Speech

Glenelg SA, 2 April 2003

to the Annual Grains Week conference

Grains and the Australian economy 

Ladies and Gentlemen

It's a great pleasure to be here in Glenelg today.  And it's an honour to have been invited to speak at your conference.

Grains form a critical part of Australian agriculture.

Not only are they central to the still predominantly rural economy of regional Australia.

Grains production also constitutes a critical component of the national economy.

And grains - in particular wheat - are at the heart of Australia's international trade.

Exports of  wheat were valued at $4.5 billion in 2001/2002, or 4 percent of total Australian exports.

This represented an increase of 21 percent over the previous year.  In fact, over the previous decade, wheat exports grew an average 11 percent.

Of course, the short term outlook for the industry has been affected significantly by the drought.

The latest figures from ABARE show that winter grain production was just 15.4 million tonnes, down 61 percent from last year, and the lowest since 1994-95.

ABARE has now forecast that the summer crop will be down some 62 percent, to the lowest level in 20 years.

The value of last year's grain harvest (2001/02) was a record $10.3 billion:  this year (2002/03) it is expected to be around $4.7 billion.

In fact, the drought is expected to wipe 80 percent off last year's net value of farm production - some $10 billion - to around $2.2 billion.

Nationally, the impact of the drought is likely to take upwards of three quarters of one percent off our GDP growth this year.

Competitive liberalisation

Ladies and gentlemen

I'm not going to beat around the bush, or pretend otherwise -- our international agricultural trading outlook is difficult and uncertain.

• Clearly, we are faced with an uncertain international security situation, which is affecting market confidence -- including with respect to Iraq, which has been a significant customer for our wheat.
• Aside from the immediate security situation, our general trading environment has become more difficult - caused by both the drought and significantly weakened global demand, especially in some of our key markets.
• Furthermore, the Doha round of global trade negotiations at the World Trade Organisation is at a critical crossroads, with agriculture the central, and most difficult and contentious, area.
  • The passing of the 31 March deadline without agreement being reached on agriculture negotiating modalities is a further serious setback for the agriculture talks.

These factors make our trade policies all the more important, if we are to ensure that Australian producers, manufacturers and service providers can continue to expand and enhance access to markets abroad.

We are going to have to be especially flexible and sure-footed in ensuring that trade in Australian agricultural products - including our grains trade - continues to grow in global agricultural markets.

Competitive liberalisation is the term I have applied for our over-arching trade strategy.

• It is a strategy to pursue opportunities for greater access to overseas markets - with individual countries, in our wider region, and globally.
• It is a strategy to ensure that what we do, bilaterally and regionally, complements and stimulates the multilateral trading system, and the current Doha Round of global trade negotiations, and vice versa.
• It is a strategy to achieve, in these difficult and uncertain times, greater access to overseas markets as quickly, as broadly and as deeply as possible.

Iraq

Before I go on to set out the key elements of our trade strategy, I need to say a few words about Iraq

We are now more than two weeks in to the military conflict in Iraq.

Our troops - as true professionals - are performing magnificently.  All Australians are proud of their efforts.

As any prudent government would, we are looking beyond the conflict.

We are looking to a peaceful Iraq where we can help the Iraqi people rebuild their institutions, infrastructure and economy.

We are already helping to meet humanitarian needs in Iraq.

We are supplying 100,000 tonnes of Australian wheat - as urgent food aid for the Iraqi people.

For over fifty years Australian wheat growers have reliably provided the Iraqi people with high quality wheat.

The Government is committed to do all it can to see that this relationship continues.

We are also looking to Iraq's other future needs, and are deeply engaged with the US, UK and the United Nations on post-conflict reconstruction.

A big part of that engagement is about ensuring that our commercial wheat trade with Iraq is restored - and enhanced - as soon as possible.

We intend contributing in a very real way to recovery, growth and stability - in Iraq, and throughout the Middle East region.

The trading environment

Ladies and gentlemen

Over the last ten years, Australia's export growth has averaged almost 8 per cent a year, well above the world average of less than 3 per cent.

• Our exports have become more diverse - our top 20 export products include commodities, manufactures and services.
• Our markets have become more diverse - the Middle East, for4 example, remains our fastest growing regional market.

Australia's trading environment, however, has become particularly tough in recent months.

The international security situation, including in Iraq, is playing a part in this - including for wheat growers.

But military conflict is a small part of a much bigger global picture of economic uncertainty and weakened demand for our goods and services.

• Our biggest economic partner, the United States, grew an estimated 2.4 per cent in 2002, but business profits and investment remain weak.
• Our biggest overall trading partner, the European Union, grew just 1 percent last year, and weakness in Germany will remain a drag on recovery.
• Our biggest export market, Japan, declined 0.3 percent in 2002, with ongoing deflation, low consumer confidence, high levels of non-performing bank loans and weak business profits.

Despite all these pressures, our export volumes are only down 0.1 percent.  And the value of our exports, while down 2.3 percent, is still near record levels - at $151 billion.

The weak economic conditions of some of our key trading partners, and geo-political uncertainties, along with the effects of the drought, will continue to effect our export performance.

But the continued success of our trade policy efforts is backed by one of the best performing economies in the OECD. 

The Australian economy - described as "exceptional" by the 2003 OECD annual report, and as "astonishing" by The Economist last month - continues to perform extremely well.

Australia's economic data remain incredibly strong - unemployment at 6.1 percent, inflation at 3 percent, home loan interest rates at 6.5 percent, and government debt reduced by over $60 billion, to $34 billion.

And we are still growing and diversifying both the direction, and the spread, of our exports.

The Middle East, for example, remains our fastest growing regional market, with exports last year valued at over $7 billion.

Despite the geo-political difficulties of the Middle East, we continue to open new markets for Australian wheat.

• Last July, after my visit to Libya, we secured a 50,000 tonne order.  And AWB Ltd has won a similar contract to supply wheat to Jordan.
• We are also working with industry to strengthen existing markets like Iran, which has confirmed a 530,000 tonne order, with great potential for more trade.

Much of our continued success in markets such as the Middle East reflects the ability of our exporters to adapt to highly competitive and demanding global trading markets.

They have been ably supported by the strong business environment created by the Liberal-National Coalition Government.

Stable monetary and prudent fiscal policies, lower barriers to trade, greater incentives to invest, and sound micro-economic reform have ensured that industry can capitalise on its export strengths.

Our trading partners now have great confidence in the strength and sophistication of Australia's economy and export sector.

• That confidence is founded on the competitiveness and reliability of our exporters and the quality of our products.
• It applies especially to our rural exports, and in particular our grains.

The WTO negotiations

The challenge for us now, of course, is to ensure the continued success of our agricultural exports in global markets.

Agriculture remains front and centre in our trade priorities.

• Agriculture contributes vitally to Australia's export performance - accounting for one in every four dollars earned from exports.
• Agricultural markets are perhaps the most corrupted of all international markets.
• And Australia has staked out a leadership role in the fight for agricultural trade policy reform, especially as chair of the Cairns Group.

The main game for agriculture is the Doha Round of multilateral trade negotiations, kicked off at the WTO ministerial meeting in Qatar in November 2001.

We made it very clear that without progress in the Round on agriculture, there can be no progress in other areas such as services and manufactured goods.

Why?  For two principal reasons.

The first is the new found role and influence of developing countries in the negotiations, and because of the mandate achieved at Doha.

Developing countries now make up more than 100 out of the 145 WTO members.  They are overwhelmingly agricultural economies.

They are no longer prepared to keep opening their markets to developed countries for industrialised products and services until the developed countries give them fair access for agricultural products.

The second is the mandate for the agriculture negotiations that all WTO members agreed at the Doha meeting.  It requires that the Round succeed in achieving:

• substantial improvements in market access for agricultural products;
• substantial reductions in domestic support; and
• reductions in - with a view to phasing out - all forms of export subsidies.

By 31 March - just two days ago - all parties were supposed to agree on the targets and objectives - the so-called modalities - for agriculture.

That hasn't happened, despite proposals by the Chair of the agriculture negotiations, Stuart Harbinson, to try and break the log-jam between the major players.

Harbinson proposed tariff cuts, expanded tariff quotas, the elimination of export subsidies, limits to export credits and cuts in domestic support.

In our view, none of the proposals went far or fast enough.

• There would still be tariffs of several hundred percent on some products in which we specialise.
• Tariff quota volumes for products such as beef and dairy in our key markets would still be insufficient.
• And there would still be huge entitlements for domestic support that would do little to lessen the ongoing distortions in global markets.

Harbinson's also proposed that single desk export arrangements be removed.  Clearly, this is not acceptable to Australia.

Our single desk arrangements - including on wheat, sugar and rice -  do not distort world trade.  And they benefit Australian farmers.

• We will be defending Australia's single desk in the negotiations.

Despite all our problems with the Harbinson proposals, we at least still accepted that they could be a basis for discussion in the WTO.

Unfortunately, the European Union, Japan and some other protectionists in the negotiations have refused to even discuss the issue.

They have even tried to deny the Doha mandate which they agreed to just seventeen months ago.

In short, the protectionists don't understand - or, more likely, are refusing to acknowledge - that all multilateral trade rounds have been premised on the notion of a "single undertaking".

• In other words, nothing is agreed until everything is agreed.
• Without progress on agriculture, there will be no progress on the Round.
• This is not a threat, or an attempt to hold the Doha Round hostage to farming interests.
• It is simply a statement of fact.

We will not have it said, or argued, that we are holding up the Round.

• It is the protectionist forces in the agriculture negotiations that are risking outcomes across all sectors of the negotiations.
• The stakes, ladies and gentlemen, are very high.
• No one wants to see the breakdown of negotiations, which -- as The Economist magazine noted last week -- could damage the multilateral trading system and give rise to protectionism
  • especially in these uncertain times.
• We have to be prepared for a drawn out battle to raise the ambitions of the EU and Japan, in particular, so that agriculture does not become the cause of failure in the Doha Round.
• The next WTO ministerial meeting, in Cancun Mexico in September, will be a real test of the willingness of the EU, Japan and others to get real about the Round.
• Between now and Cancun, I will work with my Cairns Group colleages to push vigorously the message that the level of ambition in agriculture needs to be raised if there is going to be a successful end to the negotiations.
• Already I have reinforced my disappointment over the failure to WTO Members to meet the 31 March deadline with a number of Cairns Group Ministers.
• And Cairns Group Ministers will be working together to develop a strategy to deal with the looming crisis.

In the meantime, we will be working very hard - as permanent Chair of the Cairns Group - to ensure that all members of the WTO understand our interests, and our case for agricultural reform.

The United States FTA

Ladies and gentlemen

I am very pleased that our proposal for a Free Trade Agreement with the United States is now drawing increased support from the rural sector.

It promises to be the most significant bilateral trade negotiation in Australia's history.

This FTA offers an historic opportunity for Australia to become even more deeply integrated with the world's largest economy.

It is also an opportunity to reduce the risk that Australian exporters will lose access to the US market as a result of preferential trade arrangements the Americans are already negotiating with other countries

• such as the Free Trade Area of the Americas, which includes some of our major Latin American competitors in agricultural products.
• For Australia, a good agreement will be one which is both deep and wide.
• It will be an agreement where Australia gains real market access, across all sectors, including - and especially - in agriculture.
• It will be an agreement where Australia does not sacrifice important, public policies in health, welfare, utilities and culture.
• It will be an agreement which provides a real benchmark for the negotiations in the WTO, and for other trade agreements.

Last month we got off to a very good start in our negotiations with the US Administration.

Much of this early effort, of course, has been devoted to the scope of an Agreement.  This first round of talks allowed us to explore the key elements to be covered in the FTA.

We were also able to exchange a lot of information - and from our point of view, explaining to the Americans exactly how various aspects of our economic and trade policies and programs operate.

• I am confident the Americans will come to understand that the single desk not only operates in the interests of Australian growers, but also does not distort commodity markets for our grains overseas.

Already, for example, the Americans have indicated - very clearly - that they will not be going after our Pharmaceutical Benefits Scheme, an area of public policy many critics of the FTA have said they would target.

Of course, no one is pretending that we won't face questions from the Americans about sensitive sectors of our economy - just as they will face questions from us.

But we have no intention of entering into any agreement that would undermine the national interest, or our ability to deliver core public policies and programs.

We are now both ambitious - very ambitious - about completing the agreement in 2004.

Conclusion

Ladies and gentlemen

Strong economic foundations and a strong trade outlook will be the key factors in delivering Australia's future export growth - especially in agriculture and, particularly, in grains.

Our strategy of competitive liberalisation is the best way of ensuring that our efficient and productive industries succeed in global markets. 

• The issues I have outlined to you today - Iraq, the Middle East, the WTO negotiations, and the proposed FTA with the United States - are key elements of that strategy.

I know that your industry - with the leadership from the Grains Council, grower associations and commercial entities - is well placed to succeed.

I am confident the grains sector will recover from the drought and continue to grow, providing security and prosperity for your families and communities, well into the future.

The Coalition Government is doing everything it can to help, and I would be pleased to hear your views and suggestions.

Thank you