grains industry is facing, is really causing a lot higher compliance costs for the industry and certainly a lot higher compliance risk.
And sometimes, these NTMs, your product gets to destination before the NTM-- or before the restriction is notified, and so obviously there's costs around that. But because of the lack of transparency around some of these things, particularly where you're talking about lack of harmonisation on sampling and testing, the risk of something being approved to leave at origin but hitting problems at destination certainly incurs risk to the exporters. In other cases, because there are quite a lot of higher compliance costs, in some markets we have specialist protocols and industry management plans, which require the industry to do a lot higher supply chain selection to actually meet those market requirements, so it's adding costs through the supply chain.
The risk of a trade ban or restriction is also something that's a very high impact for the industry, and I guess one that you would have seen about media over the last few years is China and blackleg. That was initially a trade ban. Our trade stopped for a short time. The trade then reopened but has reopened with certain restrictions in terms of ports that we can export from. So the impact can be quite significant of these risks.
But I guess more concerning for the industry is perhaps some of the longer-term implications of some of these NTMs. So we do see that with the breadth of the NTMs we have, one of the potential longer-term impacts for the industry is a lack of confidence to invest, and that's not just through the supply chain but also at production capacity. So we certainly see it as a very high priority to address these NTMs.
I won't spend much time on this. We heard yesterday, as I said, about the 2/3 of the world concerned about food safety and environment. We're certainly seeing a lot of emerging issues. Food safety is not really emerging for us. It's been there for a long time, but it's certainly growing-- it's been growing in importance.
But things like biotechnology and sustainability are certainly emerging challenges. Again, these are ones where we work globally trying to address these, and certainly in sustainability. For our canola industry, it's very real, in terms of meeting EU sustainability requirements. But in a broader perspective, I think the problem that we want to avoid is not having every individual market putting their own sustainability requirements in, and then we're having to meet multiple certification systems, because all of that adds cost to the industry.
So that was a quick summary of the findings of the report. More importantly, I also just want to talk a little bit about what we can do about these NTMs. And as I said, it really has to be government and industry working together, and I think we'd certainly support the comments that the Senator made this morning that industry has to communicate to government their priorities, and then we have to collectively put strategies together to try to address that.
So the trade market access space is quite a big investment for the grains industry. We work across a whole range of elements in terms of trying to address not just NTMs but tariffs and all the other trade policy issues that are out there. But as I said, one of the points I'd like to leave is that we can't just work within our own market. We have to deal with some of these things globally.
We're fortunate in the grains industry. We do have some good structures at an industry level through the International Grain Trade Coalition to address some of these things, but we also have to be active in our own markets as well, helping the governments, helping our governments with some industry push and pull in those markets. We also, as an industry, have to be very proactive in providing support to the government in terms of some of the negotiations that they're doing in providing that technical support, and that's certainly something as an industry we try to do very hard.
I mentioned at the beginning that FTAs are one tool that we can use to address NTMs. And they are only one tool, but they're an important tool. And again, when I'm talking about FTAs, I'm talking about bilateral agreements and multilateral agreements.
But the industry has been proactive in trying to put together a set of disciplines that we can utilise as part of free trade negotiations. And those elements on the right-hand side of the slide summarise the elements that we have in the disciplines that we're putting together trying to address some of these NTMs. And really, a high-priority one that I've already mentioned there is in the a sampling and testing protocols-- and also thresholds. So in a lot of cases-- and particularly when we're talking things like biotechnology and plant innovation policies-- setting realistic thresholds is a very important issue for the industry. So we can use that set of disciplines across a whole range of FTA negotiations that we're having.