RURAL and REGIONAL COMMITTEE Inquiry Into Increasing

RURAL AND REGIONAL COMMITTEE

Inquiry into Increasing Exports of Goods and Services from Regional Victoria

Final Report

ORDERED TO BE PRINTED September 2014

By authority

Government Printer for the State of Victoria

Parliamentary Paper No. 343 (document 1 of 2), Session 2010-14 Rural and Regional Committee | Inquiry into Increasing Exports

National Library of Australia Cataloguing-in-Publication entry.

Author: Victoria. Parliament. Rural and Regional Committee.

Title: Final Report Inquiry into Increasing Exports of Goods and Services from Regional Victoria.

ISBN: 978-0-9873325-5-4 (paperback)

978-0-9873325-6-1 (electronic)

Notes: Includes bibliographical references and index.

Subjects: Exports--Victoria.

Foreign trade promotion--Victoria.

Produce trade--Victoria.

Export marketing--Victoria.

Dewey Number: 382.4109945

This Report is available from the Committee’s website at: www.parliament.vic.gov.au/rrc

ii Contents

Terms of Reference...... ix

Chair’s Foreword...... xi

Executive Summary...... xiii

Recommendations...... xxi

Section I: Exporting from Victoria

Chapter one: Introduction...... 1

1.1 Background...... 2

1.6 Key findings and recommendations...... 2

1.17 Scope of the inquiry...... 4

1.28 More than just international exports...... 6

1.34 Different businesses and different solutions...... 6

1.36 The inquiry process...... 7

1.41 Acknowledgement...... 8

1.42 Structure of this report...... 8

Chapter two: Victoria’s ability to compete...... 9

2.1 Competitiveness...... 11

2.9 Victoria’s advantages...... 12

2.34 Quality: a key advantage...... 18

2.50 A compact state...... 20

2.58 Regional towns and cities...... 22

2.86 Victoria’s competitive disadvantages...... 28

2.103 Using Victoria’s competitive advantages...... 31

Chapter three: Current exports from regional Victoria...... 33

3.1 Exports from the whole of Victoria...... 34

3.4 What is exported from Victoria?...... 36

iii Rural and Regional Committee | Inquiry into Increasing Exports

3.14 How much of this comes from regional Victoria?...... 38

3.23 Education...... 39

3.33 Tourism...... 41

3.38 Export markets...... 42

3.44 The movement of goods within Victoria...... 46

Chapter four: The impact of exporting...... 49

4.1 The importance of exports to Victoria...... 50

4.12 The impact of exporting on individual firms...... 52

4.23 Structural change...... 54

4.37 Change in the manufacturing industry...... 58

Chapter five: Increasing exports...... 63

5.1 The global opportunity...... 64

5.7 Victoria’s potential for growth...... 66

5.18 Victoria’s capacity to grow exports...... 68

5.28 Government plans to increase exports...... 70

5.38 Data limitations...... 72

5.51 Three levels of government...... 76

5.71 Adding value not just volume...... 80

5.76 ‘Cashing in’ on the opportunity...... 81

Section II: Supply Side

Chapter six: Investment and financing...... 83

6.1 The need for capital...... 84

6.8 Capital for product development and commercialisation...... 85

6.21 Capital for establishing demand in export markets...... 88

6.34 Capital for scaling up production...... 91

6.45 The Export Finance and Insurance Corporation...... 93

6.56 Foreign investment in Australia...... 96 iv Rural and Regional Committee | Contents

6.75 Victorian firms investing overseas...... 100

Chapter seven: Human resources...... 103

7.1 Access to skilled workers...... 104

7.18 Adapting to structural change...... 107

7.29 Skills to become export ready...... 109

7.49 Providing data for exporters...... 114

7.60 Access to skill development...... 116

Chapter eight: Infrastructure...... 119

8.1 Infrastructure in Victoria...... 122

8.7 Transport...... 125

8.16 Road vs rail...... 127

8.21 Rail...... 128

8.48 Roads...... 134

8.64 Intermodal hubs...... 137

8.74 Ports...... 139

8.88 Aviation...... 142

8.102 Tourism...... 144

8.118 Telecommunications...... 148

8.125 Irrigation...... 149

8.131 Energy...... 150

Chapter nine: Government programs to increase competitiveness and productivity...... 153

9.1 Facilitating collaboration...... 154

9.18 Research, development and extension...... 157

9.40 Increasing value as well as volume...... 161

9.52 Other programs to improve productivity...... 164

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Chapter ten: Regulation...... 167

10.1 The role of regulation...... 168

10.11 The problem with regulation...... 170

10.22 Potential changes to regulation...... 172

10.32 Commonwealth Department of Agriculture inspections...... 175

Section III: Demand Side

Chapter eleven: Establishing relationships with overseas markets...... 177

11.1 The role of government...... 178

11.6 Victorian Government Business Offices...... 179

11.13 Austrade...... 181

11.19 Outbound trade missions...... 183

11.27 Inbound trade missions...... 186

11.34 Local government...... 187

11.44 Free trade agreements and tariffs...... 189

Chapter twelve: Promotion and branding...... 195

12.1 Promotion...... 196

12.6 Branding – national, state or regional?...... 196

12.30 Study Melbourne...... 201

12.44 Awards...... 204

12.48 Marketing cooperatives...... 204

Appendix 1: Bibliography...... 207

Appendix 2: Submissions...... 213

Appendix 3: Public consultation program: witnesses...... 215

Appendix 4: Proposed government support for infrastructure...... 225

Appendix 5: Competitiveness: firms, regions and productivity ...... 237 vi Rural and Regional Committee | Contents

Appendix 6: Exports from areas within Victoria...... 241

Appendix 7: Victoria’s major export partners...... 243

Appendix 8: Victorian exports by category, 2002-03 to 2012-13...... 247

Appendix 9: Proposed government financial support for exports...... 249

Appendix 10: Examples of research as an educational export, Federation University Australia, 2014...... 253

Appendix 11: Austrade National Food Brand research summary...... 255

Tables

Table 2.1. Top exporting sub-sectors by region...... 12

Table 8.1 Submissions to this Inquiry identifying infrastructure as a competitive advantage...... 123

Table 8.2 Comparison of port charges...... 141

Table 11.1 Sales achieved on trade missions, December 2010 to July 2013 ...... 183

Table 11.2 Tariff rates for packaged fruit...... 193

Figures

Figure 3.1 Exports from Australia by state/territory, 2012-13...... 34

Figure 3.2 Victorian exports, 2002-03 to 2012-13...... 35

Figure 3.3 Composition of Victoria’s exports, 2012-13 ($million)...... 36

Figure 3.4 Major destinations of Victorian goods, 2012-13...... 42

Figure 3.5 Major origins of international students in Victoria (enrolment numbers), 2013...... 43

Figure 3.6 Major origins of international overnight visitors to Victoria (international visitor nights), 2012-13...... 44

Figure 3.7 Proportion of visitors by country of residence 2011-12..... 45

Figure 3.8 Value of goods through Victoria’s ship and air ports, as a proportion of total Victorian exports, 2012-13...... 47

vii Rural and Regional Committee | Inquiry into Increasing Exports

Figure 3.9 Indicative movements of the top five commodities in Victoria...... 48

Figure 4.1 Employment by industry in Victoria, 1996-2011...... 54

Figure 4.2 Gross value added by selected industries as a proportion of Victoria’s gross state product, 1995-96 to 2012-13...... 56

Figure 4.3 Value of exports from different industries in Victoria, 1990- 91 to 2012-13...... 57

Figure 4.4 Employment within the manufacturing industry in Victoria, 2001-2011...... 60

Figure 5.1 International exports as a proportion of gross regional product, selected municipalities, 2012...... 74

Figure 5.2 Proportion of business sales revenue earned from exports, by region...... 75

Figure 11.1 Location of international Victorian Government Business Offices...... 80

Boxes

Box 7.1 Export Readiness Checklist...... 11 0

Box 11.1 Suggested improvements to Victorian Government trade missions...... 185

Box A5.1 The Global Competitiveness Index...... 239

viii Terms of Reference

57th Parliament

Received from the Legislative Assembly on 26 November 2013

INQUIRY INTO THE OPPORTUNITIES FOR INCREASING EXPORTS OF GOODS AND SERVICES FROM REGIONAL VICTORIA

To the Rural and Regional Committee — for inquiry, consideration and report no later than 4 September 2014 on the opportunities for increasing exports of goods and services from regional Victoria, and the Committee is asked to do this through an examination of:

a. the identification and volume of Victorian agricultural, resource, manufacturing and service industry exports to overseas markets originating in regional Victoria

b. regional Victoria’s competitive advantages in meeting the demands of world markets

c. innovative approaches to exporting and lessons to be shared from successful exporters

d. impediments and barriers creating difficulties for regional exporters

e. the current and future roles of government in supporting regional businesses in their export endeavours.

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x Chair’s Foreword

Regional Victoria exports a wide variety of goods and services, including food and fibre, minerals and fuels, and transport and education services. Manufacturing also remains an important component of the Victorian economy, comprising just under one-quarter of Victoria’s exports. Estimates suggest that as much as one-third of Victoria’s exports originate in rural and regional Victoria.

Growing these regional exports requires identifying and supporting our competitive advantages, reducing our costs of production and increasing efficiencies while seeking greater access to existing and emerging export markets. Victoria’s competitive advantages mean we have a strong economy with a strong export sector and potential for further growth. Much of these advantages are based on our ability to produce high quality products, our natural environment and liveability, and our world leading education, manufacturing, medical and scientific sectors.

Rural and regional Victoria’s critical export role, in particular in relation to primary products including agriculture, will become increasingly important in the near future thanks to the opportunities presented by the growing wealth of the large developing economies to Australia’s north. Victoria’s dairy and meat sectors, for example, are already recognised throughout the world as being among the best in the marketplace. Outbound and inbound trade missions and other international representations from the Victorian and Commonwealth Governments are critical to opening up new and emerging markets to greater exports from regional Victoria.

Of course, these quality products are a result of the hard work and innovation of Victoria’s primary producers as well as the effective regulatory system that protects our reputation. The Committee believes that this regulatory system should continue to be monitored and evaluated, to ensure that it remains effective without being an undue burden on Victoria’s businesses.

Infrastructure was described to the Committee as being the backbone of exports. Chapter 8 of this Report covers the broad spectrum of infrastructure needs: road; rail; ports; air; energy; irrigation; and telecommunications. Victorian governments over the years have been committed to providing reliable, modern infrastructure, often working in conjunction with the private sector in doing so. Nevertheless the Committee believes that the growing freight task means that there remains important work to be done to: • Improve our roads so they are fit for purpose to carry the vehicles of the 21st Century • Encourage greater use of rail where possible, including via intermodal hubs • Ensure the growth and competitiveness of our existing and future export ports • Ensure the capacity of Victoria’s two curfew-free airports grows in line with modern air freight expectations. It is also important to acknowledge the expectation that governments will provide a world-class telecommunications network across rural and regional Victoria that meets the demands of businesses, including Victoria’s growing tourism market and education sector. Higher education has the opportunity to see regional cities grow as ‘campus’ towns with vibrant live music, arts and culture, fostering learning and innovation as well as regional tourism and the sustainable jobs of the 21st Century.

xi Rural and Regional Committee | Inquiry into Increasing Exports

Much of the business community, especially small businesses, turns to government for assistance with exporting for the first time or expanding their production once in the export market. This assistance takes a variety of forms, such as knowledge about tariffs and other trade barriers, capital funding, and access to overseas business networks. Ensuring that Victoria remains competitive in an increasingly global economy requires all governments to work together in ensuring that our regulatory environment is as consistent with our major trading partners as possible.

These are all areas where services are currently provided by the three tiers of government in Australia. The Committee has made Recommendations it believes will improve this level of service, so that businesses can get the information and assistance they need quickly and efficiently.

During this Inquiry, the Committee heard from over 130 witnesses at nine public hearings, received 51 submissions and undertook ten site visits, as well as receiving briefings interstate. These submissions and transcripts of public hearings will remain on the Committee’s website. The Committee greatly appreciates the advice it received, in particular the first-hand experience of businesses and individuals successfully exporting from rural and regional Victoria. The Committee has relied heavily on this knowledge in its deliberations and trusts it has reflected these views accurately throughout this Report.

On behalf of my Committee colleagues I would like to thank our Secretariat staff, Christopher Gribbin, Lilian Topic, Patrick O’Brien and Laura Ollington, for their contribution and dedication to the work of the Rural and Regional Committee.

I also thank my colleagues on the Committee for their collegiality and their commitment to, not just this Inquiry, but the continued development of rural and regional Victoria. I would particularly like to thank Deputy Chair, Geoff Howard, for his support in continuing the bipartisan work of the Committee for the long-term benefit of regional Victoria. I also acknowledge the contribution of the long-serving former Chair of the Committee, Paul Weller, and thank him for his guidance in my new role as Chair of this important Committee. This Report builds upon and supports much of the Committee’s previous work in related subject matters, such as telecommuting, attracting young farmers and building regional cities of the future, the Recommendations from which are all relevant to growing exports from regional Victoria.

The depth and breadth of highly skilled businesses and individuals throughout rural and regional Victoria is a great example to the nation and the world of the sustainable benefits of peaceful prosperity. Exports are just one part of our regional economy but an important one with great potential for further growth. The Rural and Regional Committee believes that the Recommendations contained in this Report will build on our strengths and facilitate that potential being achieved.

I commend the report to the Parliament.

David O’Brien MLC

Chair September 2014 xii Executive Summary

Chapter one: Introduction

A broad range of goods and services is exported internationally from regional Victoria. General measures to grow businesses and strong local economies are important mechanisms for increasing exports, and policies to increase exports need to consider this broader picture.

This Report discusses how government can support existing businesses and contribute to the growth and expansion of Victoria’s export profile.

Chapter two: Victoria’s ability to compete

Regional Victoria has many competitive advantages, derived from its geographical attributes, liveability, infrastructure, education, research institutions and human resources. Combined, these advantages enable Victoria to produce high quality goods and services.

Victoria’s reputation for producing high quality goods and services allows it to compete for quality markets where it is difficult to compete on price. Maintaining and enhancing this reputation must be a crucial aspect of all government policy related to exports. However, reducing costs and regulatory burden as far as possible without compromising this reputation is equally important for competing in international markets and providing higher margins to producers.

The proximity of much of regional Victoria to Melbourne is a competitive advantage to: exporters who rely on domestic markets for some of their sales; centralised packing and distribution networks; and exporters needing ready access to ports. Regional Victoria also benefits from tourists attracted to Melbourne’s sites and events. However, the proximity of Melbourne means that the regional tourism industry faces a challenge in encouraging international tourists to stay overnight in regional Victoria rather than visit regional areas on a day trip from Melbourne. Melbourne has recently been voted, for the fourth year, the world’s most liveable city. Much of Melbourne’s liveability and attraction as a tourist destination derives from its proximity to and integral relationship with regional Victoria and regional Victoria’s many significant tourist destinations.

The large towns and cities located throughout regional Victoria present an opportunity for Victoria. Growing these towns will provide a competitive advantage to regional firms by providing an increased labour force; facilitating more diversified regional economies; and enabling more efficient use of Victoria’s existing road and rail infrastructure. To fully realise this opportunity will require infrastructure investment in regional towns and cities.

Forming clusters of related industries in regional areas and regional university towns has been identified as a way to increase regional exports. These also have the potential to increase the liveability and

xiii Rural and Regional Committee | Inquiry into Increasing Exports

economic development of regional centres. For university towns to attract international students, however, it is important to offer an attractive lifestyle, good infrastructure and work opportunities for students during and after study.

Victoria’s major competitive disadvantages for international exports include high labour costs, the high Australian dollar, regulations and the size of businesses. However, some of these features are also intrinsic to Victoria’s liveability and standard of living.

Chapter three: Current exports from regional Victoria

A total of $35.9 billion worth of goods and services was exported from Victoria as a whole in 2012–13. The major categories of exports were manufactured goods ($8.0 billion), food ($7.9 billion), education ($4.3 billion) and other travel ($3.4 billion). The Victorian Government has estimated that approximately one-third of Victoria’s exports come from regional Victoria. However, detailed information breaking down the regional components of exports is not readily available at present.

Committee estimates indicate that: • Approximately ten per cent of onshore higher education international students study at regional campuses • Approximately four per cent of onshore vocational education and training international students are enrolled at regional institutes • Just over ten per cent of the gross value added by international tourists to Victoria’s economy comes from international tourists in regional Victoria. Victoria’s major export markets are China, New Zealand, India, South East Asia and North America. In 2012–13, approximately 65 per cent of Victoria’s exported goods (by value) left through the Port of Melbourne. Victoria’s other sea ports accounted for 15.5 per cent and Victorian airports for 12.9 per cent of goods. The remainder left primarily through sea and air ports in other states.

Chapter four: The impact of exporting

In 2012–13, exports accounted for 10.6 per cent of Victoria’s gross state product. They comprise a larger proportion of income for some industries and some regions in Victoria.

Exporting provides a variety of economic and social benefits to Victoria. The benefits for a business from exporting depend on a number of factors, including industry and size. For some industries, export markets provide better returns than those from domestic markets. In others exports can assist in selling surplus products even if domestic sales comprise the larger part of a business’s production. Exporting can help businesses to grow, increase their productivity and mitigate risk. However, exporting can also involve significant costs, time and effort, which can mean embarking on an export agenda is prohibitive for small businesses.

Structural change in the economy has seen shifts in Victorian employment, production and exports. In particular, service industries have grown, while manufacturing as a whole has declined. However, evidence the Committee heard suggests some areas of manufacturing have the potential to grow, xiv Rural and Regional Committee | Executive Summary

especially food processing and advanced manufacturing.

Chapter five: Increasing exports

The coming decades are expected to see significant growth in global demand for goods and services. The increasing population of Asia and its growing middle class are major driving forces of the increased demand. This provides an opportunity for Victoria to grow its exports, particularly in bulk commodities, high quality food and fibre, health, and medical research.

A number of submissions and witnesses provided information about Victoria’s capacity to grow its supply of exportable goods and services. The Committee met a number of firms with the potential to expand their production and learnt about research work to boost Victoria’s productivity. It was suggested that Victoria’s export performance for some sectors in recent years has been hampered by a number of temporary factors.

Detailed data about international exports from Victoria as a whole are collected by the Commonwealth Department of Foreign Affairs and Trade and the Australian Bureau of Statistics. However, limited information is available relating to international exports from individual areas within Victoria. If available, this information could inform export policy, assist with the allocation of resources, and provide a way to measure the effectiveness of government projects and programs. It could also help regions to design export strategies and market themselves, and assist businesses with collaboration.

All three tiers of government in Australia provide assistance to exporting businesses. The Committee received some evidence indicating that the different tiers complement each other and work together well. Some participants in the Inquiry advocated for a ‘one-stop- shop’ to help businesses find the assistance they need easily.

In addition to growing the volume of products which are exported, adding more value to the products before they are exported has the potential to increase Victoria’s income from exports. The Committee heard evidence that there is potential for more value-adding in Victoria, particularly in relation to food processing and advanced manufacturing.

Chapter six: Investment and financing

There is industry support for the Victorian Government providing financial assistance to start-up export businesses, in particular to make the leap from invention to commercialisation.

Businesses noted the significant cost of establishing their products in export markets. The Commonwealth Government’s Export Market Development Grant program has helped businesses with this cost. A number of participants in the Inquiry advocated for the program to be expanded.

Entering export markets can often require companies to scale up production, sometimes quickly. This can require access to capital. For some businesses, accessing capital to scale up production is difficult.

The Commonwealth Government’s Export Finance and Insurance Corporation (EFIC) provides finance and insurance products, to assist exporters to expand. EFIC is currently working to promote its services

xv Rural and Regional Committee | Inquiry into Increasing Exports

better and make them easier to access. The Committee heard some calls for EFIC’s services to be provided for smaller firms, firms commencing exporting and riskier ventures.

Rural and regional businesses, in particular in the agriculture sector, rely on foreign investment to expand. This can provide a number of benefits, but these must be weighed against national interests and greater opportunities for Victorian businesses to scale up their operations to increase export volume and income. Foreign investment by Victorian companies overseas has the potential to provide some of the same benefits for exports as foreign investment into Australia. While the Victorian and Federal Governments note that they can provide support and assistance for Victorian companies investing overseas, the Committee recommends that greater assistance be provided in this important area to leverage greater exports into overseas markets.

Chapter seven: Human resources

There is a high level of workforce skills in regional Victoria. However, some firms have experienced difficulties finding workers with the exact skills they need or finding skilled workers in the required numbers. Some have brought in overseas workers on 457 visas, although others have experienced difficulties with that program.

Structural change in some parts of regional Victoria requires the workforce to gain new skills, to adapt to new economic opportunities. This can be a cost for local businesses. Intellectual property including trade secrets and know-how is an increasingly important factor when exporting, particularly for the ICT and advanced manufacturing sectors.

The Victorian Government has a key role to play in helping SMEs become, and continue to be, ‘export ready’. This includes through providing market information and similar data, and provision of training and information sessions that are accessible by regional businesses.

Chapter eight: Infrastructure

Victoria’s infrastructure was identified by many participants in the Inquiry as a competitive advantage for exports from regional Victoria. Participants also identified a number of areas where additional investment would enhance that competitive advantage.

As transport costs are a large portion of the final cost of goods, Victoria’s effective transport network is a competitive advantage. Any improvement to the network has the potential to provide further advantage to exporters, particularly if integrated into scaled up production opportunities.

Governments have to balance calls to keep the number of large vehicles on the road to a minimum with the fact that businesses choose the transport option that best suits their needs. The potential to increase the amount of product transported by rail from rural and regional Victoria is very sector-specific. Rail works well in some circumstances, but it is impractical for some industries or businesses due to the length of time it takes, the cost of getting goods on and off trains, and the physical limitations of Victoria’s current rail infrastructure. Additional infrastructure investment has the potential to reduce some of these disadvantages

xvi Rural and Regional Committee | Executive Summary

and increase the number of businesses for which rail is a viable alternative to road.

High productivity vehicles result in fewer vehicles on the road, increased efficiency, reduced emissions and lower input costs. However, many of Victoria’s roads and bridges need to be upgraded to accommodate high productivity vehicles. Intermodal hubs offer great potential for improving export efficiency provided they are strategically located and supported by other relevant policies, such as the Mode Shift Incentive Scheme.

A proportion of the cost of transporting rail freight is the extra handling that occurs at ports. A reduction in this cost would encourage greater use of rail for exports from rural and regional Victoria. A number of participants in this Inquiry indicated that Victoria’s port charges are higher than some competitors’ and should be reviewed. For example, evidence was presented to the Committee that the Port of Melbourne’s time slot system is increasing costs for regional exporters.

Victoria’s two curfew-free airports play a key role in supporting international tourism and freight exports. New international airline services to Tullamarine and Avalon airports will underpin export growth from rural and regional Victoria.

The Committee heard from a number of witnesses that building high-end ‘brand’ hotels in rural and regional Victoria would encourage more overnight stays by international visitors in these areas. This would significantly increase the economic impact of international tourism on regional Victoria.

High-speed broadband, wi-fi, and good mobile reception are significant tools for attracting tourists and international students which also benefit other sectors of the economy.

Energy costs in Victoria were identified by a number of participants in the inquiry as a competitive disadvantage. Some participants indicated that renewable energy may help reduce costs but needs to be properly planned to respect the interests of local communities, councils and the Victorian Government. Reliable access to water remains integral to productivity growth in the agriculture sector.

Chapter nine: Government programs to increase competitiveness and productivity

Rural and regional Victoria benefits socially and economically from the presence of a strong and independent small business sector. Collaboration offers advantages to those small businesses wishing to export while still maintaining their own business.

Many participants in this Inquiry noted the importance of research and development to Victorian industries. The presence of an appropriately skilled workforce to take advantage of R&D was also identified as an ongoing need.

Another crucial factor for competitiveness is that regulatory bodies stay up-to-date with progress in the industries they are responsible for.

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Chapter ten: Regulation

Victoria’s regulatory environment is intended to protect one of Victoria’s key competitive advantages, namely its reputation for clean green food and fibre products and other quality products. It supports Victoria consistently producing goods and services to a high standard and this is recognised globally.

Reviewing regulation is an important contributor to maintaining a strong regulatory environment. Submissions and witnesses who participated in this Inquiry identified a number of areas of regulation which they considered should be reviewed. They also provided positive feedback to the Committee about the work of the Red Tape Commissioner.

Chapter eleven: Establishing relationships with overseas markets

Both the Victorian and Commonwealth Governments have international offices to help facilitate exports. The Committee heard positive comments about these offices, though areas for expanded services were also suggested.

The Committee received a significant amount of support for Victorian trade missions, both inbound and outbound, which are said to be effective and popular with business. This positive support was accompanied by a number of potential improvements to the trade mission program.

The Committee heard that local government has a a role to play in facilitating relationships with export markets.

The Australian Government currently has seven Free Trade Agreements (FTAs) in place and is pursuing another seven. The Committee heard from a number of sectors arguing that there was insufficient consultation when negotiating FTAs and that the results could be better publicised. Furthermore, the Committee found that a disparity exists between community expectations regarding tariffs and the economic and policy conditions facing Commonwealth trade negotiations.

Chapter twelve: Promotion and branding

While many submissions and witnesses advocated for a common branding for Victorian products and services, there was disagreement as to whether the branding should refer to Australia, Victoria or specific regions.

Victoria’s education promotion activities take place under the Study Melbourne brand. The ‘Melbourne’ brand is a strong marketing tool with the potential to attract international students and tourists to Victoria. Nevertheless it needs to be managed carefully, to ensure it effectively promotes regional Victoria’s higher education providers, including the different experience students can enjoy in a regional institution.

Awards can be an effective marketing tool for rural and regional exporters, enhancing Victoria’s reputation as a producer of high quality goods and services.

Marketing can be prohibitively expensive for individual businesses, especially SMEs, and marketing

xviii Rural and Regional Committee | Executive Summary

cooperatives are one method of mitigating this problem. The Committee heard a number of calls for the Victorian Government to facilitate these cooperatives. However, it was recognised that collaboration can be difficult.

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xx Recommendations

Recommendation 1

That the Victorian Government liaise with other states and the Commonwealth Government to encourage and facilitate regional Victorian firms exporting interstate, especially to the ‘mining states’ such as Western Australia and Queensland.

1.27

Recommendation 2

That the Victorian Government continue to support policies which grow regional towns and cities, ensuring regional centres have: • Opportunities in agricultural and other export orientated industries such as skilled manufacturing, professional services, hospitality, tourism and education • High quality agricultural and environmental standards and practices • Liveability • Good infrastructure connections (transport and communications) between regional centres, ports and Melbourne. 2.66

Recommendation 3

That the Victorian Government, in developing policies for regional and rural development, consider the benefits of: • Facilitating clusters of related industries (especially those that can be established around rural agricultural activities) • Supporting and promoting ‘university towns’ in regional Victoria, with consideration given to successful examples in other countries (such as Oxford, Cambridge, Yale and Harvard). As part of this, the Government should focus on the infrastructure and other needs of international students, including the liveability of regional centres, employment during and after education, travel concessions and affordable wi-fi broadband.

2.85

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Recommendation 4

That the Victorian Government use research into Victoria’s competitive advantages to promote key competitive advantages and ensure that they are protected and enhanced where possible. Identified key advantages include: • Victoria’s ability to produce ‘clean and green’ agricultural products and other commodities of high quality • The benefits of Victoria’s compact size, with comparatively cheap base load power, good links to a number of air and sea ports and regional centres that have strengths in manufacturing, food processing and agribusiness, with potential for the advanced industries of the future • Regional Victoria’s desirability as a place to live, visit and study. 2.108

Recommendation 5

That the Victorian Government partner with the Commonwealth Government in assessing the international competitiveness of the regulation and taxation regime faced by Victorian businesses to identify areas of competitive disadvantage.

4.50

Recommendation 6

That the Victorian Government establish mechanisms to gather data about the quantity of export income derived from international exports of goods and services from across regional Victoria, where this can be done without undue burden on business. These data can be used by the Government to inform policy, allocate resources, and monitor the effectiveness of projects and programs.

5.50

Recommendation 7

That the Victorian Government work with Commonwealth and local governments to establish a single web portal which brings together information for Victorian exporters. The portal should include information about support available, including from different departments, so that exporters can find the information they need easily from one place. Further, physical services should be co-located in regional areas where possible.

5.70

xxii Rural and Regional Committee |Recommendations

Recommendation 8

That the Victorian Government liaise with the Commonwealth Government to assist businesses in scaling up production in order to enter or grow export markets. In so doing, the Government should look at products offered by governments in other countries, such as by the Business Bank in the United Kingdom.

6.44

Recommendation 9

That the Victorian Government investigate opportunities for Victorian businesses to invest in foreign companies, particularly in our target export markets such as China, India, South East Asia, North America and the European Union. These opportunities should be promoted and facilitated through Export Victoria, the Victorian Government Business Offices and similar services.

6.82

Recommendation 10

That the Victorian Government, in liaison with the Commonwealth, continue to support the development and protection of intellectual property, including trade secrets and know-how as a key means of increasing exports. This should encourage rural and regional businesses to innovate, grow their exports and better engage with new export markets with the confidence that their competitive advantages can be developed, protected and maintained.

7.28

Recommendation 11

That the Victorian Government continue to deliver training and information sessions in rural and regional Victoria and that the Government deliver these in a way that meets the needs of rural and regional businesses.

7.65

Recommendation 12

That the Victorian Government continue to prioritise long-term infrastructure planning and delivery, particularly to assist businesses to obtain and maintain world-class cost competitiveness.

8.6

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Recommendation 13

That, in relation to rail, the Victorian Government investigate options: • To attract more freight onto rail through continued funding of the Mode Shift Incentive Scheme • To reduce costs and delays getting goods onto ships at ports from rail, including additional rail infrastructure. 8.47

Recommendation 14

That the Victorian Government continue to invest in road infrastructure on major transport routes and review regulations in relation to high productivity vehicles.

8.63

Recommendation 15

That the Victorian Government ensure that regional exporters have adequate access to the Port of Melbourne, including adequate time slots.

8.87

Recommendation 16

That the Victorian Government promote the benefits of collaboration in achieving scale for better export market penetration and competitiveness, such as through Victorian Government Business Offices, the business development manager network and other corporate channels. In particular, to act as a facilitator of collaborative consolidation of packing sheds and distribution networks in the horticulture sector.

9.17

Recommendation 17

That the Victorian Government ensure that its support for research and development and private sector innovation is appropriately focused on developing industries where regional Victoria can add significant value to products that are exported.

9.51

Recommendation 18

That the Victorian Government continue working with the Commonwealth Government to reduce the impact of regulation on business while ensuring that Victoria’s quality standards are maintained.

10.31

xxiv Rural and Regional Committee |Recommendations

Recommendation 19

That the Victorian Government continue to liaise with the Commonwealth Department of Agriculture to ensure businesses in rural and regional Victoria are not negatively affected by the Department’s operating hours. This includes continuing to advocate for bonded warehouses in regional areas capable of certifying exports. Any changes must not compromise Victoria’s excellent biosecurity standards.

10.39

Recommendation 20

That the Victorian Government continue outbound and inbound trade missions but provide further support and encouragement for businesses to share beneficial learnings and networks from these contacts through bodies such as industry representative organisations and agribusiness forums.

11.33

Recommendation 21

That, in relation to exports, the Victorian Government work with the Commonwealth Government: • While economic partnership agreements are negotiated, to represent the best interests of exporters based in rural and regional Victoria • To strengthen the competitiveness of exporters based in rural and regional Victoria with regard to: relative tariff and trade barriers; and gaining greater market access to existing and future export markets • To increase industry/government dialogue in relation to tariffs, investment tax, and market access levels across sectors and industries. 11.69

Recommendation 22

That the Victorian Government support a coordinated national branding promoting regional exports that builds on Austrade’s current work. It should accommodate for states’, regions’ and local organisations’ sub-branding where research shows that this adds value.

12.29

Recommendation 23

That the Victorian Government support the expansion of award and recognition programs with the potential to enhance rural and regional Victoria’s reputation in a way that promotes exports.

12.47

xxv Rural and Regional Committee | Inquiry into Increasing Exports

xxvi Chapter one: Introduction

Findings

1.1

A broad range of goods and services is exported internationally from regional Victoria and the Committee received evidence on many issues. There are a number of areas that are important to businesses in rural and regional Victoria but are not currently included in export data, including foreign investment and exports to other states of Australia.

1.2

General measures to grow businesses and strong local economies are important mechanisms for increasing exports. Any policies to increase exports need to consider this broader picture.

1.3

Government policies relating to exports should acknowledge the varying characteristics of exporting firms in regional Victoria, with support needed from government differing depending on firm size and capacity.

Recommendation

Recommendation 1

1.27

1 Rural and Regional Committee | Inquiry into Increasing Exports

Background

1.1 International exports are vital to regional Victoria. They provide many jobs and are an important part of the economy. They allow Victoria to specialise in the products that it can best produce, and contribute to the growing domestic and international economy.

1.2 Throughout the course of this Inquiry, the Committee heard about the many goods and services that regional Victoria produces competitively. The Committee has categorised the evidence it received on exports from regional Victoria into four major sectors: • Agriculture, mining and forestry • Food processing and advanced manufacturing • Tourism • Education. 1.3 These four sectors exploit Victoria’s natural and man-made assets, which include the competitive advantages of being a compact state that combines high quality agricultural land with one of the world’s most liveable capital cities – and even more liveable surrounding regional areas.

1.4 Regional Victoria has an opportunity to build on these advantages to grow its exports, bringing both economic and social benefits. The anticipated growth and increasing wealth of the Asian population in the coming decades is a major driver of this opportunity. As a result of the increase in population and wealth, demand for many goods and services is expected to increase substantially, including all four of the sectors listed above.

1.5 However, for regional Victoria to make the most of this opportunity, government needs to have the right policy settings. This Inquiry has focused on identifying the areas where government support is needed, to guide the Victorian Government in focusing policy settings in a way that best assists exporters in regional Victoria.

Key findings and recommendations

1.6 Regional Victoria’s ability to export firstly comes from its competitive advantages. These include natural advantages (such as minerals and fertile land) and man-made advantages (such as infrastructure and educational facilities). Many participants in the Inquiry emphasised the need to harness these advantages and produce high quality goods and services. For many industries, quality is the key competitive advantage in international markets.

1.7 Recommendations in Chapter 2 of this report focus on clearly identifying regional Victoria’s competitive advantages. This is a key requirement to assist government in policy making. This information helps government to determine what needs to be built on and to ensure that these advantages are not damaged.

1.8 Chapter 5 notes the importance of gathering export data from the different regions of Victoria. This information is another key input for government, to ensure that all parts of Victoria benefit from

2 Rural and Regional Committee |Chapter one: Introduction

export policies.

1.9 Many witnesses and submissions to this Inquiry argued that the State Government has an important role in facilitating exports. In particular, business looks to government for knowledge about how to export and for assistance with establishing contacts overseas.

1.10 Some feedback was heard in relation to the Government’s trade missions in terms of opening up export markets, though improvements were also suggested (Chapter 11).

1.11 Sections II and III of this report discuss other areas of government activity strongly advocated by participants in the Inquiry. Many of the Committee’s recommendations focus on continuing work in these areas and, where possible, expanding government activities.

1.12 Key areas where the Committee has recommended that the Victorian Government expand its services are: • Facilitating access to capital for scaling up production to enter export markets • Encouraging Victorian businesses to invest overseas as a way to better access and penetrate export markets. 1.13 One problem with export facilitation is that support is provided by all three levels of government, as well as multiple private sector organisations. The necessity of a coordinated approach is addressed in Chapter 5. Other recommendations throughout this report reflect the important role of the Victorian Government in representing Victoria’s interests to the Commonwealth Government. Local Government also has an important role to play in identifying and supporting local businesses, including through clusters that share knowledge and resources, and build upon regional advantages and reputation (see Chapter 11).

1.14 Many participants in this Inquiry spoke to the Committee about infrastructure. Victoria’s transport infrastructure is critical for exports, especially goods exports, from regional Victoria. While Victoria’s infrastructure was identified as a competitive advantage, it was noted that the cost of transport within Victoria is a considerable part of the cost structure when exporting. Opportunities to reduce this cost have the potential to make Victorian goods more competitive in overseas markets.

1.15 Chapter 8 discusses a number of ways that infrastructure costs could be reduced. The chapter recommends several general approaches (such as facilitating rail access to ports, making roads suitable for high productivity vehicles and ensuring port access and charges are appropriate). A large number of specific infrastructure projects were also identified. It is beyond the scope of this Inquiry to examine each of these projects in detail, but they have been listed in Appendix 4.

1.16 The Committee learnt about the importance of appropriate tourism infrastructure and facilities, such as high-end hotels in regional areas, public transport in regional areas and telecommunications that meet the needs of 21st Century travellers.

3 Rural and Regional Committee | Inquiry into Increasing Exports

Scope of the inquiry

1.17 The terms of reference require the Committee to identify: • Regional Victoria’s competitive advantages • What is exported from regional Victoria • The volume of exports from regional Victoria • Innovative approaches and lessons learnt from successful exporters • The impediments and barriers facing regional Victorian exporters • The role of government in supporting regional Victorian exporters. 1.18 Section I of this report focuses on regional Victoria’s competitive advantages, what is exported and in what amounts. It identifies the value of increasing exports and the areas in which regional Victoria has the potential to increase exports.

1.19 Sections II and III examine the remaining terms of reference. Section II looks at supply-side issues impacting on regional Victorian exporters (that is, ways that the production and transportation of goods and services could be made more competitive) and examines the supply-side challenges facing regional Victorian exporters and what can be done to assist them. Section III explores demand-side issues (establishing relationships with overseas markets, branding and promotion) and how exports can be facilitated by activities focused on consumers and potential consumers of Victorian exports. The lessons learnt from successful exporters have informed many of the findings. The recommendations reflect ways in which the Committee believes that the Victorian Government can support exporters.

1.20 The scope of what is counted as exports is broad. The terms of reference specify that the Inquiry should identify ‘agricultural, resource, manufacturing and service industry exports’ from regional Victoria. The definition of exports used by the Committee follows general national and international practice.1 It counts goods that are sold by Australian residents to non-residents and services provided by Australian residents to non-residents. In line with usual practice, services provided to non-residents within Australia, such as tourism and education, are also included as exports.

1.21 This represents a significant range of economic activity. In fact, exports accounted for 10.6 per cent of Victoria’s gross state product in 2012–13.2

1.22 An important area of international transactions which is not included within the definition of exports relates to foreign investment. According to this definition exports do not include: • Flows of capital from one country to another as investments or loans • Dividends or interest paid from one country to another as a result of investments or loans.

1 As used by the Commonwealth Department of Foreign Affairs & Trade in Australia’s Trade by State and Territory 2012-13, Commonwealth of Australia, Canberra, 2014. 2 Committee calculation based on Department of Foreign Affairs & Trade, Australia’s Trade by State and Territory 2012-13, Commonwealth of Australia, Canberra, 2014, p 32. Exports calculated on a balance of payments basis.

4 Rural and Regional Committee |Chapter one: Introduction

1.23 Therefore, the volume of exports does not necessarily have a direct correlation with earned export income.

1.24 A number of the matters raised during this Inquiry relate to Commonwealth Government policies and service delivery by Commonwealth agencies. The Rural and Regional Committee is a Committee of the Victorian Parliament and its recommendations are directed at the Victorian Government. Nonetheless, the Committee considers it important to document Commonwealth issues that have an impact on regional Victorian exporters. This is essential to fully understanding the competitive advantages and impediments affecting Victorian exporters.

1.25 The terms of reference for this Inquiry direct the Committee to examine international exports. However, interstate exports are also an important part of the Victorian economy. This has been particularly the case during the mining boom, when firms in Western Australia have been important customers of some Victorian manufacturers.3 The Committee notes the value of policies which facilitate and promote Victorian products to other Australian states. Where Victorian products are able to replace imports from overseas, there may be benefits to Australia as a whole from increasing these interstate exports.

1.26 The Committee encountered a number of limitations of the data available regarding exports. These have restricted the Committee’s ability to develop a comprehensive understanding of exports from regional Victoria. Limitations of government statistics are discussed in Chapter 5, including recommendations for improvement.

1.27 Much of the data for this Inquiry was provided by private firms. The Committee appreciates the openness of these firms and their willingness to supply information on many different aspects of their business. However, in some cases, commercial sensitivities meant that it was not appropriate for firms to share certain information with the Committee. The Committee notes this as a limitation to the current Inquiry.

Finding 1.1

Recommendation 1

That the Victorian Government liaise with other States and the Commonwealth Government to encourage and facilitate regional Victorian firms exporting interstate, especially to the ‘mining states’ such as Western Australia and Queensland.

3 For example: Mr Bernard Brussow, Chief Executive Officer, IXL Group, Public Hearing, Geelong, 30 April 2014; Mr Andrew Edmondston, Sales & Commercial Manager & Company Secretary, Gekko Systems, Public Hearing, Ballarat, 29 April 2014.

5 Rural and Regional Committee | Inquiry into Increasing Exports

More than just international exports

1.28 Few businesses in regional Victoria focus solely on overseas markets. Most exporting businesses encountered through the Inquiry also sell domestically, either within Victoria or interstate.4 This is discussed further in Chapter 4 of this report.

1.29 In addition, many of the things that assist firms to export also help them sell their products domestically. For example, boosting productivity and improving infrastructure will benefit both domestic and international sales.

1.30 These examples highlight the fact that increasing exports is not always distinct from growing businesses as a whole.

1.31 Similarly, the viability of export businesses is influenced by the broader economy, including the Victorian economy and the economy of other Australian states. Demand for products in Victoria and Australia enables businesses to build up the scale of production necessary to export at competitive prices (see further discussion in Chapter 6).

1.32 The local economy is also a crucial component of Victoria’s competitiveness in a number of other ways, as discussed further in Chapter 2 of this report.

1.33 These considerations mean that, for the Victorian Government, helping businesses to thrive and maintaining a strong local economy are key facilitators of increasing exports. It is beyond the scope of this Inquiry to examine these broader issues in detail. However, it is important for the Victorian Government to bear these facts in mind when determining how best to support regional Victorian exports and in determining which programs to fund.

Finding 1.2

General measures to grow businesses and strong local economies are important mechanisms for increasing exports. Any policies to increase exports need to consider this broader picture.

Different businesses and different solutions

1.34 Another general consideration regarding exports relates to the size of exporting businesses. Victorian exporters vary considerably, from family businesses to multinational enterprises. Mr Paul Ford, Chair of Agribusiness Gippsland, explained that different size businesses often have different needs from government: [Large firms] are tending to seek the macro support from government on things like infrastructure, ports, roads, and particularly trade access, in

4 Data drawn from a sample of businesses across Australia in 1997-98 indicate that, for the majority of exporting businesses (63.4 per cent), ten per cent or less of their total income came from international exports, and only 13.4 per cent of exporting businesses generated more than half of their income from exports – Brian Pink and Charles Jamieson, A Portrait of Australian Exporters: A Report Based on the Business Longitudinal Survey (Australian Bureau of Statistics Cat No. 8154.0), August 2000, pp 4, 12. For limitations of the sample, see ibid., pp viii-ix.

6 Rural and Regional Committee |Chapter one: Introduction

order to support their business. At the other end of the scale what we are seeing in Gippsland is small niche exporters like Blerick Tree Farm at Neerim South or Baby Royale at Traralgon that are highly innovative, have highly driven leadership in the organisation and have a passion for export. They are asking a different thing of government; they are asking for government links to underpin their export strategy and particularly the personal relationships on a government to government basis. Photographs of Peter Walsh at a signing ceremony between partners on the super trade mission to China, for example, were particularly valued by these small niche operators.5

1.35 Mr Ford explained that medium sized agribusiness enterprises, in part due simply to a lack of time on the part of executives, are not engaging in an export strategy. He outlined strategies for supporting those business to develop an export capacity. For example, grants for development managers to work in these businesses, or multiskilled mentoring teams to assist with export strategies. Mr Ford suggested that: What we are seeing is that within these three categories of large, small, niche operations and medium-sized agribusiness enterprises in Gippsland there are different responses being asked for from government. To unlock their potential these different organisations are asking for different sorts of things.6

Finding 1.3

The inquiry process

1.36 The terms of reference for this Inquiry were received on 26 November 2013.

1.37 The Committee advertised for written submissions in late January 2014. A total of 51 submissions were received.

1.38 The Committee held public hearings in Hamilton, Ballarat, Geelong, Melbourne, Moe, Wonthaggi, Shepparton and Wodonga between April and July 2014. Site visits were conducted to businesses and organisations in these towns and nearby.

1.39 The Committee visited Sydney and Canberra, to meet peak industry groups and representatives of the New South Wales and Commonwealth Governments.

5 Mr Paul Ford, Chair, Agribusiness Gippsland, Public Hearing, Moe, 3 June 2014. 6 Ibid.

7 Rural and Regional Committee | Inquiry into Increasing Exports

1.40 Further details of the written submissions received and the witnesses consulted can be found in Appendices 2 and 3. Written submissions and transcripts from the public hearings are available on the Committee’s website (www.parliament.vic.gov.au/rrc).

Acknowledgement

1.41 The Committee would like to thank the many people who participated in this Inquiry, in writing or in person. Regional Victorian businesses took the time to bring particularly insightful contributions to the Inquiry and we thank them for their insights and advice. The evidence provided by the community was essential for the Committee to undertake this Inquiry and the Committee gratefully acknowledges the time and effort contributed by many people.

Structure of this report

1.42 This report is divided into three sections.

1.43 The first section examines Victoria’s current and future situation regarding exports. Chapter 2 identifies Victoria’s competitive advantages and challenges, which shape what Victoria can successfully export. Chapter 3 looks at what is currently exported from regional Victoria. Chapter 4 looks at the benefits and challenges of exporting for Victoria as a whole and for individual firms. Chapter 5 examines the expected growth in global demand for certain products in the coming decades. It also looks at Victoria’s potential to benefit from it.

1.44 The second section explores supply-side issues that affect international exports. There are two major themes in this section: • What can be done to increase the production of exportable goods and services in regional Victoria? • What can be done to help goods and services from regional Victoria be competitive on the international market? 1.45 These questions are explored in relation to five themes: business’ access to capital and financing (Chapter 6); the workforce in Victoria (Chapter 7); infrastructure (Chapter 8); programs to increase competitiveness and productivity (Chapter 9); and regulation (Chapter 10).

1.46 The third section examines demand-side issues. Global markets are competitive and regional Victoria is not the only place producing the goods and services for these markets. The Victorian Government can help by facilitating relationships between Victorian producers and overseas markets (Chapter 11) and through establishing a strong brand for regional Victorian products and marketing them effectively (Chapter 12).

8 Chapter two: Victoria’s ability to compete

Findings

2.1

Regional Victoria has many competitive advantages, derived from its geographical attributes, liveability, infrastructure, education, research institutions and human resources. These advantages work together to enable Victoria to produce high quality goods and services and facilitate increasing international exports.

2.2

Victoria’s reputation for producing high quality goods and services is essential for it to compete in markets where it is difficult to compete on price. It is important that all government policy related to exports maintains or enhances this reputation. However, reducing costs and regulation as far as possible without compromising this reputation is equally important for competing in international markets and providing higher margins to producers.

2.3

The proximity of much of regional Victoria to Melbourne provides competitive advantages to exporters who rely on domestic markets for some of their sales and for exporters needing ready access to ports. Regional Victoria also benefits from tourists attracted to Melbourne’s sites and events. However, the proximity of Melbourne means that the regional tourism industry faces a challenge in encouraging international tourists to stay overnight in regional Victoria rather than visit regional areas on a day trip from Melbourne.

2.4

Growing substantial towns and cities throughout regional Victoria through significant infrastructure investment supports the competitive advantages of regional firms by providing an increased labour force, facilitating more diversified regional economies, and enabling more efficient use of Victoria’s existing road and rail infrastructure.

2.5

Clusters of related industries in regional areas and regional university towns have been identified as ways to increase regional exports. These also have the potential to increase the liveability and economic development of regional centres. For university towns to attract international students, however, it is important for towns to offer an attractive lifestyle, good infrastructure and work opportunities for students during and after study.

9 Rural and Regional Committee | Inquiry into Increasing Exports

2.6

Victoria’s major competitive disadvantages for international exports include high labour costs, the high Australian dollar, regulations and the size of businesses. However, some of these features also contribute to Victoria’s liveability and high standard of living.

2.7

Work is being done by the Victorian Government and others to identify Victoria’s competitive advantages. This work is important in assisting government to develop evidence-based policies.

Recommendations

Recommendation 2

That the Victorian Government continue to support policies which grow regional towns and cities, ensuring regional centres have:

• Opportunities in agricultural and other export orientated industries such as skilled manufacturing, professional services, hospitality, tourism and education • High quality agricultural and environmental standards and practices • Liveability • Good infrastructure connections (transport and communications) between regional centres, ports and Melbourne. 2.66

Recommendation 3

That the Victorian Government, in developing policies for regional and rural development, consider the benefits of:

• Facilitating clusters of related industries (especially those that can be established around rural agricultural activities) • Supporting and promoting ‘university towns’ in regional Victoria, with consideration given to successful examples in other countries (such as Oxford, Cambridge, Yale and Harvard). As part of this, the Government should focus on the infrastructure and other needs of international students, including the liveability of regional centres, employment during and after education, travel concessions and affordable wi-fi broadband. 2.85

Recommendation 4

10 Rural and Regional Committee |Chapter two: Victoria’s ability to compete

• Victoria’s ability to produce ‘clean and green’ agricultural products and other commodities of high quality • The benefits of Victoria’s compact size, with comparatively cheap base load power, good links to a number of air and sea ports and regional centres that have strengths in manufacturing, food processing and agribusiness, with potential for the advanced industries of the future • Regional Victoria’s desirability as a place to live, visit and study. 2.108

Competitiveness

2.1 Competitiveness is a key enabler of exports and one of the topics identified for the Committee to investigate in this Inquiry’s terms of reference. In broad terms, competitiveness refers to the ability of one firm or region to compete in a market compared to other firms or regions. However, competitiveness is defined and measured in a variety of different ways.

2.2 Competitiveness can be discussed in terms of individual firms. In this case, it generally refers to the attributes of a firm which provide more profitability, market share or return on invested capital than other firms.1

2.3 The competitiveness of regions (including nations, states and other geographic units) can also be measured, albeit in a different way to firms. There is some debate about how best to define and measure regional competitiveness (see Appendix 5 for further discussion).

2.4 For the purposes of this Inquiry, the Committee has taken a relatively narrow approach to competitiveness. Specifically, the Committee’s investigation is restricted to the competitive advantages of regional Victoria which facilitate increasing international exports. However, the Committee notes the broader concepts of competitiveness in academic and policy discourse and considers that these should be taken into account by governments when developing social and economic policies for regional Victoria.

2.5 The Committee has found particularly helpful the framework set out by Rugman and colleagues for individual firms competing in world markets.2 They see competitiveness as a combination of firm- specific advantages and country-specific3 advantages: • Firm-specific advantages include a firm’s unique, proprietary capabilities, such as production knowledge, managerial capabilities and marketing capabilities • Country-specific advantages include a country’s natural resources, the quantity and quality of the labour force, supporting industries, macroeconomic policy, social infrastructure and

1 For a discussion of some of the difficulties with measuring firm competitiveness, see Ma H, ‘Competitive Advantage and Firm Performance’, Competitiveness Review, Vol 10, 2000, pp 15-32. 2 The findings of Rugman and colleagues relate specifically to multinational firms, though the Committee considers that the same framework can be used to understand exporters more generally. 3 For a multinational enterprise, where different parts of the business operate in different countries, the country-specific factors of multiple countries may be relevant.

11 Rural and Regional Committee | Inquiry into Increasing Exports

political institutions.4 2.6 Rugman and colleagues argue that firms need to exploit at least one set of advantages to be successful. For example, a firm might be successful based purely on its business model. Or a firm might achieve success by exploiting country-specific advantages (such as mineral resources or cheap labour) and selling to other countries that do not have these advantages.5

2.7 This report contains some discussion of firm-specific advantages. However, the bulk of this report discusses the country-specific (or state- or region-specific) advantages that exporting firms in regional Victoria can leverage. These are the areas where the Victorian Government is most able to help.

2.8 The information in Table 2.1 below displays the top exporting sub-sectors for each of Victoria’s regions. It can be argued that these sub-sectors represent industries in which the regions have a competitive advantage.

Table 2.1 Top exporting sub-sectors by Region.* Strategic Planning Region Top exporting sub-sectors Great South Coast, Loddon Mallee North, Agriculture; Food product manufacturing Wimmera Southern Mallee, Gippsland Barwon South West – G21 Primary metal / metal product manufacturing; Transport equipment manufacturing Loddon Mallee South, Hume, Central Highlands Food product manufacturing; Agriculture * Source: Victorian Government Submission to this Inquiry, p19. The submission also includes data on key agricultural products and manufacturing industries by region. Victoria’s advantages

2.9 Australia is considered to be a highly competitive economy. The World Economic Forum ranks Australia 21st of 148 nations assessed in the Global Competitiveness Index. The Forum’s report explains: Australia delivers a consistent – and essentially unchanged – performance across the board, the highlight of which is its 7th rank in the financial market development pillar, the only pillar where it features in the top ten. The country also earns very good marks for higher education and training, placing 15th. Australia’s favourable macroeconomic situation is improving further (25th, up one place). Its budget deficit was reduced in 2012 and inflation brought to under two per cent, while the public debt-to-GDP ratio, though on the rise, is the third lowest among advanced economies, behind only Estonia and Luxembourg. The main area of concern for Australia is

4 Rugman A M, Chang Hoon Oh and Dominic S K Lim, ‘The regional and global competitiveness of multinational firms’, Journal of the Academy of Marketing Science, Vol 40, 2012, pp 221, 224. 5 Rugman A M, Chang Hoon Oh and Dominic S K Lim, ‘The regional and global competitiveness of multinational firms’, Journal of the Academy of Marketing Science, Vol 40, 2012, p 221. On the importance of firm-specific advantages, see Bristow G, ‘Everyone’s a “winner”: problematising the discourse of regional competitiveness’, Journal of Economic Geography, Vol 5, 2005, p 292.

12 Rural and Regional Committee |Chapter two: Victoria’s ability to compete

the rigidity of its labour market (54th, down 12), where the situation has deteriorated further. Australia ranks 137th for the rigidity of hiring and firing practices and 135th for the rigidity of wage setting. The quality of Australia’s public institutions is excellent except when it comes to the burden of government regulation, where the country ranks a poor 128th. Indeed, the business community cites labour regulations and bureaucratic red tape as being, respectively, the first and second most problematic factor for doing business in their country.6

2.10 The Committee heard a wide range of evidence about regional Victoria’s competitive advantages.

2.11 A significant advantage for the whole of Victoria is its liveability. Melbourne is often ranked as one of the world’s most liveable cities, based on factors such as people’s physical safety, availability and quality of healthcare and education, infrastructure, culture, and environment.7

2.12 Many of these factors apply equally to regional Victoria. In addition, regional Victoria can provide access to many of these benefits at a lower cost. Professor Jane den Hollander explained to the Committee: Melbourne is the most liveable city. There are two other things that are fantastically astonishing about Melbourne. It has the third highest housing prices in the world – there is Tokyo, Sydney and then Melbourne. I do not know how true that is; you read all the time about the price of housing. You come one hour down the road and it is very affordable … [Foreign investors] will invest down here [sc. Geelong] because it is affordable, there is space and there is access.8

2.13 Mr Nick Stanley, Chief Executive Officer of Sky Software, made similar comments to the Committee, indicating that Geelong both provided a less expensive place for people to set up businesses and has certain features making it more liveable than Melbourne: It is a combination of the lifestyle, of the lower cost, so there is really good cost incentives, it is the cultural aspect, so our workforce is very well engaged, they do not have long travel times to work, most of our staff are at work within five-to-ten minutes and do not have to fight that traffic crush of an hour-and-a-half a day, so there is a whole range of things that lead to a really good outcome. Certainly for software companies, which are usually quite bootstrapped in terms of how they start up and get going, low rental and the availability of rental is very important. So the cost for us to run the business here we estimate to be about 15 per cent less than if we were located in Melbourne or Sydney.9 6 Sala-i-Martín X, Beñat Bilbao-Osorio, Jennifer B, Margareta D H and Caroline K, ‘The Global Competitiveness Index 2013- 2014: Sustaining Growth, Building Resilience’ in Klaus Schwab (ed.), The Global Competitiveness Report 2013–2014: Full Data Edition, 2013, p 31. 7 Economist Intelligence Unit, A Summary of the Liveability Ranking and Overview, Economist Intelligence Unit, London 2013, pp 1, 7-8. 8 Professor Jane den Hollander, Vice Chancellor, Deakin University, Public Hearing, Geelong, 30 April 2014. 9 Mr Nick Stanley, Chief Executive Officer, Sky Software, Public Hearing, Geelong, 30 April 2014.

13 Rural and Regional Committee | Inquiry into Increasing Exports

2.14 Other submissions identified the land prices of regional Victoria as a competitive advantage.10

2.15 Victoria’s infrastructure is a contributor to its liveability and is seen as a competitive advantage.

2.16 The transport freight network was identified by some participants to this Inquiry as a significant competitive advantage. The Victorian Government indicated that: ‘Victoria’s road and freight network is extensive and well linked. It is highly efficient by world standards and connects industrial hubs across the state to air and sea ports and to the rest of the country.’11 Intermodal hubs (both established ones and ones under development) were considered important by some witnesses.12

2.17 Victoria’s four major sea ports were considered a competitive advantage, with Melbourne noted as Australia’s largest and busiest container port.

2.18 Tullamarine Airport, until recently Australia’s only curfew-free international airport, is viewed as an advantage. The development of Avalon as a second curfew-free international airport was also considered an advantage by witnesses. These multiple ports and airports are integral to moving goods out of the State and attracting international tourists.13

2.19 A number of witnesses explained to the Committee that the cost of transporting goods to port is a major portion of an exported product’s final cost.14 The regional ports reduce the costs of transport within Victoria in some cases and enable Victorian produce to be sold overseas at more competitive prices.15 Some of the witnesses in Gippsland indicated that additional port facilities in the east of the State would improve Victoria’s competitive advantage in this regard (see Chapter 8).

2.20 In addition to advantages for goods exports, the Port of Portland’s ability to accept cruise ships attracts international tourists to south-west Victoria.16

2.21 Other infrastructure providing competitive advantages identified in this Inquiry includes: • The communications network (including the 3G network)17 • The continuously operating reference stations (for the Global Positioning System)18

10 Latrobe City Council, Submission, Number 8, 11 April 2014; Ballarat City Council, Submission, Number 26, 17 April 2014. 11 Victorian Government, Submission, Number 51, 11 June 2014. See also: Latrobe City Council, Submission, Number 8, 11 April 2014; Surf Coast Shire, Submission, Number 12, 16 April 2014; Deakin University, Submission, Number 25, 17 April 2014; Agribusiness Gippsland, Submission, Number 43, 2 May 2014. 12 Wimmera Development Association, Submission, Number 19, 17 April 2014; Horsham Rural City Council, Submission, Number 23, 17 April 2014; Ballarat City Council, Submission, Number 26, 17 April 2014. 13 Sovereign Hill Museums Association, Submission, Number 14, 16 April 2014; Committee for Geelong, Submission, Number 21, 17 April 2014; Victorian Government, Submission, Number 51, 11 June 2014. 14 A number of witnesses pointed out that shipping products from Australia to other countries is often cheaper than transport within Victoria. The Committee notes that this is partly a result of the efficiency of container ships, which can take thousands of containers, compared to the much smaller loads of trucks and trains. 15 SPE (Management), Submission, Number 6, 10 April 2014. 16 Glenelg Shire Council, Submission, Number 11, 16 April 2014. 17 Victorian Government, Submission, Number 51, 11 June 2014; Deakin University, Submission, Number 25, 17 April 2014. 18 Victorian Government, Submission, Number 51, 11 June 2014.

14 Rural and Regional Committee |Chapter two: Victoria’s ability to compete

• Electricity generation and transmission infrastructure19 • Water infrastructure, including pipelines and irrigation systems20 • Schools, health infrastructure and cultural amenities.21 2.22 A number of submissions and witnesses identified areas where Victoria’s infrastructure could be improved to increase Victoria’s competitive advantage. Infrastructure is discussed further in Chapter 8 of this report.

2.23 Victoria’s world-class universities contribute to liveability, improve productivity and are a competitive advantage of the international student market.22 The universities, along with research institutes such as the Geelong Technology Precinct and AgriBio, provide Victoria with an advantage by facilitating innovation and developing ways to increase productivity.23

2.24 Victoria’s universities and vocational education sector underpin its skilled workforce.24 The Export Council of Australia noted Victoria’s regional universities’ ability ‘… to adapt to the needs and demands of local industry possibly quicker than what might occur in metropolitan centres’.25 Chapter 7 of this report discusses skills in more detail.

2.25 The quality of Victoria’s universities, and the fact that English is the main language spoken in Victoria, attract large numbers of international students. A number of these students are based in regional Victoria (see Chapter 3).26 These students also have friends and families visit them as international tourists. This means that universities are a competitive advantage for both the international student and international tourist markets.27

2.26 Some contributions to the Inquiry also argue that the presence of international students in Victoria helps to create cultural ties which facilitate trade.28 Federation University Australia indicated to the Committee that its experience in exporting also made it a ‘… regional resource capable of offering

19 Latrobe City Council, Submission, Number 8, 11 April 2014; Victorian Government, Submission, Number 51, 11 June 2014. 20 Wimmera Development Association, Submission, Number 19, 17 April 2014; City of Ballarat, Submission, Number 26, 17 April 2014; Committee for Greater Shepparton, Submission, Number 29, 17 April 2014. 21 Deakin University, Submission, Number 25, 17 April 2014; Ballarat City Council, Submission, Number 26, 17 April 2014. 22 As discussed in Chapter 1, international education offered in Victoria and international tourism to Victoria are considered international exports from Victoria. 23 Export Council of Australia, Submission, Number 17, 17 April 2014; Victorian Government, Submission, Number 51, 11 June 2014; Professor Mike Willis, Pro-Vice Chancellor (International and Partnerships), Federation University Australia, Public Hearing, Ballarat, 29 April 2014. 24 Latrobe City Council, Submission, Number 8, 11 April 2014; Wimmera Development Association, Submission, Number 19, 17 April 2014; Ballarat City Council, Submission, Number 26, 17 April 2014; Victorian Government, Submission, Number 51, 11 June 2014. 25 Export Council of Australia, Submission, Number 17, 17 April 2014; Federation University Australia, Submission, Number 20, 17 April 2014. 26 Federation University Australia, Submission, Number 20, 17 April 2014; Deakin University, Submission, Number 25, 17 April 2014. 27 Sovereign Hill Museums Association, Submission, Number 14, 16 April 2014; Victoria Tourism Industry Council, Submission, Number 27, 17 April 2014; Mr Jeremy Johnson, Chief Executive Officer, Sovereign Hill Museums Association, Public Hearing, Ballarat, 29 April 2014. 28 La Trobe University, Submission, Number 36, 28 April 2014.

15 Rural and Regional Committee | Inquiry into Increasing Exports

commercial advice and assistance to other actual or prospective Victorian regional exporters’.29

2.27 In Ballarat, Mr Jeremy Johnson, Chief Executive Officer, Sovereign Hill Museums Association, argues that creating more cultural festivals and events would help promote Victoria overseas.30 In its submission to this Inquiry, Sovereign Hill Museums Association states: ‘The Victorian Multicultural Affairs Commissioner is an excellent resource for the tourism sector and is often overlooked or underused when strategies to grow inbound markets are being considered.’31

2.28 Geographical features of Victoria were considered competitive advantages, including: • Climate, which contributes to its liveability, provides conditions for a variety of farming types across the state,32 and is an attraction to tourists and students • Clean and (in most parts) reliable supply of water33 • Natural resources, which include fertile land, brown coal, forests, oil and gas (in Bass Strait), gold, mineral sands and base metal reserves34 • Natural assets (including fauna) of appeal to international tourists35 • Time zone, which both overlaps with business hours of nations in the Asia–Pacific area (facilitating business interactions with these nations)36 and differs from the USA and Europe (allowing after hours work to be done for companies based there)37 • Location in the southern hemisphere, which provides alternative harvest times to the northern hemisphere, allowing Victoria to supply produce at times of the year when competitors in the northern hemisphere cannot38 • Proximity to Asia compared to some competitors.39 2.29 Victoria’s coal has provided a source of cheap baseload power to industry, though other factors have contributed to recent energy price rises, as noted in a number of submissions.

29 Federation University Australia, Submission, Number 20, 17 April 2014. 30 Mr Jeremy Johnson, Chief Executive Officer, Sovereign Hill Museums Association, Public Hearing, Ballarat, 29 April 2014. 31 Sovereign Hill Museums Association, Submission, Number 14, 16 April 2014, p 6. 32 Export Council of Australia, Submission, Number 17, 17 April 2014. 33 Export Council of Australia, Submission, Number 17, 17 April 2014; City of Ballarat, Submission, Number 26, 17 April 2014; South Gippsland Shire Council, Submission, Number 28, 20 April 2014; Agribusiness Gippsland, Submission, Number 43, 2 May 2014; Great South Coast Group, Submission, Number 48, 16 April 2014. 34 Latrobe City Council, Submission, Number 8, 11 April 2014; City of Ballarat, Submission, Number 26, 17 April 2014; Agribusiness Gippsland, Submission, Number 43, 2 May 2014; Victorian Government, Submission, Number 51, 11 June 2014. 35 Victoria Tourism Industry Council, Submission, Number 27, 17 April 2014; South Gippsland Shire Council, Submission, Number 28, 20 April 2014; Bass Coast Shire Council, Submission, Number 46, 5 May 2014; Ms Kim Storey, General Manager, Destination Phillip Island, Public Hearing, Wonthaggi 4 June 2014. 36 Victorian Government, Submission, Number 51, 11 June 2014. 37 South Gippsland Shire Council, Submission, Number 28, 20 April 2014; Mr Ken Fraser, Economic Development Coordinator, South Gippsland Shire Council, Public Hearing, Wonthaggi, 4 June 2014. 38 Committee for Geelong, Submission, Number 21, 17 April 2014; City of Ballarat, Submission, Number 26, 17 April 2014; Baw Baw Shire Council, Submission, Number 33, 24 April 2014; Mr Sean Cameron, Manager Economic Development, City of Ballarat, Public Hearing, Ballarat, 29 April 2014. 39 City of Ballarat, Submission, Number 26, 17 April 2014; Baw Baw Shire Council, Submission, Number 33, 24 April 2014; Royal Agricultural Society of Victoria, Submission, Number 34, 24 April 2014; Mr Peter Dorling, Business Manager, Avalon Airport, Public Hearing, Geelong 30 April 2014; Mr Colin Radford, Partner Government Services, Deloitte, Public Hearing, Melbourne 5 May 2014.

16 Rural and Regional Committee |Chapter two: Victoria’s ability to compete

Victoria’s natural gas reserves are a potential future advantage for energy generation, as gas has the potential to provide cheap baseload power with less carbon emissions than coal.40 If economically viable carbon capture and storage technology can be developed, then coal could also be a cheap source of power with low carbon emissions.41

2.30 The fact that Victoria is a relatively compact state with a number of regional cities was seen as an advantage by some. This is discussed further below.

2.31 Certain aspects of Victorian culture and society were identified, including Victoria’s: • Cultural diversity, long-standing historic relationships with some countries and relationships through international students who have studied in Australia and returned to their home countries. These factors facilitate trade and tourism (including the visiting friends and relatives segment, which tend to stay longer and be repeat visitors) and promote innovation in Australia from new ideas flowing into the country42 • Experience and expertise in dealing with large, multinational firms and international markets43 • Skilled workforce, including a level of expertise in operational processes and management expertise44 • Level of technology45 • Safety as a place for international students.46 2.32 Baw Baw Shire Council stated: ‘The fact that Victoria also has overseas based government representatives in many countries who can speak the local language and understand local issues is a competitive advantage.’47

2.33 Together, the competitive advantages discussed in this Chapter enable Victoria to produce high quality agricultural products, manufactured goods and services for export markets.

40 Department of Primary Industries, Victoria’s Energy Future, Department of Primary Industries, Melbourne, 2010, pp 12, 32-4. 41 Professor Ross Garnaut, Professorial Research Fellow in Economics, University of Melbourne, Public Hearing, Melbourne, 5 May 2014. 42 Victoria Tourism Industry Council, Submission, Number 27, 17 April 2014; Baw Baw Shire Council, Submission, Number 33, 24 April 2014; Agribusiness Gippsland, Submission, Number 43, 2 May 2014; Victorian Government, Submission, Number 51, 11 June 2014; Mr Jeremy Johnson, Chief Executive Officer, Sovereign Hill Museums Association, Public Hearing, Ballarat, 29 April 2014; Mr Andy Smith, Director, Grampians Sandstone, Public Hearing, Hamilton, 8 April 2014. 43 Latrobe City Council, Submission, Number 8, 11 April 2014; Export Council of Australia, Submission, Number 17, 17 April 2014. 44 Export Council of Australia, Submission, Number 17, 17 April 2014; Committee for Geelong, Submission, Number 21, 17 April 2014; Royal Agricultural Society of Victoria, Submission, Number 34, 24 April 2014; Ms Paige Smallacombe, Agribusiness Development Officer, Southern Grampians Shire Council, Public Hearing, Hamilton, 8 April 2014; Mr Andrew Edmondston, Sales and Commercial Manager, Gekko Systems, Public Hearing, Ballarat, 29 April 2014; Mr Colin Radford, Partner Government Services, Deloitte Public Hearing, Melbourne 5 May 2014; Mr Michael Gobel, Consultant, Wodonga City Council, Public Hearing, Wodonga, 3 July 2014. 45 Export Council of Australia, Submission, Number 17, 17 April 2014. 46 Federation University Australia, Submission, Number 20, 17 April 2014. 47 Baw Baw Shire Council, Submission, Number 33, 24 April 2014.

17 Rural and Regional Committee | Inquiry into Increasing Exports

Finding 2.1

Regional Victoria has many competitive advantages, derived from its geographical attributes, liveability, infrastructure, education, research institutions and human resources. These advantages work together to enable Victoria to produce high quality goods and services and facilitate increasing international exports.

Quality: a key advantage “One of the things that the people who approached us in China said is that they want quality.” Mr Jim Fraser, Deputy Chair, Central Highlands Agribusiness Forum

2.34 Having the lowest price for your product is not the only way to compete in a market. As the Victorian Agribusiness Council noted, reputation, the physical attributes of products and delivery efficiency are other types of ‘... product differentiation [that] can be used to the advantage of the seller in the export market’.48

2.35 The Committee heard from a large number of people and organisations that Victoria’s proven ability to provide high quality goods and services is a key competitive advantage.

2.36 With respect to agricultural products, the Export Council of Australia explained: Regional Victoria is responsible for producing some of the world’s highest quality agricultural products. There is global demand for fresh, clean, safe food products and Regional Victoria is uniquely placed to deliver superior quality fruit, vegetables and meat.49

2.37 The Victorian Agribusiness Council elaborated, based on its recent experience co-ordinating an inbound trade mission of Malaysian chefs: … Victorian food production quality standards, innovative product and product variety are characteristics the buyers understand to be associated with Victorian food product.50

2.38 Victoria’s ability to produce high quality manufactures was also noted.51 MaxiTRANS Manufacturing, for example, told the Committee that one of its competitive advantages is its ability to produce high quality customised road transport equipment.52

2.39 Federation University Australia emphasised the quality of the student experience in Victoria: Victorian and Australian tertiary providers are highly regarded overseas. This reputation stems from a now-long history of teaching and learning 48 Victorian Agribusiness Council, Submission, Number 30, 17 April 2014. 49 Export Council of Australia, Submission, Number 17, 17 April 2014. 50 Victorian Agribusiness Council, Submission, Number 30, 17 April 2014. 51 South Gippsland Shire Council, Submission, Number 28, 20 April 2014. 52 Mr Paul Buttler, General Manager of Manufacturing, MaxiTRANS Manufacturing, Site Visit, Ballarat, 29 April 2014. In Geelong, Mr David Thornton of Thornton Engineering similarly emphasised that his company is able to produce goods with lower error rates than overseas competitors, which provides an advantage in the domestic market.

18 Rural and Regional Committee |Chapter two: Victoria’s ability to compete

quality, the application of known standards that protect the education sector’s reputation, the availability of extensive support mechanisms for international students developed by universities, and in the case of Victoria, a reputation for a supportive, peaceful environment within which international students can study.53

2.40 This statement is supported by the fact that the University of Melbourne and Monash University are ranked within the top 100 universities in the world and some of Victoria’s regional universities are ranked within the top 400.54

2.41 With respect to tourism, the Victorian Premier has noted: ‘Victoria provides world class experiences to local and international holiday makers, international students and business travellers.’55 The Victoria Tourism Industry Council stated that, ‘Whilst we do not have a Great Barrier Reef or an Uluru, Tourism Australia research shows Victoria’s natural attractions are one of our biggest assets.’56 The plan laid out in Victoria 2020 Tourism Strategy includes Victoria being ‘… a leading tourism destination in the Asia Pacific region’.57

2.42 This ability to produce high quality goods and services is particularly important given Victoria’s competitive disadvantages (see below). Some of these disadvantages (such as the cost of labour and the exchange rate) make it difficult for Victoria to compete with other producers on price. However, Victoria can compete on quality. The marketplace shows that consumers are often willing to pay a higher price for superior quality.

2.43 The Committee heard from several business people in Victoria who do not attempt to compete with the cheaper end of the market for their goods, instead focusing their energy on the middle or higher end of the market (see further discussion in Chapter 9).

2.44 The importance of Victoria’s competitive advantage in terms of quality underlies many of the findings and recommendations in this report. The Committee emphasises that, in implementing policy to increase exports, Victoria’s reputation for quality must not be harmed. Chapter 10 of this report discusses the need to maintain the standards and regulations that ensure the quality of Victorian produce while keeping the burden on business as low as possible.

2.45 It is important to note that the focus on quality does not mean that price considerations are irrelevant. If other regions can produce goods or services at a similar quality but a lower price, those areas will have a competitive advantage. The Rural and Regional Committee believes that reducing costs as far as possible without compromising quality should be an ongoing commitment of all governments.

2.46 For products where Victoria is a price taker, reducing costs may also mean larger margins for 53 Federation University Australia, Submission, Number 20, 17 April 2014. 54 Victorian Government, Submission, Number 51, 11 June 2014. 55 In Victorian Government, Victoria 2020 Tourism Strategy, Victorian Government, Melbourne, 2013, p 4. 56 Victoria Tourism Industry Council, Submission, Number 27, 17 April 2014. 57 Victorian Government, Victoria 2020 Tourism Strategy, Victorian Government, Melbourne, 2013, p 6.

19 Rural and Regional Committee | Inquiry into Increasing Exports

producers.

2.47 It is important to note that, with some of Victoria’s exported goods (such as wheat or minerals), Victoria is not able to differentiate itself in terms of quality. The City of Ballarat for example, noted that: Many of regional Australia’s exports primarily compete on price, and while the argument can be made that the basis of the region’s competitiveness should change, the reality is that for the foreseeable future, much of regional Australia’s volume based exports will continue to compete on price …58

2.48 Reducing costs and increasing access to export markets therefore remain priorities.

2.49 In addition to producing high quality goods and services, it is equally essential that potential export markets are aware of Victoria’s ability to do this. This can involve both informing export markets of the quality of Victorian produce and, in some cases, educating customers to appreciate the difference between Victorian products and lower quality alternatives. Promotion and branding of exports are discussed further in Chapter 12 of this report.

Finding 2.2

A compact state

2.50 The fact that much of regional Victoria is close to Melbourne provides a number of competitive advantages for regional Victorian firms.

2.51 Firstly, Melbourne is a major domestic market for regional producers.59 As discussed in Chapter 4 of this report, exports are only a part of the sales of many Victorian firms, with domestic markets comprising a large portion of sales. The proximity of Melbourne provides an advantage for that business model.

2.52 Secondly, Melbourne provides ready access to export markets through sea and air ports.60 The ports of Geelong and Portland provide similar advantages to some exporters in western Victoria.

2.53 Thirdly, Melbourne’s sites and experiences attract significant numbers of international tourists, some of who ‘spill over’ to regional Victoria. Victoria’s compact geography and Melbourne’s

58 City of Ballarat, Submission, Number 26, 17 April 2014. 59 Victorian Government, Submission, Number 51, 11 June 2014. 60 Ibid.

20 Rural and Regional Committee |Chapter two: Victoria’s ability to compete

central location make it easy for these tourists to travel to many regional attractions.61 Mr Jeremy Johnson, Chief Executive Officer of Sovereign Hill Museums Association, explained: All tourism product within a two-hour radius of Melbourne’s CBD is really seen as having access to day trips. International tourists do not discriminate or do not separate out the CBD experience … from that two-hour radius … They come to Melbourne, but they do not necessarily see that two-hour radius as going out into the sticks. They see that as part of the extended CBD offering …62

2.54 He noted: Having strong and iconic products such as Phillip Island, Sovereign Hill, Yarra Valley, the Great Ocean Road, the Twelve Apostles and that network around that two-hour radius is very important for that regional dispersal.63

2.55 However, the proximity of Melbourne is also a disadvantage, as it means that many international tourists do not stay overnight at regional destinations. Mr Tim Grandfield of Ballarat Regional Tourism noted that: Converting those day visits from Melbourne into overnight stays is very difficult. Another challenge … is Ballarat’s proximity to Melbourne and the desire for that particular target market to get back to the city rather than stay in the region overnight. We are doing quite a bit of work to try to encourage overnight stays within Ballarat, and one is the launch of an international pass to our four major attractions, being MADE, Ballarat Wildlife Park, Sovereign Hill and Kryal Castle – to try to capture that overnight stay and to ensure they are aware that there is more to do in Ballarat.64

2.56 The Committee heard similar concerns in relation to the Great Ocean Road and Phillip Island.65

2.57 It was suggested to the Committee that there is a need for high-end hotels in regional Victoria to encourage overnight stays. Tourism dispersal is discussed further in Chapters 3 and 8 of this report. Evidence was also heard about increasing international tourist demand for regional Victoria through promotion and strengthening relationships with appropriate markets. These are discussed further in Chapters 11 and 12.

61 Victorian Government, Submission, Number 51, 11 June 2014; Sovereign Hill Museums Association, Submission, Number 14, 16 April 2014; Bass Coast Shire Council, Submission, Number 46, 5 May 2014; Victorian Government, Submission, Number 51, 11 June 2014. 62 Mr Jeremy Johnson, Chief Executive Officer, Sovereign Hill Museums Association, Public Hearing, Ballarat, 29 April 2014. Cf. Sovereign Hill Museums Association, Submission, Number 14, 16 April 2014. 63 Ibid. 64 Mr Tim Grandfield, Business Development and Events, Ballarat Regional Tourism, Public Hearing, Ballarat, 29 April 2014. 65 Mr Roger Grant, Director, Great Southern Touring Route, Public Hearing, Geelong, 30 April 2014; Ms Teresa Mahood, Acting Tourism Manager, Bass Coast Shire Council, Public Hearing, Wonthaggi, 4 June 2014; Ms Kim Storey, General Manager, Destination Phillip Island, Public Hearing, Wonthaggi, 4 June 2014.

21 Rural and Regional Committee | Inquiry into Increasing Exports

Finding 2.3

Regional towns and cities

2.58 Compared to other Australian states Victoria is relatively densely populated and houses a number of closely located regional towns and cities. At a public hearing in Melbourne, Professor Ross Garnaut told the Committee: I think the Victorian regional economy has some exceptionally good opportunities. Victoria is different from the rest of Australia in that it is much more densely populated in a relatively small area from East Gippsland through Melbourne north to the Murray and southwest to Warrnambool. You have a density of population and the presence of substantial towns that you do not have in the rest of the country and I think that creates the special opportunities.66

2.59 In this respect, Professor Garnaut made a comparison with Germany. However, he noted that additional infrastructure would be needed for Victoria to take full advantage of these opportunities: Germany is the world’s most advanced manufacturing exporter and a substantial proportion of its internationally competitive manufacturing comes from regional towns. That is possible because the regional towns are large enough to have very good services, very good education and health, and excellent communications, and there is transport between the towns so they are not isolated. I see that as part of the opportunity for Victoria, but we need better transport, rail transport in particular, to make use of that opportunity.67

2.60 Trading on Victoria’s competitive advantage as a more compact state, the Committee believes there will be great opportunities through the 21st Century to increase this competitive advantage through infrastructure, including physical and electronic connectivity.

2.61 Professor Garnaut indicated that, for Victoria: The most important single thing would be to focus on rural infrastructure, including the links between towns and the links to Melbourne, developing

66 Professor Ross Garnaut, Professorial Research Fellow in Economics, University of Melbourne, Public Hearing, Melbourne, 5 May 2014. 67 Ibid.

22 Rural and Regional Committee |Chapter two: Victoria’s ability to compete

that strong rural base, developing local skills, and there is a good base for that. The large rural and provincial centres in Victoria are large enough to have a good hospital, university campuses and so on, and building on that is very important.68

2.62 Larger towns and cities would assist regional Victoria to take advantage of many of the competitive advantages discussed above. The increased population would have the potential to improve labour supply, create more diversified regional economic bases, and provide efficiencies in the use of existing road and rail infrastructure.69 The Victorian Government has identified social benefits to both regional Victoria and Melbourne from growing regional towns and spreading the population base.70

2.63 The Victorian Government’s Plan Melbourne includes creating ‘a state of cities’ as one of its objectives and outcomes. The Plan notes that: By providing opportunities for decentralised population and employment growth in regional cities, we can help regional cities become larger and their regions more independent. As they grow, they will be able to provide better employment opportunities and better local health and educational services to their residents and to surrounding rural populations. They will also provide Victorians with more choices about where they live and work.71

2.64 The Plan’s initiatives include: • Facilitating employment precincts in regional cities • Supporting increased business and residential densities in regional cities’ central business districts • Supporting social, civic and cultural facilities in regional cities’ central business districts • Identifying land within regional cities that could be developed • Improving freight connections with Melbourne, other states and other countries.72 2.65 The Committee supports these objectives and considers that these should continue to be a focus in the future. The Rural and Regional Committee of the 56th Parliament investigated many of these issues in more detail in its Inquiry into Regional Centres of the Future.

2.66 Further discussion of the Victorian Government’s plans with respect to infrastructure are discussed in Chapter 8 of this report, including particular projects identified as relevant during this Inquiry.

68 Ibid. 69 Victorian Government, Submission, Number 51, 11 June 2014; Department of Transport, Planning and Local Infrastructure, Plan Melbourne: Metropolitan Planning Strategy, Victorian Government, Melbourne, 2014 p 162. 70 Ibid. 71 Department of Transport, Planning and Local Infrastructure, Plan Melbourne: Metropolitan Planning Strategy, Victorian Government, Melbourne, 2014 p 157. 72 Ibid, pp 162-6.

23 Rural and Regional Committee | Inquiry into Increasing Exports

Finding 2.4

Recommendation 2

2.67 Mr Colin Radford of Deloitte also noted work that the Government has done facilitating ‘clusters’ in regional Victoria. Clusters are geographic concentrations of firms (and sometimes government institutions) in related industries, where the geographic proximity allows certain efficiencies. In academic literature, Michael Porter has identified clusters as particularly important to the competitiveness of nations and regions.73 This insight has been adopted by many people working in regional economic development.74 Clusters were also examined as part of the Inquiry into Regional Centres of the Future.75

2.68 Mr Radford indicated that: The relocation of the TAC from the Melbourne CBD to Geelong in 2009 was, at the time, the largest and most successful regional relocation of any government agency in Australia, and it remains so. The subsequent decision to locate the national headquarters of the NDIA in the region and the recent announcement by the government that the Victorian WorkCover Authority is to be relocated to Geelong are great examples of what I am talking about here. When you combine this with a school of medicine at Deakin University and the $270 million Epworth teaching hospital at Waurn Ponds, you can see the makings of a medical and allied health precinct or centre of excellence right in the heart of Geelong – world class intellectual capital being developed in regional Victoria; intellectual

73 Snowdon B and Stonehouse G, ‘Competitiveness in a globalised world: Michael Porter on the microeconomic foundations of the competitiveness of nations, regions and firms’, Journal of International Business Studies, Vol 37, 2006, pp 167-9; Porter M, ‘The Economic Performance of Regions’, Regional Studies, Vol 37, pp 549-78. 74 For example: Port Jackson Partners, Greener Pastures: The Global Soft Commodity Opportunity for Australia and New Zealand, ANZ Insight Issue 3, October 2012, p 2. See also: Mr Paul McPhee’s Submission to this Inquiry, p23; and G21 Agribusiness Forum’s Submission to this Inquiry, p 4. 75 Rural and Regional Committee, Inquiry into Regional Centres of the Future: Final Report, November 2009, pp 238-47.

24 Rural and Regional Committee |Chapter two: Victoria’s ability to compete

capital that can and should be exported to the world. Similarly, in Bendigo we have a mix of public and private investments, making up a financial services hub through the Rural Finance, the Bendigo and Adelaide Bank, which are set to become even closer according to reports today, and State Trustees. And a technology precinct centred around Ballarat University, with the State Revenue Office, the Emergency Services Telecommunications Authority, IBM and Primary Health Care Limited.76

2.69 Mr Radford concluded: All of these are examples of how government can be a catalyst for, or incubator of, economic activity and growth, leading to greater export opportunities.77

2.70 Other examples of successful clusters identified during this Inquiry include: the Ballarat Technology Park;78 the Geelong Food Co‐Products Cluster;79 and the Geelong Innovation Precinct (including carbon fibre research and production).80 Geelong was also identified as an ICT cluster81 with potential to expand (see Chapter 6). Clusters are discussed further in Chapter 9.

2.71 Witnesses and submissions to this Inquiry indicated that support for clusters can be an important way for the Government to assist regional exporters.82

2.72 The Committee notes that the development of some of these clusters has been assisted by the Government.

2.73 One other opportunity for Victoria’s regional towns and cities relates to higher education. A number of participants in the Inquiry identified the opportunity for Victoria to establish ‘university towns’ in regional Victoria. For example, as Professor Garnaut pointed out: “Some of the world’s best universities, which earn a lot of money from providing services to foreigners, are in small communities – Oxford and Cambridge are rural [or regional] communities, and upstate New York, like Cornell.”83

2.74 Similar points about the potential for regional university towns were made to the Committee in

76 Mr Colin Radford, Partner, Government Services, Deloitte Australia, Public Hearing, Melbourne, 5 May 2014. 77 Ibid. 78 Federation University Australia, Submission, Number 20, 17 April 2014; Victorian Government, Submission, Number 51, 11 June 2014. 79 G21 Agribusiness Forum, Submission, Number 16, 17 April 2014. 80 Export Council of Australia, Submission, Number 17, 17 April 2014; Deakin University, Submission, Number 25, 17 April 2014; Victorian Government, Submission, Number 51, 11 June 2014. 81 Mr Nick Stanley, Chief Executive Officer, Sky Software, Public Hearing, Geelong, 30 April 2014; Ms Keelie Hamilton, Coordinator, Economic Development Unit, City of Greater Geelong, Public Hearing, Geelong, 30 April 2014. 82 G21 Agribusiness Forum, Submission, Number 16, 17 April 2014; Mr Sean Cameron, Manager Economic Development, City of Ballarat, Public Hearing, Ballarat, 29 April 2014; Mr Michael Gobel, Consultant, Wodonga City Council, Public Hearing, Wodonga, 3 July 2014. 83 Professor Ross Garnaut, Professorial Research Fellow in Economics, University of Melbourne, Public Hearing, Melbourne, 5 May 2014.

25 Rural and Regional Committee | Inquiry into Increasing Exports

meetings with Universities Australia and with Professor Don Markwell, a Senior Adviser to the Commonwealth Minister for Education.84

2.75 In addition to generating exports, universities increase the size and amenity of regional towns and cities. As noted above, universities provide workforces with the specific skills required by a region, can be part of industry clusters and may reduce population loss associated with students moving to metropolitan areas. Universities with international students can also attract international tourists visiting friends and relatives who are studying at the universities.

2.76 The Rural and Regional Committee’s earlier Inquiry into the Capacity of the Farming Sector to Attract and Retain Young Farmers and Respond to an Ageing Workforce noted the importance of regionally based education. The Committee concluded that regionally based education would ideally offer a clear pathway to a career in agriculture while keeping young people connected to their own communities.85

2.77 The benefits of regional universities were also emphasised to the previous Committee in its Inquiry into Regional Centres of the Future.86 In that Inquiry, one witness explained that: … it is obviously not practical to have a full curriculum university in every regional centre. However, I believe it would be practical to identify specialised university degrees to suit the needs of particular regions. For example, East Gippsland appears to be a favourite destination for retirees, all of whom will require aged care and nursing professionals in the not‐ too‐distant future.87

2.78 The Committee heard similar points during this Inquiry. Deakin University identified the natural features of Bass Strait as an advantage for the marine science and aquaculture programs offered in its Warrnambool campus.88 However, Professor Garnaut noted that specialisation need not always flow from a region’s attributes. As an example, he noted: “Cornell is in Ithaca, a small town in upstate New York, and it is the main place in America for specialising in Indonesian studies, of all things.”89

2.79 Professor Don Markwell told the Committee that an important part of making regional universities competitive for international students was selling the attractive lifestyle of regional Victoria. He noted that, international students consider other aspects of the student experience in addition

84 Mr Greg Evans, Deputy Chief Executive and Ms Keely Dreghorn, Policy Analyst, Universities Australia, Private Meeting, Canberra, 18 June 2014; Professor Don Markwell, Senior Advisor for Higher Education, Office of the Minister for Education, Private Meeting, Canberra, 18 June 2014. 85 Rural and Regional Committee, Inquiry into the Capacity of the Farming Sector to Attract and Retain Young Farmers and Respond to an Ageing Workforce: Final Report, May 2012. See also the Government Response to the Inquiry. 86 Rural and Regional Committee, Inquiry into Regional Centres of the Future: Final Report, November 2009, pp 144-54. 87 Mr Richard Rijs, Director, Patties Foods, Gippsland, Public Hearing to the Inquiry into Regional Centres of the Future, Morwell, 25 November 2008. 88 Professor Jane den Hollander, Vice Chancellor, Deakin University, Public Hearing, Geelong, 30 April 2014. 89 Professor Ross Garnaut, Professorial Research Fellow in Economics, University of Melbourne, Public Hearing, Melbourne, 5 May 2014.

26 Rural and Regional Committee |Chapter two: Victoria’s ability to compete

to the quality of teaching, such as accommodation options, support services and the social experience.90 The importance of ensuring that regional centres are attractive places to live and work after study, and provide work experience opportunities while studying, has been noted by the State Government91 and by universities.92

2.80 As discussed further in Chapter 8, amenities like affordable wi-fi broadband access are another important attraction for international students. Travel concessions for international students were also identified as an important factor by Professor Jane den Hollander.93 The Committee notes that the 2014–15 Victorian Budget provided for a trial of subsidised travel for some international students for three years from 2015.94

2.81 The Committee notes the work being done to establish other university towns in addition to the substantial existing campuses of Federation University Australia in Ballarat and Deakin University in Geelong.

2.82 Greater Shepparton City Council is working towards making Shepparton a ‘university city’. This includes working with La Trobe University, the University of Melbourne and Goulburn Murray TAFE, to build student numbers in their local campuses and align the courses with local skills gaps.95

2.83 La Trobe University indicated to the Committee that it sees less potential for its Shepparton campus, but identified Bendigo as a potential university city and is trying to increase enrolments at its campus there.96 La Trobe is also working with Charles Sturt University to establish a Murray Darling Medical School, which would include a medical school at La Trobe’s Bendigo campus.97 The University has emphasised the importance of State Government support for this project.98

2.84 The universities that met with the Committee emphasised the importance of the Victorian Government promoting regional universities. This is discussed further in Chapter 12 of this report.

2.85 Any plans to create successful regional universities and to grow regional centres must be interconnected. Regional universities have the potential to provide many benefits to regional centres, including more skilled workers, innovation clusters and international students, who, in turn, attract international tourists. To make regional universities a success, however, it is important for regional cities and towns to offer an attractive lifestyle, desired amenities and work opportunities 90 Professor Don Markwell, Senior Advisor for Higher Education, Office of the Minister for Education, Private Meeting, Canberra, 18 June 2014. 91 For example, see International Education Strategy for Victoria 2013–2018, Section 7, ‘Student Experience’. 92 Professor John Dewar, Vice-Chancellor, La Trobe University, Public Hearing, Shepparton, 2 July 2014. 93 Professor Jane den Hollander, Vice Chancellor, Deakin University, Public Hearing, Geelong, 30 April 2014. 94 Department of Treasury and Finance, Budget Paper No. 3: 2014-15 Service Delivery, May 2014, p 57. 95 Ms Geraldine Christou, Manager Investment Attraction, Greater Shepparton City Council, Public Hearing, Shepparton, 2 July 2014. 96 Professor John Dewar, Vice-Chancellor, La Trobe University, Public Hearing, Shepparton, 2 July 2014. 97 La Trobe University, Submission, Number 36, 28 April 2014; Charles Sturt University, ‘Murray Darling Partnership’, , accessed 11 July 2014. 98 La Trobe University, Submission, Number 36, 28 April 2014.

27 Rural and Regional Committee | Inquiry into Increasing Exports

for students. Universities can contribute to liveability and economic development of regional Victoria, but they also rely on liveability and economic development from other sources.

Finding 2.5

Recommendation 3

2.86 The Committee received evidence about how Victoria could better exploit or enhance the competitive advantages cited above. These suggestions are discussed in Sections II and III of this report.

2.87 In addition to these points, four major competitive disadvantages for Victoria were identified repeatedly during the Inquiry: • Labour costs • The value of the Australian dollar • The costs of regulation • The scale of regional Victorian businesses. 2.88 The first three of these factors directly increase the costs of Victorian goods and services to international markets, thereby making Victorian firms less competitive. The scale of regional Victorian businesses provides a number of additional challenges.

2.89 A number of participants in this Inquiry indicated that a competitive disadvantage for Victoria is the cost of labour compared to some other countries. Nestlé told the Committee that, in addition to adding directly to the cost of production, higher labour costs discourage capital investment for manufacturing. Noting the premiums on salaries during extended hours, Nestlé explained that: … capital investment decisions in regional Victoria are directly influenced

28 Rural and Regional Committee |Chapter two: Victoria’s ability to compete

by projected asset utilisation rates, which are clearly limited in Australia due to the costs associated with extended factory operating hours. As in any manufacturing environment, over time, reduced investment in new manufacturing assets will lead to productivity levels that trail the best in class. This further hampers export potential.99

2.90 The high exchange rate of the Australian dollar was highlighted as a competitive disadvantage, as it is a major determinant of the prices Victorian exports are sold for. In addition to making the cost of exported goods more expensive, a high exchange rate makes imports of the same products cheaper. For firms which both export and sell to the domestic market (see Chapter 4), a high Australian dollar can therefore have a double impact.100

2.91 Professor Ross Garnaut informed the Committee of the result of the high exchange rate in recent years: At the moment, large parts of Australian manufacturing and agriculture are marginal in profitability that in normal circumstances would be reasonably profitable.101

2.92 Deloitte similarly identified the high Australian dollar as a difficulty faced by Australian exporters recently. Deloitte estimates that the dollar will settle at around US$0.80 in the longer term and that this reduction will open up opportunities for Australian manufacturing, farming, tourism and international education.102

2.93 Regulation was identified as a competitive disadvantage during this Inquiry by a number of participants. As noted above, the World Economic Forum’s Global Competitiveness Index considers regulation as one of the areas in which Australia is least competitive, particularly in regard to labour regulations. Restrictive labour and tax regulations were noted as two of the four most problematic factors when doing business in Australia.103 These results are based on the Forum’s annual Executive Opinion Survey.

2.94 Excessive regulation is discussed in more detail in Chapter 10 of this report.

2.95 The relatively small scale of many Victorian regional businesses was noted in this Inquiry as a factor making exporting more challenging. Data from the Australian Bureau of Statistics indicate that 93.6 per cent of Victorian businesses in June 2013 had fewer than 20 employees.104

99 Nestlé Australia, Submission, Number 31, 17 April 2014. 100 Victorian Association of Forest Industries, Submission, Number 45, 5 May 2014; Mr Bernard Brussow, Chief Executive Officer, IXL Group, Public Hearing, Geelong, 30 April 2014. 101 Professor Ross Garnaut, Professorial Research Fellow in Economics, University of Melbourne, Public Hearing, Melbourne, 5 May 2014. 102 Deloitte, Positioning for Prosperity? Catching the Next Wave, Building the Lucky Country 3, Deloitte, Melbourne, 2014, p 10. 103 Klaus S (ed.), The Global Competitiveness Report 2013–2014: Full Data Edition, World Economic Forum, Geneva, 2013, pp 31, 110-1. 104 Committee calculations based on Australian Bureau of Statistics, Cat. No. 8165.0. Calculation excludes ‘non-employing businesses’, that is, ‘A business without an active Income Tax Withholding (ITW) role or which has not remitted ITW for five consecutive quarters.’

29 Rural and Regional Committee | Inquiry into Increasing Exports

2.96 The City of Ballarat notes that the cost of entering export markets may be prohibitive for small businesses: A significant impediment to exporting is the lack of scale of many regional firms. Traditionally, many firms exist to service local markets, which are themselves smaller than metropolitan markets, and as such the firms never develop sufficient scale and sophistication to be able to export … Small size means costs of establishing markets and developing internal capabilities are relatively high and therefore present excessive risks.105

2.97 To successfully export, businesses sometimes have to scale up production, either to achieve the volumes desired by export markets or to provide economies of scale. The Committee heard in some submissions that this can be difficult for small businesses.106

2.98 Some of the difficulties associated with entering export markets are further discussed in Chapters 6 and 9 of this report.

2.99 Among firms that do export, the Committee notes that the majority tend to be small and to export relatively small amounts. Work by the Australian Bureau of Statistics107 indicates that 42.7 per cent of Australian firms exporting goods in 2012–13 were small businesses108 and 47.5 per cent were medium-sized businesses.109 The small firms exported an average of $72,000 worth of goods in 2012–13 and the medium-sized firms an average of $553,000.11 0 These figures are evidence of the small scale of most Australian exporters.

2.100 Firms acquiring capital to increase production and enter export markets is discussed in Chapter 6. However, the Committee notes research indicating that companies that start as low-intensity exporters tend to remain that way.111 Cooperatives and other ways of mitigating problems faced by small export businesses are discussed in Chapters 9 and 12.

2.101 While acknowledging that these issues increase the cost of exports and make exporting more challenging, the Committee notes that some of these features also contribute to the liveability of Victoria and Victorians’ standard of living. Comparatively high labour costs are a result of a strong economy and mean that workers take home larger wages. A high exchange rate enables Victorians to buy imported goods more cheaply. Regulation protects good working conditions and

105 City of Ballarat, Submission, Number 26, 17 April 2014. 106 For example: Bass Coast Shire Council, Submission, Number 46, 5 May 2014; Mansfield Shire Council, Submission, Number 41, 2 May 2014. 107 Australian Bureau of Statistics, Cat. No. 5368.0.55.006. 108 Generally based on ‘having fewer than 20 payees and estimated annual GST turnover less than $1m and exports of less than $1m during the reference period’. 109 Generally based on being larger than small businesses, as defined above, but not meeting the criteria of large businesses, which are ‘having 200 or more payees or estimated annual GST turnover of $20m or more or exports of $20m or more during the reference period’. 11 0 Committee calculations based on Australian Bureau of Statistics, Cat. No. 5368.0.55.006. 111 Hessels J and van Stel A, ‘Entrepreneurship, export orientation, and economic growth’, Small Business Economics, Vol 37, 2011, p 265.

30 Rural and Regional Committee |Chapter two: Victoria’s ability to compete

ensures that Victoria maintains its reputation as a producer of high quality goods and services. The small scale of Victorian businesses reflects the opportunity for many Victorians to own their own businesses.

2.102 As discussed above, Victoria’s liveability is one of its competitive advantages. Any changes to labour costs, the exchange rate or regulation must balance the benefits of increased exports against the impact on liveability.

Finding 2.6

Victoria’s major competitive disadvantages for international exports include high labour costs, the high Australian dollar, regulations and the size of businesses. However, some of these features also contribute to Victoria’s liveability and high standard of living.

Using Victoria’s competitive advantages

2.103 The Rural and Regional Committee believes that understanding regional Victoria’s competitive advantages is a key to good export policy. Most notably, this understanding can help government with: • Allocating funding in a way that will support or grow competitive advantage • Promoting regional Victoria as a place to invest • Designing promotion and marketing activities to differentiate Victorian products in international markets. 2.104 To fully realise these benefits, it is important to understand not only the competitive advantages of regional Victoria as a whole but also the varying advantages of different regions. The Committee notes that valuable work is being done in this area, in particular: • Regional Development Victoria’s ‘Information Portal’112 • The Regional Australia Institute’s [In]Sight tool.113 2.105 Both of these products are online collections of data which provide useful information about regions within Victoria. The [In]Sight tool is modelled on the World Economic Forum’s Global Competitiveness Index. It provides similar indicators of competitiveness for Australia’s local government areas and Regional Development Australia regions.114

2.106 On a more local level, the Committee was interested to learn about work being done by Southern Grampians Shire Council in conjunction with the Department of Environment and Primary Industries, to identify which areas within the Shire are best suited to supporting different industries. The Council would then use this information to encourage these industries, to take advantage of the Shire’s various natural advantages. This, the Council believes, would create export

112 Regional Development Victoria, ‘Information Portal’, , accessed 16 July 2014. 113 Regional Australia Institute, ‘[In]Sight’, , accessed 16 July 2014. 114 Regional Australia Institute, ‘[In]Sight: Australia’s Regional Competitiveness Index’, , accessed 16 July 2014.

31 Rural and Regional Committee | Inquiry into Increasing Exports

opportunities.115 This project is discussed further in Chapter 9 of this report.

2.107 Regional Development Victoria has also produced a series of working papers with detailed economic profiles of ten regional cities, which include information about competitive advantages, among other things.

2.108 The Committee considers that it is important for this kind of work to continue and for the Government to make use of this information in developing policies.

Finding 2.7

Work is being done by the Victorian Government and others to identify Victoria’s competitive advantages. This work is important in assisting government to develop evidence-based policies.

Recommendation 4

115 Ms Paige Smallacombe, Agribusiness Development Officer, and Mr Hugh Koch, Manager Economic Development, Southern Grampians Shire Council, Public Hearing, Hamilton, 8 April 2014.

32 Chapter three: Current exports from regional Victoria

Findings

3.1

3.2

The Government has estimated that approximately one-third of Victoria’s exports come from regional Victoria. However, detailed information breaking down the regional components of exports is not readily available.

3.3

Committee estimates indicate that around ten per cent of onshore higher education international students study at regional campuses. Approximately four per cent of onshore vocational education and training international students are enrolled at regional institutes.

3.4

Approximately 12.2 per cent of the gross value added by international tourists to Victoria’s economy came from international tourists in regional Victoria.

3.5

Victoria’s major export markets are China, New Zealand, India, South East Asia and the USA.

3.6

Approximately 65.0 per cent of Victoria’s exported goods (by value) left through the Port of Melbourne in 2012–13. Victoria’s other sea ports accounted for 15.5 per cent and Victorian airports for 12.9 per cent of goods. The remaining 6.6 per cent of goods left primarily through sea and air ports in other states.

33 Rural and Regional Committee | Inquiry into Increasing Exports

Exports from the whole of Victoria

3.1 In 2012-13, Victorian exports totalled $35.9 billion. Of this, $23.2 billion came from the export of goods and $12.7 billion from services. This equated to 11.9 per cent of Australia’s total exports, making Victoria Australia’s fourth largest exporting state (see Figure 3.1). Minerals and fuels make up a substantial portion of exports for those states exporting more than Victoria. As can be seen from Figure 3.1, when these exports are excluded, the variances between Australia’s larger states are much smaller.

Figure 3.1 Exports from Australia, by state/territory, 2012-13

Western Australia

New South Wales

Queensland

Victoria All exports

South Australia Excluding mineral and fuel exports Northern Territory

Tasmania

ACT

0 50 100

Note: Goods are on a recorded trade basis and services are on a balance of payments basis. Excludes some confidential and miscellaneous items. Source: Department of Foreign Affairs & Trade, Australia’s Trade by State and Territory 2012-13, 2014. 3.2 Figure 3.2 shows that the volume of Victorian exports has generally grown in recent years, with an average annual growth rate of 2.1 per cent between 2002–03 and 2012–13.

Services Goods

34 Rural and Regional Committee |Chapter three: Current exports from regional Victoria

Figure 3.2 Victorian exports, 2002–03 to 2012–13

($ billion) ($ 20

0 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

Note: Figures are calculated on a balance of payments basis. Source: Department of Foreign Affairs & Trade, Australia’s Trade by State and Territory 2012-13, 2014. 3.3 However, as discussed further in Chapter 5 of this report, Victorian exports have decreased as a proportion of Gross State Product during this period. This seems to be partly a result of some temporary factors (such as the high Australian dollar and drought conditions), suggesting that exports may grow at a faster rate in future years.

35 Rural and Regional Committee | Inquiry into Increasing Exports

What is exported from Victoria?

3.4 Figure 3.3 breaks down Victoria’s exports into the main categories of goods and services.

Figure 3.3 Composition of Victoria’s exports, 2012-13 ($ million)

Other services $3,636

Manufactured goods Transport services $8,018 $1,404

Other travel $3,379

Education-related travel $4,334

Food $7,933

Other goods $1,338

Other primary products Minerals and fuels $2,571 $1,862

Notes: Goods are on a recorded trade basis and services are on a balance of payments basis. Excludes some confidential and miscellaneous items included in Figure 3.2. Source: Based on Department of Foreign Affairs & Trade, Australia’s Trade by State and Territory 2012-13, 2014, pp 36, 39. 3.5 In 2012-13, manufactured goods1 accounted for $8.0 billion or 23.3 per cent of Victoria’s exports. Passenger motor vehicles ($1.3 billion), aluminium ($1.0 billion) and medicaments ($0.4 billion) were the largest components.2

3.6 Food accounted for $7.9 billion or 23.0 per cent. Almost two-thirds of the exported food had been processed, with the remainder unprocessed.3 Dairy ($1.7 billion), meat ($1.5 billion) and wheat ($1.1 billion) together accounted for more than half of food exports. ‘Oil-seeds

1 This break-down does not include processed food within manufactured goods, though other analyses do combine those categories. 2 Department of Foreign Affairs & Trade, Australia’s Trade by State and Territory 2012-13, Commonwealth of Australia, Canberra, 2014, p 38. 3 Ibid, p 36.

36 Rural and Regional Committee |Chapter three: Current exports from regional Victoria

and oleaginous fruits, soft’ ($0.7 billion) and ‘fruit and nuts’ ($0.4 billion) were also major contributors.4

3.7 Minerals and fuels (totalling $1.9 billion) consisted primarily of refined petroleum ($0.7 billion), crude petroleum ($0.4 billion) and liquefied propane and butane ($0.3 billion).5 Minerals accounted for $0.4 billion.6

3.8 ‘Other primary products’ included ‘wool and other animal hair (including tops)’ ($1.3 billion), ‘hides and skins, raw’ (0.4 billion) and cotton ($0.4 billion).7

3.9 Education-related travel ($4.3 billion, or 12.6 per cent of all exports) includes all expenditure on goods and services by international students studying in Victoria, including tuition fees, food, accommodation and local transportation.8

3.10 Other travel ($3.4 billion) includes goods and services purchased by international visitors as part of either non-education personal travel ($2.6 billion) or business travel ($0.8 billion), such as food and accommodation.9

3.11 Transport services ($1.4 billion) primarily consist of: • International transport of non-Australian residents to or from Australia by Australian carriers, including agency fees and commissions ($0.5 billion) • Freight, postal and courier services ($0.3 billion) • Other transport services, such as some cargo handling charges, storage and some services supporting transport ($0.6 billion).10 3.12 Other services include a range of services purchased by people outside Australia, such as: • Legal, accounting, management consulting, public relations and other professional services ($0.8 billion) • Architectural, engineering, scientific and other technical services ($0.7 billion) • Computer services ($0.4 billion) • Financial services ($0.3 billion).11 3.13 As discussed further in Chapter 4, there has been some change in what is exported in recent years, with education, tourism and food growing, while manufacturing exports declined. The shift to education, tourism and food exports is expected to continue into the future, with the growing population and wealth of Asia being a major driver (see Chapter 5).

4 Ibid, p 38. 5 Ibid, p 38. 6 Ibid, p 36. 7 Ibid, p 38. 8 International Monetary Fund, Balance of Payments and International Investment Position Manual, Sixth Edition, 2009, p 167. 9 Department of Foreign Affairs & Trade, Australia’s Trade by State and Territory 2012-13, Commonwealth of Australia, Canberra, 2014, p 39; International Monetary Fund, Balance of Payments and International Investment Position Manual, Sixth Edition, 2009, p 167. 10 Ibid, p 39; Ibid, pp 164-5. 11 Department of Foreign Affairs & Trade, Australia’s Trade by State and Territory 2012-13, Commonwealth of Australia, Canberra, 2014, p 39; Regional Development Victoria, correspondence received 15 August 2014.

37 Rural and Regional Committee | Inquiry into Increasing Exports

Finding 3.1

How much of this comes from regional Victoria?

3.14 Most statistics about exports from Victoria record exports from the State as a whole, without differentiating between different areas within the State.

3.15 The Department of State Development, Business and Innovation has produced estimates of the international exports from ten municipalities with regional cities (see Appendix 6). The total value exported from these cities for 2012 was $3.8 billion, or 11.3 per cent of Victoria’s exports in 2011–12.12 However, the Committee notes that this is only a portion of regional Victoria’s exports, as it does not include rural areas, (which produce much of Victoria’s primary products), nor does it include some towns with important manufacturing exports (most notably Portland). More generally, the Government has noted estimates from Access Economics from 2011 that, ‘Commodities from regional Victoria make up around one third of Victoria’s exports’.13

3.16 Helpful data about exports from specific regions was provided in a number of submissions to this Inquiry (see Chapter 5 of this report).

3.17 The Committee sought to understand exactly how much regional Victoria contributes to the different goods and services identified above. However, for most goods and services, no reliable data exist about the proportion of exports that originate from different areas of Victoria. Further discussion of data limitations can be found in Chapter 5 of this report.

3.18 Most primary products (including food, minerals and other products such as wool, hides and cotton) originate in regional Victoria and their export can be understood as exports from regional Victoria.

3.19 However, the processing of primary products occurs both in regional Victoria and within metropolitan Melbourne. Part of the value of the exported product can be attributed to metropolitan Melbourne. Current data make it difficult to distinguish value added by processing in metropolitan Melbourne from processing in regional areas or from the pre-processed value of the goods.14

3.20 Professor German Spangenberg, Co-Director of AgriBio, informed the Committee that food

12 Committee calculation based on data supplied by Department of State Development, Business and Innovation, correspondence received 1 April 2014. 13 Victorian Government, Victoria – The Freight State: The Victorian Freight and Logistics Plan, Victorian Government, Melbourne, 2013, p 70. 14 As pointed out by the Victorian Government, some food grown in other states but processed in Victoria may also be included within the Victorian figure for processed food. Victorian Government, Submission, Number 51, 11 June 2014.

38 Rural and Regional Committee |Chapter three: Current exports from regional Victoria

production and processing together employ 145,000 people in Victoria, with more than half of these jobs in rural and regional areas. He added that food production and processing account for approximately one in six regional jobs.15

3.21 In addition to food, manufactured goods are an important export from Victoria. The Committee heard from a number of witnesses about the importance of manufacturing in regional areas.16 However, detailed statistics are not available about where in Victoria manufactured goods originate.

3.22 Service exports also originate in both regional Victoria and metropolitan Melbourne. For most services, data identifying where services originate are not available.17 With respect to education and tourism, statistics exist which provide some guide as to how much of the relevant export is regional and how much comes from metropolitan Melbourne.

Finding 3.2

Education

3.23 The Federal Department of Education provides data regarding higher education. The Department’s information shows that there were 109,872 international students enrolled in Victorian institutions in 2012, with 65.7 per cent studying onshore and 34.3 per cent studying offshore.18 As not all students were enrolled full-time, this equates to an equivalent full-time student load of 84,688 enrolments.19

3.24 Two Victorian universities are based primarily in regional Victoria: Federation University Australia and Deakin University. In submissions to the Inquiry, they indicated that their international student numbers for 2013 were: • 6,752 students at Federation University Australia (including 1,154 offshore)20 • 1,273 enrolments at regional campuses of Deakin University.21

15 Professor German Spangenberg, Co-Director, Agribio, Public Hearing, Melbourne, 5 May 2014. 16 For example: Victorian Government, Submission, Number 51, 11 June 2014. 17 The Department of State Development, Business and Innovation’s annual Victorian ICT Industry Survey provides data about ICT exports (although that is not its primary purpose). However, the 2013 sample includes only ten regional exporters. 18 Committee calculations based on Department of Education, Selected Higher Education Statistics – 2012 Student Data, Table 7.5. 19 Ibid. 20 Federation University Australia, Submission, Number 20, 17 April 2014, pp 4, 5, 7. 21 Deakin University, Submission, Number 25, 17 April 2014, p 2.

39 Rural and Regional Committee | Inquiry into Increasing Exports

3.25 Based on the 2013 figures presented above, onshore international students at regional campuses of these two universities account for approximately ten per cent of international higher education in Victoria.22

3.26 This figure does not include international students studying at regional campuses of other universities or at regional TAFEs. The Committee understands these to be reasonably low numbers.

3.27 La Trobe University, which includes campuses in Bendigo, Wodonga, Shepparton and Mildura, told the Committee that only approximately five per cent of its international students study at these campuses.23 This would equate to around 310 students in 2012.24

3.28 Deakin University said that 16 per cent of its international students study at regional campuses, with the remainder studying at its Melbourne metropolitan campus. The University added that the proportion of its international students studying at its regional campuses had been increasing since 2010. 25

3.29 In its submission to the Committee, the Victorian Government’s estimates were much lower than the Committee’s. The Government indicated that there are between 2,500 and 4,000 onshore international students in regional university campuses,26 which would be equivalent to between 3.5 and 5.5 per cent of the international students in Victoria in 2012.

3.30 Data from 2011 about onshore international students at public Vocational Education and Training institutions indicate that 569 students (less than four per cent of international students) were studying at regional institutions.27 The Government’s estimate was significantly lower, at around 300 enrolments.28 The Government indicated that this was a conservative estimate, but also noted the limitations of 2011 data, indicating that there was significant volatility in international student numbers between 2009 and 2012.29

3.31 These statistics suggest that a relatively small portion of Victoria’s education-related travel exports relate to regional Victoria.

22 Committee calculation based on figures cited above and Department of Education, Selected Higher Education Statistics – 2012 Student Data, Table 7.5. This figure is approximate, as it combines data from different years and uses enrolment figures at Deakin as an approximation for student numbers. 23 Professor John Dewar, Vice Chancellor, La Trobe University, Public Hearing, Shepparton, 2 July 2014. 24 Committee calculation based on Australian Education International, Research Snapshot: Onshore higher education international students as a proportion of all onshore students by university, 2012, December 2013. 25 Deakin University, Submission, Number 25, 17 April 2014, p 2. 26 Victorian Government, Submission, Number 51, 11 June 2014. 27 Committee calculation based on Australian Education International, Research Snapshot: Onshore International Students at Public VET Institutions 2011, Commonwealth of Australia, Canberra, 2012. 28 Victorian Government, Submission, Number 51, 11 June 2014. 29 Regional Development Victoria, correspondence received 18 August 2014.

40 Rural and Regional Committee |Chapter three: Current exports from regional Victoria

3.32 However, these exports can be significant to the particular institutions. Federation University Australia informed the Committee that its earnings from educational exports in 2013 totalled $67.2 million,30 which was 22.4 per cent of its total revenue.31

Finding 3.3

Tourism

3.33 As with education, data published by Tourism Victoria suggest that the majority of Victorian exports from tourism relate to Melbourne.32

3.34 The data shows that approximately ten per cent of nights spent by international visitors in Victoria in 2011–12 were spent in regional Victoria. Expenditure by these visitors in regional Victoria provided 12.2 per cent of the total gross value added by international tourists to Victoria’s economy.33

3.35 The Great Ocean Road and Murray areas accounted for more than half of the international visitor nights to regional Victoria and 53.3 per cent of the gross value added to regional Victoria.34

3.36 Tourism is also a vital part of other regional economies. Tourism (including both international visitors and Australians) provides 33.3 per cent of employment on Phillip Island and 26.7 per cent in the Daylesford and Macedon Ranges area.35

3.37 Tourist dispersal is discussed further below.

Finding 3.4

Approximately 12.2 per cent of the gross value added by international tourists to Victoria’s economy came from international tourists in regional Victoria.

30 Federation University Australia, Submission, Number 20, 17 April 2014, p 7. 31 Committee calculation based on ‘total revenue for continuing operations’ as identified in University of Ballarat, Annual Report 2 013 , p f3. 32 Tourism Victoria’s data may include some education-related travel, but excludes any international visitors staying in Australia for more than a year. 33 Committee calculation based on Tourism Victoria, tourism satellite accounts, 2011-12. 34 Ibid. 35 Ibid.

41 Rural and Regional Committee | Inquiry into Increasing Exports

Export markets

3.38 Victoria’s main export markets are China, New Zealand, India, South East Asia and the USA. The following maps show the major export markets for goods (Figure 3.4), education (Figure 3.5) and tourism (Figure 3.6). In all cases, figures reflect exports from Victoria as a whole. Appendix 7 provides the same data in tables.

Figure 3.4 Major destinations of Victorian goods, 2012–13

$ million of exports in 2012-13 500-1,000 1,000-2,000 2,000-3,000 3,000-4,000 Note: Only includes countries to which more than $500 million of exports were sent. Source: Department of Foreign Affairs and Trade, Australia’s Trade by State and Territory 2012–13, Commonwealth of Australia, Canberra, 2014, pp 41–43.

42 Rural and Regional Committee |Chapter three: Current exports from regional Victoria

Figure 3.5 Major origins of international students in Victoria (enrolment numbers), 2013

Enrolment numbers, 2013 1,000-2,000 2,000-4,000 4,000-5,000 5,000-10,000 10,000-15,000 15,000-50,000

Note: Only includes countries providing more than 1,000 enrolments. Source: Australian Education International, Department of Education, International Student Data, 2013.

43 Rural and Regional Committee | Inquiry into Increasing Exports

Figure 3.6 Major origins of international overnight visitors to Victoria (international visitor nights), 2012–13

Millions of visitor nights, 2012-13 1-2 2-3 3-4 4-5 5-10

Note: Only includes countries with over 1,000,000 visitor nights. Covers the period September 2012–September 2013. Source: Tourism Research Australia, International Visitors in Australia: September 2013, December 2013, p 23. 3.39 With respect to tourism, however, data indicate that the profile of tourists to regional Victoria is different to the profile of tourists to metropolitan Melbourne. Figure 3.7 compares the proportion of visitors by country of residence for regional Victoria and Melbourne.

44 Rural and Regional Committee |Chapter three: Current exports from regional Victoria

Figure 3.7 Proportion of visitors by country of residence, 2011–12

15 Regional Victoria Melbourne 10 Proportion of visitors (%) visitors of Proportion

0 United Germany Other North China India Other New Other Kingdom Europe America Asia Zealand countries

Note: Data for regional Victoria relate to the year ending December 2011, whereas data for Melbourne relate to the year ending June 2012. Sources: Tourism Victoria, Regional Victoria Market Profile: Year Ending December 2011, 2012, p 2; Tourism Research Australia, International Visitors in Australia: June 2012, 2012, p 19. 3.40 As can be seen from Figure 3.7, the profile of tourists to regional Victoria differs in some important respects from the profile of Melbourne. Specifically, tourists from China and other parts of Asia make up a much smaller proportion of the tourists in regional Victoria, whereas tourists from the United Kingdom and Europe make up a much larger proportion.

3.41 The limited dispersal of Asian tourists into regional areas has been recognised in other investigations into the tourist industry.36 There is some debate as to whether this represents a potential growth opportunity or simply cannot be changed. As tourism operators indicated to Tourism Research Australia: Despite limited dispersal currently being a characteristic of the travel patterns of tourists from Asia, some operators and experts believe that these markets may represent opportunities in the longer term, particularly as the markets mature. This notion of market maturity is reflected in the observations of some operators that the visitors they do receive from Asia are on their second or third trip to Australia. One operator acknowledged that perhaps once the markets mature, there would be opportunities for her business to market to Asian visitors who have already been to the cities and who want to experience what regional areas have to offer. However, other operators believe that Asia would never represent an attractive market for their regional areas. As a case in point, one

36 Tourism Research Australia, Strategies to Assist Tourism Industry Small and Medium Enterprises to Engage with Asian Markets, Tourism Research Australia, Canberra, 2013, pp 7-8.

45 Rural and Regional Committee | Inquiry into Increasing Exports

respondent noted that while Japan is a mature market for Australia, visitors from Japan still do not venture to their business in remote Northern Territory. This respondent was sceptical that new visitors from China would be more adventurous than Japanese visitors and questioned whether remote and regional Australia would appeal. Another respondent pointed to the problem of access to regional areas, explaining that this was why his business did not target Asian tourists. He believed that Asian tourists do not come to his region because they typically like places that are easy to access and that are included in a package. By way of contrast, he explained that German tourists make up ten per cent of his customer base because of their willingness to self-drive and explore remote areas.37

3.42 The Committee heard similar concerns from participants in this Inquiry. The issue has also been acknowledged by the State Government in its policy documents.38

3.43 A number of ways to encourage dispersal by Asian tourists into regional Victoria were suggested during this Inquiry. These are discussed in later chapters of the report and include the construction of high-end hotels catering to the Asian market in regional Victoria (see further discussion in Chapter 8), improvements to public transport (see Chapter 8), better internet connectivity (see Chapter 8) and more promotion to these markets (see Chapter 12). It was also suggested that the Government should increase connections with those markets which are more interested in tourism to regional Victoria, such as the United Kingdom, North America and Europe (see Chapter 11).

Finding 3.5

Victoria’s major export markets are China, New Zealand, India, South East Asia and the USA.

The movement of goods within Victoria

3.44 Exported goods generally leave Victoria in three ways:39 • Via one of Victoria’s four major sea ports (Melbourne, Geelong, Hastings and Portland) • Via one of Victoria’s two international airports (Melbourne and Avalon) • Into other Australian states via road and rail, and then through one of their ports or airports. 3.45 Figure 3.8 shows the value of goods moving through each of these channels.

37 Ibid. 38 For example: Victorian Government, Victoria’s 2020 Tourism Strategy, Victorian Government, Melbourne, 2013, p 7. 39 Goods also leave Victoria through smaller ports and by parcel post – however, the value of these goods is less than 0.02 per cent of the total exported goods.

46 Rural and Regional Committee |Chapter three: Current exports from regional Victoria

Figure 3.8 Value of goods through Victoria’s ship and air ports, as a proportion of total Victorian exports, 2012-13 Air - outside Ship - outside Victoria Victoria 2.7% 3.9% Air - Victoria 12.9%

Ship - Portland 6.8% Ship - Ship - Melbourne Westernport 65.0% 3.3%

Ship - Geelong 5.4%

Note: Does not include goods exported through smaller ports or by parcel post, which together account for less than 0.02 per cent of the value of exports. Source: Committee calculations based on data provided by the Department of Foreign Affairs and Trade. 3.46 The choice between air and sea transport is determined by the speed with which the good is required to be delivered. As the Victorian Government has indicated: ‘Air freight serves high-value, time-critical supply chains – medical goods, fresh food products and manufactured parts.’40

3.47 In relation to sea ports, participants in the Committee’s Inquiry identified a range of factors determining which port they use, including: • Proximity to the point of production • Transport connections to the port (including rail and road) • Whether or not the port accepted containers. 3.48 The Port of Melbourne is currently the only Victorian port from which containers can be exported in large numbers. Both the Coalition and Labor Party have committed to building a second container port, with the Coalition favouring Hastings and the Labor Party preferring ‘Bay West’ (between Werribee and Geelong).

3.49 As noted in Chapter 2, the Committee considers Victoria’s variety of ports, each with particular attributes, to be an advantage through encouraging competition between ports. The Committee

40 Victorian Government, Victoria – The Freight State: The Victorian Freight and Logistics Plan, Victorian Government, Melbourne, 2013, p 43.

47 Rural and Regional Committee | Inquiry into Increasing Exports

expects that a second container port will add to Victoria’s competitive advantages, both by increasing competition and through increased capacity.

3.50 The major movements of goods within Victoria to the ports can be seen in Figure 3.9.

Figure 3.9 Indicative movements of the top five commodities in Victoria

Source: Victorian Government, Victoria - the Freight State: The Victorian Freight and Logistics Plan, August 2013, p 71. 3.51 Issues raised in relation to transport connections to ports, port access and port infrastructure are discussed in Chapter 8 of this report.

Finding 3.6

48 Chapter four: The impact of exporting

Findings

4.1

Exports accounted for 10.6 per cent of Victoria’s gross state product in 2012–13. They comprise a larger proportion of income for some industries and some regions in Victoria. Exporting provides a variety of economic and social benefits to Victoria.

4.2

The benefit for a business from exporting will depend on a number of factors, including industry and size. For some industries, export markets provide better returns, although for others they do not. Exporting can help businesses to grow, increase their productivity and mitigate risk. However, exporting can also involve significant costs, time and effort, which can be prohibitive for small businesses.

4.3

Structural change has seen shifts in Victorian employment, production and exports. In particular, service industries have grown, while manufacturing’s relative contribution to the economy has declined. However, evidence suggests some areas of manufacturing have the potential to grow, especially food processing and advanced manufacturing.

Recommendation

Recommendation 5

4.50

49 Rural and Regional Committee | Inquiry into Increasing Exports

The importance of exports to Victoria

4.1 Exports make up a substantial portion of Victoria’s economy. In 2012–13, exports accounted for 10.6 per cent of Victoria’s gross state product.1

4.2 For particular industries, exports comprise a higher proportion of output. Agriculture, for example, is heavily dependent on exports. The Victorian Farmers Federation states that 60 per cent of Australian agricultural product is currently exported.2 Considering Australia’s population, if Victoria’s production of food and fibre is to be doubled (as proposed by the Government – see Chapter 5 of this report), an even greater proportion of produce will need to be exported.

4.3 Certain regions rely more heavily on exports than others. Government estimates suggest that 23 per cent of the City of Wodonga’s gross regional product comes from international exports.3 Some parts of regional Victoria, such as Philip Island, receive significant income from international tourism.4

4.4 For nations, the primary benefit of exporting is that it enables countries to pay for imports. As Paul Krugman has argued: … imports, not exports, are the purpose of trade. That is, what a country gains from trade is the ability to import things it wants. Exports are not an objective in and of themselves: the need to export is a burden that a country must bear because its import suppliers are crass enough to demand payment.5

4.5 Trade also enables countries to benefit from comparative advantages. That is, it enables Australia to produce the goods and services that it can best produce and import the goods and services that other countries can best produce. This improves the standard of living in both countries. In practice, this means Australians purchase a wider range of goods and services at a lower cost than could be produced domestically.

4.6 The Australian Bureau of Statistics conducted a longitudinal study of a selection6 of Australian exporting businesses in the 1990s. This work found that exporting businesses tend to employ more

1 Committee calculation based on Department of Foreign Affairs & Trade, Australia’s Trade by State and Territory 2012-13, Commonwealth of Australia, Canberra, 2014, p 32. Exports calculated on a balance of payments basis. 2 Victorian Farmers Federation, Submission, Number 35, 28 April 2014. 3 Regional Development Victoria, Personal Communication. See Appendix 6. 4 Tourism Victoria, Value of Tourism to Phillip Island, Tourism Victoria, Melbourne, 2013, p 1. Ms Nicoleta Giurgiu, Sales and Marketing Manager, Phillip Island Nature Parks, informed the Committee that 300,000 of the 560,000 visitors to the penguin parade each year are international visitors (Public Hearing, Wonthaggi, 4 June 2014). 5 Krugman P, ‘What Do Undergrads Need to Know about Trade?’, The American Economic Review, Vol 83, 1993, p 24. 6 The Australian Bureau of Statistics explains that ‘The survey excluded all government businesses and non-employing businesses as well as some industries. Businesses in the Agriculture, Communication services, Education and Health and community services industries were all excluded, but this is not to say that all exports that originate from these industries were excluded. For example, many agricultural exports will be exported by wholesale businesses.’ (Australian Bureau of Statistics, A Portrait of Australian Exporters: A Report Based on the Business Longitudinal Survey, ABS Cat. No. 8154.0, August 2000, p viii).

50 Rural and Regional Committee |Chapter four: The impact of exporting

people than non-exporting businesses and provide better working conditions (including higher salaries, fewer part-time and casual positions, a stronger commitment to occupational health and safety, and more training). The study also indicated that: • Labour productivity and returns on assets tend to be higher in exporting firms compared to non-exporters • Exporting firms are more likely to engage in business planning, innovation and seeking advice from external sources.7 4.7 The Australian Bureau of Statistics advises: ‘It should not be inferred that exporting leads to particular business behaviour. Alternatively, the results may indicate that businesses displaying particular characteristics are more likely to export.’8

4.8 However, Tim Harcourt, Chief Economist of the Australian Trade Commission, suggests that exporting does encourage some of these characteristics by exposing exporting firms to greater competition. He argues: By exporting overseas we compete with the best companies in the world and are therefore driven to be innovative and use the most modern technology and management practices … This enables firms to increase productivity and therefore raise living standards for Australians overall.9

4.9 Supporting the theory that exporting drives the positive characteristics of firms (rather than the other way around), research has found that a number of these benefits are less realised in countries that are less open to trade.10

4.10 Tim Harcourt also argues that exports create closer links between Australia and other countries, assisting with international relations and facilitating learning from overseas.11

4.11 For a definition of exports as they relate to this Inquiry see Chapter 1 of this report.

Finding 4.1

7 Australian Bureau of Statistics, A Portrait of Australian Exporters: A Report Based on the Business Longitudinal Survey, ABS Cat. No. 8154.0, August 2000; Harcourt T, Why Australia Needs Exports: The Economic Case for Exporting, Australian Trade Commission, Sydney, n.d. Some research has suggested that these advantages are correlated with firms that sell outside the local market, rather than specifically exporting overseas – Porter M E, ‘The Economic Performance of Regions’, Regional Studies, Vol 37, 2003, p 560. 8 Australian Bureau of Statistics, A Portrait of Australian Exporters: A Report Based on the Business Longitudinal Survey, ABS Cat. No. 8154.0, August 2000, p viii. 9 Harcourt T, Why Australia Needs Exports: The Economic Case for Exporting, Australian Trade Commission, Sydney, n.d., p 2. 10 Centre for International Economics, Benefits of Trade and Trade Liberalisation, May 2009, p 10. 11 Harcourt T, Why Australia Needs Exports: The Economic Case for Exporting, Australian Trade Commission, Sydney, n.d., p 3.

51 Rural and Regional Committee | Inquiry into Increasing Exports

The impact of exporting on individual firms

4.12 As noted above, exporting can assist firms to increase their productivity and learn from international markets. Firms that the Committee met with during this Inquiry provided a number of other reasons as to why they export.

4.13 In understanding exports from a firm’s perspective, it is important to note that few Victorian firms rely solely on exports for their income. Most firms also sell in the domestic market. This means that decisions about whether or not to export (or how much to export) are based on comparing the benefits of allocating resources to exporting with putting those resources into domestic sales. Mr Bruce Edward, Managing Director, Ferndale Confectionery, explained: [Exporting] requires us to make fundamental decisions on investment. To put in an export sales manager or a dedicated market manager in the UK, that is a business decision which we can make any time of the day, but that means we have to take money or resources from another part of the business, which is the Australian business ...12

4.14 For some businesses, domestic markets are more difficult to compete in than export markets and offer lower returns. In relation to the dairy industry, Mr Craig Nuske, Commercial Manager of Longwarry Food Park, explained: What we have recognised, though, over the last three to four months is that the domestic market is becoming more aggressive than we have ever seen it before. We have seen Fonterra doing a ten-year long-term deal with Woolworths, and they are a new player in the fresh milk segment. We have seen MG [sc. Murray Goulburn] doing a long-term investment and deal with Coles and they are a new player in the fresh milk segment. That spare capacity has to come from somewhere and it is lying with our other large competitors. They are becoming very aggressive, particularly in the domestic scene. … We have had to shift our focus back to export, which we know and where the demand has always been. It is nice to have that diversity, but you also have to get the best return you can for your investment in that milk. We pay X amount for that milk coming in; we need to get the best return on that investment. Right now it is not domestically.13

4.15 Mr Linton Ryan, the General Manager of Ryan Meat Company, a meat processing company based in Nathalia, similarly explained: “We probably would not be here today if we had not begun to export, because the domestic market was just too tough and too competitive for us.”14

4.16 However, for other companies, exports provide lower margins than domestic sales. For such businesses there are other reasons for exporting.

12 Mr Bruce Edward, Managing Director, Ferndale Confectionery, Public Hearing, Ballarat, 29 April 2014. 13 Mr Craig Nuske, Commercial Manager, Longwarry Food Park, Public Hearing, Wonthaggi, 4 June 2014. 14 Mr Linton Ryan, General Manager, Ryan Meat Company, Public Hearing, Shepparton, 2 July 2014.

52 Rural and Regional Committee |Chapter four: The impact of exporting

4.17 In some cases, domestic markets are not large enough to purchase all of the output from particular industries. In these cases, exporting allows businesses to grow past the point that operating in the domestic market alone would enable. This growth provides additional profit through both the international sales themselves and by producing economies of scale which reduce costs. Timber is one such industry. As the Victorian Association of Forest Industries explains: The majority of Victoria’s forest products are sold and consumed domestically, however exports play a significant role in fully utilising the resource and maximising competitiveness in the domestic and international market.15

4.18 Exporting can also be an important way of mitigating risk. Mr John Wilson from Fruit Growers Victoria said that fruit growers “… should have an export program as well as a domestic program so that they are spreading the risk – so that if we have a low price or a failure in one market they are not exposed to that across the board”.16

4.19 However, the Committee heard from many witnesses and submissions that exporting can be difficult, expensive and time consuming. These factors can make businesses reluctant to become exporters, particularly small businesses (see further discussion in Chapter 6 of this report).

4.20 Mr Peter Kulich of Baw Baw Shire Council said: I was talking to a business the other day. They employ 20-odd people. They are just getting into the Asian market. For them to attend one of the trade shows that they want to attend, they reckoned it would cost them about $25,000, by the time you take into account staff time, conversion of brochures, shipping of stock, the $8,000 to $10,000 for stand hire, accommodation – all that type of stuff. That was just for their first foray. I totally understand – and I said this to them – that there is the [Commonwealth] Export Market Development Grant and there are the State Government grants as well, but they still say that for a small business to try to go out there and do a number of those trade shows in three or four different countries is a very heavy outlay. They are fairly convinced that the market is there, but this company in particular has just gone through a major expansion to upgrade their facilities for export accreditation. They will be putting on extra staff, so they have all these extra costs coming up from the bottom and then to get the money back they have to put even more money in at the top as well.17

4.21 For many small businesses, the difficulties of entering export markets may outweigh the benefits. As the East Gippsland Food Cluster explains, for some businesses it can simply be ‘too hard’ or ‘too risky’.18

15 Victorian Association of Forest Industries, Submission, Number 45, 5 May 2014. 16 Mr John Wilson, General Manager, Fruit Growers Victoria, Public Hearing, Shepparton, 2 July 2014. 17 Mr Peter Kulich, Economic Development Coordinator, Baw Baw Shire Council, Public Hearing, Moe, 3 June 2014. 18 East Gippsland Food Cluster, Submission, Number 22, 17 April 2014.

53 Rural and Regional Committee | Inquiry into Increasing Exports

4.22 Although increasing exports may be desirable for Victoria as a whole, there are barriers which can make exporting undesirable for individual businesses. This underlines the importance of government support and assistance, as further discussed in Sections II and III of this report.

Finding 4.2

Structural change

4.23 The Victorian economy is currently undergoing structural change, with some areas of the economy expanding and others contracting.

4.24 The figure below shows the proportion of the Victorian workforce in different industries between 1996 and 2011. The structural change is evident in this figure, which shows the proportion of people employed in ‘Agriculture, forestry and fishing’, ‘Manufacturing’ and ‘Wholesale / retail trade’ reducing, while the proportion of people employed in ‘Construction’ and ‘Service industries’ has grown.

Figure 4.1 Employment by industry in Victoria, 1996-2011

25.0

20.0

15.0

10.0

1996 5.0 2001 2006 Proportionof workforce in industry (per cent) 0.0 2011 Other Construction Manufacturing Educationand training Wholesale and retail trade Property and business services Agriculture, forestry andfishing Health care and social assistance social and care Health Accommodation and food services

Note: Changes to definitions have influenced some categories. Source: Australian Bureau of Statistics Community Profiles, based on Census 1996-2011.

54 Rural and Regional Committee |Chapter four: The impact of exporting

4.25 This pattern is typical of economies similar to Victoria’s, as an OECD report found: Economic development in OECD economies has long been characterised by a gradual process of structural change. In the initial stages of economic development, agriculture typically accounts for the bulk of GDP and employment, as is still the case in many developing countries. In later stages, its share in total value-added and employment declines and the manufacturing sector grows as economies industrialise. In recent years, many OECD economies have experienced a decline in the share of manufacturing in overall employment, with a concurrent rise in the share of services.19

4.26 This structural change is being driven by a range of factors. The Centre for International Economics has indicated: Changing patterns of trade are only one element in a much larger picture. Most of the structural change that is occurring in the economy is completely unrelated to trade. For example, there has been a decline in the share of manufacturing employment over the last 20 years in all advanced OECD countries. This is often attributed to increased imports from developing countries. However, trade is a two way flow and the increased import of manufactured goods from developing countries has been largely matched by increasing exports of manufactured goods such as high tech plant and equipment from the OECD countries. Consequently, only a very small part of the decline in manufacturing employment is related to increased trade. Rather the main cause of the decline in manufacturing employment is the shift of consumption towards services within the OECD countries themselves (as incomes rise the proportion of income spent on the consumption of goods tends to fall). The shift in consumption patterns means there is less demand for manufactured goods relative to services. At the same time the high level of productivity growth in manufacturing relative to services means that manufacturers can meet demands with fewer workers.20

4.27 As indicated at the end of the above quotation, a reduction in employment does not necessarily mean a reduction in output. For a number of industries, increased productivity (especially mechanisation) has meant that an equal or greater output coincides with fewer jobs.

4.28 Despite the decline in jobs in ‘Agriculture, forestry and fishing’ and ‘Wholesale / retail trade’, the gross value added to Victoria’s economy by these industries has increased over the same period. As can be seen from Figure 4.2, their contribution to Victoria’s gross state product (which has more than trebled over the period) has remained a relatively stable proportion between 1991 and 2011.

19 Pilat D, Cimper A, Olsen K and Webb C, The Changing Nature of Manufacturing in OECD Economies, STI Working Paper 2006/9, Organisation for Economic Co-operation and Development, Paris, 2006 p 5. Also see the discussion in the Rural and Regional Committee’s 2012 Inquiry into the Capacity of the Farming Sector to Attract and Retain Young Farmers and Respond to an Ageing Workforce: Final Report . 20 Centre for International Economics, Benefits of Trade and Trade Liberalisation, Centre for International Economics, Canberra, 2009, pp 22-3.

55 Rural and Regional Committee | Inquiry into Increasing Exports

4.29 However, ‘Manufacturing’ follows a quite different pattern. While the gross value added by the manufacturing industry has also increased in dollar terms over this period, it has occurred at a much slower rate than the rest of the economy, causing it to decline as a proportion of gross state product (see Figure 4.2).

4.30 The long-term decline in manufacturing is said to have a number of causes, including: the high value of the Australian dollar; and the challenge for Australian companies operating in mass production fields to compete against overseas countries that pay lower wages and have higher tariffs on their products. Manufacturing is discussed further in the next section.

4.31 Mass production is discussed in more detail in Chapter 9 of this report. Free trade agreements and tariffs are discussed in more detail in Chapter 11 of this report.

Figure 4.2 Gross value added by selected industries as a proportion of Victoria’s gross state product, 1995-96 to 2012-13

18.0

16.0

14.0 Agriculture, forestry and fishing 12.0

10.0

8.0 Manufacturing

6.0

4.0 Proportion of gross state product (%) product state gross of Proportion Wholesale and retail trade 2.0

0.0 1995-96 1996-97 1997-98 1998-99 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2009-09 2009-10 2010-11 2011-12 2012-13 1999-2000

Note: Changes to definitions have influenced some categories. Source: Australian Bureau of Statistics Cat No. 5220.0. 4.32 With respect to different types of export from Victoria, some have followed similar patterns to employment numbers and gross value, while others have taken a different path. Figure 4.3 shows growth primarily in ‘Other services’ and ‘Food’ and a reduction in manufacturing exports. The data on which this figure is based can be found in Appendix 8.

56 Rural and Regional Committee |Chapter four: The impact of exporting

Figure 4.3 Value of exports from different industries, Victoria, 1990-91 to 2012-13 18.0 32.0 Agriculture, forestry and fishing

16.0 31.0 Manufacturing

14.0 Wholesale and retail trade 30.0 12.0 Accommodation and food services 10.0 29.0 Construction

8.0 28.0 Education and training 6.0 27.0 Health care and social 4.0 assistance

26.0 Property and business services 2.0

Other 0.0 25.0 1990-91 1992-93 1994-95 1996-97 1998-99 2000-01 2002-03 2004-05 2006-07 2009-09 2010-11 2012-13

Sources: Department of Foreign Affairs & Trade, Australia’s Trade by State and Territory, 2014. 4.33 The value of manufacturing exports has dropped over the last ten years, despite a peak in 2007– 08.

4.34 Education-related travel has generally risen over the period, though it has declined since 2009– 10, primarily driven by reduced numbers of students from India (and, to a lesser extent, China).21

4.35 Although agricultural employment reduced over the period, food exports have increased substantially, driven mostly by unprocessed food.22 The easing of drought conditions in 2010 is partly responsible for this increase.

4.36 The categories of ‘Other travel’ and ‘Other services’ have risen steadily over the period, in line with employment figures for these industries.

21 Australian Education International, International Student Data 2013 . 22 Department of Foreign Affairs & Trade, Australia’s Trade by State and Territory 2012-13, Commonwealth of Australia, Canberra, 2014.

57 Rural and Regional Committee | Inquiry into Increasing Exports

Change in the manufacturing industry “There is going to be a very substantial increase in demand with Asian economic development and higher incomes for high value foodstuffs, high value manufactures of the kind that Victorian rural communities will be in a position to supply. We need the more competitive real exchange rate for that to take off, but the demand is going to be there for a wide variety of high value processed foodstuffs and specialised high value manufactures – not the big mass production manufactures; that has gone to the big developing countries, but the specialised manufactures with a lot of skill, a lot of brains, a lot of innovation in them. There are lots of opportunities for that.” Professor Ross Garnaut, Professorial Research Fellow in Economics, University of Melbourne

4.37 As discussed above, structural change in Victoria has had a negative impact on manufacturing. In 2011, the Victorian Competition and Efficiency Commission found that: The sector faces challenges. First, some manufacturing industries are growing while others are declining. The need to adjust, which has been a strong feature of the industry, will continue … Second, manufacturing’s competitive environment is challenging. Manufacturers have to compete for inputs, such as skilled labour, with growing sectors like services and mining, while facing continuing pressure to reduce their prices from strong overseas competition and the high exchange rate. Third, manufacturers have responded to increased competition by innovating and improving productivity. Workers in some sectors have lost their jobs. In others there is growing demand for higher skilled workers and skill shortages are evident. Again, this requires adjustment as training systems and labour markets need to respond to new demands.23

4.38 Recently, some of these challenges have resulted in large-scale manufacturers reducing operations in regional Victoria, such as: • Ford planning to cease manufacturing in Australia (including its Geelong plant) in 201624 • Alcoa closing its Point Henry (Geelong) smelter and rolling mill in 2014.25 4.39 SPC Ardmona has also faced some challenges in recent years and has turned to government for assistance.26

4.40 Another pressure facing some manufacturers is competition in local markets from imports. As a

23 Victorian Competition and Efficiency Commission, Victorian Manufacturing: Meeting the challenges, Victorian Competition and Efficiency Commission, Melbourne, 2011, pp xxix-xxx. 24 Ford Australia, ‘Important announcement from Ford Australia’, Media Release, 23 May 2013. 25 Alcoa in Australia, ‘Alcoa to Close Point Henry Aluminium Smelter and Rolling Mills in Australia’, Media Release, 17 February 2014. 26 See: ‘Victorian Government announces $22m assistance package for SPC Ardmona,’ http://www.abc.net.au/news/2014- 02-13/victorian-government-announces-package-for-spc-ardmona/5257564, accessed 14 August 2014.

58 Rural and Regional Committee |Chapter four: The impact of exporting

result of that, some manufacturers have focused their efforts more on local markets than exports. For example, Mr David Thornton, Manager of Thornton Engineering, informed the Committee that: Our customers are desperate to try to buy everything from Asia if they possibly can … We are one of the leaders in the sort of work that we do. [Our production] lines are very good, so they allow us to compete all over the country and I do not think there are any factories as good as that for that sort of work ... because the dollar is very strong and there seem to be more and more free trade agreements, exporting is not even on our radar. It is just trying to compete against imports.27

4.41 While the manufacturing industry certainly faces challenges, reports of the ‘death of manufacturing’ are claimed by some to be both an exaggeration and harmful to the sector. As Mr Thornton said: “This whole manufacturing is dying thing has not helped our business.”28

4.42 The Victorian Competition and Efficiency Commission noted that: … the commonly held view that manufacturing is declining is overly simplistic. The sector’s gross value added has been relatively stable over the last 20 years. However, its relative contribution to the economy has fallen as other sectors, notably services and mining, have grown significantly faster than manufacturing. Manufacturing employment has fallen during this period as labour productivity has increased. There has also been considerable compositional change within the sector. Similar trends have been experienced in other states and countries.29

4.43 In addition, though employment in manufacturing as a whole has declined in recent years, this is not true of all types of manufacturing (see Figure 4.4). As noted by the Victorian Competition and Efficiency Commission, some manufacturing industries are growing.30

27 Mr David Thornton, Manager, Thornton Engineering, Public Hearing, Geelong, 30 April 2014. 28 Ibid. 29 Victorian Competition and Efficiency Commission, Victorian Manufacturing: Meeting the challenges, Victorian Competition and Efficiency Commission, Melbourne, 2011, p 4. 30 Ibid, p xxix.

59 Rural and Regional Committee | Inquiry into Increasing Exports

Figure 4.4 Employment within the manufacturing industry in Victoria, 2001-2011 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 2001 0 2006 2011 Other Metal Products Leather Recorded Media Printing, Publishing and Associated Products Manufacturing, undefined Manufacturing, Machinery and Equipment and Machinery Wood and Paper Products Food, Beverages and Tobacco Non-Metallic MineralProducts Petroleum, Coal, Chemicaland Note: Changes to definitions have influencedTextile, Clothing,Footwear and some categories (e.g. publishing was included in manufacturing in 2001 but not 2006 or 2011 – the apparent decline in the ‘Printing, publishing and recorded media’ category between 2001 and 2006 was largely due to the reclassification). Source: Australian Bureau of Statistics Community Profiles, based on Census 2001-2011. 4.44 As can be seen from Figure 4.4, employment within the ‘Food, Beverages and Tobacco’ manufacturing category has increased. This accords with what the Committee heard from a number of participants in the Inquiry, who identified processed food as a potential growth area for Victorian exports.31

4.45 A number of submissions indicated that the use of advanced technologies and equipment will provide Australian manufacturing with the ability to compete with other nations. For example, the Committee heard evidence about the shift from traditional manufacturing to advanced manufacturing in the Geelong region.

4.46 The Victorian Government commented on the structural change within the manufacturing industry in its submission to this Inquiry, stating: As the sector transitions to higher value-add and niche manufacturing, strong management capabilities and workforce skills will become increasingly vital factors in business performance and competitiveness. While governments cannot stop structural change, they do have a role in

31 Professor Ross Garnaut, Professorial Research Fellow in Economics, University of Melbourne, Public Hearing, Melbourne, 5 May 2014; Mr Adam Moore, Managing Director, Bonkers Retail and Baby Royale, Public Hearing, Moe, 3 June 2014; Ms Donna Taylor, Coordinator Business Development, Latrobe City Council, Public Hearing, Moe, 3 June 2014; Wimmera Development Association, Submission, Number 19, 17 April 2014; Victorian Government, Submission, Number 51, 11 June 2014, pp 13, 21; South Gippsland Shire Council, Submission, Number 28, 17 April 2014.

60 Rural and Regional Committee |Chapter four: The impact of exporting

helping industries and workforces in transition.32

4.47 Advanced manufacturing is discussed further in Chapter 7 of this report.

4.48 In its submission, the Victorian Government notes four ‘place-based industry development programs’ designed to assist businesses affected by ‘… inequitable outcomes associated with industry and regional change … to a degree that is more severe than society is prepared to accept’. These are: the Latrobe Valley Industry and Investment Fund; the Greater Geelong Industry Fund; the Geelong Region Innovation and Investment Fund; and the Goulburn Valley Industry and Infrastructure Fund.33

4.49 Throughout the course of this Inquiry, the Committee heard a number of suggestions regarding other ways that government could help manufacturers. These included: • Encouraging Victorians to buy locally made products34 • Government procurement being used to encourage local manufacturers35 • Ensuring that local businesses are not disadvantaged by tariffs into Australia being lower than the tariffs on Australian companies exporting to other countries36 • Target product development assistance and scientific research grants at products less reliant on low manufacturing costs37 • Enhance support for training for the specialised skills required.38 4.50 The Committee also believes that the Victorian Government should be active in providing relevant information online, such as pricing and tax structures, including comparative tariffs and regulation costs. Making such information easily available enables companies along the whole production line to operate at the lowest cost possible.

Finding 4.3

Recommendation 5

32 Victorian Government, Securing Victoria’s Economy, Victorian Government, Melbourne, 2012, p 29. 33 Victorian Government, Submission, Number 51, 11 June 2014, p 30. 34 Committee for Geelong, Submission, Number 21, 17 April 2014. 35 GippsAero, Site Visit, Traralgon, 3 June 2014; Mr Ian Bridger, Program Manager, VCAMM, Public Hearing, Geelong, 30 April 2014. 36 Mr Bernard Brussow, Chief Executive Officer, IXL Group, Public Hearing, Geelong, 30 April 2014; Mr Steve Mickan, Sales Director, SPC Ardmona, Public Hearing, Melbourne, 23 June 2014. 37 Nestlé Australia, Submission, Number 31 17 April 2014. 38 Ibid.

61 Rural and Regional Committee | Inquiry into Increasing Exports

62 Chapter five: Increasing exports

Findings

5.1

The coming decades are expected to see significant growth in global demand for goods and services. The increasing population of Asia and the growing middle class in Asia are major driving forces of the increased demand. This provides an opportunity for Victoria to grow its exports, particularly in bulk commodities, high quality food and fibre, health, and medical research.

5.2

5.3

Detailed data about international exports from Victoria as a whole are collected by the Commonwealth Department of Foreign Affairs and Trade and the Australian Bureau of Statistics. However, limited data are available relating to international exports from individual areas within Victoria. If available, this information could inform export policy, assist with the allocation of resources and provide a way to measure the effectiveness of government projects and programs. It could also help regions to design export strategies and market themselves, and assist businesses with collaboration.

5.4

All three tiers of government in Australia provide assistance to exporting businesses. The Committee received some evidence indicating that the different tiers complement each other and work together well. Some participants in the Inquiry advocated for a ‘one-stop-shop’ to help businesses find the assistance they need easily.

5.5

63 Rural and Regional Committee | Inquiry into Increasing Exports

Recommendations

Recommendation 6

5.50

Recommendation 7

5.70

The global opportunity “[Critical for us is] the growing global population, of which in excess of 70 per cent will reside in the south east and central Asian regions and the subcontinent of Pakistan and India by 2030. From an Australian agricultural point of view, that provides us with a fantastic opportunity around providing food products as well as services, education and expertise as those economies develop … We have seen significant growth in China and we have seen significant growth in Indonesia. We are now seeing significant growth in Vietnam, and I believe we will see it in Cambodia, Pakistan and India as we move forward.” Mr Cameron Hall, General Manager, Trading, Elders International Trading

5.1 It is widely acknowledged that the coming decades will see a growth in global demand for a range of goods and services. This is expected to open up new opportunities for exports from regional Victoria.

5.2 A major driver of this change is Asia. The population of Asia is expected to grow by 865 million people between 2013 and 2050. India alone is anticipated to grow by 368 million people. Other countries expected to have major growth are Indonesia (71 million), the Philippines (59 million), Pakistan (89 million) and Bangladesh (45 million). China’s population is predicted to grow by 67 million between 2013 and 2030.1 These countries will need to import more goods and services 1 United Nations Department of Economic and Social Affairs, Population Division, World Population Prospects: The 2012 Revision, 2013, Vol 1, pp 2, 61-2, 111. Estimates are based on medium-variant projections.

64 Rural and Regional Committee |Chapter five: Increasing exports

to meet the demands of their growing populations.

5.3 These nations will also become wealthier with a rapidly growing middle class. The Asian middle class is expected to grow from 525 million people in 2009 to 3.2 billion people in 2030.2 This will lead to a change in consumption patterns, as purchasing power increases.

5.4 In terms of food, wealthier populations eat more per person and consume a diet with a higher proportion of fruit, vegetables, sugars, meat, dairy and other animal products (and a lower proportion of cereals).3 The growing middle class is also predicted to be willing to pay more for ‘cleaner and greener’ products.4 Increased demand for high technology equipment, health services, education services and tourism experiences is also expected.5

5.5 As a result of the predicted demographic changes: • Global demand for agricultural products is expected to increase by an average of 1.1– 1.8 per cent per year between 2005 and 2050, with one ‘bullish’ scenario predicting an average of 2.6 per cent per year to 20306 • The number of students worldwide studying outside their own country is forecast to increase by an average of 3.7-4.4 per cent per year between 2010 and 2025,7 and the International Education Advisory Council anticipates a 3.0 per cent per year growth in international higher education enrolments in Australia to 20208 • Tourism Research Australia estimates international visitor nights in regional Victoria9 to increase by an average of 3.4 per cent per year between 2011–12 and 2021–22.10 5.6 These trends represent opportunities for Victorian businesses.

2 Kharas H, The Emerging Middle Class in Developing Countries, OECD Development Centre Working Paper No 285, January 2010, p 28. 3 Professor Geman Spangenberg, Co-Director, AgriBio, Public Hearing, Melbourne, 5 May 2014; Mr Colin Radford, Partner, Government Services, Deloitte, Public Hearing, Melbourne, 5 May 2014; Port Jackson Partners, Greener Pastures: The Global Soft Commodity Opportunity for Australia and New Zealand, ANZ Insight Issue 3, October 2012, p 5. 4 Professor Ross Garnaut, Professorial Research Fellow in Economics, University of Melbourne, Public Hearing, Melbourne, 5 May 2014. 5 Victorian Competition and Efficiency Commission, Victorian Manufacturing: Meeting the Challenges, Victorian Competition and Efficiency Commission, Melbourne, 2011, p 88; Deloitte, Positioning for Prosperity? Catching the Next Wave, Building the Lucky Country 3, Deloitte, Melbourne, 2014, pp 32, 35. 6 Alexandratos N and Bruinsma J, World Agriculture Towards 2030/2050: The 2012 Revision, ESA Working Paper No. 12-03 (Food and Agriculture Organization of the United Nations), 2012, p 61; Linehan V, Thorpe S, Andrews N, et al, Food Demand to 2050: Opportunities for Australian Agriculture, Australian Bureau of Agricultural and Resource Economics and Sciences, Conference paper 12.4, 2012, p.1; Port Jackson Partners, Greener Pastures: The Global Soft Commodity Opportunity for Australia and New Zealand, ANZ Insight, 2012, pp 7-10. 7 Committee calculations based on Department of State Development, Business and Innovation, International Education Strategy for Victoria 2013-2018, Department of State Development, Business and Innovation, Melbourne, n.d., p 11. 8 International Education Advisory Council, Australia – Educating Globally, Australian Government, Canberra, 2013, p 31. 9 Tourism Victoria’s definition of regional includes some areas not considered regional by the Committee, including the Yarra Valley, the Dandenongs and the Mornington Peninsula. 10 Tourism Victoria, Forecast Visitation to Victoria: Spring 2013 Issue, Tourism Victoria, Melbourne, 2013, p 5; Tourism Research Australia, Regional Forecasts – Tables, Tourism Research Australia, Canberra, 2013, p 3.

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Victoria’s potential for growth

5.7 Recent work by Deloitte identified five sectors which are expected to grow over the next 20 years and where Australia has a competitive advantage: • Gas • Agribusiness • Tourism • International education • Wealth management.11 5.8 Deloitte considers these sectors to have the most potential for export growth and that Victoria is ‘… well placed to benefit from a number of these new opportunities’.12

5.9 In February 2014, trade ministers from Australia’s states and the Commonwealth Government endorsed a similar set of areas as priorities for investment: • Food and agribusiness • Resources and energy • Economic infrastructure • Tourism and education • Advanced services, manufacturing and technologies.13 5.10 In addition to these Australia-wide opportunities, opportunities specific to Victoria were identified during the Inquiry. The potential to export coal from the Latrobe Valley was noted by some. Latrobe City Council described the current state of the region’s coal sector: Coal will be processed to lower emissions coal products for power generation use within the Latrobe Valley and for export to overseas customers. Other projects involve processing to produce higher value products – including urea (fertilisers), synthetic fuels and other derivative products. Several other large-scale projects are being developed, including the production of magnesium (recovered from ash deposits). The development of the coal products sector has major implications for the regional freight task. It has the potential to more than double the export freight task with a 10–15 year horizon, with the requirements for the transport of bulk products to ports.14

5.11 Further discussion of the infrastructure implications of the opportunity to shift to exporting coal can be found in Chapter 8 of this report.

5.12 The Victorian Government has identified health services and related industries as another potential area for export growth for Victoria in the Global Health Melbourne Plan, which was released in

11 Deloitte, Positioning for Prosperity? Catching the Next Wave, Building the Lucky Country 3, Deloitte, Melbourne, 2014, pp 12–13. 12 Deloitte, ‘New Opportunities for Victoria: Deloitte Report’, Media Release, 24 March 2014. 13 The Hon Andrew Robb AO MP, ‘Ministers Endorse National Investment Priorities’, Media Release, 14 February 2014. 14 Latrobe City Council, Submission, Number 8, 11 April 2014.

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April 2014. The Government seeks to leverage Victoria’s existing healthcare system and related industries (including medical services, medical research, training and manufactured products) to create export opportunities. It also seeks to facilitate inbound investment in our health system, which the Government anticipates will benefit Victorians. The Government predicts growing global demand for these services in the future, particularly from Asia, and that Victoria’s expertise makes it well placed to take advantage of that growing demand.15

5.13 Similarly, Deloitte identified Australia’s medical research (and associated training and medicine manufacturing) and some medical services as potential growth areas for exports.16

5.14 Despite the reference to Melbourne in the Plan’s name, the Government informed the Committee that the plan’s actions ‘… will create opportunities for companies and organisations in regional Victoria’.17

5.15 Many participants in this Inquiry noted other areas where they expected growth in global demand for various products and services, with some experiencing strong demand from China in their industries.

5.16 In May 2014, Pactum Dairy Group opened a factory producing UHT milk in Shepparton, primarily to service the export market. Mr Paul Ingleby, a director of the Pactum Dairy Group, described the challenge of meeting the demand from China, telling the Committee that: When we started talking to major players in China, a number of them expressed interest in the smaller size portions – the 250 millilitres – and one company in particular said, ‘Look, we’ll take the whole production of that line’. That then meant that we were basically at capacity before we got started.18

5.17 In its submission to this Inquiry, Glenelg Shire Council similarly noted the size of demand from China. The submission indicates that several visits to the Chinese city of Zhangjiagang led to potential trade deals for producers in the shire. However, the Council explains that, in this case, ‘… the quantum required to service China’s demand is beyond the capacity of the region’.19 Difficulties with businesses scaling up to meet export demand are discussed in Chapter 6.

Finding 5.1

15 Department of State Development, Business and Innovation, Global Health Melbourne Plan: Taking Victoria’s health strengths to the world, Department of State Development, Business and Innovation, Melbourne, 2014. 16 Deloitte, Positioning for Prosperity? Catching the Next Wave, Building the Lucky Country 3, Deloitte, Melbourne, 2014, pp 55, 634. 17 Victorian Government, Submission, Number 51, 11 June 2014. 18 Mr Paul Ingleby, Director, Australian Consolidated Milk and Pactum Dairy Group, Public Hearing, Shepparton, 2 July 2014 19 Glenelg Shire Council, Submission, Number 11, 16 April 2014.

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commodities, high quality food and fibre, health, and medical research.

Victoria’s capacity to grow exports “For Australia to maintain high incomes and full employment in the period ahead, we are going to need a big contribution from diversified services, specialised manufactures and processed agricultural products. There is no reason why Victorian rural areas could not make a disproportionate contribution to all these things.” Professor Ross Garnaut, Professorial Research Fellow in Economics, University of Melbourne “We have a significant number — two billion people — to the north of us who value the education that you can get in places like this.” Professor Jane den Hollander, Vice-Chancellor, Deakin University

5.18 Clearly, rural and regional Victoria’s supply of goods and services will need to increase if it is to take advantage of new global opportunities. The Committee believes that there is potential to do just this.

5.19 Although accessing capital to expand can be challenging (see Chapter 6), the Committee met with a number of firms that are either expanding or ready to expand.

5.20 Mr Ingleby said that he expects Pactum Dairy Group’s new UHT milk facility to process around 100 million litres of milk in its first year of operation, of which about 65 per cent will be exported. He expects that to grow to 200 million litres in the second year, of which around 80 per cent will be exported.20

5.21 Another business planning a very large increase in production is Geelong’s Carbon Revolution. Currently, the company is producing around six carbon fibre wheels each week, with capacity for 16 wheels per week. However, its new facility, planned to open at the end of 2014, has the potential to produce 50,000 wheels annually. Carbon Revolution hopes to see that figure eventually rise to 250,000 annually, through introducing automation that will reduce cycle times and increase efficiency. Carbon Revolution’s Chief Executive Officer, Mr Jake Dingle, told the Committee that he expects to see production stay in Geelong and that overseas plants would only be set up when production figures reach the millions.21

5.22 Ferndale Confectionery in Ballarat has recently made a large capital investment in its facilities making naturally produced confectionery. When combined with its skilled workforce, these facilities would enable the company to increase production substantially should it so choose.22

20 Mr Paul Ingleby, Director, Australian Consolidated Milk and Pactum Dairy Group, Public Hearing, Shepparton, 2 July 2014. 21 Mr Jake Dingle, Chief Executive Officer, Carbon Revolution, Public Hearing, Geelong, 30 April 2014. 22 Mr Bruce Edward, Managing Director, Ferndale Confectionery, Public Hearing, Ballarat, 29 April 2014. Ferndale Confectionery’s difficulty choosing between domestic and export markets is discussed in Chapter 4.

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5.23 In Melbourne, the Committee met with Professor German Spangenberg, Co-Director of the AgriBio research institute. He noted the potential of some of the institute’s research to significantly increase production. For example, newly developed genetic technologies are expected to increase cow fertility by 20 per cent, while a new strain of rye grass is predicted to increase the energy content by 1.5 megajoules per kilogram of dry matter.23 Research and development such as this can provide a basis for productivity improvements that both: increase Victoria’s agriculture output; and provide a source of income through intellectual property. Research and development is discussed further in Chapter 9.

5.24 This evidence, then, suggests that Victoria has potential to grow its international exports.

5.25 As discussed in Chapter 3, Victorian exports have grown in dollar value over the ten years to 2012–13. Although exports have declined as a proportion of Victoria’s gross state product, from 14.5 per cent (2002–03) to 10.6 per cent (2012–13),24 there are reasons to think that this decline may not continue.

5.26 The Victorian Government has identified a number of factors hampering exports of goods during this period, including the high Australian dollar, subdued global conditions and drought conditions.25 The Committee also notes sharp drop-off in education exports after 2009–10 (see Appendix 8), which the Victorian Government has attributed primarily to migration and visa issues, which the Government considers have been partly addressed and could be further addressed.26

5.27 If these factors are temporary, Victoria’s exports have the potential to grow at a faster rate in future years when these temporary factors no longer hold them back. Indeed, food exports have already increased substantially since the easing of drought conditions in 2010 (see Appendix 8).

Finding 5.2

23 Professor Geman Spangenberg, Co-Director, AgriBio, Public Hearing, Melbourne, 5 May 2014. 24 Committee calculation based on Department of Foreign Affairs & Trade, Australia’s Trade by State and Territory, 2012-13, Commonwealth of Australia, Canberra, 2014; ABS Cat. No. 5220.0. Exports calculated on a balance of payments basis. 25 Victorian Government, Submission, Number 51, 11 June 2014. 26 Department of State Development, Business and Innovation, International Education Strategy For Victoria 2013-2018, Victorian Government, Melbourne, n.d., p 14.

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Government plans to increase exports

5.28 During the 57th Parliament, the Victorian Government has released a number of plans which include increasing exports as an aim, including: • Victoria’s Technology Plan for the Future: Biotechnology (October 2011) • Victoria’s Technology Plan for the Future: Small Technologies (October 2011) • Victoria’s Technology Plan for the Future: Information and Communication Technology (November 2011) • A More Competitive Manufacturing Industry: New Directions For Industry Policy And Manufacturing (December 2011) • Victoria’s China Tourism Strategy (May 2012) • Engaging China: Strengthening Victoria (September 2012) • Securing the Future: Victoria’s Defence Industry Strategy (2012) • Victoria – Gulf States Engagement Strategy 2013 (February 2013) • Victoria and India: From Engagement to Partnership 2013 (March 2013) • South East Asia Market Engagement Plan 2013 (June 2013) • Victoria’s 2020 Tourism Strategy (July 2013) • International Education Strategy for Victoria 2013–2018 (November 2013) • Victoria’s Regional Tourism Strategy 2013–2016 (December 2013) • Food to Asia Action Plan (March 2014) • Global Health Melbourne Plan: Taking Victoria’s health strengths to the world (April 2014). 5.29 Other plans, such as Victoria – the Freight State: The Victorian Freight and Logistics Plan (August 2013), Plan Melbourne: Metropolitan Planning Strategy27 (May 2014) and Food to Asia Passport (August 2014) have been developed to grow jobs and the economy with a focus on increasing exports.

5.30 These plans all intend to increase exports (among other things) and the Government has proposed the following targets: • Double food and fibre production by 203028 (much of the additional food and fibre will be exported) • $150 million per annum of ICT exports facilitated by the Victorian Government29 • Increase the value of biotechnology-related exports by 25 per cent by 201530 • ‘Grow overnight tourism expenditure [in Victoria] to $24.7 billion by 2020’, with two-thirds of the growth in tourism spend expected to come from international tourists31 • $18.2 billion contributed to Victorian gross state product by Chinese visitors in the ten years to 2020, with 41,700 jobs and $2.0 billion of expenditure in 2020 and one million visitors per

27 In conjunction with the eight Regional Growth Plans. 28 Department of Environment and Primary Industries, Victorian Food and Fibre Export Performance 2012-13, Victorian Government, Melbourne, 2013, p 2. 29 Department of Business and Innovation, Victoria’s Technology Plan for the Future: Information and Communication Technology, Victorian Government, Melbourne, 2011, p 22. 30 Ibid, pp 9, 27. 31 Victorian Government, Victoria 2020 Tourism Strategy, Victorian Government, Melbourne, 2013, pp 6, 13.

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annum to Tourism Victoria’s Chinese language websites by 2020.32 5.31 The Committee notes that there are also a number of performance measures (with targets) in the budget papers related to exports, such as: • International marketing campaigns to position Victoria globally • Number of visitors (international) • Proportion of all international students studying in Victoria • Visitor expenditure: international • Visitor expenditure: regional Victoria (international) • Value of media coverage generated (international) • Businesses participating in export programs • New exports facilitated in regional Victoria • Value of exports facilitated and imports replaced • Client satisfaction with export assistance offered.33 5.32 Questions about the need for more specific targets for certain export-related industries were raised by some participants in this Inquiry.

5.33 Targets are also important for ensuring that results are measured and reported against, which helps the Victorian community understand Victoria’s economic position and assess the effectiveness of government policy. The latter reason is particularly relevant given the large number of export-related policies released by the Victorian Government.

5.34 Quantified targets can be useful for motivating stakeholders and helping them focus on the size of the task ahead. Mr Alex Arbuthnot AM, Deputy Chair of the Victorian Agribusiness Council, stated: I am very appreciative of our Minister for Agriculture, who has actually set a target. One of the comments I would like to make when we look at the opportunities for increasing exports is that we do set targets. Previous governments … have set export targets. We have never quite reached them, but they are inspirational… I think we do need motivation on some of those things …34

5.35 Targets can help answer the important question of how much rural and regional Victoria needs to export. If an appropriate minimum figure can be decided, that can assist with the prioritisation of projects by government and departments.

5.36 More widely, performance measures are an important component of government spending and policies. They are also important to ensure that results are measured and reported against.35 On the other hand, some consider that a requirement to set and meet defined rather than aspirational 32 Tourism Victoria, Victoria’s China Tourism Strategy, Tourism Victoria, Melbourne, 2012, p 29. 33 Department of Treasury and Finance, Budget Paper No.3, 2014-15 Service Delivery, Victorian Government, Melbourne, 2014, pp 238-40. 34 Mr Alex Arbuthnot AM, Deputy Chair, Victorian Agribusiness Council, Public Hearing, Melbourne, 23 June 2014. 35 On the importance of targets in the output performance measurement system, see Public Accounts and Estimates Committee, Review of the Performance Measurement and Reporting System, March 2014, Chapter 5.

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targets can unnecessarily fetter governments and industry, both in the setting and in the achieving or underachieving of targets and performance measures.

5.37 The Committee notes that the Victorian Government recently published a detailed report on food and fibre exports, looking at five-year trends to 2012–13.36 The Committee considers that this is useful for understanding the success of food and fibre export strategies and hopes that future reports will assist stakeholders to track Victoria’s performance over time. Similar reports in other export areas would be of benefit.

Data limitations

5.38 Closely connected to the idea of export targets is the measurement of exports.

5.39 The Commonwealth Department of Foreign Affairs and Trade and the Australian Bureau of Statistics collect detailed statistics on exports of goods and services at a whole-of-state level (see Appendix 8). However, it is much harder to find international export data relating to smaller geographic units.37

5.40 As discussed in Chapter 3, international tourism is an exception to this. However, for most other sectors, it is difficult to determine in which part of Victoria exports originate.

5.41 In its submission, the Victorian Government acknowledged that: … there are a number of data limitations in exports, making export data gathering at a regional level challenging. Extensive business surveys would be required to provide a precise quantitative and spatially accurate picture of current regional exports across the range of industries specified.38

5.42 The Government also noted that ‘… economic modelling can be used to generate export estimates for some sectors’.39

5.43 However, there are limitations with the figures derived through economic modelling. Regional Development Victoria provided the Committee with data for ten regional municipalities which had been determined by economic modelling. The data can be seen in Figure 5.2 below and in Appendix 6.

5.44 The Victorian Government’s estimates indicate that $503.3 million worth of international exports left the City of Ballarat in 2012.40 However, the City of Ballarat, using more up-to-date data

36 Department of Environment and Primary Industries, Victorian Food and Fibre Export Performance 2012-13, Victorian Government, Melbourne, 2013. 37 Estimates for regional exports (that is, all exports out of the municipality) are available for many municipalities. However, these figures aggregate exports to other municipalities in Victoria, other states of Australia and other countries, rather than just reflecting international exports. 38 Victorian Government, Submission, Number 51, 11 June 2014. 39 Ibid. 40 Regional Development Victoria, Personal Communication, 1 April 2014.

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from the same source, cited a figure of approximately $600 million.41 The 20 per cent variation between the two analyses highlights the difficulties of relying on these figures for decision-making.

5.45 The Committee for Greater Shepparton, noting the limitations of data relating to exports from regional Victoria, discussed the potential benefits of better data: The availability of good export data is limited and more qualitative at a local and regional level. Access to more quantitative data is required to assist regions in planning how to: • Develop regional export strategies • Best support firms to identify and potentially collaborate for export opportunities • Understand, prioritise and plan for critical infrastructure upgrades • How regions can market themselves under a food, destination or product brand for export markets.42

5.46 In addition, data about different regions’ exports facilitate an understanding of some of the differences between regional economies. This can be seen from the data provided to the Committee by Regional Development Victoria (see Figure 5.1 and Appendix 6) and also by the interim results of a survey conducted by the Regional Australia Institute (see Figure 5.2 and Appendix 6).

41 City of Ballarat, Submission, Number 26, 17 April 2014. 42 Committee for Greater Shepparton, Submission, Number 29, 17 April 2014.

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Figure 5.1 International exports as a proportion of gross regional product, selected municipalities, 2012

Mildura 15%

Wangaratta 15% Wodonga 17%

Horsham 11% Shepparton 19% Bendigo 6%

Ballarat 12%

Latrobe 7%

Geelong 14% Warrnambool 9%

Key No data 6-12% 12-16% 16-20% 20-24% Source: Regional Development Victoria, personal communication.

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Figure 5.2 Proportion of business sales revenue earned from exports, by region

Loddon Mallee 2.08%

Grampians 3.55% Hume 6.28%

Gippsland 4.60%

Barwon South West 3.02%

Key 2-3% 3-4% 4-5% 5-6% 6-7%

Source: Regional Australia Institute, [In]Sight, , accessed 10 June 2014. 5.47 Both sets of figures show substantial variations in international export intensity between different areas of Victoria. Understanding these differences and how they change over time will be of benefit to government in developing regional economies and in prioritising funding.

5.48 However, both sets of data are approximate. The data used in Figure 5.1 are based on economic modelling, as discussed above. The data in Figure 5.2 are extrapolated from the interim results of a survey and the Regional Australia Institute has urged caution in their use.43 More specific data would better inform stakeholders and policy makers.

5.49 The Committee considers that the Victorian Government would benefit from additional work

43 Regional Australia Institute, [In]Sight Results Guide, Regional Australia Institute, Canberra, 2014, p 20.

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on the collection of export data from different areas of Victoria. As noted above, the Victorian Government has a substantial number of policies related to exports and runs multiple programs to assist regional exporters. Location-specific data would provide, among other benefits: an evidence base to inform future export policy; assistance allocating resources; and a measure of the effectiveness of Government projects and programs.

5.50 The Committee acknowledges the importance of keeping the reporting burden on businesses to a minimum. The benefits of additional data collection need to be weighed against any costs to business from additional reporting.

Finding 5.3

Detailed data about international exports from Victoria as a whole are collected by the Commonwealth Department of Foreign Affairs and Trade and the Australian Bureau of Statistics. However, limited data are available relating to international exports from individual areas within Victoria. If available, this information could inform export policy, assist with the allocation of resources and provide a way to measure the effectiveness of government projects and programs. It could also help regions to design export strategies and market themselves, and assist businesses with collaboration.

Recommendation 6

Three levels of government “It is very difficult for businesses to seek export markets on their own without seeking that key advice from government departments.” Ms Elaine Carbines, Chief Executive Officer, G21 Geelong Region Alliance

5.51 A constant message heard by the Committee throughout this Inquiry is that many businesses look to government for assistance with exporting. Direct interaction with government can occur in many contexts, including accessing funding (Chapter 6), seeking advice and data (Chapter 7), and establishing connections with overseas markets (Chapter 11).

5.52 All three levels of government – Commonwealth, State and Local – provide direct assistance to exporters in Victoria. Nevertheless, the role of government in facilitating exports in a market-based economy such as Victoria’s is somewhat uncertain. Indeed, a range of views exists as to the level of government support that is appropriate.

5.53 This is further complicated by the differences in government assistance and facilitation across our current and future principal trading partners. So-called open market economies, such as the

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EU, the United States of America and Canada, retain significant non-tariff entry barriers. And engaging with China, as a communist government-controlled economy with a commercially astute private sector, is increasing in both importance and complexity.

5.54 In the Committee’s opinion, if Victorian businesses are to have the best chance at being competitive in international markets, all tiers of government must interact effectively. It must also be as easy as possible for businesses to learn about and access available services.

5.55 The different levels of government and the private sector can play complementary roles. Mr Cameron Hall from Elders in Hamilton explained that: My view is that we each have a certain role to fill in the development of a new market. Ours [sc. Elders’] is a very commercial role. AQIS and DAFF are probably more the regulatory regime – the inspection regime and protocol – and state governments fill the other part of that role, which is around education and providing the base for people to come and understand the type of production mix we have in the various states and how they can get access to that.44

5.56 During the Committee’s visit to Canberra, Austrade representatives indicated that the Commonwealth and State Governments play complementary roles. For example, State Governments are better equipped to assist businesses to become export ready, while Austrade can then work with them once they are ready to enter the export market.45

5.57 The Committee was also informed that Victorian Government Business Offices have fewer resources than Austrade offices, but provide free services. This can be important for some businesses.46 Having the two sets of services in this sense can be advantageous. (Further discussion of Victorian Government Business Offices and Austrade offices can be found in Chapter 11 of this report). In recent years, Victoria and the Commonwealth have entered into arrangements where Victorian representatives are embedded within Austrade offices overseas. In addition to reducing costs, this reduces duplication and helps deliver a unified message to external markets.47

5.58 A number of participants in this Inquiry emphasised the importance of local government as well. This is discussed further in Chapter 11.

5.59 The Committee received positive feedback regarding the way in which the tiers of government in Australia work together. Mr Jim Fraser from the Central Highlands Agribusiness Forum, for example, said: “My experience is that the different levels of government do work very

44 Mr Cameron Hall, General Manager for Trading, Elders International Trading, Public Hearing, Hamilton, 8 April 2014. Mr Hall added a warning that governments should stay clear of commercial arrangements. 45 Department of Foreign Affairs and Trade / Austrade, Private Meeting, Canberra, 18 June 2014. 46 Mr Sandy Harman, TradeStart Adviser, Export Council of Australia, Public Hearing, Geelong, 30 April 2014. 47 Department of Foreign Affairs and Trade / Austrade, Private Meeting, Canberra, 18 June 2014.

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cooperatively in this area and the individual officers work very closely.”48

5.60 However, having a variety of different agencies offering support can make it difficult for businesses to determine which level of government or which department to contact for assistance.

5.61 Evidence was received about the need for one level of government to develop a ‘one-stop-shop’. Rather than remove the role of one level of government, it was considered more important for all three levels of government to work together, to develop an appropriate and accepted web portal or single point of contact. This should provide information and direct contact numbers about relevant services delivered by all of the departments or agencies in the three levels of government.49

5.62 In its submission to this Inquiry, SPC Ardmona argues that the Victorian Government could assist by collating the various programs available for exporters. It states: The State Government business support department can play a practical role in indexing and clarifying various programs and schemes offered by Federal and State Government and non-government organisations. Proliferation of various programs often leads to confusion and exporters often withdraw from taking advantage of these programs.50

5.63 While there are clear advantages of a one-stop-shop, Mr Sandy Harman, a TradeStart Adviser from the Export Council of Australia, pointed out some of the practical difficulties associated with the idea. He said: … if you were to put something like that together, like a portal or a website where all of this information was available, you would need a lot of resources to build it, but you would also then need to support it to make sure it was accurate because worse than no information is the wrong information.51

5.64 Ms Keelie Hamilton from the City of Greater Geelong stated that a one-stop-shop would only work if the different levels of government shared information about businesses with each other. She noted that this currently does not occur in some cases, resulting in businesses having to supply the same data to multiple agencies and, ultimately, becoming less willing to engage with government.52

5.65 The Committee recognises that some work is being done to provide information for exporters 48 Mr Jim Fraser, Deputy Chair, Central Highlands Agribusiness Forum, Public Hearing, Ballarat, 29 April 2014. Similar comments were made in Ballarat by Mr Andrew Edmondston, Sales and Commercial Manager, Gekko Systems. 49 Ms Donna Taylor, Coordinator Business Development, Latrobe City Council, Public Hearing, Moe, 3 June 2014; Mr Paul Ford, Chair, Agribusiness Gippsland, Public Hearing, Moe, 3 June 2014; SPC Ardmona, Submission, Number 18, 17 April 2014. Cf. Ms Keelie Hamilton, Co-ordinator, Economic Development Unit, City of Greater Geelong, Public Hearing, Geelong, 30 April 2014. 50 SPC Ardmona, Submission, Number 18, 17 April 2014. 51 Mr Sandy Harman, TradeStart Adviser, Export Council of Australia, Public Hearing, Geelong, 30 April 2014. 52 Ms Keelie Hamilton, Co-ordinator, Economic Development Unit, City of Greater Geelong, Public Hearing, Geelong, 30 April 2014.

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about services offered by multiple tiers of government. The Export Finance and Insurance Corporation, for example, has created the ‘Export Finance Navigator’, a website which brings together information about grants, tax concessions and financial tools from the Commonwealth, State and Territory Governments.53

5.66 Business Victoria’s website on export and trade also brings together information about assistance from the State and Commonwealth Governments as well as the private sector.54

5.67 The Committee considers these websites to be valuable resources. However, the Committee notes that neither is a one-stop-shop containing links to all aspects of exporting and neither provides details of assistance from local government. Consequently, the Committee considers that additional work could be done to build on websites like these.

5.68 Whether a single portal is established or not, it is important for all levels of government to be fully informed about the activities of other levels of government. Businesses approaching any level of government can then be quickly informed as to what assistance is available and who has responsibility for it.

5.69 This requires Commonwealth, State and local governments to work together and inform each other of their activities and responsibilities. As noted by Ms Hamilton: “Communication across all tiers of government is vitally important when it comes to business development in any aspect.”55

5.70 The Committee notes that co-locating physical services – where, for example, Commonwealth and State Government offices are physically present in the one building – is an efficient way of delivering government services, especially in regional areas. The Committee believes that, where possible, Commonwealth and Victorian Government services related to exports should be co- located in regional Victoria.

Finding 5.4

All three tiers of government in Australia provide assistance to exporting businesses. The Committee received some evidence indicating that the different tiers complement each other and work together well. Some participants in the Inquiry advocated for a ‘one-stop-shop’ to help businesses find the assistance they need easily.

53 Export Finance and Insurance Corporation, ‘Export Finance Navigator’ , accessed 29 July 2014. 54 Business Victoria, ‘Export and Trade’ , accessed 29 July 2014. 55 Ms Keelie Hamilton, Co-ordinator, Economic Development Unit, City of Greater Geelong, Public Hearing, Geelong, 30 April 2014.

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Recommendation 7

Adding value not just volume “You are digging stuff out of the ground and shipping it to another country that then does what I call the beneficiation. In other words, they add value to it, and then Australia and other countries will end up buying it back again. Why not extend the value chain here through policies and incentives that would then create the environment where you want to extend the value chain in order to send out more value-added products?” Mr Bernard Brussow, Chief Executive Officer, IXL Group

5.71 As noted above, there are reasons to think that Victoria has significant potential to grow its exports in coming years and the Government has released a number of plans to increase exports.

5.72 Much of the discussion in this Inquiry was naturally focused on increasing the volume of exports. Some participants also noted the importance of adding as much value as possible to goods before exporting them. For example, Mr Alex Arbuthnot AM, Deputy Chair of the Victorian Agribusiness Council, noted a link between value-adding and growing incomes.56

5.73 Some witnesses informed the Committee about successful export strategies based on adding value to foodstuffs rather than exporting them raw. Examples included infant formula and pouches of prepared baby food.57 Mr Adam Moore, Managing Director, Bonkers Retail and Baby Royale, believed that there is potential to grow processed food exports,58 while Professor Ross Garnaut of the University of Melbourne argued that Victoria’s already-established reputation as a producer of high quality, safe food could act as an advantage to increase sales of processed foods in international markets.59 Victoria’s reputation overseas is discussed further in Chapter 10 of this report.

5.74 Mr Mac Fergusson informed the Committee that he saw significant potential for value adding with a range of textile products, including wool, hides and industrial hemp.60

56 Mr Alex Arbuthnot AM, Victorian Agribusiness Council, Public Hearing, Melbourne, 23 June 2014. 57 Mr Adam Moore, Managing Director, Bonkers Retail and Baby Royale, Public Hearing, Moe, 3 June 2014; Mr Ken Fraser, Economic Development Coordinator, South Gippsland Shire Council, Public Hearing, Wonthaggi, 4 June 2014. 58 Mr Adam Moore, Managing Director, Bonkers Retail and Baby Royale, Public Hearing, Moe, 3 June 2014; see also Mr Hugh Koch, Manager Economic Development, Southern Grampians Shire Council, Public Hearing, Hamilton, 8 April 2014. 59 Professor Ross Garnaut, Professorial Research Fellow in Economics, University of Melbourne, Public Hearing, Melbourne, 5 May 2014. 60 Mr Mac Fergusson, Public Hearing, Melbourne, 23 June 2014; Mr Mac Fergusson, Submission, Number 10, 16 April 2014.

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5.75 Value-adding in Australia is not always competitive from a cost perspective, particularly for processes that are labour intensive. However, the Committee recognises that adding as much value as possible to products before they are exported increases the income from exports. It is important for policies and programs relating to exports to consider adding value to Victoria’s primary products, as well as increasing volume.

Finding 5.5

‘Cashing in’ on the opportunity “The world does not have to buy it from Australia; it will only do so if we are up to the job.” Mr Colin Radford, Partner, Government Services, Deloitte Australia

5.76 While increasing global demand is an opportunity for rural and regional Victoria, these factors are not sufficient in themselves. There are many competitors who can also meet the demand and who share some of Victoria’s advantages.

5.77 As Port Jackson Partners noted in relation to increased world agricultural demand: … the race to make the most of this opportunity is a global one and the competition is intense, with countries like Brazil, Malaysia and Indonesia currently leading the way. International competitiveness in agriculture is about more than just having access to good land and rainfall. It is about developing connected and mutually reinforcing areas of high capability where extremely efficient supply chains exist side by side with top research and development (R&D) capability, innovative financing, clear strategic vision and productive farms with the requisite scale, organisation, funding and skills. These are the platforms that have seen Brazil sweep aside global competition to capture the market for soy-bean, Malaysia and Indonesia dominate the production and marketing of palm oil, while New Zealand has created and consistently grown a globally successful dairy industry.61

5.78 More generally, Deloitte noted that: … while global or domestic opportunity and structural advantages are necessary requirements, they are not in themselves sufficient to ensure success … The other key ingredient is our capacity to cash in …

61 Port Jackson Partners, Greener Pastures: The Global Soft Commodity Opportunity for Australia and New Zealand, ANZ Insight Issue 3, October 2012, p 2.

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Our task is to build on our areas of advantage to improve Australia’s performance relative to our global competitors and at home.62

5.79 The remaining chapters of this report address various ways in which rural and regional Victoria can become more competitive through building on its advantages. Chapters 6–10 explore changes that could be made on the supply side and Chapters 11–12 explore the demand side.

62 Deloitte, Positioning for Prosperity? Catching the Next Wave, Building the Lucky Country 3, Deloitte, Melbourne, 2014, p 15.

82 Chapter six: Investment and financing

Findings

6.1

There is industry support for the Victorian Government providing financial assistance to start-up export businesses, in particular to make the leap from invention to commercialisation.

6.2

Businesses noted a significant cost involved with establishing their products in export markets. The Commonwealth Government’s Export Market Development Grant program has helped businesses with this cost. A number of participants in the Inquiry advocated for the program to be expanded.

6.3

6.4

The Commonwealth Government’s Export Finance and Insurance Corporation (EFIC) provides finance and insurance products to assist exporters to expand. EFIC is currently working to promote its services better and make them easier to access. The Committee heard some calls for EFIC’s services to be provided for smaller firms, firms commencing exporting and riskier ventures.

6.5

6.6

Foreign investment by Victorian companies overseas has the potential to provide some of the same benefits for exports as foreign investment into Australia. While the State Government notes that it can provide support and assistance for this, the Committee is not aware of any programs specifically encouraging it.

83 Rural and Regional Committee | Inquiry into Increasing Exports

Recommendations

Recommendation 8

6.44

Recommendation 9

6.82

The need for capital “We need investment, and I also believe that the challenges we have in exports will only be achieved if we can attract investment into this state.” Mr Alex Arbuthnot AM, Deputy Chair, Victorian Agribusiness Council

6.1 If regional Victoria is to grow its exports, it will require capital to increase production. While foreign investment is often seen as a source of this capital investment, a number of participants in this Inquiry urged the need for greater capital investment by Australian companies to act in conjunction with strategic and appropriately directed foreign investment.

6.2 Access to capital is identified by the Victorian Government as a barrier limiting regional businesses’ export capacity.1 A variety of other submissions and witnesses also identified access to capital as a challenge. In a survey commissioned by the Export Finance and Insurance Corporation (EFIC), 28 per cent of SMEs identified access to finance as a significant barrier to exporting.2 EFIC indicated that this may become a larger problem given the structural change in Australia’s economy: We expect access to finance to become a more binding constraint for the ‘next generation’ of exporters – hailing from Australia’s technically complex and service-related industries. These industries do not benefit from conventional collateral (‘bricks and mortar’ and inventory) on which banks currently base and determine their appetite for risk. The value-added by

1 Victorian Government, Submission, Number 51, 11 June 2014. 2 EFIC, Submission to the Financial Services Inquiry, March 2014, p 8. EFIC notes that surveys of SMEs more generally (that is, both exporters and non-exporters) have also identified access to finance as a barrier to growth (ibid., pp 7-8).

84 Rural and Regional Committee |Chapter six: Investment and financing

these companies and their competitive advantage is intellectual property, something a bank finds difficult to value and therefore lend against.3

6.3 For a further discussion of the role of EFIC, see below at 6.45.

6.4 Port Jackson Partners, in a report commissioned in conjunction with the ANZ Bank entitled ‘Greener Pastures’, discussed how Australia could best take advantage of export opportunities in agriculture. It found that: … agricultural growth cannot be achieved without the support of both domestic and foreign investors. Between now [sc. 2012] and 2050, around A$600 billion … in additional capital will be needed to generate growth and profitability in [Australian agriculture]… A further A$400 billion … will be needed … to support farm turnover, as ageing farmers make way for the next generation.4

6.5 Capital is required on-farm for investments such as new equipment and more productive breeds. These enable Victoria to get more produce out of its farmland or produce goods at lower costs that are therefore more competitive in export markets. Capital investment in supply chain infrastructure can further help to reduce costs and make Victorian produce more competitive.

6.6 With respect to exporting businesses more generally, the Committee heard about the need for capital at a number of stages of the production cycle, especially: • Developing new products to be exported • Establishing demand overseas • Scaling up existing production for export markets. 6.7 In its submission to this Inquiry, Champions of the Bush identified that even Victorian food and beverage businesses with parent companies based overseas experience difficulties accessing capital from these companies for upgrading plant facilities in Victoria.5 Nestlé Australia suggested that a decrease in capital investment in turn leads to a decrease in productivity as plants become less efficient.6

Capital for product development and commercialisation “What is missing within Australia, and not just there but within Australian research, is that there is a reluctance by investors to take something that has got duct tape round it and ugly wires sticking out of it; it works but it is not a product yet. There is a reluctance for them to take that and make a finished product and get it distributed to the world.” Mr Gary Heyden, Director, Deakin Research Commercial

3 Ibid, p 8. 4 Port Jackson Partners, Greener Pastures: The Global Soft Commodity Opportunity for Australia and New Zealand, ANZ Insight Issue 3, October 2012, p 4. 5 Champions of the Bush, Submission, Number 44, 2 May 2014. 6 Nestlé Australia, Submission, Number 31, 17 April 2014.

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6.8 Much of the evidence received by the Committee regarding the ability of Australian businesses to access capital was discussed in terms of product development and commercialisation.7 This is captured in the above quotation from Mr Gary Heyden.

6.9 As an example, Mr Heyden told the Committee about a new device being developed to protect objects from damage by birds, with potential use in areas as diverse as farms and airports. However, he said that this device would have to be developed with capital support from the United States because, in his view, it is hard to attract Australian capital to projects while they are at an early stage of development.8

6.10 Mr Heyden’s colleague, Professor Jane den Hollander, Vice-Chancellor, Deakin University, suggested that this lack of support for developing projects clashes with Australia’s self-image of a nation that ‘has a go’: It is the Australian fear of failure. In America I find it interesting that people who do well have often been bankrupt twice. In Australia people who go bankrupt – and I am not advocating for bankruptcy – are seen as almost dishonest, whereas in America it is seen as having a go. I wonder why, because we are the nation of having a go, we have adopted that peculiar position?9

6.11 In relation to ICT, Mr Nick Stanley, Chief Executive Officer, Sky Software, said: There is not a lot of funding around in private enterprise and that is why a lot of people end up going overseas. That is why [software development company] Atlassian, which is one of our biggest success stories here in Australia, which is a Sydney-based company, is currently relocating its offices to the UK.10

6.12 Mr Ian Bridger, Program Manager, Victorian Centre for Advanced Materials Manufacturing, described the period of time between producing an idea and commercialisation as the ‘valley of death’. He told the Committee that it took eight years for the carbon fibre initiative developed at Deakin University (see discussion on Carbon Revolution below and in Chapter 9) to become commercially viable. Mr Bridger said: “There is quite a substantial period of time where there is no financial return for all of the legwork that gets done. It is at that point in time that government support is so critical.”11

6.13 The Committee notes the risk of creating market inefficiencies through direct financial support from government. However, the Committee also notes the potential benefits that can arise from judicious investment in and support for competitive sectors. In Australia, State and Commonwealth

7 Innovation is discussed further in Chapter 9. 8 Mr Gary Heyden, Director, Deakin Research Commercial, Public Hearing, Geelong 30 April 2014. 9 Professor Jane den Hollander, Vice Chancellor, Deakin University, Public Hearing, Geelong, 30 April 2014. 10 Mr Nick Stanley, Chief Executive Officer, Sky Software, Public Hearing, Geelong, 30 April 2014. 11 Mr Ian Bridger, Program Manager, VCAMM, Public Hearing, Geelong, 30 April 2014. A similar argument was made by the City of Ballarat in its submission to this Inquiry specifically in relation to regional SMEs.

86 Rural and Regional Committee |Chapter six: Investment and financing

Governments have programs to provide capital to assist firms in product development and commercialisation.12 The Committee heard evidence about the importance of these programs from a number of witnesses.

6.14 For example, Mr Jake Dingle, Chief Executive Officer, Carbon Revolution, told the Committee about several of the grants he had accessed while developing the world’s first one-piece carbon fibre wheel: [A senior executive] decided to apply and see if there was any possible scope for getting government support to take this product to a commercial outcome or to the market and was successful in securing a COMET grant13 , a fairly small grant of about $60,000. That was in 2007. So in late 2007 that grant was used to write some initial patents for the process to gain some business mentoring and to register the business name essentially … At the end of 2010 we applied for some government funding under the Green Car Innovation Fund and were successful in securing initially $1.3 million of matched 50–50 funding under that scheme. Then that was extended by another $400,000. So there was around about $1.7 million from that scheme through the course of 2011 and the first part of 2012. What that enabled us to do was start to employ people to add to, I guess, the engineering and R&D background to the company. We brought in people with a strong manufacturing capability from the automotive components industry … We brought in people from the aerospace industry as well. It added an industrial element to what was previously very much an R&D- centric company.14

6.15 A number of witnesses suggested that scope exists for additional government assistance for companies needing capital for commercialisation.

6.16 Mr Bridger proposed the formation of an ‘intermediary technology organisation’, a government body that can act as a link with the private sector to help new technologies (particularly those developed by universities) become commercially viable.15

6.17 Mr Stanley of Sky Software proposed the development of an industry investment fund, a government package of financial support for start-up export businesses, with businesses paying back their financial assistance once they became successful. Mr Stanley told the Committee that economically strong countries such as Norway, Switzerland and Finland have “… successful programs along those lines”.16

6.18 Mr Stanley added a cautionary note that, in his opinion, the Geelong Regional Investment

12 Victorian Government, Submission, Number 51, 11 June 2014, pp 29-30. 13 See: http://www.australiangovernmentgrants.org/blog/news-and-events/commercialising-emerging-technologies-comet- grants-for-small-business/; accessed 21 July 2014. 14 Mr Jake Dingle, Chief Executive Officer, Carbon Revolution, Public Hearing, Geelong, 30 April 2014. 15 Mr Ian Bridger, Program Manager, VCAMM, Public Hearing, Geelong, 30 April 2014. 16 Mr Nick Stanley, Chief Executive Officer, Sky Software, Public Hearing, Geelong, 30 April 2014.

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Innovation Fund (GRIIF) (a joint funding program between the Commonwealth, Victorian Government, Ford Australia and Alcoa of Australia)17 is specifically focused on capital investment at the expense of intellectual property. Mr Stanley said that while he understands the historical reasons for this focus on capital investment, it may in fact lead to the Geelong region becoming less competitive: The other observation I would have on the GRIIF – and I do not want to pick it apart, but it is probably something that we can learn from going forward – is that it is very jobs focused. So if you had two technologies and one was new age and one was old school, the old school one needs more people to run it, more jobs, and that would actually be the one that wins out, whereas the more new aged, the more computerised and the more competitive one would not. So we would end up subsidising something which is not competitive.18

6.19 Mr Stanley pointed out that intellectual property assets, in particular ICT, can be easily exported online, thus overcoming the ‘tyranny of distance’ and infrastructure challenges that can impede exports of physical products from Australia. He was positive about the potential of the ICT sector in Geelong. In suggesting Geelong could become Australia’s ‘Silicon Bay’, Mr Stanley outlined Geelong’s advantages, including: • Around 300 ICT businesses are already located in Geelong • A location close to Melbourne yet more affordable / lower cost base • The presence of a skilled workforce • A great lifestyle.19 6.20 Intellectual property is discussed in detail in Chapter 7.

Finding 6.1

There is industry support for the Victorian Government providing financial assistance to start-up export businesses, in particular to make the leap from invention to commercialisation.

Capital for establishing demand in export markets

6.21 Another challenge for SMEs considering exporting is committing the time and resources necessary to gain a foothold in an overseas market. This was explained well to the Committee by Mr Bruce Edward from Ferndale Confectionery, a family-owned Ballarat-based company which exports to 13 countries. He said: … the products we compete with in Australia, whether they be Wrigley, Mentos, Tic Tac, Life Savers or whatever, they are the same products we compete with in markets right around the world. We have proven that we can compete and win in Australia; we have proven we can compete and

17 See: http://www.ausindustry.gov.au/programs/regional-innovation/GRIIF/Pages/default.aspx; accessed 21 July 2014. 18 Mr Nick Stanley, Chief Executive Officer, Sky Software, Public Hearing, Geelong, 30 April 2014. 19 Ibid.

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win with two of the major retailers in the world. The issue becomes that unlike a multinational, which could go to a country and run at a loss for 15 years while they establish the volume, we cannot do that.20

6.22 In Ballarat, Professor Mike Willis, Pro-Vice Chancellor (International and Partnerships), Federation University Australia, told the Committee that it cost Federation University Australia around $7– 8,000 to set up its MBA program in Sri Lanka and took two years before they made a return on this investment.21

6.23 The long time frame between deciding to export and completing the first transaction has been referred to as ‘hysteresis in exports’.22

6.24 In Ballarat, Dr Timothy James from SED Advisory explained that a long-term commitment and a “significant financial commitment” are usually required before an exporter will see any returns: Exporting requires a significant financial commitment on behalf of the company. A number of these businesses are reluctant to provide that financial commitment. We quite often say within our own company that with an international business strategy – a ten-year strategy – you need to be in it for the long haul. You cannot be in only when times are good because they, inevitably in some cases, turn bad when you talk about economic conditions.23

6.25 In its submission to this Inquiry, the Phillip Island Regional Tourism Board says SMEs must commit to a long-term export plan of between two-to-five years ‘… and for small enterprises this can be daunting and unrealistic’.24 This time frame applies across the whole economy, as can be seen in the case of online retailer Kogan.com. That business took six-and-a-half-years to sell its first million products but less than one-quarter of that time to sell its next two million products.25

6.26 The Committee is aware of a number of grants from the Victorian and Commonwealth Governments to assist firms with this stage of their development. The Victorian Government provides subsidies for firms to attend trade missions, about which the Committee received a lot of positive feedback (see Chapter 11). The Commonwealth Government provides funding through the Export Market Development Grant (EMDG) program, which reimburses SMEs up to 50 per cent of the cost of export promotion expenses in certain circumstances for up to eight years.26

20 Mr Bruce Edward, Managing Director, Ferndale Confectionery, Public Hearing, Ballarat, 29 April 2014. 21 Professor Mike Willis, Pro-Vice Chancellor (International and Partnerships), Federation University Australia, Public Hearing, Ballarat, 29 April 2014. 22 Bernard A B and Jensen J B, ‘Why some firms export’, The Review of Economics and Statistics, 86(2): 561–569, p 561. 23 Dr Timothy James, Manager, SED Advisory, Public Hearing, Ballarat, 29 July 2014. 24 Phillip Island Regional Tourism Board, Submission, Number 40, 2 May 2014 p 3. 25 ‘One out of the box’, Herald Sun, 18 July 2014. 26 See: http://www.austrade.gov.au/export/export-grants/what-is-emdg; accessed 21 July 2014.

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6.27 The Committee received a lot of feedback about the EMDG program. The City of Ballarat indicated that the scheme ‘… plays an important enabling role in developing international trade.’27 Positive feedback regarding the EMDG program was also heard by the Committee during a site visit at Tahbilk Winery in June 2014. Mr Alister Purbrick and Mr Andrew McPherson told the Committee that the program had been of great assistance to the Australian wine industry when it made its first large inroads into the overseas markets in the late 1980s.28

6.28 However, Mr Adam Moore, the Managing Director at Bonkers Retail and Baby Royale, told the Committee that, in his experience, the EMDG program is “… a pretty convoluted, difficult program”. Mr Moore expressed the view of many people the Committee spoke with by suggesting that Commonwealth assistance such as EMDG is designed to suit big businesses at the expense of small businesses.29

6.29 A number of participants in the Inquiry advocated an expansion of the EMDG program. The Committee heard recommendations that the eligibility for grants be expanded in the following ways: • Beyond its eight-year maximum term, to support existing products which have used their entitlements to expand into new markets30 • To larger businesses in certain circumstances (such as when the exports will have a large impact in regional areas or are in strategic growth sectors) 31 • To local governments to participate in trade delegations32 • To allow businesses to receive grants for each new product, rather than just once.33 6.30 The Committee notes that the EMDG program is a Commonwealth Government program but will pass these suggestions on to appropriate representatives.

6.31 Federation University Australia’s Professor Willis proposed that government34 set up an education export development grant system, to help education providers during the costly development years. Professor Willis stressed that this assistance would only be needed during the time before the education providers start receiving income, stating: “I do not want to go back to a system where you start relying on government funding.”35

6.32 When the Committee visited Tahbilk Winery, Mr Purbrick and Mr McPherson suggested the Victorian Government could set up a similar model of financial assistance to the EMDG program,

27 City of Ballarat, Submission, Number 26, 17 April 2014. 28 Tahbilk Winery, Site Visit, 1 July 2014. 29 Mr Adam Moore, Managing Director, Bonkers Retail and Baby Royale, Public Hearing, Moe, 3 June 2014. For more evidence on proposed government financial support for exports see Appendix 9. 30 Sovereign Hill, Submission, Number 14, 16 April 2014. 31 SPC Ardmona, Submission, Number 18, 17 April 2014. 32 City of Ballarat, Submission, Number 26, 17 April 2014. 33 Ibid. 34 It is unclear whether Professor Willis was referring to the Commonwealth Government or Victorian Government here. 35 Professor Mike Willis, Pro-Vice Chancellor (International and Partnerships), Federation University Australia, Public Hearing, Ballarat, 29 April 2014.

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to aid with the business costs involved with setting up or expanding export markets, but without the eight-year time limit that the EMDG scheme includes.36

6.33 Other forms of support for businesses to establish connections with export markets are discussed in Chapters 7 and 11.

Finding 6.2

Capital for scaling up production “We have identified that to export the product and take it to the next level we will need an investor of some kind, some kind of capital injection, to help us get out there.” Ms Nicola Schoots, Owner, 3D FilmPro ‘Agricultural enterprises in Bass Coast meet the growing demand for boutique / niche markets, but the majority are not in the position, nor do they have the desire, to scale up to meet export demands.’ Bass Coast Shire Council

6.34 In order to successfully export, producers usually must be able to supply a regular amount of their product and in a significant quantity. For SMEs, this may mean scaling up production, which can require a large amount of capital. In relation to agriculture, Ms Paige Smallacombe, Agribusiness Development Officer, Southern Grampians Shire Council, explained: Looking at what is required to create an export market, the consistency of supply and quotas, it is a challenge for many producers that might have a niche product to be able to market it as an export opportunity. They really have not got either the consistency of supply or the scale. How do you change that? An increase to production levels can take seasons, and looking at that as a one-commodity or one-target opportunity is a challenge. With the cost of land versus cost of goods sold – or call it return on investment – you cannot just dip your toe into the market.37

6.35 In Shepparton, the Committee met with Mr Paul Ingleby, from Australian Consolidated Milk and Pactum Dairy Group. These companies recently opened a UHT milk factory, some of which is used to supply the Chinese market. Mr Ingleby explained that capital to scale up production can often be needed very quickly. He said that:

36 Tahbilk Winery, Site Visit, 1 July 2014. Mr Purbrick and Mr McPherson added that this could include support for Tim Wildman wine tours (see http://www.finevintageltd.com/wine-tours/australia/) which are already subsidised by the Victorian Government. 37 Ms Paige Smallacombe, Agribusiness Development Officer, Southern Grampians Shire Council, Public Hearing, Hamilton, 8 April 2014.

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… access to capital was a major issue [for us], because … when the customer wants something, they want it now. Their fear is that if they go with you, you will not be able to match their growth in the market and they will be out of stock and that is just a bad look. They have a big investment as well. They are going to spend a lot of money on marketing. If they market and they have not got the product, then that is a major problem.38

6.36 Though Australian Consolidated Milk / Pactum Dairy Group had been able to access the required finance through the private sector, the Committee met a number of businesses experiencing difficulties accessing capital for scaling up.

6.37 For example, in Shepparton the Committee heard from Steven and Nicola Schoots, owners of 3D FilmPro, a surface coating and protecting company based in Shepparton which has developed an innovative cladding product. They emphasised the difficulty small business owners can face commercialising a product – the product took four years to design and cost in the order of $50,000 to get a patent. They funded this themselves, which left them in need of a co-investor to assist them to scale up production and establish contacts in potential export markets, something they were finding difficult to do.39

6.38 In analysing evidence as part of this Inquiry, the Committee identified a gap in financial support for export businesses. While support exists for companies starting out as well as those ready to export, businesses needing to increase production to enter the export market are finding access to capital much more problematic.

6.39 It was suggested that this is an area where government assistance would be useful. Some companies had turned to the Commonwealth Government’s Export Finance and Insurance Corporation (EFIC), which is discussed in more detail below. However, finance for scaling up is not part of EFIC’s current services.

6.40 Mr Stewart Carson, Planning Manager for Bega Cheese Limited, told the Committee that he had sought help from the Victorian Government: What we were looking for is perhaps some co-funding support for farmers who are wanting to grow. We are putting money into our suppliers who are wanting to grow and invest on their farms. It might be an investment in infrastructure, it could be irrigation, it could be land and it could be equipment. We thought it would be a good opportunity for the State Government to perhaps provide some co-funding and we are not getting very much leverage on that … The discussions through the [Regional] Growth Fund are an example. If it generates jobs, that is great. In many instances it will not generate jobs because there is latent capacity available on some farms and therefore it does not seem to qualify. The other avenues we have been down at this

38 Mr Paul Ingleby, Director, Australian Consolidated Milk, Public Hearing, Shepparton, 2 July 2014. 39 Mr Steven Schoots and Ms Nicola Schoots, Owners, 3D FilmPro, Public Hearing, Shepparton, 2 July 2014.

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stage have not been too successful.40

6.41 The Committee spoke with a number of businesses that had received funding from the State Government to assist with the purchase of equipment, such as fruit packing lines or milk processing facilities.

6.42 However, the Committee considers that there may be scope for additional support from the State Government, to assist with capital for businesses wanting to scale up production to enter export markets. This may take the form of loans or guarantees to banks for riskier ventures or smaller companies that are experiencing difficulty accessing capital from the private sector.

6.43 Similar sorts of support in other nations have been noted by EFIC: The UK Government has created a ‘Business Bank’, which is expected to be fully operational by the second half of 2014, with £1.25b of funding on top of £2.9b of capital from existing state schemes. The Bank’s focus will be start-ups and early-stage companies that have difficulty raising finance from commercial banks and investors because they lack a track record. The Bank will work with private financiers and offer a full spectrum of products from debt, to mezzanine financing, to equity. The Business Bank is partly modelled on Germany’s KfW – the post-war development bank – which has assets of €476b and lends to Germany’s Mittelstand – the network of mid-sized companies that form the backbone of Germany’s export-driven economy.41

6.44 The Committee considers that government assistance with capital for firms to scale up production may be an important way to grow regional Victoria’s exports.

Finding 6.3

Recommendation 8

The Export Finance and Insurance Corporation

6.45 The Commonwealth Government’s Export Finance and Insurance Corporation (EFIC) provides a range of products to assist exporters struggling to access financing or insurance from the private

40 Mr Stewart Carson, Planning Manager, Bega Group, Public Hearing, Shepparton, 2 July 2014. 41 Export Finance and Insurance Corporation, Submission to the Financial Services Inquiry, March 2014, p 9.

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sector. A number of participants to this Inquiry raised matters relating to EFIC and the Committee met with representatives of EFIC in June 2014.

6.46 The representatives advised the Committee that EFIC’s core clients are SMEs expanding faster than their balance sheets. They indicated that they generally help businesses that are already exporting to expand, rather than helping businesses to export for the first time. Although EFIC will consider any application for support on a case-by-case basis. They also noted that legislation requires EFIC to be profitable, which places some restrictions on the level of risk that they can take.42

6.47 The Committee received positive comments about EFIC from RDA Barwon South West, arguing that EFIC is helpful in providing advice and financial assistance to exporters.43 The City of Ballarat said it was aware of some firms that have had positive experience with EFIC, though ‘… there is a perception that EFIC also favours larger firms and contracts as well as being city centric’.44

6.48 The Committee also received negative feedback from a number of other sources and raised these issues with EFIC representatives.

6.49 RDA Barwon South West also argued that there should be ‘increased and / or more targeted promotion of this service.’ 45 EFIC acknowledged this and added that it is currently revamping its marketing strategy, to increase awareness among SMEs. Changes recently introduced include holding export finance briefings for SMEs, putting more staff around Australia and redeveloping EFIC’s websites.

6.50 Other evidence suggested that EFIC’s services are difficult to access. Mr Andrew Edmondston of Gekko Systems told the Committee about the difficulties he had experienced: Some of the processes are quite longwinded and it often takes longer than we need to go through the process of accessing some of the support from EFIC. If we get to a stage where we are wanting to conclude a sale, we sometimes need to move quickly and the processes that we have found in the past through EFIC have been difficult to work their way through.46

6.51 EFIC acknowledged that the complexity and time taken to access its services have been an issue. The representatives indicated that processes have recently been reviewed and less complicated documentation and accelerated processes are currently being rolled out. Changes to date have reduced execution times for smaller transactions by 40 per cent, with further reductions expected.47

6.52 A number of participants also advocated that EFIC’s services should be expanded to cover smaller firms, firms starting out with exports and riskier ventures. As noted above, EFIC is

42 Export Finance and Insurance Corporation, Private Meeting, Sydney, 17 June 2014. 43 RDA Barwon South West, Submission, Number 9, 15 April 2014, p 1. 44 City of Ballarat, Submission, Number 26, 17 April 2014. 45 Regional Development Australia Barwon South West, Submission, Number 9, 15 April 2014, p 1. 46 Mr Andrew Edmondston, Sales and Commercial Manager, Gekko Systems, Public Hearing, Ballarat, 29 April 2014. 47 Export Finance and Insurance Corporation, Private Meeting, Sydney, 17 June 2014.

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somewhat constrained in terms of its scope of activities.

6.53 In its submission to the current Financial System Inquiry (being conducted by the Commonwealth Government), EFIC noted that a number of other countries have recently increased the amount of activity in similar institutions: Australia’s major trading partners in Asia, such as China, Japan and Korea, are already aggressively using their ECAs [sc. Export Credit Agencies] to expand export revenues, increase overseas investment and boost employment. Signings by China’s ECAs and related institutions were estimated to be up to US$70b in 2012 for medium and long term exposures, while signings by South Korea’s ECAs increased to US$31b. The growth of this financing not only parallels the expanding economic and trade weight of these economies but also the use of these institutions by their governments as a tool to pursue broader strategic policy mandates including: energy and food security, aid, infrastructure development and the creation of ‘national champions’. ECA financing is also growing rapidly in other economies. The US Export– Import Bank’s (USEXIM) signings have more than doubled over the past five years to $US31b at end-2012, as part of a campaign by the US government to grow export volumes and boost GDP growth. Meanwhile, in 2010, the Brazilian Development Bank (BNDES) disbursed more than three times as much funding as the World Bank – almost half to finance infrastructure.48

6.54 EFIC further noted that: While EFIC’s volume of support fluctuates from year to year in response to movements in demand and private market capacity, EFIC’s is one of the smallest ECAs in the OECD, and indeed a very modest ECA in relation to the broader ECA community. Nearly all are significantly larger than EFIC, even adjusting for the size of the economy and trade and investment flows. In 2012, EFIC-supported business equated to approximately 0.6% of Australia’s total exports and outward direct investment. Meanwhile, medium and long-term support of US ECAs (US EXIM and OPIC) was approximately 1.7% of total exports and overseas investment. Japan’s export credit and insurance institutions are thought to have supported around 10%.49

6.55 The Committee notes that the Financial System Inquiry is considering access to financing (among other matters) and that EFIC has provided this information to that Inquiry.

48 Export Finance and Insurance Corporation, Submission to the Financial Services Inquiry, March 2014, p 13. 49 Ibid.

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Finding 6.4

Foreign investment in Australia

6.56 As noted above, significant capital investment will be necessary to grow regional Victoria’s exports, particularly if agricultural production is to be doubled (see Chapter 5). As the Commonwealth’s Financial System Inquiry noted in its Interim Report, ‘Australia typically has had more abundant domestic investment opportunities than could possibly be funded from historic levels of national saving …’.50A level of foreign investment thus enables Australia to grow faster than would be possible with reliance solely on Australian funds. It also provides for more competition, which may lower the cost of capital.51

6.57 At the same time, while other countries have experienced high levels of foreign ownership and exports, foreign ownership is sometimes seen to be so great that little ultimate benefit is derived for domestic citizens. In Australia, concern has been expressed that certain large foreign-owned gas and mining projects have returned little benefit for domestic citizens and in the case of large liquified natural gas projects, have actually resulted in a scarcity of supply for domestic consumers. For example, in 2011 the Australia Institute reported that 83 per cent of Australian mining is owned by overseas interests.52

6.58 Accordingly, prior to recommending increased levels of foreign ownership and investment into Victorian export industries, the Committee recommends that the Victorian Government liaise with the Commonwealth Government, to ensure that every attempt to allow Victorian businesses to compete on a genuine ‘level playing field’ in both domestic and export markets is achieved. Further, Victorian exporters need access to debt and equity investment opportunities.53

6.59 Port Jackson Partners concluded that domestic sources will not be sufficient to increase agricultural production in Australia to the level needed to take advantage of the future opportunities and that foreign capital will be required.54 Port Jackson Partners noted that this may require the development of alternative farm ownership and operation structures.55 However, they advocated for regulatory approvals on foreign investments in Victorian agriculture to ensure that this

50 Commonwealth Government, Financial System Inquiry: Interim Report, Canberra, 2014, p 2–45. 51 Ibid. 52 Richardson D and Denniss R, Mining the Truth: The rhetoric and the reality of the mining boom, The Australia Institute, Canberra, 2011. 53 See also the discussion on Warrnambool Cheese and Butter in Chapter 9 of this report. 54 Port Jackson Partners, Greener Pastures: The Global Soft Commodity Opportunity for Australia and New Zealand, ANZ Insight Issue 3, October 2012, p 38. 55 Ibid, p 52.

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investment remained in the national interest and transparent data be obtained.

6.60 The Greener Pastures report from Port Jackson Partners found: Given the sheer scale of the capital required, foreign investors must play a critical role in Australian and New Zealand agriculture over the coming decades, unless major new sources of domestic investment emerge. Strong levels of domestic investment coupled with lower savings rates have meant that both countries have consistently looked to foreign capital to support economic growth. Since 1980, Australia and New Zealand’s annual ‘savings gap’ has averaged around 4–5% of GDP. Even with the necessary farm investment vehicles in place, domestic sources alone are unlikely to be enough for agriculture to reach its full potential in Australia and New Zealand.56

6.61 The Greener Pastures report suggests that both countries are struggling to find the correct balance between protecting our national interest and attracting foreign capital. These countries face challenges in different areas: • There are public concerns about foreign investment in agriculture that reflect long standing resistance to all sources of foreign investment. A recent poll by the Lowy Institute found that although more than two- thirds of respondents believed that it is very important for Australia to be well-liked by its neighbours, 81 per cent were against foreign investment in farmland. Similarly in New Zealand, while 83 per cent of respondents in an AsiaNZ Research survey felt that Asia is important to the country’s future, another survey by URM Research found 82 per cent of respondents believed foreign ownership in farms and agricultural land was a bad thing. • The national interest tests used to assess foreign investment lack clarity and transparency in relation to agricultural assets. There is a view that both countries have progressively introduced new investment guidelines on a largely ad-hoc basis in response to a rush of foreign investment, particularly from emerging investors such as Chinese State- owned enterprises. While New Zealand reviews all foreign acquisitions of farmland above five hectares, there are also concerns that the threshold to consider foreign acquisitions in Australian farmland are too high (15 per cent or more of an entity valued at A$244 million, indexed annually), allowing most investments to be conducted without regulatory visibility. • Some argue national interest tests are not efficiently and effectively applied. In Australia, there are concerns that the Foreign Investment Review Board (FIRB) is not well-resourced to have the capability to identify the agriculture-specific concerns in investment proposals or do so in a timely fashion. Similarly in New Zealand, the Overseas Investment Office (OIO) is seen to be too slow at reviewing investment proposals with significant inconsistencies in its approach.

56 Ibid.

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• There are ongoing disputes about the transparency and quality of data on foreign investment in agriculture, particularly on trends in farmland ownership. Australian studies to date, including recent research conducted by ABS and ABARES have been extrapolated from small data samples rather than a holistic national view. While New Zealand has recorded all foreign acquisitions of agricultural assets via the OIO in recent years, it does not have a robust or up-to-date view of the ownership status of all such assets in the country.57

6.62 In addition, EFIC has noted that: Australia’s financial system is dominated by banks and superannuation funds. It is also tightly supervised and regulated. This architecture has provided attractive returns to investors and security and confidence to deposit holders. However, from a business perspective, it has also resulted in a culture of risk aversion and a bias against lending to SMEs.58

6.63 It was argued by several participants to this Inquiry that EFIC as it operates in Australia does not provide the same financial incentives that its equivalents in the USA and Canada provided. For example, the Committee met with GippsAero, a Morwell-based company building single-engined utility aircraft which it exports throughout the world. GippsAero told the Committee that it finds accessing finance difficult at times and that Commonwealth agencies have not been of assistance. EFIC were approached again recently and declined to provide support.59 By way of contrast, it says that the Export–Import Bank of the United States provides a great deal of assistance for Cessna, a competitor of GippsAero.60

6.64 Foreign investment such as joint ventures or foreign ownership can provide additional advantages for exporting firms. Foreign investment may facilitate trade with the nation that the investment originates from. For example, Mr Barry White of the Australia China Business Council told the Committee about a Chinese partner in a joint venture who had assisted an Australian exporter establish a distribution network and outlets in China.61

6.65 In reality, rather than simply an argument for more foreign takeovers of Australian Agribusiness (of which there have been many in recent years) this ought to be an incentive for Australian trade negotiators to ensure that Australian firms are given the same opportunity to make capital acquisitions in export countries as these countries are granted in Australia.

6.66 In 2011–12: • Of the total approved foreign investment in the economy of $170 billion, investment in agriculture was $3.6 billion • The share of agriculture in total foreign investment had risen from 0.1 per cent in 2006–07 to

57 Ibid, p 38. 58 Export Finance and Insurance Corporation, Submission to the Financial Services Inquiry, March 2014, p 3. 59 Personal communication 26 August 2014 60 GippsAero, Site Visit, Traralgon, 3 June 2014. 61 Mr Barry White, Board Member, Australia China Business Council, Public Hearing, Geelong, 30 April 2014.

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2.1 per cent in 2011–12 • Data on foreign ownership of land show that 11 per cent of Australia’s agricultural land is foreign owned, with the highest proportion (24 per cent) in the Northern Territory.62 6.67 A greater opportunity for Australian firms to make capital investment and acquisitions in countries by pursuing a policy of at least reciprocal tariff regimes and reciprocal investment regimes on a bilateral and / or multilateral basis would have two significant benefits:

1. Allowing greater penetration of Australian companies into these export markets thereby opening up more doors for Victorian exporters

2. Ensuring that any investment in Australia is better directed towards productive industries rather than simply takeovers for the strategic interests of overseas investors.

6.68 Foreign partners can also assist with the transfer of knowledge and technologies, making Victorian products more competitive internationally. In Hamilton, the Committee spoke with Mr Andy Smith, Executive Director, Grampians Sandstone. Mr Smith had recently signed a partnership deal with two Chinese investors, Mr Frank Yang and Mr Sand Liu, both of who also spoke with the Committee.63 Mr Smith explained that: [The Chinese] are very efficient processors of stone. Both of these gentlemen have a lot more expertise in stone than we have. So many people have left our industry that the expertise is just not here for us anymore, but both of these gentlemen have a lot of expertise. They also have access to low-cost Chinese equipment.64

6.69 Mr Yang added that plans exist to process an amount of stone in Victoria, to value-add to the product before placing it on the international market.65 (Value-adding is discussed in detail in Chapter 9 of this report.) It is also noted that the form of investment model was one of a joint venture rather than simply a majority controlled takeover of an existing Victorian business.

6.70 The Committee notes that foreign investment is a contentious issue and that the benefits of foreign investment need to be weighed against the need to protect national interests. In Australia, a range of concerns have been raised about foreign investment.66 While a number of participants to this Inquiry considered that foreign investment should be encouraged by governments,67 the need for

62 Parliament of Australia, ‘Foreign investment in Australian agriculture’ ; accessed 21 July 2014. 63 Mr Andy Smith, Director, Grampians Sandstone, Public Hearing, Hamilton, 8 April 2014; Mr Frank Yang, Grampians Sandstone, Public Hearing, Hamilton, 8 April 2014; Mr Sand Liu, Grampians Sandstone, Public Hearing, Hamilton, 8 April 2014. 64 Mr Andy Smith, Director, Grampians Sandstone, Public Hearing, Hamilton, 8 April 2014. Foreign investment as a means to transfer knowledge was also noted by the Food & Fibre Supply Chain Institute, Submission, Number 47, 9 May 2014. 65 Mr Frank Yang, Grampians Sandstone, Public Hearing, Hamilton, 8 April 2014. 66 See, for example, Port Jackson Partners, Greener Pastures: The Global Soft Commodity Opportunity for Australia and New Zealand, ANZ Insight Issue 3, October 2012, p 38; Financial System Inquiry: Interim Report, pp 2–46-7. 67 RDA Barwon South West, Submission, Number 9, 15 April 2014; Agribusiness Gippsland, Submission, Number 43, 2 May 2014; Food & Fibre Supply Chain Institute, Submission, Number 47, 9 May 2014; Mr Alex Arbuthnot AM, Deputy Chair, Victorian Agribusiness Council, Public Hearing, Melbourne, 23 June 2014.

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strict controls was also noted.68

6.71 The Rural and Regional Committee believes that, as a general rule, foreign investment should be encouraged but with a number of caveats to ensure that the foreign investment is in Victoria’s interest. Some of the caveats noted by the Committee include that: • Foreign investment should not be so encouraged that potential strategic investment by Victorian firms is not comparatively disadvantaged (see discussion of Warrnambool Cheese and Butter in Chapter 9) • Reciprocal rights for Australian companies to invest overseas should be in place where possible (an example is time limits placed on leasehold investments) • The encouragement of foreign investment in Victoria should be accompanied by encouragement of Victorian investment overseas (see further discussion below). 6.72 The Committee notes that the Foreign Investment Review Board advises the Commonwealth Treasurer on such matters and that final decisions regarding foreign investment are made by the Commonwealth Government.69

6.73 The Committee also considers it essential that the Victorian Government collect accurate and meaningful data about foreign investment in Victoria, to monitor whether the investment is in Victoria’s interests. This includes accurate data about: • Approvals of large scale acquisitions • Overall levels of foreign ownership • Profits flowing overseas • The impact of intra-firm transactions (by foreign multinational firms) on export figures. 6.74 The Committee notes that foreign investment is one of the issues being examined by the Commonwealth’s Financial System Inquiry discussed above.

Finding 6.5

Victorian firms investing overseas

6.75 Though a large number of foreign firms have invested in Victoria, there is less activity by Victorian firms investing overseas. Furthermore, successive State and Commonwealth policies over many years have been directed more at attracting foreign investment into Victoria rather than supporting and encouraging Australian firms to make strategic capital acquisitions in overseas markets. The Financial System Inquiry has noted: … inflows of foreign funds [to Australia] have averaged around 8½ per cent of GDP over the past two decades, while outflows of Australian

68 City of Ballarat, Submission, Number 26, 17 April 2014, p 12. 69 Foreign Investment Review Board, ‘Who Are We?’ , accessed 21 July 2014.

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investment abroad have been around 4¼ per cent of GDP on average over the same period.70

6.76 Data from the United Nations Conference on Trade and Development indicate that in 2012, foreign direct investment in Australia was valued at $US610.5 billion in 2012. In the same year, Australian foreign direct investment in other countries was valued at $US424.5 billion, a figure which places Australia in the top 20 countries in the world. The same data indicate that of the top 100 non-financial trans-national corporations in the world, only one lists Australia as its ‘home economy’ (BHP Billiton).71

6.77 Throughout this Inquiry the Committee was keen to investigate the level of investment in overseas markets by Victorian companies. Investment by Victorian firms in overseas businesses has the potential to provide some of the same advantages as foreign investment in Australia, such as facilitating connections with export markets and knowledge transfer. It can also provide profits back to Victoria.

6.78 The Committee spoke with several companies with overseas interests. For example, Hydro Australia, a Morwell-based engineering company (with a parent company in Chicago) specialising in the repair, refurbishment and upgrading of high energy pumps, has joint ventures (51% ownership) with companies in Malaysia and Vietnam, with plans for similar ventures in Laos, Cambodia and Indonesia. Hydro Australia’s General Manager, Mr Ross Bertoli, told the Committee that the Australian company operates independently of the head office in Chicago without any financial assistance to penetrate overseas markets.72

6.79 The Committee also spoke with commercial vehicle manufacturer MaxiTRANS. MaxiTRANS produces equipment from six factories – four in Australia, one in China and one in New Zealand – and employs more than 1,000 people globally. The plant in China is a joint venture.73

6.80 In its submission, the Victorian Government states that: … investment or growing a business in another country is recognised as exporting from Victoria. The support and assistance that is provided to Victorian companies exporting in the traditional sense is also available to companies wanting to grow their business internationally through a range of options including joint venture arrangements overseas.74

6.81 A number of witnesses to this Inquiry agreed that Victorian investment overseas was an opportunity for the State, but none was aware of any government programs specifically

70 Commonwealth Government, Financial System Inquiry: Interim Report, Canberra, 2014, p 245. 71 UNCTADStat, ‘Data Centre’ , accessed 22 July 2014. 72 Mr Ross Bertoli, General Manager, Hydro Australia, Public Hearing, Moe, 3 June 2014. 73 MaxiTRANS Manufacturing, Site Visit, 29 April 2014. 74 Victorian Government, Submission, Number 51, 11 June 2014.

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encouraging this.75 The Committee considers that this is an area where more activity by the Victorian Government could increase exports and grow Victorian businesses.

6.82 Representatives of the Commonwealth Government’s Australian Trade Commission indicated that Austrade also assists with both inward and outward investment, where that investment is likely to enhance opportunities for Australian export trade. Officials noted that according to a 2013 OECD study, approximately 80 per cent of world trade is structured within multinational corporation global value chains. Participation in value chains is one way to support Australian exports. However, they indicated that Austrade was more focused on assisting export-ready Australian companies with capabilities in areas of intellectual property (such as using Australia’s expertise to train others) rather than facilitating Australian financial investment overseas.76

Finding 6.6

Recommendation 9

75 Mr Sean Cameron, Manager Economic Development, City of Ballarat, Public Hearing, Ballarat, 29 April 2014; Mr Ross Bertoli, General Manager, Hydro Australia, Public Hearing, Moe, 3 June 2014; Ms Mary Aldred, Chief Executive Officer, Committee for Gippsland, Public Hearing, Moe, 3 June 2014; Dr Greg Walsh, Chairman, Champions of the Bush, Public Hearing, Melbourne, 23 June 2014. 76 Department of Foreign Affairs and Trade/Austrade, Private Meeting, Canberra, 18 June 2014.

102 Chapter seven: Human resources

Findings

7. 1

Despite the high level of skilled workers in regional Victoria, some firms have experienced difficulties finding workers with the exact skills they need or finding skilled workers in the required numbers. Some have brought in overseas workers on 457 visas, although others have experienced difficulties with that program.

7. 2

Structural change in some parts of regional Victoria requires the workforce to gain new skills, to adapt to new economic opportunities. This can be a cost for local businesses. Intellectual property is an increasingly important factor when exporting, particularly for information and communications technology and advanced manufacturing.

7. 3

The Victorian Government has a key role to play in helping SMEs become, and continue to be, ‘export ready’.

7. 4

The provision of market information and similar data by government can be important in helping firms overcome barriers to trade.

7. 5

Training and information sessions have the most impact when they are well publicised and readily accessible to regional businesses and relevant to specific industries.

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Recommendations

Recommendation 10

7.28

Recommendation 11

7.65

Access to skilled workers

7.1 Two key workforce needs must be satisfied if rural and regional Victoria is to increase its level of exports. They are: • The workforce must have skills relevant to a modern economy • Skilled workers must be available in suitable numbers. 7.2 Evidence during this Inquiry suggests that workforce skill levels in rural and regional Victoria are very high. However, policy makers and industry must remain vigilant, not only to ensure that these skills evolve in line with the modern economy, but that there are also sufficient numbers of skilled workers in regional Victoria.

7.3 The Export Council of Australia identifies the quality of dairy consultants knowledgeable about the Asian market as one of rural and regional Victoria’s competitive advantages,1 while the Committee for Geelong reports that its members attribute much of their business growth to the important contributions of highly skilled staff.2

7.4 The City of Geelong’s Ms Keelie Hamilton told the Committee that Geelong is well placed to take advantage of the advanced manufacturing opportunities arising from structural changes in the economy. She said that: … if you look at the roles and the activities that those people have been doing in those larger industries, they might say to you, ‘I’m a boilermaker’, but what they have been doing for the last 25 years goes much further

1 Export Council of Australia, Submission, Number 17, 17 April 2014. 2 Committee for Geelong, Submission, Number 21, 17 April 2014.

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than that. They have been managing occupational health and safety; they have had to manage their budgeting resources; they have had to manage human resources in their own areas; they have had to manage a whole range of different things. It is about being able to work with these people who are in transition to understand what their own capabilities are …3

7.5 Structural change is discussed in more detail in Chapter 4 and in the section below, ‘Adapting to structural change’.

7.6 Other local jurisdictions were equally positive about the skill levels of their own workforces.4 The Wimmera Development Association partly attributes the high skill levels of regional workforces to the quality of Victoria’s regionally based higher education providers.5 The same argument is made by the Victorian Government, which states: ‘Victoria’s strong tertiary education sector helps to ensure business can access the skilled employees they need to develop their business and seize business opportunities.’6 The RMIT Rural and Regional Futures Research Group similarly argues: ‘Regional provision of research, training and education will ensure a skilled workforce as well as the extension of new knowledge to industry. South West Victoria is fortunate in its education, knowledge and research infrastructure.’7

7.7 The Rural and Regional Committee’s experience engaging with rural Victorians gives it the confidence to agree that the skill levels of workers in rural and regional Victoria are very high. However, as mentioned above the Committee also understands that regional exporters intent on continuing to succeed or expand in the future may struggle to fill positions requiring particular skills or find skilled workers in the numbers needed.

7.8 For example, meat processor The Midfield Group told the Committee about its need to employ a large number of skilled workers, to meet its plan of doubling its business over the coming years.8 Another company the Committee spoke with is GippsAero, an aeroplane manufacturer that is similarly struggling to source the number of skilled workers it needs from the Gippsland region.9 However, since the Committee’s Site Visit GippsAero have been working with the local TAFE to train new recruits.10

7.9 The forestry sector in western Victoria has seen a recent increase in demand for skilled workers as blue gum and softwood plantations reach maturity, including fitting, boilermaking, vehicle drivers and machine operators. Mr Mark Diedrichs from Australian Blue Gum Plantations told the

3 Ms Keelie Hamilton, Co-ordinator, Economic Development Unit, City of Greater Geelong, Public Hearing, Geelong, 30 April 2014. 4 Latrobe City Council, Submission, Number 8, 11 April 2014; City of Ballarat, Submission, Number 26, 17 April 2014.

5 Wimmera Development Association, Submission, Number 19, 17 April 2014. 6 Victorian Government, Submission, Number 51, 11 June 2014, p 17. 7 RMIT University Hamilton, Submission, Number 50, 27 May 2014, p 3. 8 The Midfield Group, Site Visit, Warrnambool, 10 April 2014. 9 GippsAero, Site Visit, Traralgon, 3 June 2014. 10 Personal communication 26 August 2014

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Committee: “I do not believe there is anything here in western Victoria that caters for a growing industry which is very important to the local economy ... There is a real opportunity to pick up some training skills and bring [the local workforce] into forestry in this region.”11

7.10 One way of addressing workforce shortages is to hire overseas workers. The Committee met with a number of organisations that had addressed a lack of workers by accessing the Commonwealth’s 457 visa program. A 457 visa allows skilled workers to come to Australia and work for an approved business for up to four years.12

7.11 In Wonthaggi, Mr Jack Jiang, Chief Executive Officer of Tabro Meats, told the Committee that he was willing to train staff to assist with that company’s planned expansion. However, Mr Jiang said that the English language requirements for 457 visas made hiring overseas staff difficult.13

7.12 The Midfield Group told the Committee that the cost of 457 visas is too high and therefore prohibits importing the type of skilled labour it has trouble accessing locally in south-west Victoria. Midfield also emphasised that the engagement of certain skilled employees, such as slaughterers and boners (positions which were difficult to attract local candidates for), could lead to other local employment at a ratio of three-to-four local jobs for each skilled worker engaged on a 457 visa.14

7.13 Mr John Moore, the Chief Executive Officer of Summerfruit Australia, said that both the 457 program and the Regionally Sponsored Migration Scheme are too complicated for many farmers to understand.15

7.14 The Committee is aware that other sectors in the Australian economy argue that 457 visas are under-regulated, to the point where the visas are too easy to obtain and therefore disadvantage local workers.

7.15 In its submission to this Inquiry, the RDA Barwon South West Committee recommends the Victorian Government lobby the Commonwealth to issue visas: … that enable employees to be placed in regional areas, where there is a shortage of appropriately skilled workers, to receive on the job and supported training and allow a stay of 2–4 years with 1–4 employers. This initiative could demonstrate to the agricultural sector that there are solutions to the lack of skilled agricultural workers and provide more stability with extended periods of stay.16

7.16 The Committee notes that the Victorian Government has recognised labour shortages as a problem in the food and agriculture workforce.17 As part of the Food to Asia Action Plan, the Victorian

11 Mr Mark Diedrichs, Regional Manager, Australian Blue Gum Plantation, Public Hearing, Hamilton, 8 April 2014. 12 See: http://www.immi.gov.au/Visas/Pages/457.aspx; accessed 21 July 2014. 13 Mr Jack Jiang, Chief Executive Officer, Tabro Meats, Public Hearing, Wonthaggi, 4 June 2014. 14 The Midfield Group, Site Visit, Warrnambool, 10 April 2014. 15 Mr John Moore, Chief Executive Officer, Summerfruit Australia, Public Hearing, Wodonga, 3 July 2014. 16 RDA Barwon South West, Submission, Number 9, 15 April 2014, p 2. 17 Victorian Government, Food to Asia Action Plan, Victorian Government, Melbourne, 2014, p 28.

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Government has committed to ‘… advocate to the Commonwealth Government on visa issues that affect the food sector workforce’.18

7.17 In Chapter 2 of this report, the Committee notes some of the benefits that could flow from growing Victoria’s regional population. These include access to a larger workforce with a broader skills base.

Finding 7.1

Adapting to structural change

7.18 Ensuring that rural and regional Victorians possess the requisite skills for a modern economy is an ongoing issue. It is particularly relevant at present, with a rapidly changing economy seeing demand shift from traditional manual skills to more technology-based skills applicable to the services sector and advanced manufacturing.

7.19 Mr Jake Dingle, Chief Executive Officer of Carbon Revolution in Geelong, spoke to the Committee about the changing manufacturing base in the Geelong region and the importance of ‘transferable’ or ‘adaptable’ skills, as manufacturing shifts to more advanced processes. He said: We are employing a lot of ex-Ford and ex-Qantas floor staff – workers who are shaking out of this structural shift in the industry in manufacturing locally. Largely they are very good people to get on board because they understand the disciplines and the requirements of automotive manufacturing but they do need training … Any support towards that retraining and taking people who are used to working in a production process utilising metals and other materials and training them to do what we need them to do in that area is enormously valuable as well.19

7.20 The Committee appreciates that many areas in rural and regional Victoria are experiencing structural change in their economies.20 The highly skilled workforce in Glenelg Shire, for example, is adapting its manufacturing experience to take advantage of new opportunities opening up in the renewable energy sector. The Shire is also aware of the need to improve its education retention rates if it is to continue attracting industry to the region.21

18 Ibid. 19 Mr Jake Dingle, Chief Executive Officer, Carbon Revolution, Public Hearing, Geelong, 30 April 2014. 20 For example, in its submission to this Inquiry, La Trobe University states that the proportion of Victorians employed in production industries has decreased by about one-third over the past 30 years, albeit to a still sizeable 23.8 per cent. La Trobe University, Submission, Number 36, 28 April 2014. See also Chapter 4 of this report. 21 Glenelg Shire Council, Submission, Number 11, 16 April 2014 and Site Visit, 10 April 2014.

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7.21 Victorian Government programs designed to negate the impact of structural change are discussed in Chapter 4 of this report.

7.22 The increased emphasis on the services sector and advanced manufacturing created by economic structural changes produces a corresponding increase in the importance of intellectual property – that is, rights granted to intangible assets, such as ideas and industrial design.

7.23 Intellectual property applies to all sectors of the economy, in particular manufacturing and ICT. In Geelong, Mr Nick Stanley, Chief Executive Officer, Sky Software, told the Committee: “Most software investment is driven by what comes out of the heads of the people who design it. It is not tangible … but it is no less an asset than a piece of manufacturing equipment.”22

7.24 Intellectual Property Australia states that Australia’s intellectual property system ranks third globally in terms of effectiveness and administrative performance. In 2012, Australia earned $1.1 billion in export revenue from trade in royalties for intellectual property (but $5.4 billion flowed in as imports).23

7.25 A significant challenge for businesses in rural and regional Victoria is ensuring that intellectual capital (and other ‘trade secrets’) can be better fostered as an industry in its own right. This would be in addition to its role in supporting productivity advancements in allied industries such as food production and advanced manufacturing.

7.26 Mr Sean Cameron, City of Ballarat’s Manager Economic Development, argued that there is a “fundamental lack of knowledge” about intellectual property in Australia, including “… how you protect your intellectual property and how you can go overseas and produce things relating to licensing”.24

7.27 Mr Cameron suggested that the onus is on the Commonwealth (via Austrade and the TradeStart program) and the Victorian Government (via the Department of State Development, Business and Innovation) to travel to regional areas and provide information to businesses about intellectual property.25

7.28 The Victorian Government has recognised the importance of securing intellectual property protection when exporting and notes: ‘Protecting intellectual property in overseas markets can be difficult and complex.’26 Both Austrade and the Victorian Government Business Offices provide information on intellectual property in overseas markets.27 However, the Victorian Government

22 Mr Nick Stanley, Chief Executive Officer, Sky Software, Public Hearing, Geelong, 30 April 2014. 23 Trade at a glance 2013. See: http://www.dfat.gov.au/publications/trade/trade-at-a-glance-2013/trade_policy_at_a_ glance/part07_intellectual_property.html; accessed 21 July 2014. 24 Mr Sean Cameron, Manager Economic Development, City of Ballarat, Public Hearing, Ballarat, 29 April 2014. See also City of Ballarat, Submission, Number 26, 17 April 2014, p 9. 25 Mr Sean Cameron, Manager Economic Development, City of Ballarat, Public Hearing, Ballarat, 29 April 2014. 26 Department of State Development, Business and Innovation, Export Reference Guide, Victorian Government, Melbourne, n.d., pp 5, 16–17 27 Ibid, p 17.

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also advises exporters: At the very least you should obtain detailed legal advice from a reputable IP law specialist such as a patent attorney who knows the local conditions and can advise on the pitfalls you are likely to encounter.28

Finding 7.2

Structural change in some parts of regional Victoria requires the workforce to gain new skills, to adapt to new economic opportunities. This can be a cost for local businesses. Intellectual property is an increasingly important factor when exporting, particularly for information and communication technology and advanced manufacturing.

Recommendation 10

Skills to become export ready “The feedback we really get is that businesses are quite apprehensive about how to start to engage in export and to grow their markets…We are of the opinion that we need to actually make that a little bit less daunting for business to be able to undertake.” Ms Keelie Hamilton, Co-ordinator, Economic Development Unit, City of Greater Geelong

7.29 For the purposes of this Inquiry the Committee applied the term ‘skills’ more broadly than simply relating to workforces, to include the business skills needed to export. Government support in acquiring these skills is particularly needed by SMEs.

7.30 Discussions on the export capacity, or ‘export readiness’, of SMEs in rural and regional Victoria included the role of government in supporting potential exporters. For example, Bass Coast Shire Council states that the Victorian Government should: ‘Support training programs and businesses to increase their export readiness and engage with the international market.’29 Similarly, the Royal Agricultural Society of Victoria argues that the Victorian Government should continue to provide ‘… support and education to Victorian businesses to assist them in export readiness’.30

7.31 The term ‘export readiness’ covers a variety of challenges, from developing appropriate products, through increasing production so as to guarantee supply to overseas customers, to having the

28 Ibid. 29 Bass Coast Shire Council, Submission, Number 46, 5 May 2014, p 2. 30 Royal Agricultural Society of Victoria, Submission, Number 34, 24 April 2014, p 13.

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overseas infrastructure in place able to respond to fluctuating demand. The Department of State Development, Business and Innovation has developed an ‘Export Readiness Checklist’, which identifies nine important factors (see Box 7.1).

Box 7.1 Export Readiness Checklist

1. Are you prepared to devote additional time, effort and resources that will be required to become a successful exporter?

2. If you are not the owner or manager of the business, will the directors provide you with their full backing and support and recognise exporting as a legitimate activity and integral part of the business plan?

3. Are you able to identify unique features and qualities of your products and services that will enable you to exploit overseas market opportunities?

4. Can your products or services be modified to accommodate overseas market requirements if necessary?

5. Does your business have a proven track record and a strong marketing presence in Australia?

6. Do you have high quality promotional and marketing material?

7. Do you have sufficient management skills and expertise to develop and service export markets? If not, could these be acquired?

8. Do you have surplus capacity or the flexibility to expand production quickly if export orders are obtained?

9. Do you have sufficient financial strength and resources to develop overseas markets?

Source: Department of State Development, Business and Innovation, Developing an Export Strategy, June 2013, p 7. 7.32 Critically, governments must also understand domestic industries’ global competitive strengths and weaknesses, in order to develop sound policy and provide appropriate assistance.31 In other words, governments need to be aware of the wider economic picture, as well as having the ability to identify individual companies’ needs.

7.33 The Committee heard that a lack of knowledge is a large barrier for many SMEs considering exporting. A recent survey of farmers in south-west Victoria found that 57 per cent of responders chose ‘improve my skills and knowledge’ as the most effective way to grow their farm business.32 In relation to exports more specifically, a survey of 1,618 Australian exporters found that 59 per cent considered a lack of information about local culture, business practices and language in export markets as being among the most significant barriers to doing business overseas. A lack of information about local regulation and tariffs was cited by 49 per cent. These two factors were the

31 Mr Colin Radford, Partner, Government Services, Deloitte, Public Hearing, Melbourne, 5 May 2014. 32 RMIT University Hamilton, Submission, Number 50, 27 May 2014.

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top two barriers cited by respondents.33

7.34 Evidence in this Inquiry identified the following specific knowledge gaps related to exporting: • Appreciating cultural issues34 • How to tailor tourism products to different international markets35 • How to develop networks36 • Understanding specific markets’ commercial requirements37 • The processes of quarantine accreditation.38 7.35 When combined these issues create a strong fear of risk39 or ‘insecurity’ associated with starting a new export venture.40

7.36 In Moe, the Committee heard from Mr Adam Moore, Managing Director of Bonkers Retail, whose Baby Royale line of organic baby food products will soon be sold in 350 supermarkets across Malaysia. He told the Committee about the combination of patience and business management skills needed to export successfully. Mr Moore said: It is a really complicated process. We have in our business model ten steps we go through … It is really internal decisions as to which countries we go into. We take a lot of things into account. What we tend to do is work on maybe eight different countries at once, and then we may decide to export to only one of those, and some of those may then go on the backburner to come back to at a later stage. For some the decision might be made that they are too hard or too risky and they are put aside until maybe the situation changes regulation-wise, tariff-wise – there are all sorts of reasons why we may not choose to export to a country.41

7.37 Grainger’s 2008 paper ‘Customs and trade facilitation: from concepts to implementation’ outlines the complexity facing SMEs considering exporting: The international movement of goods includes a number of operational steps. Prior to export this includes packing, storage, haulage to the port, port entry and customs clearance, and loading onto a vessel. Once arrived in the port of destination, operations include off-loading, storage,

33 Export Council of Australia, Australia’s International Business Survey 2014: Highlights report, Export Council of Australia, Sydney, n.d., p 11. 34 Mr Tim Grandfield, Business Development and Events, Ballarat Regional Tourism, Public Hearing, Ballarat, 29 April 2014; City of Ballarat, Submission, Number 26, 17 April 2014; Phillip Island Regional Tourism Board, Submission, Number 40, 2 May 2014. 35 Victoria Tourism Industry Council, Submission, Number 27, 17 April 2014. 36 Mr Murray McIntyre, Managing Director, Tradelink Asia, Public Hearing, Ballarat, 29 April 2014. 37 Mr Timothy James, Manager, SED Advisory, Public Hearing, Ballarat, 29 April 2014. 38 Ms Elisabeth Cumming, Owner, Grampians Pure Sheep Dairy, Public Hearing, Hamilton, 8 April 2014; Ms Keelie Hamilton, Co-ordinator, Economic Development Unit, City of Greater Geelong, Public Hearing, Geelong, 30 April 2014. 39 In its submission to this Inquiry, East Gippsland Food Cluster reports some SMEs consider exporting to be ‘too risky’, thereby creating ‘varying degrees of export readiness’, East Gippsland Food Cluster, Submission, Number 22, 17 April 2014, pp 7–8. 40 Ms Elisabeth Cumming, Owner, Grampians Pure Sheep Dairy, Public Hearing, Hamilton, 8 April 2014. 41 Mr Adam Moore, Managing Director, Bonkers Retail and Baby Royale, Public Hearing, Moe, 3 June 2014.

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release from the port and customs clearance, delivery to the buyer, unpacking, after-sales services (for example, assembly, warranties and guarantees) and more … In most instances a wide range of intermediaries will be employed to move goods. These include amongst others: transport operators, trucking and haulage companies, freight forwarders, customs brokers, banks and finance companies, insurance companies, port operators and stevedores, and IT systems suppliers.42

7.38 In a later paper in 2011, Grainger discusses a trade deal exporting milk powder from the United Kingdom to Africa that involved ‘… 29 different parties and 21 different regulatory declarations, official certificates, and transport and insurance documents, often with multiple copies in different languages’. Grainger points out that economies of scale mean large businesses are more able to absorb fixed regulatory costs than SMEs.43

7.39 During this Inquiry, the Committee was told about businesses that had been unable to navigate through the complexities associated with exporting. For example, Mansfield Shire Council cited a Victorian company unable to take advantage of a potential deal with a Hong Kong chain of supermarkets, revealing: ‘Difficulty in finding a distributor – and a distributor experienced in food – was the major hurdle. That, and the paperwork required on the receiving end in Hong Kong.’44

7.40 Given the level of complexity involved in exporting, the Committee also heard from a number of witnesses about the time required to manage exports and the need for dedicated staff members to manage the process. In some cases, SMEs respond by ‘buying in’ exporting skills and experience not present among current staff, through hiring new staff.45 In other cases, businesses provide training for their existing staff. Mr Dingle from Carbon Revolution said that, for many small businesses, training staff to acquire modern skills is a start-up cost that can delay production.46

7.41 The Committee heard from many participants that training is seen as a role for government. The Mansfield Shire Council recommends: Continued [government] support for businesses to break into export markets with particular attention paid to mentoring through critical supply chain steps including identification of on the ground distributors and networks.47

7.42 Government financial support is available for training delivered by industry bodies, such as the Export Council of Australia and the Victorian Employers’ Chamber of Commerce and Industry (VECCI). Both bodies indicated to the Committee that they consider these programs to be effective

42 Grainger A, ‘Customs and trade facilitation: from concepts to implementation’, World Customs Journal, Vol 2, No 1, 2008, p 18. 43 Grainger A, ‘Trade facilitation: a conceptual review’, Journal of World Trade, Vol 45, No 1, 2011, p 52. 44 Mansfield Shire Council, Submission, Number 41, 2 May 2014. 45 Ms Keelie Hamilton, Co-ordinator, Economic Development Unit, City of Greater Geelong, Public Hearing, Geelong, 30 April 2014. 46 Mr Jake Dingle, Chief Executive Officer, Carbon Revolution, Public Hearing, Geelong, 30 April 2014. 47 Mansfield Shire Council, Submission, Number 41, 2 May 2014.

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and that they should be continued.48

7.43 The Victorian Government offers assistance for companies interested in exporting without yet being ‘export ready’ through its Business Development Manager network. These include: • Trade Mission Assistance program, a $9 million competitive grants program to support participation in outbound super trade missions, trade missions and trade events [which include pre-mission briefings] • Export Voucher program, a $1.7 million program that will help individual businesses access support from experienced exporters, to develop skills and knowledge regarding market entry and growth strategies and export opportunities for international markets • Export Support and Training with funding of $3 million for activities including inbound trade missions, export briefings, international engagements forums and trade promotion events programs.49 7.44 Commonwealth Government assistance for exporters is available through the TradeStart program. In Geelong, the Committee spoke with Mr Sandy Harman, a TradeStart Adviser. Mr Harman told the Committee: “It is my understanding that TradeStart originally started 12 years ago with an emphasis on helping new exporters and then some time ago, maybe four years ago, the decision was made that TradeStart would only help exporters that are deemed export ready by an assessment.”50

7.45 Other witnesses expressed concern about reductions in funding to the Commonwealth’s TradeStart program.51

7.46 Financial support for exporters is discussed in detail in Chapter 6.

7.47 The Committee believes that in developing policies the Victorian Government must also acknowledge the ‘fitful nature’ of exporting; that is, companies often enter and re-enter the export market with gaps of inactivity in between. As Bernard and Jensen put it: ‘Exporting is not a once- and-forever phenomenon.’52 This means that, especially for SMEs, export training may be an ongoing requirement.

7.48 Victorian Government Business Offices aim to address some of the barriers faced by exporters, in particular information on local practices. The Business Offices are discussed in more detail in Chapter 11 of this report.

48 Export Council of Australia, Submission, Number 17, 17 April 2014; VECCI, Submission, Number 39, 30 April 2014. 49 Victorian Government, Submission, Number 51, 11 June 2014, p 36. Aside from trade missions, which are discussed in Chapter 11, the Committee did not receive any evidence regarding the efficacy of these programs. 50 Mr Sandy Harman, TradeStart Adviser, Export Council of Australia, Public Hearing, Geelong, 30 April 2014. 51 Mr Hugh Koch, Manager Economic Development, Southern Grampians Shire Council, Public Hearing, Hamilton, 8 April 2014 (Addendum to evidence); Ms Keelie Hamilton, Co-ordinator, Economic Development Unit, City of Greater Geelong, Public Hearing, Geelong, 30 April 2014. 52 Bernard A B and Jensen J B, ‘Why some firms export’, The Review of Economics and Statistics, Vol 26, No 2, 2004, p 563. In its submission to this Inquiry, Baw Baw Shire Council refers to estimates that over 80 per cent of businesses that export only do so the once.

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Finding 7.3

The Victorian Government has a key role to play in helping SMEs become, and continue to be, ‘export ready’.

Providing data for exporters

7.49 Research carried out by the Rural and Regional Committee during this Inquiry revealed that one of the first barriers that exporters face is how to acquire data related to export markets. This includes information such as market size, consumer preferences and economic trends.

7.50 Bernard and Jensen identify the acquiring of such data as a ‘significant’ entry cost for potential exporters. The small scale of many of Victoria’s exporters (see Chapter 2 of this report) can make data-gathering by individual firms prohibitively expensive. Governments collecting data on overseas markets and making it available, however, can lower this entry cost for individual companies.53 This was identified as a valuable role for the Victorian Government to play by a number of participants in this Inquiry.

7.51 In its submission to this Inquiry, the Export Council of Australia lists ‘access to market information’ as a market failure to be addressed by government. It states: ‘Governments can and should play a role in assisting businesses wanting to start exporting and those businesses looking to expand their export footprint into new cities and / or markets.’54 Similarly, the Victorian Government identifies ‘imperfect information’ as a market failure where it is appropriate for governments to act.55

7.52 In agriculture, early access to data on market trends improves competitiveness, as was explained by Mr Paul Ford, Chair, Agribusiness Gippsland: At a pre-farmgate level having that information that allows farms to be agile and responsive to the demands of the marketplace becomes quite important. At the moment, a lot of people in businesses … tend to have farm business data, financial data and things like that in different places. Being able to aggregate that and use it to drive the business flexibly and … respond to these export opportunities we see as quite an important approach and lesson learnt.56

7.53 SPC Ardmona includes two recommendations regarding data in its submission to this Inquiry, namely:

53 Ibid. A similar argument is made by East Gippsland Food Cluster, Submission, Number 22, 17 April 2014. 54 Export Council of Australia, Submission, Number 17, 17 April 2014, p 6. A similar argument is made by the Wimmera Development Association, Submission, Number 19, 17 April 2014. 55 Victorian Government, Submission, Number 51, 11 June 2014. 56 Mr Paul Ford, Chair, Agribusiness Gippsland, Public Hearing, Moe, 3 June 2014. In its submission to this Inquiry, Agribusiness Gippsland states: ‘There is a challenge to more effectively collect, collate and analyse data on a wide range of climatic and economic indicators and develop three to five-year scenarios for future conditions for farming.’ See also Chapter 9: Government programs to increase competitiveness and productivity. (Agribusiness Gippsland, Submission, Number 43, 2 May 2014).

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The State Government can play an active role in providing timely information and training to the exporters regarding trade agreements, trading conditions and the regulatory environment of the export markets [see Chapter 11 of this report]. The State Government can assist in business–business engagement by maintaining trade registers / database of accredited exporters, approved importers and other service providers and consultants.57

7.54 In Ballarat, SED Advisory’s Dr Timothy James told the Committee that one role of overseas-based Victorian Government Business Offices is to “… provide that market research that can be quite valuable”.58 The Committee for Greater Shepparton’s Chief Executive Officer, Mr Matt Nelson, said that regionally based Victorian Government officials would be ideal conduits for distributing market information on changing consumer choices to producers.

7.55 Mr Adam Moore, Managing Director, Bonkers Retail and Baby Royale, described how his company had benefited from government assistance with data in the past. Mr Moore argued that governments are frequently better positioned to acquire market information than businesses. He said: Another big thing for us is access to market information. That is really important in terms of the research that we do before we go into the market … Detailed market information, especially in the segment we are in – processed foods – is really important and sometimes it can be really hard to get. It is probably an opportunity for government departments to help with that, where they have already got the information.59

7.56 Other types of market information identified as valuable during this Inquiry include: more research into current demand and future trends for food products from the Asian middle class;60 and how to tailor tourism products to different international markets.61

7.57 In addition to market information, participants in the Inquiry advocated for government providing the following data: • A ‘centralised knowledge bank’ of export markets’ regulatory requirements62 • Maintaining specialised regional staff in bodies such as Regional Development Victoria63 • Funding an ‘agribusiness leaders export development program’ to dispense information on potential new export markets64

57 SPC Ardmona, Submission, Number 18, 17 April 2014, p 4. 58 Dr Timothy James, Manager, SED Advisory, Public Hearing, Ballarat, 29 April 2014. Government offices are discussed further in Chapter 11. 59 Mr Adam Moore, Managing Director, Bonkers Retail and Baby Royale, Public Hearing, Moe, 3 June 2014. 60 Committee for Greater Shepparton, Submission, Number 29, 17 April 2014. 61 Victoria Tourism Industry Council, Submission, Number 27, 17 April 2014. 62 Export Council of Australia, Submission, Number 17, 17 April 2014. 63 Horsham Rural City Council, Submission, Number 23, 17 April 2014. 64 Agribusiness Gippsland, Submission, Number 43, 2 May 2014. The Committee discussed a number of funding options for this proposed program, including funding from the agribusiness sector, in Moe with Mr Paul Ford, Chair, Agribusiness Gippsland.

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• Intellectual property workshops65 • Sharing success stories66 • More details of foreign regulations67 • Registers or databases of accredited exporters, approved importers, other service providers and consultants to facilitate business-to-business engagements.68 7.58 The Committee learnt that both Austrade and the Victorian Government Business Offices consider one of their roles to be providing data to exporters or potential exporters.69 Further, some of the Victorian Government’s recent export-related strategies include providing additional information as part of their intended actions, some of which pertain to the suggestions noted above. The Food to Asia Action Plan, for example, includes commitments to: • ‘Producing a trade directory of food, beverage and agricultural exporters • ‘Providing market insights for Victorian exporters engaged with − or looking to engage with − key markets in Asia • ‘Supporting SMEs to access the services of the Food Innovation Australia Limited (FIAL) precinct for market research and consumer insights.’70 7.59 The Committee supports these projects and recommends that the Victorian Government explore further opportunities to provide useful data to exporters.

Finding 7.4

The provision of market information and similar data by government can be important in helping firms overcome barriers to trade.

Access to skill development

7.60 Chapter 5 of this report discusses the importance of businesses being able to access government services quickly and easily. It is equally important to ensure that: • Businesses are aware of government services • Regional businesses can easily access these services. 7.61 Dr Timothy James from SED Advisory informed the Committee that some SMEs may not know where to access the information and advice on exports provided by the Victorian Government.71 Even larger companies can be unsure as to what support is available.

65 Mr Sean Cameron, Manager Economic Development, City of Ballarat, Public Hearing, Ballarat, 29 April 2014. 66 East Gippsland Food Cluster, Submission, Number 22, 17 April 2014. 67 Committee for Geelong, Submission, Number 21, 17 April 2014; Mr Sandy Harman, TradeStart Adviser, Export Council of Australia, Public Hearing, Geelong, 30 April 2014; Cf. Professor Mike Willis, Pro-Vice Chancellor (International and Partnerships), Federation University Australia, Public Hearing, Ballarat, 29 April 2014. 68 SPC Ardmona, Submission, Number 18, 17 April 2014, p 4; Agribusiness Gippsland, Submission, Number 43, 2 May 2014. 69 Victorian Government, Submission, Number 51, 11 June 2014, p 34. 70 Victorian Government, Food to Asia Action Plan, Victorian Government, Melbourne, 2014, pp 22, 39. 71 Dr Timothy James, Manager, SED Advisory, Public Hearing, Ballarat, 29 April 2014.

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7.62 The Committee notes that, in some cases, evidence of a lack of knowledge of government services is attributable to companies not yet being fully committed to exporting. That is, they are at an early stage of their business development where they are yet to seek out this information

7.63 The Committee also heard that many export-related programs are hosted in Melbourne, which makes them difficult for potential exporters from rural and regional Victoria to access. For example, Bass Coast Shire Council’s Ms Roslyn Jenzen said: I know the State Government has run export ready sessions, but they have been in Melbourne. Businesses down here – most of them are owner– operators – do not have the time to take themselves away and go to Melbourne. If you are running those sorts of things, try to get them into the areas where the people are likely to be able to attend, so they start thinking about it and are able to communicate with local mentors who can help them set themselves up and start thinking about this.72

7.64 In its submission to this Inquiry, the Victorian Government discusses the assistance it provides to exporters, stating: There are skills training and briefing sessions in regional and rural areas delivered by a third party with departmental input specifically designed for regional and rural industries [and these are promoted] through regional and metropolitan offices, industry bodies and associations, industry specific organisations which promote the programs to members, and media campaigns that target participants for trade missions and trade programs.73

7.65 The Committee urges the Victorian Government to continue to monitor the efficacy of its export assistance programs as they affect businesses in rural and regional Victoria. Part of this monitoring should include research on how accessible information on these programs is to rural and regional businesses.

Finding 7.5

Training and information sessions have the most impact when they are well publicised and readily accessible to regional businesses and relevant to specific industries.

Recommendation 11

72 Ms Roslyn Jenzen, Economic Development Coordinator, Bass Coast Shire Council, Public Hearing, Wonthaggi, 4 June 2014. 73 Victorian Government, Submission, Number 51, 11 June 2014, p 36; Cf. Victorian Government, Food to Asia Action Plan, Victorian Government, Melbourne, 2014, p 27.

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118 Chapter eight: Infrastructure

Findings

8.1

8.2

8.3

Governments have to balance calls to keep the number of large vehicles on the road to a minimum with the fact that businesses choose the transport option that best suits their needs.

8.4

The potential to increase the amount of product transported by rail from rural and regional Victoria is very sector-specific. Rail works well in some circumstances, but is impractical for some industries or businesses due to the length of time it takes, the cost of getting goods on and off trains, and the physical limitations of Victoria’s current rail infrastructure. Additional infrastructure investment has the potential to reduce some of these disadvantages and increase the number of businesses for which rail is a viable alternative to road.

8.5

8.6

Intermodal hubs offer great potential for improving export efficiency provided they are strategically located and supported by private enterprise and other relevant policies, such as the Mode Shift Incentive Scheme.

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8.7

Government support for intermodal hubs should be based on clear evidence of commercial viability.

8.8

A proportion of the cost of transporting rail freight is the extra handling that occurs at ports. A reduction in this cost would facilitate greater use of rail for exports from rural and regional Victoria.

8.9

A number of participants in this Inquiry indicated that Victoria’s port charges are higher than some competitors’ and should be reviewed.

8.10

Evidence was presented to the Committee that the Port of Melbourne’s time slot system is increasing costs for regional exporters.

8.11

Victoria’s curfew-free airports play a key role in supporting international tourism and freight exports. New international airline services to Tullamarine and Avalon airports will play an important role in expanding export growth from rural and regional Victoria.

8.12

8.13

Some tourists rely on public transport when travelling through rural and regional Victoria. However, services are limited in some areas.

8.14

High-speed broadband and wi-fi, along with good mobile reception are significant tools for attracting tourists and international students. They also benefit other sectors of the economy.

8.15

Reliable access to water remains integral to productivity growth in the agriculture sector. The Commonwealth Government’s On-Farm Efficiency Program has acted as a catalyst for this growth.

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8.16

Energy costs in Victoria were identified by a number of participants in the Inquiry as a competitive disadvantage. Some participants indicated that renewable energy may help reduce costs, but needs appropriate support and planning from local communities, councils and the Victorian Government.

Recommendations

Recommendation 12

That the Victorian Government continue to prioritise long-term infrastructure planning and delivery, particularly to assist businesses to obtain and maintain world-class cost competitiveness.

8.6

Recommendation 13

That, in relation to rail, the Victorian Government investigate options:

• To attract more freight onto rail, through continued funding of the Mode Shift Incentive Scheme • To reduce costs and delays getting goods onto ships at ports from rail, including additional rail infrastructure. 8.47

Recommendation 14

That the Victorian Government continue to invest in road infrastructure on major transport routes and review regulation, in relation to high productivity vehicles.

8.63

Recommendation 15

That the Victorian Government ensure that regional exporters have adequate access to the Port of Melbourne, including adequate time slots.

8.87

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Infrastructure in Victoria “It is looking at how we more efficiently not only move people but move product around the region so we gain more productivity from the region, more efficiency in terms of moving our product both for domestic markets and international markets. It is a key part of our planning into the future.” Ms Elaine Carbines, Chief Executive Officer, G21 & Member, Regional Development Australia Barwon South West “Nationbuilding infrastructure and communications technology to enhance our capacity to compete in an increasingly digital world, expansion and improvements to our transport and energy infrastructure to facilitate the growth of our expanded resources sector, and critically, ensuring our regions can compete to their full potential are policies which not only play to our natural advantages but [we should] hardwire these into the economy.” Mr Colin Radford, Partner, Government Services, Deloitte Australia

8.1 Victoria’s infrastructure – road; rail; ports; energy; irrigation; telecommunications; tourism – was discussed frequently throughout this Inquiry. Freight routes were of particular interest to the Committee, as they can be considered to constitute the ‘backbone’ of exports from rural and regional Victoria.1 Transport infrastructure is of particular importance if the Victorian Government’s proposal of doubling the production of food and fibre is to be achieved (see Chapter 5 of this report). Estimates regarding future freight movements vary, however many refer to the Bureau of Infrastructure, Transport and Regional Economics’ prediction that the freight task is set to triple by 2046.2

8.2 The reach and quality of Victoria’s current infrastructure is considered a competitive advantage by many regional stakeholders, as the table below shows.

1 Wimmera Development Association, Submission, Number 19, 17 April 2014, p 6. 2 For example, this estimate is quoted in Victorian Government, Victoria – The Freight State: The Victorian freight and logistics plan, Victorian Government, Melbourne, 2013, which adds that the freight task grew by 20 per cent between 2004 and 2008 (p 14).

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Table 8.1. Submissions to this Inquiry identifying infrastructure as a competitive advantage Organisation Comment Victorian Government ‘Victoria’s road and freight network is extensive and well linked. It is highly efficient by world standards and connects industrial hubs across the state to air and sea ports and to the rest of the country.’ Latrobe City Council ‘Regional Victoria, and more specifically Latrobe City offers new investors … strong road and rail transport links … established electricity transmission and generation infrastructure …’. Surf Coast Shire Council ‘Victoria’s road, rail and port infrastructure remains a significant competitive advantage for the state in the context of national and international exports.

‘The Hume Freeway, Australia’s primary road freight corridor, provides excellent unhindered access to major agricultural and manufacturing economies with significant workforce capacities. This is complemented by the Melbourne to Brisbane rail corridor which is serviced by a number of existing intermodal facilities and proposed freight node developments. Both major road and rail assets funnel significant bulk and non-bulk goods to Australia’s largest port, the Port of Melbourne.

‘The capacity of the Port of Melbourne and enhanced road and rail infrastructure plays a significant role in ensuring regional economic zones in Victoria (in Surf Coast Shire’s case the G21 Region) can remain competitive on a national and global scale.’ Sovereign Hill Museums ‘Road, rail and aviation assets are working to Association regional Victoria’s advantage to the extent that day tours are expanding.’

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G21 Agribusiness Forum ‘Geelong provides a natural hub for transport infrastructure that services the G21 region, key agricultural regions of south west and western Victoria and areas beyond. This includes road, rail, the Port of Geelong and Avalon Airport.’ Export Council of Australia ‘Geelong is well served by surrounding infrastructure including rail, air and port infrastructure.’ Wimmera Development ‘Major freight routes, including the Melbourne Association to Adelaide rail line and the Western Highway, provide a backbone for the movement of export and domestic grains produced in the Wimmera Mallee region. The network of minor rail lines, secondary highways and roads support the accumulation of grain to central receival points.

‘The construction of the Wimmera Intermodal Freight Terminal, with the funding support of the Victorian Government and the Federal Government, has been a strategic investment in the freight network. It has improved the effectiveness of the road / rail interface, and will attract increased containerised grain (and possibly mineral sands in the future) transport.’3 Deakin University ‘Regional Victoria’s competitive advantage is that the long term investment in infrastructure in regional Victoria, particularly in transport, sub-tertiary education, public health and communications provides a platform from which Victorian higher education providers can locate and deliver both degree and post-graduate programs in regional Victoria.’ Agribusiness Gippsland Gippsland has ‘effective road and rail links’.

8.3 A large number of participants in this Inquiry identified specific infrastructure projects which they considered would further enhance Victoria’s competitive advantage for exports. The scope of this Inquiry does not permit the Committee to investigate each of these projects in detail and form a view on their relative merits, priorities, and likely costs and benefits. The Committee has listed these projects in Appendix 4 for further Government and stakeholder consideration.

3 The Wimmera Intermodal Freight Terminal is discussed further below.

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8.4 The Committee stresses the importance of planning future infrastructure projects in advance. In some cases, the private sector needs to invest in its own facilities in order to fully take advantage of government infrastructure. In other cases, future government infrastructure investment may make an export business more viable. For cases like these, knowledge of future government plans helps businesses to plan and make investment decisions.

8.5 The Committee notes recent work done by the Victorian Government, including Victoria – The Freight State4 and Plan Melbourne5. The Rural and Regional Committee supports the need for this infrastructure to be strategically planned, constructed and maintained. It is generally supportive of initiatives such as The Freight State, which allows a forum for stakeholders and industry to engage in the long-term planning and infrastructure investment central to capitalising on Victoria’s export opportunities. However, these plans are subject to change under a different government, reducing certainty for business.6

8.6 The Committee recommends that infrastructure planning be carried out in such as a way as to encourage multiparty and stakeholder consensus.

Finding 8.1

Recommendation 12

That the Victorian Government continue to prioritise long-term infrastructure planning and delivery, particularly to assist businesses to obtain and maintain world-class cost competitiveness.

Transport

8.7 Freight projects are accepted as long-term priorities that should be designed in a way that provides as much certainty to export businesses as possible.

8.8 Mr Ray Hortle from Regional Development Victoria pointed out the highly competitive nature of the transport sector in Victoria, with competition ensuring great efficiency.7 Yet the Committee frequently heard from exporters in rural and regional Victoria that transport costs comprise a large percentage of the cost of the final product. For example, Mr Andrew Maughan from fresh produce company Holman Fresh told the Committee that packaging, storage and freight for certain fruit

4 Victorian Government, Victoria – The Freight State: The Victorian freight and logistics plan, Victorian Government, Melbourne, 2013 5 Victorian Government, Plan Melbourne: Metropolitan planning strategy, Victorian Government, Melbourne, 2014. 6 See: http://www.parliament.vic.gov.au/paec/inquiries/inquiry/304; accessed 21 July 2014. 7 Mr Ray Hortle, Business Development Manager, Regional Development Victoria Hume, Public Hearing, Wodonga, 3 July 2014.

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accounts for roughly half of the total cost of production.8

8.9 Further evidence was provided to the Committee by Mr Ben McLean, Supply Chain Development Manager, Australian Paper. He told the Committee that the company’s current approach of using rail to move product from its Maryvale premises to a Melbourne store, and then repacking it into another container and moving it to the Port of Melbourne to meet shipping dates, is around $18 per tonne extra than if an order were packed at the mill and transported directly to the wharf by rail. This cost includes both the handling costs and the storage space needed at the Melbourne store.9 (Handling costs are discussed further below.)

8.10 The Committee learnt that Australian Paper’s per tonne rates within Victoria are higher than the per tonne rate of shipping the paper to Asia. However, they are lower than per tonne rates to other parts of the world.

8.11 The Committee understands it is standard practice for businesses to view their biggest cost as the best source of potential savings. Transport is a major cost component of some goods. Therefore, efficiencies in transport have the potential to significantly reduce costs and make business more competitive in the export market or increase the primary producers’ margins.

8.12 However, the Committee is aware that improvements to transport infrastructure are often complex and costly.

8.13 In 2013, the Victorian Government released Victoria – The Freight State: The Victorian freight and logistics plan.10 The document outlines the Victorian Government’s long-term strategy to improve freight efficiency, grow productivity, and link Victorian businesses with their local, national and overseas markets. Further, the Government’s 2014 Plan Melbourne: Metropolitan Planning Strategy discusses freight movement between regional Victoria and Melbourne.11

8.14 The Victorian Government’s submission to this Inquiry states: The Victorian Government is committed to building a world class freight and logistics network to link regional Victoria with global markets. The key initiatives to achieve this vision are: • $1.6 billion expansion of the Port of Melbourne • Development of the Port of Hastings as an international container port • Upgrade of Avalon airport to become Victoria’s second international airport • Building the East–West Link • $220 million upgrade to the Mildura–Geelong rail link

8 Mr Andrew Maughan, National Business Manager, Holman Fresh, Personal Communication, 1 July 2014. 9 Mr Ben McLean, Supply Chain Manager, Australian Paper, Personal Communication, 6 August 2014. 10 Victorian Government, Victoria – The Freight State: The Victorian freight and logistics plan, Victorian Government, Melbourne, 2013 11 Victorian Government, Plan Melbourne: Metropolitan planning strategy, Victorian Government, Melbourne, 2014.

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• $362 million for the Princes Highway West duplication project.12

8.15 The Rural and Regional Committee notes that the Export Council of Australia plans to survey 100 exporters across Australia and from all industry sectors, to gain a more detailed understanding of the costs for each stage of exporting, including transport costs.13 It is hoped that this study will identify additional opportunities for improvements to Victoria’s transport infrastructure. The Committee looks forward to the results of this survey.

Finding 8.2

Road vs rail

8.16 As Victoria’s freight task continues to grow, so does the debate surrounding the relative advantages of road and rail transport. Proponents of rail argue that there is a social imperative to keep the number of large trucks on our roads to a minimum, to improve safety, congestion and pollution while reducing the cost of road maintenance. Others argue that road transport is simply the more economically viable alternative.

8.17 Governments must also keep in mind key factors around funding both formats, that is: • Rail infrastructure is more expensive than road to install but it is easier to recover direct costs from rail users • Road costs are party recovered from all taxpayers, a funding arrangement that some consider inequitable. 8.18 Both forms of transport are discussed in detail below, including evidence on their current strengths and weaknesses for exporters in rural and regional Victoria. Overall, the Committee’s view is that both road and rail are integral to growing exports. Therefore, both modes need to be optimised.

8.19 The Victorian Government intends for rail to have an increased role in the future but notes that road is the only available alternative for some market segments. The Government considers that a minimum of 15–20 per cent of the freight task (in tonnes) could be carried by rail.14

8.20 Ultimately, businesses will choose the method of transport that best suits their needs. In the context of this Inquiry, the role of the Victorian Government is to continue to work with industry, to ensure Victoria’s transport infrastructure is fit for purpose for a competitive 21st Century economy.

12 Victorian Government, Submission, Number 51, 11 June 2014, p 30. 13 Ms Collins Rex, State Manager Victoria / Tasmania, Export Council of Australia, Public Hearing, Melbourne, 23 June 2014. 14 Victorian Government, Victoria – The Freight State: The Victorian freight and logistics plan, Victorian Government, Melbourne, 2013 .

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Finding 8.3

Governments have to balance calls to keep the number of large vehicles on the road to a minimum with the fact that businesses choose the transport option that best suits their needs.

Rail “I have been involved in road freight all my life. My father was actually the person who changed the law of the land to put general freight onto the road many years ago. The situation now is that it has done a full circle and we need to explore rail again, which we are currently doing. There are 9.5 million tonnes of logs to be transported in the southwest region. I think it is primitive to think they will all go down the road.” Mr Graham Ryan, Managing Director, Ryans Group “Our top three priorities are rail, rail and rail.” Mr Shaun Williams, Commercial Manager, GrainCorp

8.21 It is difficult for governments in Australia to know how best to prioritise rail projects. Part of the difficulty lies with identifying where improvements to the system have the best potential to grow demand. In part, this relies on the private sector demonstrating demand for improved rail infrastructure.

8.22 One example of the complexity facing governments was provided in Melbourne by Mr Peter Hunt of the Victorian Farmers Federation. Speaking about a proposed dedicated Melbourne–Brisbane rail line, Mr Hunt said: … there is an argument that it should be going through Shepparton and therefore the initial upgrade of the north central Victorian rail lines may need to focus more on the Shepparton line, but you have ARTC [Australian Rail Track Corporation] arguing that it should be coming through Albury. So that line would obviously lock into the transcontinental. We have also seen arguments about the northwest corridor and its potential to tap into the new line from Mildura up to Broken Hill, and being able to tap into the mineral sands sector there and also potentially the magnesite reserves in that region as well, although there is some uncertainty about the value of it. But that needs to be analysed in that context of feeding into the whole eastern seaboard freight network.15

8.23 The problem of determining where rail lines should be located is compounded by the difficulty of measuring demand for rail services. For many rural and regional companies, road networks are cheaper, more flexible and more accessible than rail networks.16

15 Mr Peter Hunt, Executive Policy Manager, Victorian Farmers Federation, Public Hearing, Melbourne, 5 May 2014. 16 Ms Elaine Carbines, Chief Executive Officer, G21 & Member, Regional Development Australia Barwon South West, Public Hearing, Geelong, 30 April 2014.

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8.24 However, a number of participants to this Inquiry identified changes that could make rail more viable for some users. The Committee identified four major areas for improvement with rail: • Improving the speed of moving goods by rail • The cost of getting goods on and off trains • Reducing the amount of extra handling of goods • Reducing the physical limitations of the current rail infrastructure (speed limits / weight limits and gauge standardisation). 8.25 Even in a rail corridor area, such as the Goulburn Valley and the Melbourne–Sydney rail line, many companies choose to transport their products via road. One reason for this is road’s time advantage. Mr Stewart Carson from Bega Cheese explained: “To give you some perspective, we can have a container on a truck and down into the port within two-and-a-half hours and get that truck back with an import or with an empty container and then do it again, whereas with rail it is a three-day turnaround.”17

8.26 A similar point was made by Mr Taylor Hall, Transport Manager for Valley Park Cold Storage, a fresh horticulture exporter. Speed of delivery is critical for this sector.18

8.27 Regional Development Victoria’s Business Development Manager for the Hume region, Mr Ray Hortle, was of the opinion that, although encouraging a greater use of rail is a laudable aim, businesses will always choose the option that makes the best economic sense. He indicated that increasing the speed with which products can be delivered by rail would increase its use, saying: … I am sure that rail could provide greater efficiency given that you are utilising rail hubs and utilising more ontime delivery of product. That is what companies are particularly looking for ... We have an ever increasing number of transports on the road and there have to be better ways in which we can look at the overall picture and gain the confidence of the exporters and say, ‘This is what we can do from point A to point B within these times. Your product will be there’. Whether it is things like a shuttle service or whatever the case may be, it has to be a viable situation. There is no doubt about that. The cost to business of not getting that product there for, say, three days compared to a few hours is quite significant. I cannot see why we cannot extend our rail service and clear the road infrastructure to an extent.19

8.28 In Moe, the Committee spoke about rail with Mr Ben McLean from Australian Paper. Mr McLean told the Committee that the biggest challenges for Australian Paper are rail service interruptions and scheduling clashes with passenger services. He said: Mr McLEAN — In terms of logistics and the export itself, it is the rail service interruptions that are the major headache. Although I have acknowledged

17 Mr Stewart Carson, Planning Manager Bega Group, Tatura Milk, Public Hearing, Shepparton, 2 July 2014. 18 Mr Taylor Hall, Transport Manager, Valley Pack Cold Storage, Public Hearing, Shepparton, 2 July 2014. 19 Mr Ray Hortle, Business Development Manager, Regional Development Victoria Hume, Public Hearing, Wodonga, 3 July 2014.

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the improvements to the rail network and the infrastructure, typically the outages that serve the passenger network – for example, the extended outage in the weekends prior to and during Easter – are at the worst time for an industrial manufacturer and for our freight requirements. It is the exact opposite in fact. The main reason for that of course is that most of our domestic customers are closed and the availability of road freight is low. It is the best time for us to make our export products, in which case we have extra volumes of export product and we need to get extra containers down and move extra containers to the wharf. Typically, the boats still sail and typically we can still get the containers in Melbourne, but they need to come down here in quite large volumes. Scheduling around all of that is a very difficult task … When you are developing these sorts of business cases it is very difficult to make an assessment of whether something like that will ever come to fruition. It makes it difficult to at least put a business concept together when even the most basic evaluation takes so long. That was the difficulty we had. Mr HOWARD — Just in terms of that, I always thought that freight normally travels at night, after the passenger services cease. But are you saying it does not work like that in a practical sense? Freight cannot get to the port between midnight and five in the morning? Mr McLEAN — There are certainly windows of opportunity and so we generally get the train down earlier in the morning and it leaves later in the evening, but of course it catches up to the other trains and the other trains have to stop, so there are passenger services that it does interact with.20

8.29 In Shepparton, Mr Ken Wakefield from Wakefield Transport Group, noted that a ‘rail facilitation unit’, comprised of major players in the rail sector, has been formed and is making very good progress in a number of areas, including better co-ordination of track works and earlier communication regarding service interruptions.21

8.30 The frequency of rail services is another factor that must be considered by exporters. The difficult choice facing the private sector was explained to the Committee by Mr Noel Kelson, Quality Assurance Manager at meat processors, The Midfield Group. Mr Kelson said that Midfield currently sends 130 road transport containers of meat per week to Laverton for cold storage, after which they are then loaded to shipping containers that are transported to the Port of Melbourne for export. Midfield plans to build cold storage infrastructure at its Warrnambool facility, with one road dock and four rail docks with direct rail links to the Port of Melbourne. The Midfield Group’s decision to transport product via rail would have been made earlier if more services into the Port of Melbourne were available.22

8.31 The Committee learnt that other exporters don’t even reach the stage of committing to rail, using

20 Mr Ben McLean, Supply Chain Development Manager, Australian Paper, Public Hearing, Moe, 3 June 2014. 21 Mr Ken Wakefield, Managing Director, Wakefield Transport Group, Public Hearing, Shepparton, 2 July 2014. 22 The Midfield Group, Site Visit, Warrnambool, 10 April 2014.

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the same explanation of a lack of regular train services. The ability of the Victorian Government to influence this situation is limited because Victorian rolling stock was sold to the private sector in the late 1990s. This means that supply of rail services is solely the domain of the private sector.

8.32 A second disadvantage for rail is that it involves extra handling to get products onto and off trains. Mr Anthony Ainsworth, Vitasoy Australia’s Supply Manager, told the Committee that Vitasoy Australia puts an average of five trucks a day on the road to the Port of Melbourne. He said that, while rail is competitive on a long-distance journey, such as to Brisbane, handling charges between northern Victoria and Melbourne are an impediment: The challenge that rail has into Melbourne is that it is a relatively short leg and we have three handoffs – from our place to the hub, from the hub to the Melbourne warehouse and from the warehouse to the freight forwarder. For the road we go straight through. The leg on its own I suspect would be competitive; it is the shuttling to the terminal here and from the terminal at the other end which means that road is more competitive currently simply because of its capacity at the other end.23

8.33 Mr Ken Wakefield explained ‘last mile’ issues (that is, the costs involved with unloading containers at the Port of Melbourne and then having them loaded onto ships) and the difference between road and rail from a transport operator’s perspective: What happens is the trains are marshalled into an area which is 100 metres from the waterfront face. At that point the containers are taken off the train, placed either onshore or onto a truck and delivered into the waterfront. That short movement – we call it the last mile, but it is the last 150 metres – is about ten per cent of the cost of the whole journey from Mildura to Melbourne and return. So it is a significant cost impost, and it is a cost impost that is not placed on road. If I deliver a container by road, I go straight into the waterfront. It costs me $10 for a timeslot and I deliver my container. No additional charges are imposed.24

8.34 Mr Wakefield said that an on-dock rail delivery system would reduce the cost of using rail. He added that the large volumes of exports his company transports – around 100 TEUs (twenty-foot equivalent units) per train load – make rail preferable to road. However, Mr Wakefield said that “… we need to ensure that that supply chain is maintained and the infrastructure is put in place for the 21st Century not the 18th Century”.25

8.35 The Victorian Government’s Food to Asia Action Plan commits the Government to working with the Commonwealth, to improve the efficiency with which products are transport from farms to ports. This includes a Food to Port co‐investment program to ‘… provide grants for targeted ‘first / last’ mile local road and rail capacity upgrades to improve key food and agricultural supply chains’.26

23 Mr Anthony Ainsworth, Supply Chain Manager, Vitasoy, Public Hearing, Wodonga, 3 July 2014. 24 Mr Ken Wakefield, Managing Director, Wakefield Transport Group, Public Hearing, Shepparton, 2 July 2014. 25 Ibid. 26 Victorian Government, Food to Asia Action Plan, Victorian Government, Melbourne, 2014, p 32.

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8.36 Several businesses the Committee met with throughout this Inquiry have their own rail sidings,27 which reduces the amount of handling required. Mr McLean from Australian Paper told the Committee that, in mid-2013, Australian Paper hired a new freight service provider, Qube Logistics, which resulted in much of Australian Paper’s freight being switched from road to rail. Six trains a week run from Maryvale, where Australian Paper has its own rail siding, to the Port of Melbourne with around 43 containers (40 foot) on each train.28

8.37 Both Qube Logistics and Australian Paper are trying to source other, smaller, companies to add product to the trains. This will serve the dual purpose of making Qube Logistics’ business more sustainable and lowering input costs for Australian Paper, while also allowing for the increase in services identified above. As Ms Donna Taylor, Coordinator Business Development, Latrobe City Council said: “Rail by nature requires that big throughput in order for the smaller players to tack on.”29

8.38 Australian Paper’s containers are loaded onto trucks in Melbourne before reaching the port. Australian Paper is investigating the feasibility of running trains straight to its main port operator, DP World. This would further reduce input costs for Australian Paper but would only be possible when every container of a shipment is being loaded by the same port operator. This is not always the case for several reasons, including: • It is not always possible to match papermaking cycles with shipping cycles • Customer orders vary in size, which requires repacking in Melbourne.30 8.39 These sorts of issues limit the extent to which rail can be a viable alternative to road. However, any improvements that can reduce the amount of handling have the potential to make rail more viable.

8.40 The Victorian Government provides financial support for businesses wanting to move freight on rail instead of road in the form of the Mode Shift Incentive Scheme.31 A number of participants in this Inquiry supported this scheme, with Shipping Australia arguing that road transport alone ‘… will not be able to meet seasonal peak demand [for primary produce] from December through to March for containerised grain exports or fresh fruit exports (citrus and grapes)’.32

8.41 Intermodal hubs are another way of facilitating the movement of goods from road to rail. These are discussed below.

27 Mr Peter Hill, Governance, Risk & Compliance Manager, Kreskas Bros Transport, Public Hearing, Shepparton, 2 July 2014; Iluka Resources, Site Visit, Hamilton, 9 April 2014; GrainCorp, Site Visit, Portland, 9 April 2014. 28 Mr Ben McLean, Supply Chain Development Manager, Australian Paper, Public Hearing, Moe, 3 June 2014. 29 Ms Donna Taylor, Coordinator Business Development, Latrobe City Council, Public Hearing, Moe, 3 June 2014. 30 Mr Ben McLean, Supply Chain Development Manager, Australian Paper, Public Hearing, Moe, 3 June 2014. In its submission to this Inquiry, the Committee for Greater Shepparton argues for improved infrastructure to allow the delivery of more freight by rail to the Port of Melbourne, Committee for Greater Shepparton, Submission, Number 29, 17 April 2014. 31 See: http://www.transport.vic.gov.au/freight/freight-projects-and-initiatives/msis; accessed 28 July 2014. NB. There is a misconception in parts of the community that the MSIS is aimed at removing traffic from ‘bad roads’. The scheme specifically mentions shifting freight from ‘congested roads’. 32 Shipping Australia, Submission, Number 32, 17 April 2014, p 2. The scheme also received support from Horsham Rural City Council in its submission to this Inquiry. Mr Ken Wakefield described the scheme as “excellent”.

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8.42 The Committee also heard from a number of participants that the physical limitations of the rail infrastructure impede rail’s viability as a freight option. Mr McLean said that some rail infrastructure in Gippsland may need upgrading to facilitate productivity growth as: … the main one really is to make sure that the actual line all the way from Maryvale through to Melbourne can actually handle the 23 tonne axle weights so we can take advantage of some payloads. I believe the bridge surveys are under way and nearing completion and the one item my colleague pointed out was the potential need to upgrade the Morwell River bridge. Anything that can progress those issues would be appreciated.33

8.43 In Portland, the Committee met with representatives from GrainCorp who similarly identified a need to upgrade rail lines into the Port of Portland, to handle 23 tonne axles.34

8.44 Mr Wakefield advised the Committee that there are currently 68 temporary speed restrictions on the Mildura–Melbourne train line. These restrictions, many of which were put in place following the Kerang train crash in 2009, have increased the travel time by nearly 50 per cent, from under ten hours to around 14 hours.35

8.45 The Committee also received evidence calling for freight rail gauge standardisation across Victoria. Standardisation, it is argued, would allow more efficient use of current rolling stock and reduce delays.36

8.46 Mr Wakefield said that the announcement of the Murray Basin Rail Project had left him feeling “elated”. The project will: convert the current broad gauge Mildura freight line to standard gauge; upgrade the line to 21 tonne axle load; and provide the associated standard gauge connections across Victoria’s north western rail network.37 The Committee believes that the business plan for the Murray Basin Rail Project should incorporate scheduling issues, as well as prioritising rail ‘black spots’ where speed restrictions reduce rail’s efficiency.

8.47 More suggestions regarding rail in rural and regional Victoria are contained in Appendix 4.

Finding 8.4

33 Mr Ben McLean, Supply Chain Development Manager, Australian Paper, Public Hearing, Moe, 3 June 2014. 34 GrainCorp, Site Visit, Portland, 9 April 2014. 35 Mr Ken Wakefield, Managing Director, Wakefield Transport Group, Public Hearing, Shepparton, 2 July 2014. 36 Ms Geraldine Christou, Manager Investment Attraction, Greater Shepparton City Council, Public Hearing, Shepparton, 2 July 2014; Wimmera Development Association, Submission, Number 19, 17 April 2014; Victorian Farmers Federation, Submission, Number 35, 28 April 2014; Horsham Rural City Council, Submission, Number 23, 17 April 2014; GrainCorp, Site Visit, Portland, 9 April 2014. 37 See: http://www.transport.vic.gov.au/freight/freight-projects-and-initiatives/murray-basin-rail-project; accessed 21 July 2014.

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these disadvantages and increase the number of businesses for which rail is a viable alternative to road.

Recommendation 13

That, in relation to rail, the Victorian Government investigate options: • To attract more freight onto rail, through continued funding of the Mode Shift Incentive Scheme • To reduce costs and delays getting goods onto ships at ports from rail, including additional rail infrastructure. Roads

8.48 There is a variety of different road types in Victoria and responsibility for the road network is shared between the three tiers of government.

8.49 Mr Simon Gatt, General Manager Gippsland, HVP Plantations, provided an overview of the journey that forestry products make from plantation to export market.

8.50 Mr Gatt said that in his opinion the condition of Victoria’s main highways is good but that all levels of government need to cooperate to improve local road infrastructure.38

8.51 The recommendations made to the Committee about road infrastructure mostly relate to two issues: • Allowing for high productivity vehicles (HPVs, also known as higher productivity freight vehicles, or HPFVs) • Improving major roads and bridges. 8.52 High productivity vehicles, which are larger than standard vehicles, benefit the community by reducing the number of vehicles on the roads. Producers and transport operators benefit from increased efficiency and reduced input costs. However, because they are heavier (and sometimes longer), not all Victorian roads can presently accommodate these vehicles.

38 Mr Simon Gatt, General Manager Gippsland, HVP Plantations, Public Hearing, Moe, 3 June 2014.

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8.53 In Melbourne, the Committee spoke with Mr Jacob McElwee, Senior Policy Adviser, Victorian Farmers Federation. Mr McElwee reported anecdotal evidence regarding ‘first mile–last mile’ issues linked specifically to vehicles, saying: At the moment, because the access for [high productivity vehicles] terminates on a highway, you do not have the efficiency of being able to cart those trucks right to the farmgate or the processor. In the case of dairy you need farmgate access to really get those efficiencies. From what we hear anecdotally from southwestern councils, they believe the infrastructure upgrades required to enable use by heavier or longer vehicles would not be that great. You might be talking about targeted bridge strengthening and pavement upgrades, not wholescale rebuilds of roads, because most of the roads are already B-double accessible. So it is looking at what the mass limits on bridges are. We see a role there for the State Government to facilitate that and to invest in identifying where opportunities are.39

8.54 The Committee for Greater Shepparton also sees this as an area for State Government involvement, pointing out that ‘… freight requirements are not limited to the boundaries of local government’.40 In its submission to this Inquiry, the Victorian Government states that it is: ‘Working with local councils and industry to implement the roll out of cubic higher productivity freight vehicles (HPFVs) and improve access for HPFVs to farms and processing centres.’41 The Food to Asia Action Plan similarly states that the Victorian Government ‘… will take action to improve access for HPFVs to farms and processing centres to support the dairy and other sectors’.42

8.55 A number of witnesses identified the benefits of increasing the permitted length and mass limits of B-doubles, to allow two 40 foot containers to be transported rather than one 40 foot and one 20 foot. Mr Peter Gray told the Committee that running two 40 foot containers would result in an extra 15 tonnes of product being transported per journey.43

8.56 Mr Stewart Carson from Bega Cheese informed the Committee that the Tatura and Bega dairy businesses in Strathmerton alone put 17 B-doubles on the road to Melbourne each day. Mr Carson added that it would be easy for Bega Cheese to switch to running two 40 foot containers but that he understands that this is not possible on the current road network.44

8.57 The Committee was told that the horticulture sector could transport an extra five tonnes of product per 40 foot container if weight capacity were improved across Victorian roads. Mr Taylor Hall,

39 Mr Jacob McElwee, Senior Policy Adviser, Victorian Farmers Federation, Public Hearing, Melbourne, 5 May 2014; see also Victorian Farmers Federation, Submission, Number 35, 28 April 2014. A similar argument is made in Australian Fodder Industry Association, Submission, Number 24, 17 April 2014. 40 Committee for Greater Shepparton, Submission, Number 29, 17 April 2014, p 5. 41 Victorian Government, Submission, Number 51, 11 June 2014, p31. For further Victorian Government programs regarding transport infrastructure see pp 30-31 of the Victorian Government’s submission. 42 Victorian Government, Food to Asia Action Plan, Victorian Government, Melbourne, 2014, p 32. The Committee is aware that some local councils and dairy companies have freight management agreements that allow B-double access to local roads. 43 Mr Peter Gray, Kreskas Bros Transport, Public Hearing, Shepparton, 2 July 2014. 44 Mr Stewart Carson, Planning Manager Bega Group, Tatura Milk, Public Hearing, Shepparton, 2 July 2014.

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Transport Manager for Mooroopna-based company Valley Pack Cold Storage, said that Valley Pack Cold Storage would be able to take just over 100 single trailers off the roads each year (221 TEUs) if the containers were loaded to their full capacity.45

8.58 In Shepparton, Mr Hall spoke about the need for road regulations to remain as flexible as possible, in particular when it comes to axle weight distribution, to prevent inefficiencies creeping into the transport network.46 The Committee is aware of Australia’s Performance Based Standards scheme, which offers transport operators the potential of achieving higher productivity on Australian roads via specially designed vehicles.47

8.59 The Victorian Government supports the principle of HPVs, with the caveat that permission for expanding mass limits is assessed on a case-by-case basis. The Committee appreciates the competing demands placed on the Government, such as: the social pressure to keep heavy vehicle journeys to the minimum necessary; the cost of maintaining roads; transport operators’ need to transport product as efficiently as possible; and the responsibility of ensuring Victoria’s roads and bridges are safe and fit for purpose for all road users. The Government’s long-term plans are set out in more detail in ‘Direction 5: National Heavy Vehicle Reform’ and ‘Direction 6: Larger, safer, more productive trucks’ in Victoria – The Freight State.48

8.60 Regarding specific road improvements, the Committee encountered mixed views. For example, Ms Elaine Carbines applauded the duplication of the Princes Highway West (Geelong to Colac), adding that the Midland Highway should also be duplicated from Geelong to Bannockburn and possibly Ballarat.49

8.61 However, Mr Graham Ryan, Managing Director, Ryans Group, suggested money would be better spent on the Hamilton Highway, arguing: I have a firm belief that the Hamilton Highway is the answer to our region. I do not believe that sinking all of the money into the Princes Highway is the answer. It is mixing local public traffic and tourist traffic with heavy traffic. The Hamilton Highway is broad acreage, it is a lot easier to handle and it runs east to west. It will run all the way through to the South Australian border.50

8.62 Greater Shepparton City Council’s Ms Geraldine Christou said that Victorian and Commonwealth

45 Mr Taylor Hall, Transport Manager, Valley Pack Cold Storage, Public Hearing, Shepparton, 2 July 2014. In its submission to this Inquiry, the Victorian Farmers Federation recommends increasing mass limits from 68.5 tonnes to 74.5 tonnes, Victorian Farmers Federation, Submission, Number 35, 28 April 2014. 46 Ibid. 47 See: https://www.nhvr.gov.au/road-access/performance-based-standards/about-performance-based-standards; accessed 28 July 2014. 48 Victorian Government, Victoria – The Freight State: The Victorian freight and logistics plan, Victorian Government, Melbourne, 2013 . 49 Ms Elaine Carbines, Chief Executive Officer, G21 & Member, Regional Development Australia Barwon South West, Public Hearing, Geelong, 30 April 2014. 50 Mr Graham Ryan, Managing Director, Ryans Group, Public Hearing, Hamilton, 8 April 2014.

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Governments should prioritise a Shepparton bypass (Goulburn Valley Highway) as a priority,51 while Mr Peter Gray specified that there are four bridges between Shepparton and Seymour that need upgrading to accommodate HPVs.52

8.63 These and other suggestions regarding the improvement of roads in rural and regional Victoria are contained in Appendix 4. As noted above, the Committee has not formed a view on the prioritisation of particular road works identified during this Inquiry. However, the projects listed in Appendix 4 are sourced from the submissions received by the Committee.

Finding 8.5

Recommendation 14

That the Victorian Government continue to invest in road infrastructure on major transport routes and review regulations in relation to high productivity vehicles.

Intermodal hubs ‘Long-term planning for the increased productivity of the agricultural sector and export potential should include an integrated road / rail system and accessible port infrastructure.’ Wimmera Development Association

8.64 Intermodal hubs are premises designed for the transfer of freight from one transport mode to another, such as between road and rail. In Victoria, as in other jurisdictions, although they are seen as a solution to keeping heavy road transport to a minimum, demand for their services has not matched the level expected by many of their advocates.

8.65 The Committee received mixed evidence regarding the Wimmera Intermodal Freight Terminal at Dooen, a project jointly funded by both the Victorian and Commonwealth Governments. Some submissions said that the terminal has improved the effectiveness of the road and rail networks in the region, as well as being well positioned to attract future business from the containerised grain and, potentially, mineral sands sectors.53

51 Ms Geraldine Christou, Manager Investment Attraction, Greater Shepparton City Council, Public Hearing, Shepparton, 2 July 2014. 52 Mr Peter Gray, Kreskas Bros Transport, Public Hearing, Shepparton, 2 July 2014. Mr Gray added that one of these bridges, part of the Nagambie bypass, was built three years ago. Time constraints prevented the Committee from investigating this matter further. 53 In its submission to this Inquiry, Horsham Rural City Council states: ‘Horsham Rural City Council is in the early stages of implementation of the Wimmera Intermodal Freight Terminal Precinct Structure Plan. The plan will help drive future investment for processing of raw products for export close to the primary source of production.’ Horsham Rural City Council, Submission, Number 23, 17 April 2014, p 4.

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8.66 Horsham Rural City Council reports that containerised exports from Dooen have increased, from 8,421 TEUs in 2010–11 to 16,050 TEUs in 2012–13.54 Yet the Committee also notes the terminal has not met its initial targets.55

8.67 As part of this Inquiry, the Committee conducted a site visit of the Logic hub outside Wodonga.56 Logic is a logistics hub established by Wodonga City Council in 2004, to be developed over a 20–30 year timeframe. Its current tenants include Woolworths, Border Express, Cope Sensitive Freight and Wodonga TAFE. The site holds space for many more tenants.

8.68 Although Logic is currently an industrial estate located at a strategic road and rail intersection57 and not yet an intermodal hub, it is seeking government assistance in developing a rail terminal on site. Ms Patience Harrington, Wodonga City Council’s Chief Executive Officer, told the Committee that the rail terminal would cost “$20 million plus” to develop.58

8.69 Despite Logic’s strategic location and large area size (567 ha), Logic has taking longer to attract tenants than it anticipated.59 The Council hopes that the hard work it has put into Logic – including overseas research, establishing an anchor tenant in the form of Woolworths and establishing on- site training facilities – will pay off over the coming years of the project with the realisation of a rail terminal.60

8.70 The Committee learnt that the Southern Grampians Shire Council is considering developing an intermodal hub in Hamilton, to shift freight off the road and onto rail. The Council, which has completed planning studies and identified a potential site, believes that Hamilton is well placed geographically to handle freight movements in western Victoria, as well as servicing the growing forestry (including Mt Gambier in South Australia) and mineral sands sectors in the region.61

8.71 Agribusiness Gippsland recommends locating an intermodal hub near Bairnsdale and another near Sale, to accommodate the future freight needs of the primary industries sector.62

8.72 The Committee also discussed an intermodal hub at Morwell. It heard that the hub had closed in the past due to lack of patronage.63 However, Latrobe City Council has received some interest in redeveloping the hub from a number of sectors, including coal, forestry and dairy. Ms Donna

54 Horsham Rural City Council, Submission, Number 23, 17 April 2014, p 2. 55 For example see: ‘Wimmera Container Liner below target in its first year at Dooen’, The Wimmera Mail Times, 9 August 2013. 56 See: http://www.logicwodonga.com.au/; accessed 22 July 2014. 57 Logic is located on the intersection of the Hume Freeway and the Murray Valley Highway, 14 km west of Wodonga. It directly adjoins the north-east railway line (the main Melbourne–Sydney route). 58 Ms Patience Harrington, Chief Executive Officer, Wodonga City Council, Public Hearing, Wodonga, 3 July 2014. 59 ‘Logic a White Elephant’, The Border Mail, 21 May 2013. 60 Logic, Site Visit, 3 July 2014. 61 Mr Hugh Koch, Manager Economic Development, Southern Grampians Shire Council, Public Hearing, Hamilton, 8 April 2014. In its submission to this Inquiry, RDA Barwon South West recommends constructing more intermodal hubs in south-west Victoria, to accommodate the expected increased freight task in the region, RDA Barwon South West, Submission, Number 9, 15 April 2014. 62 Agribusiness Gippsland, Submission, Number 43, 2 May 2014. 63 Mr Peter Kulich, Economic Development Coordinator, Baw Baw Shire Council, Public Hearing, Moe, 3 June 2014.

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Taylor told the Committee that Latrobe City Council had received some assistance from Regional Development Victoria and that the site, labelled the Gippsland Logistics Precinct, “… is now at a point where we are waiting for the market to come to it”.64

8.73 The challenge faced by intermodal hubs is the issue of ‘double handling’ (as discussed above), where shifting freight from road onto rail incurs an extra cost. The Committee heard that the cost of transporting goods by road from a production site to an intermodal hub is often not significantly cheaper than the cost of transporting them straight to a port. This is usually because of transport companies’ short haul charges and double handling concerns. Exporters then need to pay rail charges on top of these charges.

Finding 8.6

Finding 8.7

Government support for intermodal hubs should be based on clear evidence of commercial viability.

Ports

8.74 An overview of Victoria’s ports is included in Chapter 3 of this report.

8.75 The Committee notes that both major parties in Victoria have committed to building a second container port in Victoria, with the Coalition committed to Hastings and the ALP preferring ‘Bay West’ between Geelong and Werribee.

8.76 A number of witnesses expressed support for expanding the Port of Hastings. In its submission to this Inquiry, the RACV states that development of the Port of Hastings is ‘… necessary for the success of Victoria’s future economy’.65 Latrobe City Council states that the Port would see the Gippsland economy benefit from the ‘… cost-effective export of goods into the future’.66

8.77 Mr Jon McNaught, Secretary, Gippsland Resources Infrastructure Development, was of the opinion that the port would decrease transport costs for Gippsland businesses, especially those exporting coal.67 Ultimately, though, he believed that a separate dedicated coal port would need to be constructed at McGaurans Beach or Port Anthony in the event that the Latrobe Valley’s extensive brown coal reserves were to be developed into a bulk export industry.

8.78 The Committee also notes that support exists in some parts of the community for the Bay West 64 Ms Donna Taylor, Coordinator Business Development, Latrobe City Council, Public Hearing, Moe, 3 June 2014. See also Latrobe City Council, Submission, Number 8, 11 April 2014, p 5. 65 RACV, Submission, Number 3, 25 March 2014, p 4. 66 Latrobe City Council, Submission, Number 8, 11 April 2014, p 6. 67 Mr Jon McNaught, Secretary, Gippsland Resources Infrastructure Development, Public Hearing, Wonthaggi, 4 June 2014.

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option.

8.79 Regarding access to ports, Mr McNaught of Gippsland Resources Infrastructure Development argued that an increase in coal exports would depend on the Port of Hastings being accessible by rail. Echoing the evidence from Mr McLean above, he suggested the rail infrastructure could be shared by smaller operators.68 Mr McNaught added that the coal sector is also investigating dedicated ports at Port Anthony (a private port) and McGaurans Beach.69

8.80 The Committee discussed Port Anthony with Mr Ken Fraser, Economic Development Coordinator, South Gippsland Shire Council. Mr Fraser told the Committee that in order to become operational the site would need upgrades to the road network in the area, a rail facility and dredging. He said that: “… any coastal development obviously has significant challenges to it in terms of infrastructure and environmental issues”.70

8.81 Given the detailed economic and environmental consideration which would be required and the clearly stated positions of the parties, the Rural and Regional Committee has not made any finding or recommendation as to which of Port of Hastings or Bay West is the best option for Victoria’s next sea port. Neither can it comment on the relative merits of Port Anthony and McGaurans Beach with coal exports.

8.82 However, in general terms the Committee believes that increasing Victoria’s sea port capacity is essential if Victoria’s exports are to increase substantially. The Committee is also of the strong opinion that any port development must include adequate rail infrastructure that allows the efficient loading and unloading of freight from regional Victoria.

8.83 Victoria – The Freight State reveals that the Victorian Government intends: ‘… preserving a corridor for appropriate rail connections to the Port of Hastings, including consideration of a potential direct connection to Gippsland’.71 It does not indicate whether or not the port will be designed so as to enable goods to travel directly there by train.72

Finding 8.8

8.84 The Committee is of the view that Victoria’s four major ports of Portland, Geelong, Melbourne and

68 The same argument was heard in Moe by Ms Donna Taylor, Coordinator Business Development, Latrobe City Council. 69 Mr Jon McNaught, Secretary, Gippsland Resources Infrastructure Development, Public Hearing, Wonthaggi, 4 June 2014. 70 Mr Ken Fraser, Economic Development Coordinator, South Gippsland Shire Council, Public Hearing, Wonthaggi, 4 June 2014. 71 Victorian Government, Victoria – The Freight State: The Victorian freight and logistics plan, Victorian Government, Melbourne, 2013, p 57. 72 In its submission to this Inquiry, RACV argues that the Dandenong rail corridor will need upgrading to accommodate growth in the Port of Hastings region. The Victorian Government states that it will ‘… give priority to investigating provision of a South Eastern Rail Link (SERL) to provide a dual (broad and standard) gauge track between Dynon and Dandenong …’ (Victoria – The Freight State, p 56, cf. Plan Melbourne p 105).

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Hastings are a competitive advantage for the state. The main advantages they offer business are: • Competition, which provides downward pressure on costs • Reducing the cost of transporting goods to ports. 8.85 However, the Committee received evidence that current port charges need to be reviewed, to ensure they are set at the right level. The Australian Forest Products Association emphasised the need to review whether unnecessary regulation was contributing to the costs. It also suggested that greater transparency around port costs would be helpful for understanding the costs.73 Shipping Australia identified the State Government’s Port Licence Fee as a contributor to costs at the Port of Melbourne.74

8.86 A number of participants in this Inquiry suggested that Victoria’s port costs were higher than those of our competitors.75 The table below was provided by the Victorian Association of Forest Industries.76 It compares port costs for the loading of a standard woodchip vessel (40,000 gmt):

Table 8.2. Comparison of port charges Port Charges Coos Bay (Oregon, USA) $69,218 Bell Bay (Tasmania) $90,535 Portland (Victoria) $118,473 Geelong (Victoria) $164,843

* Charges include navigation levies, pilot berth hire and towage. Finding 8.9

A number of participants in this Inquiry indicated that Victoria’s port charges are higher than some competitors’ and should be reviewed.

8.87 The Committee was also told that time slotting issues at one of the two terminals at the Port of Melbourne are a disadvantage to regional businesses. The current system allocates limited time slots to country transport operators – 7.45 am to 8.00 am. As a result, some operators contract city carriers to take the containers to the terminal using the city carrier slots. The extra cost (approximately $150–200 per container) is felt strongly by regional exporters.77

73 Australian Forest Products Association, Private Meeting, Canberra, 18 June 2014. 74 Shipping Australia, Submission, Number 32, 17 April 2014; Mr Rod Nairn AO, Chief Executive Officer, Shipping Australia Limited, Private Meeting, Sydney, 17 June 2014. 75 Mr Mark Diedrichs, Regional Manager, Australian Blue Gum Plantation, Public Hearing, Hamilton, 8 April 2014; Mr Peter Hunt, Executive Policy Manager, Victorian Farmers Federation, Public Hearing, Melbourne, 5 May 2014; SPE Management, Submission, Number 6, 10 April 2014; Shipping Australia, Submission, Number 32, 17 April 2014; Baw Baw Shire Council, Submission, Number 33, 24 April 2014; Victorian Association of Forest Industries, Submission, Number 45, 5 May 2014; Australian Forest Products Association, Private Meeting, Canberra, 18 June 2014. Also see Appendix 4. 76 Victorian Association of Forest Industries, Submission, Number 45, 5 May 2014, p 5. 77 Ibid.

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Finding 8.10

Evidence was presented to the Committee that the Port of Melbourne’s time slot system is increasing costs for regional exporters.

Recommendation 15

That the Victorian Government ensure that regional exporters have adequate access to the Port of Melbourne, including adequate time slots.

Aviation

8.88 One of Victoria’s competitive advantages is that its two major airports, Tullamarine and Avalon, are curfew-free and capable of handling international freight movements.

8.89 The Committee heard that the tourism industry lists Melbourne’s Tullamarine Airport as a competitive advantage. This is because it does not have night curfews and caters for a growing number of direct flights from overseas destinations. Direct flights are particularly valuable for tourists who may not have a lot of time to spend in Australia.78 (Tourism infrastructure is discussed in more detail below.)

8.90 Tullamarine is also an important component of freight exports. Efficient air freight is a competitive advantage for many Victorian exporters. For example, horticulture exports from regional Victoria reach overseas markets, especially Asia, with their superior quality intact.

8.91 The Victorian Government recognises Tullamarine’s importance when it states: Although representing less than one per cent of import / export trade by volume, air freight accounts for over 20 per cent of trade by value. It is estimated that 368,000 tonnes of international and domestic air freight were moved through Melbourne Airport during 2010 and this task could at least quadruple by 2050.79

8.92 Evidence received by the Committee on Avalon Airport’s potential regarding freight was equally positive. Victoria – The Freight State says of Avalon: Avalon Airport has developed as Melbourne’s second major international airport, complementing Melbourne Airport. Although air freight is still handled at both locations, Avalon’s potential as the preferred gateway for dedicated freight services is emerging due to its excellent land transport connections, land availability and accessibility for high value regional produce exports to the Asian markets.80

78 Mr Jeremy Johnson, Chief Executive Officer, Sovereign Hill Museums Association, Public Hearing, Ballarat, 29 April 2014; Ms Kim Storey, General Manager, Destination Phillip Island, Public Hearing, Wonthaggi, 4 June 2014. 79 Victorian Government, Victoria – The Freight State: The Victorian freight and logistics plan, Victorian Government, Melbourne, 2013, p 43. 80 Ibid, p23.

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8.93 Mr Hugh Koch from Southern Grampians Shire Council told the Committee that Avalon Airport is well placed to support increased air freight of niche exports.81 In Geelong, the Committee spoke with Mr Peter Dorling, Avalon Airport’s Business Manager. Mr Dorling told the Committee that the airport is planning to expand freight handling business beyond its current business (mainly Supercars, Superbikes and Formula One) and that the runway at Avalon is currently long enough to handle large planes and can be extended if required. He said that: … whatever planes are being built around the world at the moment, we can take. That is another advantage for us, because if you look at some airports — and we have been to a couple in New Zealand — that is it. They can take this style of aeroplane to a certain line, but that is it, because there is no room to do any more. We are very lucky to have it.82

8.94 The Committee learnt that Avalon Airport will need to guarantee ongoing business before freight forwarding companies and airlines invest in building their own infrastructure at the airport. Mr Dorling said one of Tullamarine Airport’s current advantages is the presence of this freight infrastructure. However, Mr Dorling remains confident that Avalon can attract the necessary business, saying: “We are trying to get our feet under the table in as many places as we can to spread the word that we have an airport that can do it cheaper, better, faster. Once it starts and people see it they will go, ‘Wow, how long has this been going on? This is easy’.”83

8.95 Mr Dorling told the Committee that Avalon Airport’s potential to handle live exports is one of its competitive advantages and that a business case on the airport’s potential, funded by Regional Development Australia, is currently being prepared.84 The importance of correct animal handling facilities was explained by Mr Cameron Hall, General Manager for Trading, Elders International Trading, who said that these facilities need to be “… close to the airport or just outside the airport where we can transfer our animals into crates and then pull them across in crates already done rather than transferring boxes on the tarmac”. It was Mr Hall’s opinion that Tullamarine Airport does not offer such suitable facilities.85

8.96 In April 2014, Avalon Airport signed a Memorandum of Understanding with Hainan Airlines, China’s fourth largest airline, committing both organisations to flights operating within 18 months. The agreement provides both for international passengers and transport of fresh produce.86

8.97 Mr Dorling said that the airport is also currently discussing business opportunities with the agribusiness sector.87 Mr Russell Coad, Chair, G21 Agribusiness Forum, described Avalon Airport as “vitally important” with a “huge opportunity” for growing exports of fresh produce from rural

81 Mr Hugh Koch, Manager Economic Development, Southern Grampians Shire Council, Public Hearing, Hamilton, 8 April 2014. 82 Mr Peter Dorling, Business Manager, Avalon Airport, Public Hearing, Geelong, 30 April 2014. 83 Ibid. 84 Ibid. 85 Mr Cameron Hall, General Manager for Trading, Elders International Trading, Public Hearing, Hamilton, 8 April 2014. 86 See: ‘Avalon Airport bosses sign deal with Chinese airline’, Geelong Advertiser, 11 April 2014. 87 Mr Peter Dorling, Business Manager, Avalon Airport, Public Hearing, Geelong, 30 April 2014.

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and regional Victoria.88

8.98 An important way of ensuring that Victoria has access to sufficient air freight capacity and supports international tourism as far as possible is attracting new international airlines. The Victorian Government has historically played a role in facilitating these new connections, albeit with a focus on tourism. The Victoria 2020 Tourism Strategy states: ‘Tourism Victoria works closely with Melbourne Airport and Avalon Airport to attract more flights and seats to the State. This approach is focused on destinations identified as key tourism, international education, business and investment markets.’89 The 2014–15 State Budget included $13 million over four years ‘… to attract new air passenger services from priority international markets’.90

8.99 Throughout this Inquiry the Committee heard support for the Government to continue this role.91

8.100 The Victorian Government has begun planning for a third international airport. Victoria – The Freight State adds: ‘An appropriate site for a new airport to serve south-east Melbourne and Gippsland has also been identified and required planning protections for its development are in place.’92

8.101 In addition, the Committee recognises the importance of small airports in regional areas to move goods quickly to international airports. A new airport in Gippsland – or expansion of a current site – was supported by several witnesses the Committee spoke with.93

Finding 8.11

Tourism ‘Governments have a critical role to promote the area to international visitors but also assist local operators in dealing with international visitors and their requirements. This is particularly important for accommodating the emerging Asian market.’ South Gippsland Shire Council

88 Mr Russell Coad, Chair, G21 Agribusiness Forum, Public Hearing, Geelong, 30 April 2014. 89 Victorian Government, Victoria 2020 Tourism Strategy, Victorian Government, Melbourne, 2013, p 20. 90 Budget Paper No.3, 2014-15 Service Delivery, May 2014, pp 48, 52. 91 Bass Coast Shire Council, Submission, Number 46, 5 May 2014; Mr Peter Dorling, Business Manager, Avalon Airport, Public Hearing, Geelong, 30 April 2014. 92 Victorian Government, Victoria – The Freight State: The Victorian freight and logistics plan, Victorian Government, Melbourne, 2013, p 23. See also Victorian Government, Plan Melbourne: Metropolitan planning strategy, Victorian Government, Melbourne, 2014 p 47 for a discussion on a third Melbourne airport in Melbourne’s south-east. 93 Ms Mary Aldred, Chief Executive Officer, Committee for Gippsland, Public Hearing, Moe, 3 June 2014; Mr Ken Fraser, Economic Development Coordinator, South Gippsland Shire Council, Public Hearing, Wonthaggi, 4 June 2014. Also see Agribusiness Gippsland, Submission, Number 43, 2 May 2014.

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8.102 The Committee was interested to learn how tourism can be of greater benefit to rural and regional Victoria. As discussed in Chapter 3, Melbourne attracts large numbers of international tourists, many of whom visit regional Victoria on day trips. However, few stay in regional Victoria overnight.

8.103 Converting day trips to overnight stays would significantly increase the economic benefits of international tourism in regional Victoria, as a number of witnesses pointed out. Mr Tim Grandfield from Ballarat Regional Tourism told the Committee that, in the 12 months to September 2013, just over 160,000 international tourists visited Ballarat (including the Sovereign Hill attraction), but only 20,000 people stayed overnight.94

8.104 In its submission to this Inquiry, Bass Coast Shire Council states that the Phillip Island region received just over 295,000 international visitors in the 12 months to December 2012, but only 27,000 stayed overnight. It adds that converting day trips to overnight visitations would provide ‘… a significant increase in economic benefit’.95

8.105 Speaking about the Great Ocean Road, Mr Roger Grant, Director, Great Southern Touring Route, noted that: “The region benefits very little out of the coaches rolling down along the Great Ocean Road to the Twelve Apostles and then turning around and heading back to Melbourne.”96

8.106 Mr Jeremy Johnson, Chief Executive Officer, Sovereign Hill Museums Association, said that building more brand name hotels in regional areas would encourage greater numbers of international tourists to include overnight stays in their itinerary. This, he argued, is particularly important during big events when Melbourne hotels are full (Australian Open, Melbourne Cup etc), resulting in some tourists choosing other states in Australia for their holidays. High-end hotels in regional Victoria would therefore be a valuable alternative.97

8.107 In Mr Johnson’s opinion, there is a market failure with hotels preferring to focus investment in capital cities where there is less risk. Therefore government has a role to play in this area.98

8.108 Mr Johnson suggested governments could provide assistance, such as: long-term leases on Crown land (such as a 99-year lease), to provide security of tenure; and building regional infrastructure to support hotels (such as roads, power, sewerage).99 Mr Grant agreed that the private sector needs these sorts of incentives before it will commit to building accommodation and rated these incentives as a higher priority than changes to the planning system.100

94 Mr Tim Grandfield, Business Development and Events, Ballarat Regional Tourism, Public Hearing, Ballarat, 29 April 2014. 95 Bass Coast Shire Council, Submission, Number 46, 5 May 2014, p1. 96 Mr Roger Grant, Director, Great Southern Touring Route, Public Hearing, Geelong, 30 April 2014. 97 Mr Jeremy Johnson, Chief Executive Officer, Sovereign Hill Museums Association, Public Hearing, Ballarat, 29 April 2014. 98 Ibid. 99 Ibid. 100 Mr Roger Grant, Director, Great Southern Touring Route, Public Hearing, Geelong, 30 April 2014. However, in its submission to this Inquiry, the Victoria Tourism Industry Council argues that planning regulation, such as the Bushfire Management Overlay, ‘… can be a huge impediment to development [of tourism infrastructure] in regional areas’, Victorian Tourism Industry Council, Submission, Number 27, 17 April 2014, p 4. Land use regulation is discussed in Chapter 10 of this report.

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8.109 The Sovereign Hill Museums Association currently has an Expression of Interest proposal for development of a 100+ room international brand hotel on freehold land it owns. It believes that the hotel could deliver an additional 50,000 visitors annually to the Ballarat region. However, Sovereign Hill states: ‘This project will require State Government infrastructure capital support, as well as marketing assistance in its initial years, if it is successfully negotiated.’101

8.110 Further support for the potential of high-end hotels to attract more tourists to regional Victoria was heard from a number of other witnesses and submissions.102 Destination Phillip Island’s Ms Kim Storey explained that overseas travel agents prefer recognised brand name hotels when booking overnight stays. However, Ms Storey added that resistance from local residents towards tourism development can make local government hesitant about encouraging the private sector to invest in large hotels.103 The State Government, therefore, may be better placed to facilitate such investment while still respecting the concerns of local residents and existing businesses, to ensure that local amenity and environmental significance and existing businesses are not damaged.

8.111 The Victorian Government has acknowledged the need to improve Victoria’s tourism infrastructure. The Victoria 2020 Tourism Strategy states: Appropriate tourism products, services and infrastructure are critical to delivering a positive visitor experience, which in turn generates higher visitor expenditure and increased visitor numbers. This is particularly important with the growth of new markets in the Asian region, which require revitalised products and services aligned with their preferences. New investment and infrastructure is required to realise these products and services, and to help achieve the State’s tourism potential.104

8.112 The Committee notes that the Commonwealth and state governments recently agreed to a set of National Investment Priorities, one of which includes tourism. Austrade representatives explained to the Committee that it partners with state governments in its work.105 All efforts should be made to ensure these developments complement rather than detract from existing amenities.

Finding 8.12

8.113 The Committee heard that regional public transport facilities are another component of attracting

101 Sovereign Hill Museums Association, Submission, Number 14, 16 April 2014, p 6. 102 Mr Roger Grant, Director, Great Southern Touring Route, Public Hearing, Geelong, 30 April 2014; Ms Kim Storey, General Manager, Destination Phillip Island, Public Hearing, Wonthaggi, 4 June 2014, Mansfield Shire Council, Submission, Number 41, 2 May 2014. 103 Ms Kim Storey, General Manager, Destination Phillip Island, Public Hearing, Wonthaggi, 4 June 2014. 104 Victorian Government, Victoria 2020 Tourism Strategy, Victorian Government, Melbourne, 2013, p 21. 105 Department of Foreign Affairs and Trade / Austrade, Private Meeting, Canberra, 18 June 2014.

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more overnight stays in rural and regional Victoria.106 For example, the lack of public transport on Phillip Island means that a tourist staying in Newhaven would need to pay more than $100 for a return taxi fare to the Penguin Parade.107 Mansfield Shire Council argues that government financial incentives may be required to kick start private enterprise transport solutions in regional Victoria.108

8.114 Ms Teresa Mahood, the Acting Tourism Manager at Bass Coast Shire Council, told the Committee that the Department of Transport, Planning and Local Infrastructure, Phillip Island Bus Lines, and Destination Phillip Island are currently investigating the feasibility of funding a bus service on Phillip Island.109

8.115 Ms Mahood added that a feasibility study on establishing a car ferry service between Phillip Island and the Mornington Peninsula has been completed. When combined with the Sorrento– Queenscliff ferry, this would link Phillip Island to the Great Ocean Road. The idea of the ferry is to create a ‘touring loop’, so tourists would no longer have to drive to and from Melbourne in order to experience these regional tourist locations. One of the benefits of the ferry for the region, according to Ms Mahood, would be increased demand in the off-season, thereby allowing employers to attract skilled staff by offering more secure employment.11 0

8.116 Ms Storey told the Committee that Destination Phillip Island is in discussion with local government and the State Government for financial support to establish the car ferry service. She was of the view that demand exists for the ferry, telling the Committee: “Every time we go to an international trade marketing discussion people just cannot understand why we do not have that opportunity available now.”111

8.117 Improved public transport in the regions would also assist with liveability and with growing regional towns and cities. This in turn would boost regional Victoria’s economy and exports (see Chapter 2 of this report).

Finding 8.13

Some tourists rely on public transport when travelling through rural and regional Victoria. However, services are limited in some areas.

106 Destination Phillip Island, Submission, Number 40, 2 May 2014; Victorian Tourism Industry Council, Submission, Number 27, 17 April 2014; City of Ballarat, Submission, Number 26, 17 April 2014. 107 Ms Kim Storey, General Manager, Destination Phillip Island, Public Hearing, Wonthaggi, 4 June 2014. 108 Mansfield Shire Council, Submission, Number 41, 2 May 2014, p 12. 109 Ms Teresa Mahood, Acting Tourism Manager, Bass Coast Shire Council, Public Hearing, Wonthaggi, 4 June 2014. 11 0 Ibid. 111 Ms Kim Storey, General Manager, Destination Phillip Island, Public Hearing, Wonthaggi, 4 June 2014.

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Telecommunications

8.118 Internet connectivity and other telecommunications were covered extensively in the Rural and Regional Committee’s previous Inquiry into the Opportunities for People to use Telecommuting and E-business to Work Remotely in Rural and Regional Victoria.112 Of particular note are Recommendations 5, 6 and 8. The Committee is pleased with the positive response to these Recommendations from the Victorian Government and welcomes their implementation.113

8.119 In addition to providing benefits to Victorians, international tourists also expect good internet connectivity on their holidays. Ballarat Regional Tourism’s Mr Tim Grandfield described connectivity as “vitally important”, not only in attracting tourists but in ensuring they can use social media to let their friends and family know that they are enjoying their holiday in rural and regional Victoria. Mr Grandfield said: When Chinese consumers are at Sovereign Hill or Kryal Castle or walking down Sturt Street, we want them to be able to take a picture of themselves straightaway and send it to colleagues or friends back in China. It is just a way to promote your product at no cost … Another issue, while we are talking about it, is that the international consumer really is quite shocked when they come to Australia and they have to pay for wi-fi in hotels. For example, in some of the larger hotels in Melbourne they charge per device or per extra device. In many parts overseas it is free. So that is a shock for them.114

8.120 Mr Grandfield added that mobile connectivity in regional tourist areas would greatly enhance the experience of independent travellers, through providing access to information about attractions and accommodation, communication, and bookings.115

8.121 Deakin University’s Vice-Chancellor, Professor Jane den Hollander, said that, because international students expect access to wi-fi, rural and regional Victoria must maintain parity with the rest of the world if it is to attract these students. She said: “For students who can choose to go anywhere in the world, the whole of regional North America is waiting for them; the whole of regional Canada is waiting for them – why choose regional Victoria? We certainly sell that and we sell it well. We could be helped with wi-fi.”116

8.122 In its submission to this Inquiry, the RMIT Rural and Regional Futures Research group at Hamilton refers to its recent survey of farmers in south-west Victoria. The submission states: In terms of accessing export markets, infrastructure is obviously of critical importance. In this survey, it was clear that reliable Information

112 See: http://www.parliament.vic.gov.au/rrc/inquiries/inquiry/356; accessed 28 July 2014. 113 The government response is available at: http://www.parliament.vic.gov.au/rrc/inquiries/article/2044; accessed 21 July 2014. 114 Mr Tim Grandfield, Business Development and Events, Ballarat Regional Tourism, Public Hearing, Ballarat, 29 April 2014. 115 Ibid. 116 Professor Jane den Hollander, Vice-Chancellor, Deakin University, Public Hearing, Geelong, 30 April 2014.

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Communications Technology (ICT) is considered essential infrastructure by farmers. For example, the internet was chosen by 91% of respondents as an important source of information. Slow internet speeds and poor mobile reception were listed as hampering technology uptake.117

8.123 The Committee notes research carried out by the Wimmera Development Association in 2013 which produced the report, ‘Wimmera Southern Mallee Remote Data Use in Agriculture’.118 This report provides further evidence of the critical role good telecommunications infrastructure will play in ensuring future productivity growth in agriculture.

8.124 With regard to the broader economy, telecommunications (including providing fibre to premises) is said to be important in ensuring skilled workforces can extract the greatest potential from knowledge-based exports.119

Finding 8.14

High-speed broadband and wi-fi, along with good mobile reception are significant tools for attracting tourists and international students. They also benefit other sectors of the economy.

Irrigation

8.125 The importance of water to the agriculture sector is clear. Issues associated with irrigation include, but are not limited to: salinity; water tables; water quality; and the link with biodiversity. A number of submissions to this Inquiry list irrigation systems and the availability of reliable, clean water as one of rural and regional Victoria’s competitive advantages.120 For example, the Wimmera Development Association states that the Wimmera–Mallee Pipeline has increased confidence in the agriculture sector in the region and will spur development of value-added food processing.121

8.126 Irrigation is a shared responsibility with the Commonwealth. The Committee for Shepparton recommends the Victorian Government lobby the Commonwealth for continued financial support for the On-Farm Irrigation Efficiency Program122 as a way of protecting the Goulburn Valley’s ‘… world class, efficient and modern irrigation system for farm gate production’.123

8.127 The Victorian Farmers Federation states that the On-Farm Irrigation Efficiency Program ‘… cost

117 RMIT University Hamilton, Submission, Number 50, 27 May 2014, p1. 118 See: http://www.wda.org.au/images/Remote%20Data%20Use%20in%20Agriculture%20-%20Final%20Report.pdf; accessed 5 August 2014. 119 Surf Coast Shire Council, Submission, Number 12, 16 April 2014. 120 Agribusiness Gippsland, Submission, Number 43, 2 May 2014; Export Council of Australia, Submission, Number 17, 17 April 2014; Horsham Rural City Council, Submission, Number 23, 17 April 2014; City of Ballarat, Submission, Number 26, 17 April 2014. 121 Wimmera Development Association, Submission, Number 19, 17 April 2014. See also the Rural and Regional Committee’s 2010 Inquiry into Positioning the Wimmera–Mallee Pipeline Region to Capitalise on New Economic Development Opportunities – http://www.parliament.vic.gov.au/rrc/inquiries/inquiry/214; accessed 5 August 2014. 122 See: http://www.environment.gov.au/topics/water/rural-water/sustainable-rural-water-use-and-infrastructure/farm- irrigation-efficiency; accessed 5 August 2014. 123 Committee for Greater Shepparton, Submission, Number 29, 17 April 2014, p4.

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the Federal Government about $3,700 / ML for the environment’s share of water savings, but delivered $9,800 / ML worth of increased farm productivity (annualised capital value)’. The VFF also recommends an ‘… education and promotion program to boost water trading in southern Victoria and funding to complete on‐farm upgrades in the Goulburn Murray Irrigation District modernisation’.124

8.128 The Committee received further evidence about the On-Farm Irrigation Efficiency Program from Mr Chris Norman, Chief Executive Officer of the Goulburn Broken Catchment Management Authority (CMA). He said that the CMA has been allocated $200 million up to 2018, to improve irrigators’ practices and reduce salinity impacts and water quality risks. The CMA has spent around half of that money to date and has achieved: • Delivery of 379 out of a possible 381 projects • 52 GL of water savings (half going back to rivers and half staying on farms to increase productivity) • Between 0.2 and 0.6 tonnes per hectare increased productivity through modernising the properties • A four-fold increase in overall water use efficiency.125 8.129 Further recommendations for the Victorian Government regarding water infrastructure appear in Agribusiness Gippsland’s submission to this Inquiry, including: • Extending the Macalister Irrigation District infrastructure south of the Princes Highway • Possible irrigation sources from building off-river storage on the Mitchell River and a ‘submarine barrier’ to reduce salinity in Lake Wellington • Building the Tinamba phase 2 project to replace open channels with pipes and increase head pressure.126 8.130 These projects are included in Appendix 4 of this report.

Finding 8.15

Reliable access to water remains integral to productivity growth in the agriculture sector. The Commonwealth Government’s On-Farm Efficiency Program has acted as a catalyst for this growth.

Energy “If you can find a way to reduce the cost of energy in Australia, because there clearly is an abundance of it, you would immediately have supply side measures or input measures that would make you more competitive.” Mr Bernard Brussow, Chief Executive Officer, IXL Group

124 Victorian Farmers Federation, Submission, Number 35, 28 April 2014, p15. The Committee discussed water trading further with Mr Tyran Jones, President, United Dairyfarmers Victoria and Mr Peter Hunt, Executive Policy Manager, Victorian Farmers Federation at the Committee’s Public Hearing in Melbourne, 5 May 2014. 125 Mr Chris Norman, Chief Executive Officer, Goulburn Broken Catchment Management Authority, Public Hearing, Shepparton, 2 July 2014. 126 Agribusiness Gippsland, Submission, Number 43, 2 May 2014.

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8.131 A number of submissions to this Inquiry consider the cost of energy to be a competitive barrier for exporters in rural and regional Victoria.127 Although the coal supplies in the Latrobe Valley provide a source for comparatively cheap power generation, other factors mean that customers pay significantly more.

8.132 In its submission to this Inquiry, the Victorian Farmers Federation recommends the Victorian Government remove the Victorian Energy Efficiency Target Scheme,128 which it argues adds ‘considerable costs’ to farmers. The VFF also recommends that the Government consult with industry to develop a Victorian Energy Strategy. This strategy could include replacing single wire earth return wires (as the 2009 Bushfire Royal Commission recommended) with three-phase power, as well as upgrading regional power supply infrastructure.129

8.133 At the Committee’s public hearing in Melbourne on 5 May 2014, the VFF’s Mr Peter Hunt added that the agriculture sector is feeling further pressure from some energy providers’ rising network costs.13 0

8.134 Other evidence suggests renewable energy can play an important role in facilitating economic growth in rural and regional Victoria.131 Professor Ross Garnaut told the Committee that the cost of producing renewable energy infrastructure is decreasing rapidly; for example, the price of making solar panels has fallen by 80 per cent since 2008. Professor Garnaut said that, by drawing on a combination of wind (offshore and onshore), tidal and solar power, communities in rural and regional Victoria would benefit in two ways: • Communities would become stronger by becoming self-sufficient in their energy supplies • Industries would become more competitive through lower input costs. 8.135 Professor Garnaut said: Prof. GARNAUT — Right now the costs of solar energy and wind energy have fallen so much that if you are starting again to supply rural communities in a cost-effective way, you would often put together a package of local resources, rather than reproduce the big, centralised systems that we have at the moment. The CHAIR — Do you have any particular policies you think should be tailored to benefit those rural areas? And if there is a burden from wind turbines in terms of amenity or size, they are also bearing the burden, so is there an argument that they should have a greater share of the benefit? Prof. GARNAUT — I think that it should be easy for a rural community, if it

127 City of Ballarat, Submission, Number 26, 17 April 2014; Nestlé Australia, Submission, Number 31 17 April 2014; Champions of the Bush, Submission, Number 44, 2 May 2014; Export Council of Australia, Submission, Number 17, 17 April 2014. 128 See: https://www.veet.vic.gov.au/Public/Public.aspx?id=Home; accessed 7 August 2014. 129 Victorian Farmers Federation, Submission, Number 35, 28 April 2014. The Committee discussed these issues further with Mr Tyran Jones, President, United Dairyfarmers Victoria and Mr Peter Hunt, Executive Policy Manager, Victorian Farmers Federation at the Committee’s Public Hearing in Melbourne, 5 May 2014. 13 0 Mr Peter Hunt, Executive Policy Manager, Victorian Farmers Federation, Public Hearing, Melbourne, 5 May 2014. 131 Glenelg Shire Council, Submission, Number 11, 16 April 2014.

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chooses to do so, to opt out of the grid – to buy back its local distribution system and to supply itself. For that, a combination of wind and solar, because they are not correlated with each other, is a good base. In some places you can support it with a bit of hydro or a bit of wave – although the wave technology is not so well developed yet; that is more for the future. Battery storage is also falling in cost dramatically. I think it is important that the rural communities that choose to do so should be able to decouple themselves, buy back their local distribution and supply themselves locally … I see these as opportunities for bulking up rural Victoria, for expanding the industry base, which starts to give you more and more competitiveness through the scale and complexity of rural activities but also potential for lowering input costs over time. Potentially, looking ahead, this can be the source of reductions in input costs for export industries.132

8.136 In its submission to this Inquiry, Glenelg Shire Council recommends the Victorian Government amend the Glenelg Planning Scheme, to clarify planning provisions affecting the location of wind energy infrastructure. It adds that there is a need to identify areas suitable for renewable energy land use clusters.133

8.137 Energy technology exports from rural and regional Victoria are discussed in Chapter 5 of this report.

Finding 8.16

132 Professor Ross Garnaut, Professorial Research Fellow in Economics, University of Melbourne, Public Hearing, Melbourne, 5 May 2014. Also see Chapter 2 of this report for Professor Garnaut’s evidence regarding the economic strengths of communities in rural and regional Victoria. 133 Glenelg Shire Council, Submission, Number 11, 16 April 2014.

152 Chapter nine: Government programs to increase competitiveness and productivity

Findings

9.1

Rural and regional Victoria benefits socially and economically through the presence of a strong and independent small business sector. However, collaboration offers advantages to small businesses wishing to export while still maintaining their own business.

9.2

9.3

Regulatory bodies must stay up-to-date with progress in the industries they are responsible for.

9.4

Other actions identified for government to assist exporters include pest control, ensuring land is used productively and ensuring industries maintain strong supporting sectors.

Recommendations

Recommendation 16

9.17

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Recommendation 17

9.51

Facilitating collaboration “I think that the more we let people know that there are markets there, the more they can get thinking. If they are then able to think about, ‘How do we do this? How do we consolidate this? We only have four pallets of wine but the container needs ten’ or whatever it is, then we are looking at that cooperation and that collective arrangement between key players.” Mr Ray Hortle, Business Development Manager, Regional Development Victoria Hume

9.1 As discussed in Chapter 2 of this report, Victoria is characterised by a large number of small businesses. The lack of scale can create several challenges for small businesses wishing to export. One of the biggest challenges for small businesses is the ability to deliver orders of the scale required by customers.

9.2 In Geelong, the Committee heard from Mr Sandy Harman, a TradeStart Adviser with the Export Council of Australia. He said: “Even very small businesses can supply to export markets if they find the right customer that matches their scale, their size.”1 However, other participants in this Inquiry spoke about the common need for multiple businesses to collaborate to overcome problems of scale, often in the form of cooperatives.

9.3 In its submission to this Inquiry, Agribusiness Gippsland recommends that the Victorian Government assist small producers to work together in formal cooperatives. Its submission quotes the 2014 Gippsland Food Plan,2 developed by RDA Gippsland, which states: ‘A particular characteristic of Gippsland is the large number of relatively small landholdings. This inhibits aggregation into large enterprises; an alternative is cooperation by enterprises in group production, marketing and logistics to achieve economies of scale.’3

9.4 The Committee heard that one advantage of cooperatives is an improved ability to penetrate export markets compared to small businesses. For example, New Zealand dairy company Fonterra, whose formal company name is Fonterra Co-operative Group Limited, is responsible for nearly one-third of the world’s dairy exports.

9.5 Another advantage of cooperatives is the way in which they facilitate export trade with large 1 Mr Sandy Harman, TradeStart Adviser, Export Council of Australia, Public Hearing, Geelong, 30 April 2014. 2 See: http://rdagippsland.com.au/gippsland-food-plan-launched-28-march-2014/; accessed 21 July 2014. 3 Agribusiness Gippsland, Submission, Number 43, 2 May 2014. Examples of co-operative bodies already in existence include: avocado growers (Mornington Peninsula); the abalone industry (Mallacoota); and olive growers (South Gippsland).

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businesses overseas. This was explained by Mr Peter Kulich, Baw Baw Shire Council’s Economic Development Manager, who spoke about a recent trade mission to Singapore he had been on. Mr Kulich said: We had one of the businesses talking to their head buyer. The first question by the head buyer was, ‘What are the products you have?’ The big supermarket chains do not want to work with a business that only has one product. They want to be able to ring up and talk to someone about 20 or 25 different products. The concept of the cooperative would allow that to develop as well.4

9.6 However, the Committee heard concern that in Australia competition rules within the domestic market can make it hard for cooperatives to compete with overseas businesses. For example, the two final competing companies in the recent takeover of Warrnambool Cheese and Butter were Murray Goulburn and Canadian firm Saputo. An Australian Competition and Consumer Commission hearing on whether to allow Murray Goulburn’s bid was scheduled for February 2014. However, Saputo purchased a majority shareholding in Warrnambool Cheese and Butter in January 2014, following a faster than usual Foreign Investment Review Board approval process.5

9.7 In the horticulture sector, Mr Andrew Plunkett, the General Manager at Plunkett Orchards, noted the way in which collaboration can guarantee supply of sufficient quantities of the same product, to meet the demands of export markets. He said: A good example at the moment is that we are doing a program to Singapore and it is only for one size small pears in one kilogram punnets. On our own supply we could not do that but we have worked with our six partner suppliers and another couple of sheds here in Shepparton, which are completely independent to us but helping us with the program, and we have been able to pull it together. But on our own, a lot of these programs are not doable.6

9.8 In Wodonga, Mr Michael Gobel agreed with the general point that the economies of scale that arise from business consolidation create opportunities in the export market. He said: … we think there is a significant opportunity in this region, where there is not the economies of scale in the individual businesses, to create an environment of clustering and collaboration … At the moment we have industries that are operating that are trying to do a number of different things, which is great from a vertical integration perspective, but their lack of economies of scale as businesses perhaps compromises their capacity to be able to tap into those export markets.7

4 Mr Peter Kulich, Economic Development Coordinator, Baw Baw Shire Council, Public Hearing, Moe, 3 June 2014. A similar argument was made in Wonthaggi on 4 June by Ms Roslyn Jenzen, Bass Coast Shire Council’s Economic Development Co- ordinator. 5 See: ‘Warrnambool Cheese & Butter not ACCC at its finest, says Joyce’, The Australian, 11 August 2014. 6 Mr Andrew Plunkett, General Manager, Plunkett Orchards, Public Hearing, Shepparton, 2 July 2014. 7 Mr Michael Gobel, Consultant, Wodonga City Council, Public Hearing, Wodonga, 3 July 2014.

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9.9 Mr Gobel identified the wine industry in South Australia as a good example of what consolidation and collaboration can achieve.8

9.10 It was Mr Plunkett’s view that Victorian horticulture growers need to ‘pull together’, if they are to stay competitive with overseas growers who act in a much more consolidated manner. Mr Plunkett added that now is a good time to discuss introducing fewer but bigger packing sheds in the Goulburn Valley, as many businesses are at the same stage of their infrastructure cycle and will be considering the best way of investing for the future. He said: “We all realise we cannot go and spend $3 million or $4 million each in our next wave of investment; we need to spend $20 million with a group of five or six of us.”9

9.11 The need for fewer but bigger packing sheds was also identified by Mr Andrew Maughan, National Business Manager at Holman Fresh, a fresh produce marketing company. Mr Maughan displayed fruit scanning technology from Italy to the Committee. This technology can record several thousand images per second. However, this technology is expensive to purchase and update and is best operated in large volumes. This means that larger packing sheds are more able to afford the outlay than smaller operators.10

9.12 The Nine Mile Fresh packing shed in Tynong provides an example of a successful modern facility initiated by a number of long term local growers. The shed processes more than 50,000kg of fruit a day.

9.13 Mr Plunkett discussed the challenge of convincing farmers of the benefits of cooperatives (both formal and informal collaboration), saying: “The difficulty is that each party has to give something up. It is a process of highlighting that what there is to gain is bigger than what there is to lose.”11

9.14 Mr Plunkett said that one way to facilitate this was to have an independent person undertake the work and act as Chair during meetings. Mr John Wilson of Fruit Growers Victoria agreed, adding that he envisaged this as a role for government.12

9.15 The Committee acknowledges the benefits arising from collaboration and creating greater economies of scale, particularly those expressed by the agribusiness sector throughout this Inquiry. However, it also acknowledges that this should not be done in such a way as to homogenise the wide variety of goods and services produced in regional Victoria – strong markets contain a broad range of business sizes and as few barriers to entry as possible.

9.16 Indeed, the Committee heard about a number of exporters whose success comes from producing high value niche products. For example, the City of Wodonga’s Chief Executive Officer, Ms

8 Ibid. 9 Mr Andrew Plunkett, General Manager, Plunkett Orchards, Public Hearing, Shepparton, 2 July 2014. 10 Holman Fresh, Site Visit, Ardmona, 2 July 2014. 11 Mr Andrew Plunkett, General Manager, Plunkett Orchards, Public Hearing, Shepparton, 2 July 2014. A similar point was made by Mr Michael Gobel, Consultant, Wodonga City Council, Public Hearing, Wodonga, 3 July 2014. 12 Mr John Wilson, General Manager, Fruit Growers Victoria, Public Hearing, Shepparton, 2 July 2014.

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Patience Harrington, said that although creating economies of scale does assist boutique producers, some small companies will always prefer to operate independently. She said: “You will always have those wineries, for example, that want to remain on their own terms and that is their point of difference.”13

9.17 Value-adding is discussed further below.

Finding 9.1

Recommendation 16

That the Victorian government promote the benefits of collaboration in achieving scale for better export market penetration and competitiveness, such as through Victorian Government Business Offices, the business development manager network and other corporate channels. In particular, to act as a facilitator of collaborative consolidation of packing sheds and distribution networks in the horticulture sector.

Research, development and extension “There are a couple of areas that I think the State Government can play an important role in. One of those is the support of R&D initiatives through joint contributions.” Mr Mark Diedrichs, Regional Manager, Australian Blue Gum Plantation

9.18 Research and development is considered a facilitator of increased exports because of the way it improves productivity by reducing the cost of production. Research and development can also enable rural and regional Victoria to develop new products for the export market for which it is the only supplier.

9.19 Many participants in this Inquiry advocated for the Victorian Government to maintain or increase its investment in research and development. Several submissions identified reductions in public funding of R&D as a barrier to growing exports from rural and regional Victoria.14

9.20 Much of the evidence heard by the Committee relating to government investment in research related to the agriculture sector. Other recommendations sought greater government procurement policies, to support innovative Victorian businesses in developing sufficient scale to export.

9.21 Mr Tyran Jones, President, United Dairyfarmers Victoria, told the Committee that research funding in the dairy sector has seen a return of ten dollars for every one dollar invested. (Other research

13 Ms Patience Harrington, Chief Executive Officer, Wodonga City Council, Public Hearing, Wodonga, 3 July 2014. 14 Champions of the Bush, Submission, Number 44, 2 May 2014. Victorian Farmers Federation, Submission, Number 35, 28 April 2014. SPC Ardmona, Submission, Number 18, 17 April 2014.

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has produced the slightly higher figure of eleven dollars for every one dollar.15) Mr Jones said the best commercial return was found in the field of animal genomics: “We have got genomics selection of animals for increased production … Most of the bulls that you will see on the market now have been genomically screened for particular traits.”16

9.22 In its submission to this Inquiry, the Wimmera Development Association attributes part of the economic growth of the region to its ability to convert research into commercial products: A key success factor in the region is the significant and growing investment in grains research. The region has attracted substantial international investment and national strategic focus through grains research. This is evidenced by the recent launch of the Australian Grains Genebank in Horsham, a joint initiative of the Victorian Department of Environment and Primary Industries (DEPI) and the Grains Research and Development Corporation (GRDC). The new genebank has capacity for up to 200,000 grains samples, and is designed to acquire, conserve, characterise and distribute grain crop genetic resources to scientists and breeders in Australia and globally for plant breeding research. Significant government and international investment in grains research has been boosted by recent initiatives. The construction of a high throughput phenomics glasshouse by DEPI, the $14 million wheat breeding station by Bayer CropScience (one of seven global sites) and the investment of $3 million in glasshouse upgrades by Nuseed are examples of the high level of interest and activity in the sector.17

9.23 Mr Murray Davis, a grazier from Dergholm in south-west Victoria, observed a similar link between research and higher productivity in the grazing industry.18

9.24 The majority of funding for R&D in agriculture is provided by Rural Research and Development Corporations’ co-investment model between the Commonwealth and industry (roughly at the ratio of 1:1.5).19 Funding from the sector itself comes in the form of levies. Mr Cameron Hall, General Manager for Trading, Elders International Trading, argued that the sector benefits greatly from the levy system, saying: … we should not lose sight of the value the industry levies bring to the industry as a whole around that collective investment, particularly from an R&D point of view. That is something that is the envy of a number of countries around the world. Whilst it is not perfect by any stretch, we need to be careful that we do not let go of it, because of the value it provides. When you get that collective pool of funding, that is when we can make

15 Council of Rural Research and Development Corporations Chairs, Impact of Investment in Research and Development by the Rural Research and Development Corporations, Year 2 Results, Rural R&D Corporations, Canberra, 2010. 16 Mr Tyran Jones, President, United Dairyfarmers Victoria, Public Hearing, Melbourne, 5 May 2014. 17 Wimmera Development Association, Submission, Number 19, 17 April 2014, p4 18 Mr Murray Davis, Public Hearing, Hamilton, 8 April 2014. 19 Council of Rural Research and Development Corporations Chairs, Impact of Investment in Research and Development by the Rural Research and Development Corporations, Year 2 Results, Rural R&D Corporations, Canberra, 2010.

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significant advancements around R&D and advancing the industries.20

9.25 In its submission to this Inquiry, the Victorian Farmers Federation states: ‘Given the wider benefits of increased agricultural production, the State Government must make increased investment in research and development a priority.’21

9.26 The Committee also collected evidence relating to R&D in the wider economy. In Geelong, the Chair of the G21 Agribusiness Forum, Mr Russell Coad, discussed the concept of ‘blue skies research’ (i.e. research where practical applications are not immediately apparent) with the Committee. Mr Coad argued that all R&D, which he said is funded by both the public sector (most notably in universities) and the private sector, is “vitally important”. However, while acknowledging that research in parts of the agriculture sector is well funded (as per Mr Hall’s evidence above) he was of the opinion that this is not the case for small manufacturers.22

9.27 The Geelong Innovation Precinct – which includes Deakin University, the CSIRO, the Australian Future Fibres Research and Innovation Centre and Carbon Nexus – was noted by a number of participants as an important centre for research and development. In its submission to this Inquiry, Deakin University states: Deakin has made significant investments to create the world class Innovation Precinct on its Waurn Ponds campus with particular focus on engineering, advanced materials science, information technology and health sciences including medicine. This is an outstanding example of the value to a region of developing an above-world-standard research reputation, and marketing undergraduate programs in those fields.23

9.28 Also in Geelong, Mr Jake Dingle, Chief Executive Officer, Carbon Revolution, spoke about the “good government support” that Carbon Revolution had received. Mr Dingle took that idea of support further, arguing that government has a role in encouraging the commercialisation of new ideas. He said that: … initiatives that help people to undertake more risky R&D that otherwise would not be funded by private sources of funding alone, that is the sort of support that you get through R&D tax concessions and those sorts of schemes … support for actually investing in the outcomes of the R&D work in order to create something that can produce what has been developed through the R&D.24

9.29 For a further discussion of commercialisation of ideas and government support see Chapter 6 of this report.

20 Mr Cameron Hall, General Manager for Trading, Elders International Trading, Public Hearing, Hamilton, 8 April 2014. 21 Victorian Farmers Federation, Submission, Number 35, 28 April 2014. 22 Mr Russell Coad, Chair, G21 Agribusiness Forum, Public Hearing, Geelong, 30 April 2014. 23 Deakin University, Submission, Number 25, 17 April 2014, p 5. 24 Mr Jake Dingle, Chief Executive Officer, Carbon Revolution, Public Hearing, Geelong, 30 April 2014.

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9.30 The universities that the Committee spoke with pointed out that, along with improving productivity, these research facilities increase exports in the education sector by attracting international students. In its submission to this Inquiry, Deakin University explains how a multitier commitment to research brings overseas students to Deakin and, consequently, income: Facilities such as Carbon Nexus, the world’s leading carbon fibre research facility, also reflect the long-term value of coordinated Commonwealth, State and university investment in regionally-based research assets. Such continued investment from both Victorian and Commonwealth Governments in this area is essential. A current snapshot of Carbon Nexus reveals postgraduate students and postdoctoral researchers from Iran, China, India, France, Germany and Portugal comprise 23 out of 37 personnel (62%).25

9.31 Federation University Australia, in addition to earning export income from research (see Appendix 10), notes that research activities ‘… reinforce the University’s international connections and provide potential for later and stronger linkages between regional Victoria and diverse international governments, agencies, organisations and locations’.26

9.32 Professor Ann Hodgkinson has noted that research is ‘… a necessary but not determining cause of export performance’.27 The Committee heard that it is equally important for regions to have an appropriately trained workforce, to make the most of the outputs of R&D.

9.33 Professor German Spangenberg from the AgriBio Centre for AgriBioscience spoke more widely of the potential for governments to increase commercial investments in innovation. He added that governments have a responsibility to ensure the education and training sector provides the sort of ‘knowledge workforce’ needed to take advantage of developments in R&D.28

9.34 In its submission to this Inquiry, the RMIT Rural and Regional Futures Research group at Hamilton states: ‘Regional provision of research, training and education will ensure a skilled workforce as well as the extension of new knowledge to industry.’29

9.35 G21 Agribusiness Forum provided further evidence of the correlation between a skilled workforce and the ability to convert research into increased exports. It adds that research needs to be ‘… strongly related to practical agriculture and related supply chain business issues …’ and lists Southern Farming Systems as an example of such a relationship.30

25 Deakin University, Submission, Number 25, 17 April 2014, p 5. An overview of the Geelong Innovation Precinct can be found in the Appendix to Deakin University’s submission. 26 Federation University Australia, Submission, Number 20, 17 April 2014, p 5. 27 Hodgkinson A, ‘What drives regional export performance’, Australasian Journal of Regional Studies, Vol 14, No 1, 2008, p 42. 28 Professor Geman Spangenberg, Co-Director, Agribio, Public Hearing, Melbourne, 5 May 2014. 29 RMIT University Hamilton, Submission, Number 50, 27 May 2014, p 2. 30 G21 Agribusiness Forum, Submission, Number 16, 17 April 2014, p 4. For more on Southern Farming Systems see: http:// www.sfs.org.au/; accessed 7 August 2014.

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9.36 Similarly, Dr Paul McPhee, Lecturer in Economics at Federation University Australia, states that governments ‘… need to have a policy that promotes the development of scientific and technical knowledge and facilitates its direct absorption or utilisation in the development of export manufactured products and developments of associated manufacturing processes’.31

9.37 For more on workforce skills see Chapter 7 of this report.

Finding 9.2

9.38 The committee also heard about the importance of government regulation keeping pace with the results of R&D work. Traditional methods of planting in the Goulburn Valley – 800 trees per hectare producing 20–30 tonnes of fruit per hectare – have been intensified, with up to 3,500– 4,000 trees per hectare now producing as much as 80–120 tonnes of fruit per hectare.

9.39 Mr Andrew Plunkett, the General Manager of Plunkett Orchards, explained that while this has reduced the cost of production for farmers – to the point where he said there is “almost unlimited capacity” to expand production – it is a very capital-intensive system of farming with a higher turnover of trees. As such, the method of depreciation as devised by the Australian Tax Office, based on the older, less capital-intensive style of farming, does not reflect current financial realities for the horticulture sector.32

Finding 9.3

Regulatory bodies must stay up-to-date with progress in the industries they are responsible for.

Increasing value as well as volume ‘Characteristics of successful firms in this [high cost] environment include a high capacity for innovation through value creation, a strong focus on global market niches, highly experienced and knowledgeable management, strong customer relationships and close relations with knowledge institutions.’ G21 Agribusiness Forum

9.40 Research and development, along with innovations in the private sector, have enabled Victorian businesses to increase production volumes, especially in the agriculture sector.

9.41 However, the difficulties Australian businesses face selling some mass produced goods in the global marketplace (especially manufactured goods) are well known. Other countries with larger

31 Mr Paul McPhee, Submission, Number 49, 26 May 2014, p 9. 32 Mr Andrew Plunkett, General Manager, Plunkett Orchards, Public Hearing, Shepparton, 2 July 2014.

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domestic markets and lower labour costs have competitive advantages in mass produced goods. This means that rural and regional Victoria will need to focus more on producing what Professor Garnaut identified as: “… specialised manufactures with a lot of skill, a lot of brains, a lot of innovation in them”.33

9.42 Throughout this Inquiry, the Committee learnt that many businesses in rural and regional Victoria in fact do look to innovate as a way of increasing the quality, rather than volume, of products. This is frequently discussed in terms of ‘value-adding’ or ‘high-tech’ industries. The challenge for such businesses is that value-adding can require large capital investments (see Chapter 6 of this report). The challenge for governments, and wider society, is that innovative practices generally require fewer employees than mass production practices (see Chapter 4 of this report).34

9.43 Regarding agriculture, Port Jackson Partners believes that increasing exports can be achieved through a combination of increasing volume and realising greater returns through: • Producing higher value products • Processors value-adding domestically • Improving supply chains to attract premium prices.35 9.44 In its submission to this Inquiry, the Victorian Government states, in reference to fruit exports to Asia: Attempting to increase production to simply gain ground with respect to the scale of production in competing countries would not be an optimal strategy. In those competitiveness factors where competitors hold a large margin in terms of competitive performance the best strategy for the Australian industry is one of minimising exposure to that factor. By pursuing a strategy of high quality products targeted at a premium market segment, price performance declines in relevance.36

9.45 An example of this approach is provided by Nestle Australia in its submission to this Inquiry. In 2012, Nestle invested in a project that repurposed its factory in Broadford, to produce hospital- grade liquid supplements. The supplements require specialised manufacturing infrastructure and a skilled workforce and, compared to other Nestle products, are less dependent on a high volume / low production mix. Nestle reports that sales for these products are increasing in the export market.37

9.46 Evidence suggests that customers are willing to pay more for products they value. In its submission to this Inquiry, the Committee for Geelong discusses its members’ ability to ‘successfully educate’

33 Professor Ross Garnaut, Professorial Research Fellow in Economics, University of Melbourne, Public Hearing, Melbourne, 5 May 2014. 34 Berger T, ‘Concepts of national competitiveness’, Journal of International Business and Economy, Vol 9, No 1, 2008. See also Mr Nick Stanley’s comments regarding the Geelong Regional Investment Innovation Fund at paragraph 6.18 of this report. 35 Port Jackson Partners, Greener Pastures: The Global Soft Commodity Opportunity for Australia and New Zealand, ANZ Insight Issue 3, October 2012. 36 Victorian Government, Submission, Number 51, 11 June 2014, p 18. 37 Nestlé Australia, Submission, Number 31, 17 April 2014.

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customers about the merits of their exported goods compared to cheaper European products. This has resulted in increased sales, with customers valuing higher quality products, even when they are as much as 30 per cent more expensive than the cheaper options.38

9.47 In some cases, these higher value goods and services cater to relatively small niche markets. RDA Barwon South West used its submission to this Inquiry to recommend a role for the overseas Victorian Government Business Offices in finding customers for highly profitable niche products from rural and regional Victoria. It states: ‘Typically, this will be a wealthier segment of the population, willing to pay top dollar for a high-end product or service. For [the Barwon South West region] this product is likely to be a food such as high grade beef, or fibre product such as fine merino wool.’39

9.48 (Victorian Government Business Offices are discussed in detail in Chapter 11.)

9.49 The Victorian Government has identified several high value opportunities for the export market. These are: • Energy efficiency and supply technologies • Water efficiency and waste management technologies • Professional equine services • Solar and hydroelectricity skills and technology • Mining equipment, technology and services • Oil and gas equipment technology and services • High value dairy products, infant formula, nutritionals and retail ready products • Processed grain and wheat.40 9.50 Other niche and value-added goods and services with the potential to become profitable exports from rural and regional Victoria, in particular to the rapidly growing middle class across Asia, include: dairy; boutique food products / ‘premium horticulture’ products; and engineering, tourism and agricultural services.41 Equally innovative, if less visible, examples can be found right across rural and regional Victoria, such as the harvesting of blood worms for aquarium fish.42

9.51 The Committee recognises that private industry shares responsibility for innovation and received examples of innovative exporters in a number of submissions. The Committee also recognises that government does play a role encouraging and assisting innovation in the private sector. In its submission to this Inquiry, Agribusiness Gippsland suggests that the Victorian Government encourage more foreign investment into R&D partnerships.43 The Committee considers that both

38 Committee for Geelong, Submission, Number 21, 17 April 2014. 39 RDA Barwon South West, Submission, Number 9, 15 April 2014, p 2. 40 Victorian Government, Submission, Number 51, 11 June 2014. 41 South Gippsland Shire Council, Submission, Number 28, 17 April 2014; East Gippsland Food Cluster, Submission, Number 22, 17 April 2014; G21 Agribusiness Forum, Submission, Number 16, 17 April 2014; Agribusiness Gippsland, Submission, Number 43, 2 May 2014. 42 South Gippsland Shire Council, Submission, Number 28, 17 April 2014. See page 3 of this submission for examples of innovative ideas in South Gippsland Shire. 43 Agribusiness Gippsland, Submission, Number 43, 2 May 2014.

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domestic and foreign investment have valuable roles to play in funding research and development.

Recommendation 17

Other programs to improve productivity

9.52 Governments can indirectly increase exports by removing impediments to productivity. For example, in its submission to this Inquiry the Victorian Farmers Federation includes a list of recommended actions it believes the Victorian Government should take regarding land management. Although they would not have a direct impact on exports, the VFF argues that these actions would increase productivity for farmers, thereby enabling an increase in export volumes. (They would also assist in maintain Victoria’s ‘clean green’ image and reputation for quality, as discussed in Chapter 2 of this report.)

9.53 The Victorian Farmers Federation’s list includes: • Funding to support council roadside weed and pest management programs • Reforms to public land management to improve pest and weed control • Undertake aerial baiting for wild dogs • Establish a new category of permit for mobile bait manufacturing facilities under the Drugs, Poisons and Controlled Substances Act.44 9.54 The Committee learnt about a Southern Grampians Shire land capability program looking at the soil, water, topography and climate capability of the region. The program, run in partnership with the Department of Environment and Primary Industries, is intended to map these four factors across the region down to the square kilometre. It is designed to identify what crops best suit the land and opportunities for diversifying current crops. Ms Paige Smallacombe told the Committee that the Shire will use the information gained during the program “… to look at our prospectus for the agricultural industry, to really go out there and target the agricultural industry in areas where we see opportunities and then leading onto the export opportunities”.45

9.55 Mansfield Shire Council similarly identifies better land use as a possible means of increasing productivity in its submission. The Council considers that there are a large number of blocks in the Shire that under-produce from a farming and export perspective. It recommends the establishment of a land bank ‘… with the aim to increase production values of under-utilised farm land and assist farmers create additional economy of scale and reduce operating costs’. The Council explains: A land bank exchange is one idea that could put under-utilised land

44 Victorian Farmers Federation, Submission, Number 35, 28 April 2014. 45 Ms Paige Smallacombe, Agribusiness Development Officer, Southern Grampians Shire Council, Public Hearing, Hamilton, 8 April 2014.

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holdings into active production by local farmers who have the economy of scale, business systems, processes and experience in return for a return of some sort, be it ‘grass control’, rent, paddock improvement or share of risk and return. While such a scheme may not suit all farm businesses or land owners – it may provide synergies and suit some.46

9.56 Governments are also urged to acknowledge the importance of sectors that could be described as having a supporting role in exports. For example, the Australian fodder industry is closely involved in much of the agriculture sector, through the role hay plays in crop rotation, animal nutrition and feed. A strong fodder sector, therefore, underpins a strong and productive agriculture sector. The Committee notes that the fodder industry has a strong export profile, with Victoria being Australia’s third largest exporting state. Key markets for the fodder sector are: Japan; Taiwan; Korea; and, increasingly, China.47

9.57 A potential impediment to productivity, and therefore expansion of imports, is regulation. Regulation is discussed in detail in Chapter 10.

Finding 9.4

Other actions identified for government to assist exporters include pest control, ensuring land is used productively and ensuring industries maintain strong supporting sectors.

46 Mansfield Shire Council, Submission, Number 41, 2 May 2014, p 8. 47 Australian Fodder Industry Association, Submission, Number 24, 17 April 2014.

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166 Chapter ten: Regulation

Findings

10.1

Victoria’s regulatory environment is one of its competitive advantages. It supports Victoria consistently producing goods and services to a high standard. This is recognised globally.

10.2

Reviewing regulation is important to maintaining a strong regulatory environment. Submissions and witnesses identified a number of areas of regulation which they considered should be reviewed. The Committee received positive feedback about the role of the Red Tape Commissioner.

10.3

The Department of Agriculture’s hours of inspection are an impediment to some exporters from rural and regional Victoria.

Recommendations

Recommendation 18

That the Victorian Government continue working with the Commonwealth Government to reduce the impact of regulation on business while ensuring that Victoria’s quality standards are maintained.

10.31

Recommendation 19

10.39

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The role of regulation “I would say that it is always good to consider and review regulation, but I think whenever it happens it needs to be done carefully and be appropriate … some regulation has a really valid purpose, and other regulations can be outdated and get in the way, so I think review is important.” Mr Sandy Harman, TradeStart Export Adviser, Export Council of Australia ‘There is global demand for fresh, clean, safe food products and Regional Victoria is uniquely placed to deliver superior quality fruit, vegetables and meat.’ Export Council of Australia “I think we are the best in the world. I think the Department of Agriculture are fantastic, and I think they are the reason we have the market access we have around the world.” Mr Ashleigh Martin, Chief Operations Officer, Tabro Meat “There is too much at risk to have people who do not adhere to the standards exporting.” Mr Linton Ryan, General Manager, Ryan Meat Company

10.1 Regulation is an important contributory factor in a region’s reputation. For example, as was identified in the Rural and Regional Committee’s Inquiry into the Impact of Food Safety Regulation on Farms and Other Businesses1, rural and regional Victoria’s ‘clean and green’ reputation is a competitive advantage (also described as a ‘point of difference’) and regulation is a vital component of this reputation.2 Many witnesses throughout this Inquiry made the same argument. Two examples are listed below: “It is a competitive advantage. It is a point of difference for Australia, so we need to pull out all the stops to make sure that the systems that we have in place are not in any way compromised.” 3

10.2 Mr Jack Jiang, Chief Executive Officer, Tabro Meat Pty Ltd said: “We have been talking about a food bowl for China from Australia. The Australian products are always being recognised as greener and safer products for the Chinese customers or consumers.” 4

10.3 In its submission to this Inquiry, SPC Ardmona states that Victoria’s superior biosecurity and food safety reputation is a ‘significant comparative advantage’ that the Victorian Government should

1 See: http://www.parliament.vic.gov.au/rrc/inquiries/article/1860; accessed 21 July 2014. 2 See also submissions from: East Gippsland Food Cluster, Submission, Number 22, 17 April 2014; City of Ballarat, Submission, Number 26, 17 April 2014; South Gippsland Shire Council, Submission, Number 28, 17 April 2014; Committee for Greater Shepparton, Submission, Number 29, 17 April 2014; Baw Baw Shire Council, Submission, Number 33, 24 April 2014. 3 Mr Tyran Jones, President, United Dairyfarmers Victoria, Public Hearing, Melbourne, 5 May 2014. 4 Mr Jack Jiang, Chief Executive Officer, Tabro Meat Pty Ltd, Public Hearing, Wonthaggi, 4 June 2014.

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exploit during trade negotiations and trade missions.5 (Trade missions are discussed in more detail in Chapter 11.)

10.4 In Ballarat, Professor Willis was asked about the quality of education provided in Australia, particularly considering the actions of some private providers in recent history. His answer indicated that regulation has played an important role in improving standards across the whole sector. Professor Willis said: I think Australian education overseas is now seen as being in pretty good shape. The top to the bottom of the higher education system in Australia and the VET system in Australia has been cleaned up. It is under tight government regulation through [Australian Skills Quality Authority] and [Tertiary Education Quality Standards Authority]. The tighter they are internationally, speaking as a person who works internationally, the better that is. Even though we might grizzle, I am glad they do it.6

10.5 Similarly, Mansfield Shire Council’s submission includes a case study of Delatite Winery which includes the following quotation from the General Manager, Mr David Ritchie, identifying one of Delatite Winery’s competitive advantages: “We are cooler, cleaner and more sustainable in our practices in the high country – and that’s appealing to our prospective buyers.”7

10.6 This link between regulation and competitive advantage is documented by the Victorian Government, as the section below from the Food to Asia Action Plan demonstrates: Australian Table Grape Association (ATGA) CEO Jeff Scott recalled the scene when the first container of crimson seedless grapes was sent to Shenzhen in May 2011. “It attracted a bidding frenzy,” he said. “Every pallet was sold within the space of eight to ten minutes and we were very happy with the prices. The grapes were very high quality and, as the importers have consistently demonstrated, they will pay top prices for good quality fruit.” ATGA Chairman Richard Lomman emphasised the long-term investment required to finally crack the world’s largest market. “A lot of time and effort has been expended in gaining official access into China,” Mr Lomman said. “We had to convince the Chinese that we have rigorous system- based management processes that will prevent any incursion of pest or disease into China.”8

10.7 Further, in its submission to this Inquiry, the Victorian Government states: ‘Victoria has an excellent

5 SPC Ardmona, Submission, Number 18, 17 April 2014, p 3. A similar point was made in Wodonga by Summerfruit Australia’s CEO, Mr John Moore. 6 Professor Mike Willis, Pro-Vice Chancellor (International and Partnerships), Federation University Australia, Public Hearing, Ballarat, 29 April 2014. 7 Mansfield Shire Council, Submission, Number 41, 2 May 2014, p10. The Rural and Regional Committee met with Mr Ritchie in 2011 as part of its Inquiry into the Capacity of the Farming Sector to Attract and Retain Young Farmers and Respond to an Ageing Workforce. See: http://www.parliament.vic.gov.au/rrc/inquiries/inquiry/296; accessed 21 July 2014. 8 Victorian Government, Food to Asia Action Plan, Victorian Government, Melbourne, 2014, p 19.

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export track record supported by a reputation for produce that is safe, high quality and clean, and a robust regulatory framework.’9

10.8 One exception to this positivity was the submission received by Dr John Williams of the Food and Fibre Supply Chain Institute. Dr Williams argues that Australian wheat is of poor quality because of a ‘mediocrity’ encouraged in the Wheat Board era, a standard that has not improved since deregulation. Dr Williams’s submission consists of a detailed list of the weaknesses he has identified in Australia’s wheat supply and what he believes can be done to increase the diversity, quality and, therefore, profitability of Australian wheat.10

10.9 However, regarding most products, the Committee heard that the existing regulatory environment has enabled Victoria to develop a reputation as a producer of high quality goods and services.

10.10 The importance of maintaining this reputation was noted by Professor Ross Garnaut, who pointed out that reputations take a long time to build up but a very short time to damage.11

Finding 10.1

Victoria’s regulatory environment is one of its competitive advantages. It supports Victoria consistently producing goods and services to a high standard. This is recognised globally.

The problem with regulation

10.11 The word ‘regulation’ is often considered a dirty word in Australian business. It is argued that regulation constricts growth and reduces competitiveness and is therefore an impediment that must be reduced or removed.

10.12 A number of participants in this Inquiry broadly advocated for a reduction in regulation as a way to increase exports. For example, in its submission to this Inquiry, the Victorian Farmers Federation states: ‘Reducing regulation is a critical tool to increasing efficiency and productivity …’. 12

10.13 As noted in Chapter 2, the World Economic Forum’s Global Competitiveness Report 2013–2014 states that, in Australia, ‘… the business community cites labour regulations and bureaucratic red tape as being, respectively, the first and second most problematic factor for doing business in their country’.13 Yet it also makes the point that, with regard to the financial sector, ‘… financial markets need appropriate regulation to protect investors and other actors in the economy at large’.14

10.14 The Victorian Government’s submission to this Inquiry identifies that:

9 Victorian Government, Submission, Number 51, 11 June 2014, p 17. 10 Food & Fibre Supply Chain Institute, Submission, Number 47, 9 May 2014. 11 Professor Ross Garnaut, Professorial Research Fellow in Economics, University of Melbourne, Public Hearing, Melbourne, 5 May 2014. 12 Victorian Farmers Federation, Submission, Number 35, 28 April 2014 p 19. 13 Schwab K, The Global Competitiveness Report 2013-2014, World Economic Forum, Geneva, 2013, p 31. 14 Ibid, p 7.

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Industry consistently argues that business development and farm production are being burdened by some excessive or unnecessary regulation and government administration at all levels. For example in their submission to the Victorian Inquiry into Local Economic Development Initiatives in Victoria (2012), a VECCI survey of over 300 of its members [found that] 81 per cent reported that regulatory compliance was impacting on their business in either a moderate or major way. This has reduced their incentive to invest further in the business and hire more staff.15

10.15 Similarly, 40 per cent of the 1,618 Australian exporters surveyed as part of Australia’s International Business Survey 2014 identified domestic regulatory compliance as hindering international competitiveness.16

10.16 The Committee acknowledges the impact of regulation on exporting businesses, including increasing the cost of production. However, although a significant number of participants in this Inquiry list regulation in general as a problem, only a relatively small number of specific regulations in Victoria or Australia were identified for attention. These are discussed later in this chapter.

10.17 In addition, the Committee believes that regulation plays an important role in protecting Victoria’s ability to provide high quality goods and services, which is regularly acknowledged as one of the State’s key competitive advantages. That regulation can play such a role is acknowledged in the above quotation regarding Australia’s financial sector from the Global Competitiveness Report 2013–2014 and is discussed in more detail in the next section of this report.

10.18 The Committee reached similar conclusions in its Inquiry into the Impact of Food Safety Regulation on Farms and Other Businesses.17 Two key findings from that Inquiry are particularly relevant to this current Inquiry into exports: • That regulation must be constantly monitored and revised where necessary to ensure it doesn’t place an unfair burden on business • Australia’s and Victoria’s reputation for producing ‘clean and green’ food is a competitive advantage that is underpinned by its strong regulatory system. 10.19 Regulation in other countries was also discussed during this Inquiry. Some witnesses identified the foreign regulations that affect Australian businesses’ access to other markets as a barrier. In Shepparton, Mr Linton Ryan expressed the common view that many overseas regulations are designed as trade barriers rather than ways of ensuring safety or improving quality. Mr Ryan said that: … with international trade a lot of countries put rules and regulations in there just to make it hard. The CHAIR — As a trade barrier? 15 Victorian Government, Submission, Number 51, 11 June 2014, p 27. 16 Export Council of Australia, Australia’s International Business Survey 2014, Export Council of Australia, Sydney, 2014, p 14. 17 See: http://www.parliament.vic.gov.au/rrc/inquiries/inquiry/344.

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Mr RYAN — Yes. A lot of these things are there due to a domestic issue in another country – they help with whatever they see as their goals.18

10.20 However, Federation University Australia’s Professor Mike Willis identified benefits to Victoria flowing from the tightening of education regulation in overseas markets. He said that, although at times difficult to fully understand, this tightening is a competitive advantage for his university because of its proven ability to deliver quality education. He explained that: “Their rules, regulations and requirements are becoming very strict and that is all to the good because what they are doing is focusing more and more on quality.”19

10.21 Other countries’ regulations are beyond the reach of this Inquiry, other than to note that they are a barrier and that there is a role for government to negotiate improvements where possible. There is also a role for government to assist exporters through providing information on overseas regulation, as discussed in Chapter 7 of this report.

Potential changes to regulation “Those are the sorts of impediments to starting a business now; it is just so costly and so smothered in red tape. You just get through one little area and then another one comes up and then another one and then they add another one to the end of that. It is an impediment to starting a small business.” Ms Elisabeth Cuming, Owner, Grampians Pure Sheep Dairy

10.22 Regulation, despite its importance, can be a price disadvantage for Australian producers if overseas competitors do not have similar transaction costs.20 This reinforces the imperative (mentioned above by SPC Ardmona) for government trade negotiatons to highlight the superior safety and quality of products originating in rural and regional Victoria.

10.23 It also underlines the Committee’s earlier conclusion that government has a responsibility to monitor and, where necessary, revise regulation, to ensure it is not unnecessarily restrictive or burdensome.

10.24 In some cases, Victorian producers and exporters can face unfair competition from products imported from countries that do not have to comply with equivalent regulations. An example includes the textile industry’s use of azo dyes, which by practice are not used in Australia (although they are not banned).21

10.25 Participants in this Inquiry presented the Committee with several examples of regulation where they

18 Mr Linton Ryan, General Manager, Ryan Meat Company, Public Hearing, Shepparton, 2 July 2014. 19 Professor Mike Willis, Pro-Vice Chancellor (International and Partnerships), Federation University Australia, Public Hearing, Ballarat, 29 April 2014. 20 Committee for Geelong, Submission, Number 21, 17 April 2014. 21 Mr Mac Fergusson, Public Hearing, Melbourne, 23 June 2014. Mr Fergusson told the Committee that legislation should be implemented outlawing the importation of textiles that have azo dyes in them.

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believe changes would facilitate exports from rural and regional Victoria: • A number of participants advocated for making the process of export accreditation faster and cheaper, especially for SMEs22 • The Victorian Farmers Federation recommends that: VicRoads take permanent responsibility for the issuing of oversize, overmass and special purpose vehicle access permits for travel in Victoria on behalf of the National Heavy Vehicle Regulator to reduce delays in the processing of applications;23 and that responsibility for oversight of port charges and access arrangements be handed to the Essential Services Commission or some other agency if the Port of Melbourne is privatised24 • The Victorian Farmers Federation also advocates for the removal of energy efficiency targets, which it says contribute considerably to farmers’ costs (see further discussion in Chapter 8 of this report)25 • Federation University Australia notes the duplication in its reporting burden due to being a dual-sector institution (providing both higher education and vocational education and training), pointing out that: ‘Duplication in reporting thus requires the deployment of financial and personnel resources that might be more profitably directed at the University’s teaching, learning, research and commercial enterprises including enlargement of its regional educational services export markets and activities.’26 • Mansfield Shire Council recommends a review of the classification of grass seed as a food product for importing and exporting purposes27 • Several participants suggested changes to visa arrangements for foreign workers (see Chapter 7 of this report). 10.26 The Committee appreciates the merits of these suggestions and has listed them for the consideration of government and other stakeholders. The Committee noted that the suggestions listed here include changes to both Commonwealth and State regulation.

10.27 Both the current and previous Victorian Governments went into the 2010 election with commitments to cut red tape by 25 per cent. The current Victorian Government then established the office of the Red Tape Commissioner in 2013.28 The office is headed by Mr John Lloyd and has the remit of identifying unnecessary regulation across the Victorian economy. The Victorian Farmers Federation supports the work of Mr Lloyd but believes it is ‘… effectively a one‐man band with

22 East Gippsland Food Cluster, Submission, Number 22, 17 April 2014; Mr Peter Kulich, Economic Development Coordinator, Baw Baw Shire Council, Public Hearing, Moe, 3 June 2014; Mr Stuart Pickworth, Owner, Pickworth Orchards, Site Visit, 1 July 2014. 23 Victorian Farmers Federation, Submission, Number 35, 28 April 2014, p 18. The problem was also noted by Mr Mark Diedrichs, Regional Manager, Australian Blue Gum Plantation, Public Hearing, Hamilton, 8 April 2014. 24 Victorian Farmers Federation, Submission, Number 35, 28 April 2014. The same argument was made by Mr Peter Hunt, Executive Policy Manager, Victorian Farmers Federation, Public Hearing, Melbourne, 5 May 2014. 25 Ibid. 26 Federation University Australia, Submission, Number 20, 17 April 2014, p13. The Committee notes Professor Willis’ evidence at the Committee’s public hearing in Ballarat that there have been improvements in this area following the recent federal Inquiry into Assuring the Quality while Reducing the Higher Education Burden. 27 Mansfield Shire Council, Submission, Number 41, 2 May 2014 28 See: http://dsdbi.vic.gov.au/our-department/organisational-structure/red-tape-commissioner, accessed on 21 July 2014.

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little support’.29 Essentially, the VFF argues that the success of the Red Tape Commissioner to date is evidence that its office should be expanded.

10.28 Further positive evidence regarding Mr Lloyd’s work was received from Mr Matthew Nelson, Chief Executive Officer, Committee for Greater Shepparton. Mr Nelson said that the Red Tape Commissioner “… provides the opportunity for any business to identify an issue of red tape and they have someone with the expertise of John Lloyd to be able to follow those up”.30

10.29 A number of participants raised issues in relation to land use: • Agribusiness Gippsland notes the importance of protecting prime agricultural land from inappropriate development31 • Bass Coast Shire Council says Victoria’s environment and wildlife should be protected to encourage nature-based tourism32 • The Victorian Association of Forest Industries notes the importance of secure, long-term access to forest and plantation timber for the timber industry33 • The Victoria Tourism Industry Council says Bushfire Management Overlays and other planning restrictions limit tourism infrastructure development34 • Glenelg Shire Council seeks greater clarity around the planning provisions for wind energy facilities35 • RDA Barwon South West recommends a review of planning regulation related to the expansion of farming infrastructure.36 10.30 Several submissions raised further issues to do with council rating systems.

10.31 These various issues highlight the complexity of the regulation of land use and ratings systems. However, the Committee considers that these issues are broader than the scope of this Inquiry. They may be suitable for future inquiries.

Finding 10.2

Recommendation 18

That the Victorian Government continue working with the Commonwealth Government to reduce the impact of regulation on business while ensuring that Victoria’s quality standards are maintained.

29 Victorian Farmers Federation, Submission, Number 35, 28 April 2014, p19. See also evidence from VFF representatives at the Committee’s Public Hearing in Melbourne on 5 May 2014. 30 Mr Matthew Nelson, Chief Executive Officer, Committee for Greater Shepparton, Public Hearing, Shepparton, 2 July 2014. 31 Agribusiness Gippsland, Submission, Number 43, 2 May 2014. 32 Bass Coast Shire Council, Submission, Number 46, 5 May 2014. 33 Victorian Association of Forest Industries, Submission, Number 45, 5 May 2014. 34 Victorian Tourism Industry Council, Submission, Number 27, 17 April 2014. 35 Glenelg Shire Council, Submission, Number 11, 16 April 2014. 36 RDA Barwon South West, Submission, Number 9, 15 April 2014, p 3.

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Commonwealth Department of Agriculture inspections

10.32 The Commonwealth Department of Agriculture is responsible for inspecting all imports and exports that go through Australia’s ports. Many people still refer to the Department’s previous title – the Department of Agriculture, Fisheries and Forestry (DAFF) – or to the Australian Quarantine and Inspection Service (AQIS), the body which held this responsibility in the past. AQIS briefly operated as DAFF Biosecurity before being absorbed by the Department of Agriculture.

10.33 Mr Taylor Hall told the Committee that imports with destinations of more than 35 kilometres from the Port of Melbourne are put into a ‘rural tailgate’, a location in the Port of Melbourne where containers are inspected.37 The problem for businesses in rural and regional Victoria is that the Department of Agriculture’s port hours – 7.30 am to 3.00 pm Monday to Friday – mean that any containers that arrive outside of these hours incur extra costs. These take the form of wharf storage costs or the expense of transporting and storing the containers somewhere within Melbourne.38

10.34 Although these costs are not directly related to exports, these inefficiencies do have a negative impact on transport companies. As these companies run both to and from regional Victoria, this in turn effects regional exporters, through: • Higher charges to cover the costs incurred by transport companies • Delays in receiving empty containers returned to the Port of Melbourne out of Department of Agriculture hours • Higher fuel costs / increased congestion through operating in peak hours during the day. 10.35 The Department of Agriculture’s hours also restrict the times during which containers for export can be loaded. This issue can be overcome, however. Mr Ken Wakefield, Managing Director of Wakefield Transport Group, said that his company is accredited to check its own containers on behalf of the Commonwealth regulator. It does this through employing eight staff registered as Authorised Officers, as well as engaging in the Commonwealth’s Compliance Agreements scheme.39

10.36 Mr Taylor Hall told the Committee that staff from the Department of Agriculture’s regional offices work with Valley Pack Cold Storage to clear horticulture produce for export.40 Businesses can also request an out-of-hours inspection, but for most businesses the charges make it prohibitive for this to occur on a regular basis.41

10.37 The Department of Agriculture has four officers in regional Victoria who conduct import inspections in addition to their plant export responsibilities: one in Mildura; one in Shepparton; and two in Portland.42

37 Mr Taylor Hall, Transport Manager, Valley Pack Cold Storage, Public Hearing, Shepparton, 2 July 2014. 38 Mr Peter Hill, Governance, Risk & Compliance Manager, Kreskas Bros Transport, Public Hearing, Shepparton, 2 July 2014. 39 Mr Ken Wakefield, Managing Director, Wakefield Transport Group, Public Hearing, Shepparton, 2 July 2014. 40 Mr Taylor Hall, Transport Manager, Valley Pack Cold Storage, Public Hearing, Shepparton, 2 July 2014. 41 Mr Stewart Carson, Planning Manager Bega Group, Tatura Milk, Public Hearing, Shepparton, 2 July 2014. 42 Mr Bruce Allen, Team Leader, Plant Exports, Department of Agriculture, Personal Communication, 18 July 2014.

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10.38 The Committee was informed that Greater Shepparton City Council has had discussions in the past with the Department of Agriculture about establishing a warehouse in regional Victoria where imported containers could be checked, as well as increasing the Department’s hours of operation.43

10.39 The desirability of such bonded warehouses has been acknowledged by the Victorian Government. It says: ‘Victoria will advocate to the Commonwealth Government to encourage the location of customs clearance facilities at regional hubs, to improve the movement of goods to and through ports.’44

Finding 10.3

The Department of Agriculture’s hours of inspection are an impediment to some exporters from rural and regional Victoria.

Recommendation 19

43 Ms Geraldine Christou, Manager Investment Attraction, Greater Shepparton City Council, Public Hearing, Shepparton, 2 July 2014. 44 Victorian Government, Food to Asia Action Plan, Victorian Government, Melbourne, 2014, p 33.

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Findings

11 . 1

11 . 2

The Committee received a significant amount of support for Victorian trade missions, both inbound and outbound. A number of potential improvements to the trade mission program were also identified by submissions and witnesses.

11 . 3

Local government has an important role to play identifying the competitive advantages of their regions and supporting local businesses.

11 . 4

The Australian Government currently has seven FTAs in place and is pursuing another seven. The Committee heard from a number of sectors that more consultation when negotiating FTAs and wider publicising of outcomes would be beneficial to exporters and potential exporters in rural and regional Victoria.

11 . 5

There is a disparity between community expectations regarding tariffs and the economic and policy conditions facing Commonwealth trade negotiations.

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Recommendations

Recommendation 20

11.33

Recommendation 21

That, in relation to exports, the Victorian Government work with the Commonwealth Government:

• While economic partnership agreements are negotiated, to represent the best interests of exporters based in rural and regional Victoria • To strengthen the competitiveness of exporters based in rural and regional Victoria with regard to: relative tariff and trade barriers; and gaining greater market access to existing and future export markets • To increase industry/government dialogue in relation to tariffs, investment tax, and market access levels across sectors and industries. 11.69

The role of government

11.1 Exporters look to governments – both State and Commonwealth – for help establishing networks and new contacts, the initial base on which companies can begin building their own long-term business relationships.1 Elders International Trading’s Mr Cameron Hall said that “… whether you are on the commercial side or the government side, so much of it is about relationships. If you have a strong relationship, then you are able to move past a lot of the other barriers that are in place.”2

11.2 Businesses want to set up export networks in order to exploit new market opportunities. In its submission to this Inquiry, the Victorian Government identifies the link between networks and new markets. It makes the point that innovative approaches to production and exporting (as discussed in Chapter 9) are only of use when accompanied by new market opportunities ‘… which can be assisted by creating and maintaining good domestic and overseas networks’.3

11.3 It adds: ‘Victorian producers and exporters have varied information about trends in foreign

1 Professor Mike Willis, Pro-Vice Chancellor (International and Partnerships), Federation University Australia, Public Hearing, Ballarat, 29 April 2014, Dr Timothy James, Manager, SED Advisory, Public Hearing, Ballarat, 29 April 2014; Mr Andrew Edmondston, Sales & Commercial Manager & Company Secretary, Gekko Systems, Public Hearing, Ballarat, 29 April 2014; Mr Ray Hortle, Business Development Manager, Regional Development Victoria Hume, Public Hearing, Wodonga, 3 July 2014. 2 Mr Cameron Hall, General Manager for Trading, Elders International Trading, Public Hearing, Hamilton, 8 April 2014. 3 Victorian Government, Submission, Number 51, 11 June 2014, p 23.

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markets and can experience difficulties establishing connections with international buyers and importers.’4

11.4 Information about overseas markets and assistance in creating networks are provided by all three tiers of government and a range of non-government groups (including not-for-profit organisations and for-profit businesses). The services and bodies most frequently mentioned during this Inquiry are discussed below.

11.5 With multiple bodies providing services, the Committee notes the importance of those bodies cooperating and sharing information, an issue discussed further in Chapter 5 of this report.

Victorian Government Business Offices “The fact that the Government has Victorian Government Business Offices based around the world is very advantageous to businesses and also the reputation of Victoria.” Mr Peter Kulich, Economic Development Coordinator, Baw Baw Shire Council

11.6 Victorian Government Business Offices (VGBOs) provide a wide variety of advice and services, including on exports, to all Victorian businesses. These include connecting investors with business contacts and providing advice on new business ventures.5 The offices are located in metropolitan Melbourne, regional Victoria and in nine countries overseas, with an additional office planned for South Korea.6 Some confusion may arise from the fact that although information on VGBOs is found on the Business Victoria website,7 the overseas offices are listed on the Invest Victoria website.8

4 Ibid, p 26. 5 The RDA Barwon South West committee says that the offices are a ‘… gateway to the international market and a source of investment funds’. RDA Barwon South West, Submission, Number 9, 15 April 2014, p 2. 6 Department of Treasury and Finance, Budget Paper No.3: 2014-15 Service Delivery, May 2014, p 53. 7 See: http://www.business.vic.gov.au/grants-and-assistance/programs/victorian-government-business-offices; accessed 1 August 2014. 8 See: http://www.invest.vic.gov.au/offices; accessed 1 August 2014.

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Figure 11.1 Location of international Victorian Government Business Offices

Note: Does not include the South Korea office funded in the 2014-15 Budget. Source: Global Health Melbourne Plan p 31. 11.7 As the quotation above from Mr Peter Kulich suggests, most of the evidence on the VGBOs received during this Inquiry was positive. For example, Mr Adam Moore, Managing Director, Bonkers Retail and Baby Royale, spoke highly of the VGBOs, particularly in the way they help small businesses: There are only a few of them [sc. Business Offices], but they really do help small companies by just having a point of contact and even just a bit of office space so that while you are in territory you can have a meeting, use a computer or something like that. There have been a lot of times when we have accessed those sorts of services. It is a big help to some small companies, but it is not a big cost to government if they already have an office there just to give that little bit of access to an office.9

11.8 Mr Ray Hortle from Regional Development Victoria said he was aware of several agribusiness export opportunities in the Hume region sourced via overseas-based VGBOs.10

9 Mr Adam Moore, Managing Director, Bonkers Retail and Baby Royale, Public Hearing, Moe, 3 June 2014. 10 Mr Ray Hortle, Business Development Manager, Regional Development Victoria Hume, Public Hearing, Wodonga, 3 July 2014.

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11.9 In its submission to this Inquiry, the Barwon South West Regional Development Australia Committee (BSW RDAC) notes two areas of expansion the international VGBOs could consider. It states: BSW RDAC recommends that these international offices are harnessed to conduct research and locate niche buyers of Victorian product. This involves marketing products to a small but specific group of people. Typically, this will be a wealthier segment of the population, willing to pay top dollar for a high end product or service. For BSW this product is likely to be a food such as high grade beef or fibre product such as fine merino wool.11

11.10 The VGBOs could also identify overseas investors that are seeking to expand their offshore agricultural portfolio by matching them with proactive Victorian farmers wanting to expand production to meet export demand but lacking the capital.12

11 . 11 As stated in Chapter 6, the Committee has identified a third area of expansion for VGBOs, namely assisting Victorian businesses looking to expand into targeted export markets by assisting in strategic capital acquisitions in overseas countries.

11.12 Dr Timothy James of SED Advisory noted the wide reach of overseas VGBOs. He cited the San Francisco office as an example, which has responsibility for South America as well as part of the United States. However, he noted that the Victorian Government’s network of offices is complemented by Commonwealth Government offices run by Austrade.13

Austrade

11.13 Austrade is a Commonwealth agency with the remit to advance Australia’s international trade, investment, education and tourism interests. It does this by providing information, advice and services, including assistance on developing international markets and how to access grants such as the Export Market Development Grants program (as discussed in Chapter 6 of this report).14 In its submission to this Inquiry, the Victorian Government explains: ‘Austrade focuses on internationally ready businesses [and] works with Australian state and territory governments to provide exporters and investors with the information needed to establish or expand a business in Australia.’15

11.14 As well as providing assistance in Australia, Austrade has a range of offices around the world. These are more numerous and possess more resources than the VGBOs. Austrade works together with state governments to assist exporters overseas and, in some cases, state government officers are embedded within Austrade offices. Austrade has noted that there is a division of responsibilities in some cases, with VGBOs and Austrade specialising in their own particular 11 RDA Barwon South West, Submission, Number 9, 15 April 2014, p 2.. 12 Ibid. 13 Dr Timothy James, Manager, SED Advisory, Public Hearing, Ballarat, 29 April 2014. 14 See: http://www.austrade.gov.au/About-Austrade; accessed 5 August 2014. 15 Victorian Government, Submission, Number 51, 11 June 2014, p 34.

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countries or industries.16

11.15 The Committee heard mixed evidence regarding Austrade. For example, some hold the view that Austrade’s fee-for-service structure is a barrier to small businesses considering exporting.17 Latrobe City Council’s Ms Donna Taylor added that, as a result, local governments can be unsure whether it is worthwhile referring small businesses to Austrade for assistance.18

11.16 However, Mr Sandy Harman informed the Committee that Austrade is “happy to have a chat” to businesses and provide a small amount of advice without charging.19

11.17 Positive feedback about both Austrade and the Export Market Development Grants program was heard from Mr Ross Bertoli, General Manager of Hydro Australia, a Morwell engineering company providing customers in Australia and South East Asia with value-added services and engineering solutions. Mr Bertoli told the Committee about the assistance Hydro Australia has received from Austrade in developing joint ventures in Malaysia and Vietnam: We have really embraced Austrade and use their services a lot. They have been fantastic, particularly in those two areas. We have gone through Austrade with what would have cost us a lot of money here if we had had to send somebody over [to Malaysia and Vietnam] to do it. Austrade did marketing reviews for us. They set up meetings, took us to the meetings and supplied translators. Then we tapped into the Export Market Development Grants and we were able to go and exhibit at shows over there. … if it had been left up to me without the assistance of Austrade and the export development, it would have cost us thousands and thousands of dollars to go over there and try and set up these ventures. Having somebody in-country in Malaysia and in Vietnam has given us the opportunity to be able to tap into their resources without actually having to go over there. We paid them a sum of money and they did a report for us.20

11.18 The Rural and Regional Committee gratefully acknowledges the useful export data provided by Austrade during this Inquiry.

Finding 11.1

16 Department of Foreign Affairs and Trade / Austrade, Private Meeting, Canberra, 18 June 2014. 17 Mr John Moore, Chief Executive Officer, Summerfruit Australia, Public Hearing, Wodonga, 3 July 2014; RMIT University Hamilton, Submission, Number 50, 27 May 2014. 18 Ms Donna Taylor, Coordinator Business Development, Latrobe City Council, Public Hearing, Moe, 3 June 2014. 19 Mr Sandy Harman, TradeStart Adviser, Export Council of Australia, Public Hearing, Geelong, 30 April 2014. 20 Mr Ross Bertoli, General Manager, Hydro Australia, Public Hearing, Moe, 3 June 2014.

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Outbound trade missions “I say, ‘Go on a trade mission, because you are well looked after, you will meet a lot of other people and you will learn a lot’. That is often where people really start to learn about exporting. You do not get a feel for a market until you have been.” Mr Sandy Harman, TradeStart Export Adviser, Export Council of Australia

11.19 The Victorian Government’s trade mission program takes Victorian businesses to key overseas markets, to display Victoria’s capabilities in key industries and introduce businesses to potential buyers, investors and trading partners.21

11.20 The Victorian Government states that since November 2010 the trade mission program has delivered 68 trade missions to more than 30 countries ‘… delivering anticipated export sales in excess of $4.1 billion over a two-year period’.22

11.21 In July 2013, the Hon Louise Asher MP, Minister for Employment and Trade, provided a breakdown of the sales achieved on trade missions between December 2010 and July 2013. These are included in Table 11.1 below:

Table 11.1 Sales achieved on trade missions, December 2010 to July 2013* Region No. of Immediate Anticipated Anticipated Total anticipated missions sales sales 1–2 sales 13–24 sales to 24 months months months plus immediate Americas 14 $5,697,500 $34,515,000 $129,083,051 $169,295,551 China 6 $175,900,700 $631,302,202 $997,503,602 $1,804,706,504 Europe 11 $1,150,455 $56,372,500 $63,376,000 $120,898,955 India 8 $4,879,998 $204,590,000 $400,694,000 $610,163,998 Japan & 6 $333,000 $27,572,185 $38,175,982 $66,081,167 Korea MENA 7 $31,487,320 $187,606,555 $313,428,964 $532522,839 South 8 $589,476 $30,439,001 $78,082,027 $109,110,504 East Asia Total 60 $220,038,449 $1,172,397,443 $2,020,343,626 $3,412,779,518 * Source: Hon Louise Asher MP, Minister for Employment and Trade, Response to a Question on Notice, Public Accounts and Estimates Committee 2013–14 Budget Estimates, July 2013; www.parliament.vic.gov.au/paec/inquiries/article/2007. 11.22 The evidence that the Committee received regarding trade missions was overwhelmingly positive. The Committee heard that the benefits of trade missions include: educating businesses about new markets; establishing networks (both in terms of overseas contacts and among fellow exporters);

21 See: http://www.business.vic.gov.au/grants-and-assistance/programs/trade-missions; accessed 21 July 2014. 22 Victorian Government, Submission, Number 51, 11 June 2014, p35. The two-year period refers to the years immediately following a trade mission.

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and increasing sales.23 Mr John Moore, Chief Executive Officer of Summerfruit Australia, told the Committee that trade missions have been at least partly responsible for an increase in exports in the horticulture sector. He said: They have been fantastic, particularly to Hong Kong and mainland China. They have been absolutely awesome. Every time I see a horticultural industry person, I say, ‘You’re silly if you don’t get on the Victorian trade missions’. They are just spectacular, with the doors they open so much more than we can, and I think that occasionally they perhaps open better doors than the Commonwealth. We have had some sensational meetings with highranking DEPI people and certainly Minister Walsh. The Middle East was another spectacular trade mission as well. Since I have been around and been going on the trade missions … we have seen our exports increase by 25 per cent.24

11.23 In its submission to this Inquiry, the East Gippsland Food Cluster says it participated in three trade missions during 2013. These missions led to ‘… some direct export and ongoing negotiations around future opportunities’.25

11.24 Horsham Rural City Council states that trade missions ‘… are of great benefit to rural and regional Victorian business operations and need to be continued into the future’.26

11.25 In Ballarat, Dr Timothy James from SED Advisory told the Committee that the Victorian Government’s financial support for businesses attending trade missions acts as a good motivator and is a competitive advantage over other states. He said that: … the State Government generally provides a small $2,000 stipend to participate in these missions, which anecdotally I can say businesses really appreciate. It pushes them on to the missions, as opposed to other states, where the governments do not provide them. I know people who work for other state governments that struggle to get companies on these missions because they do not have those sorts of financial incentives.27

11.26 Witnesses provided the Committee with advice on how trade missions could be improved. These are collated in Box 11.1 below:

23 Ms Elaine Carbines, Chief Executive Officer, G21 & Member, Regional Development Australia Barwon South West, Public Hearing, Geelong, 30 April 2014; Mr Colin Radford, Partner, Government Services, Deloitte, Public Hearing, Melbourne, 5 May 2014; Mr Craig Nuske, Commercial Manager, Longwarry Food Park, Public Hearing, Wonthaggi, 4 June 2014; Ms Kim Storey, General Manager, Destination Phillip Island, Public Hearing, Wonthaggi, 4 June 2014; Sovereign Hill Museums Association, Submission, Number 14, 16 April 2014; Committee for Geelong, Submission, Number 21, 17 April 2014; Victorian Agribusiness Council, Submission, Number 30, 17 April 2014; Royal Agricultural Society of Victoria, Submission, Number 34, 24 April 2014. 24 Mr John Moore, Chief Executive Officer, Summerfruit Australia, Public Hearing, Wodonga, 3 July 2014. 25 East Gippsland Food Cluster, Submission, Number 22, 17 April 2014, p 9. 26 Horsham Rural City Council, Submission, Number 23, 17 April 2014, p 4. 27 Dr Timothy James, Manager, SED Advisory, Public Hearing, Ballarat, 29 April 2014.

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Box 11.1. Suggested improvements to Victorian Government trade missions

Mr Ray Hortle said an opportunity exists for the Victorian Government to better promote the outcomes from trade missions once they had finished. This could involve formal or informal forums where people are able to share their experiences of how different businesses negotiate with different markets with other prospective exporters.28

(The Committee notes Appendix 2 in the submission to this Inquiry from the Export Council of Australia: ‘DIIRD / DBI / DSDBI Export Events Program’. This list includes events in Bendigo in 2010 and 2013 which showcased successful regional exporters and the challenges and opportunities they encountered.29)

Both the Committee for Greater Shepparton and the Royal Agricultural Society of Victoria argue that government has a role to play in providing assistance to business to finalise export deals following trade missions.30

Baw Baw Shire Council – which describes trade missions as: ‘a highly valuable and valued support mechanism for both established export businesses and businesses looking to get into export’ – recommends a role for local government participating in shared regional stands at international trade events. (Local government is discussed in more detail below.)31

Mr Roger Grant, discussing the tourist industry, argued that the Victorian Government needs to increase financial support for trade missions to Victoria’s ‘traditional markets’; that is, the United Kingdom and Europe, and the United States. Mr Grant’s reasoning relates to the fact that tourists from these markets spend more of their time travelling through regional Victoria than other tourists, as is discussed in Chapters 3 and 8 of this report.32

Mr Michael O’Loughlin, Chief Executive Officer, Wodonga Institute of TAFE, offered the Committee advice on improving trade missions based on his experience with trade missions as a government adviser in Abu Dhabi. Mr O’Loughlin, who agreed that Victoria’s trade missions are effective, said that while based overseas he had observed other states achieving more success than Victoria with their trade missions. This was because all initial contacts were done on a government-to-government basis, whereas Victorian businesses were not represented by an overarching ‘Victorian presence’. Speaking with regard to his area of expertise, education and training, he said:

It is a government-to-government type of arrangement, which those [overseas]

28 Mr Ray Hortle, Business Development Manager, Regional Development Victoria Hume, Public Hearing, Wodonga, 3 July 2014. 29 Export Council of Australia, Submission, Number 17, 17 April 2014. 30 Committee for Greater Shepparton, Submission, Number 29, 17 April 2014; Royal Agricultural Society Victoria, Submission, Number 34, 24 April 2014. 31 Baw Baw Shire Council, Submission, Number 33, 24 April 2014. 32 Mr Roger Grant, Director, Great Southern Touring Route, Public Hearing, Geelong, 30 April 2014. A similar argument regarding ‘traditional markets’ is found in the submission to this Inquiry by the Victoria Tourism Industry Council, Submission, Number 27, 17 April 2014.

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governments like. They do not like dealing with a Sydney institute particularly; they like dealing with the New South Wales Department of Education and Communities. That opens up, the contract is signed and then it is delegated out to institutes to deal with. In Western Australia, where I come from, it is exactly the same.33

Inbound trade missions ‘Initiatives such as Export Gippsland, inward buyers missions and other trade events have been catalysts to bring together like-minded export focused businesses or provide access to potential markets at much less expense.’ South Gippsland Shire Council

11.27 Inbound trade missions are arranged to offer potential export markets ‘hands-on’ experiences of Victorian exports, in particular food and fibre products. The Royal Agricultural Society of Victoria believes that inbound trade missions ‘… create a marketplace for potential international investors and buyers and that showcases Victorian agriculture to the world’.34

11.28 Mr Russell Coad, Chair of the G21 Agribusiness Forum, told the Committee about a recent inbound trade mission involving several of Malaysia’s most experienced chefs. The inbound mission, which followed a Victorian trade mission to South East Asia, was jointly funded by the private sector and the Victorian Government. According to Mr Coad: “The chefs spent a day and a night in Geelong and they visited the Jade Tiger Abalone facility down at Indented Head. There is quite an interest in abalone obviously from the people of South East Asia, and Malaysians in particular, so it was quite significant.”35

11.29 The Malaysian chefs’ tour was partly organised by the Victorian Agribusiness Council, which described the tour as ‘… an innovative way to improve communication between the buyers and sellers of Victorian produce’.36

11.30 In Shepparton, Mr Andrew Plunkett of Plunkett’s Orchards informed the Committee that the Department of Environment and Primary Industries’ inbound missions involving South East Asian customers have the potential to facilitate horticulture export deals of “significant volume”.37

11.31 A number of participants in this Inquiry expressed support for inbound trade missions and recommended that they be continued or expanded.

11.32 The Committee also heard evidence about the ways in which industry conferences and exhibitions can facilitate exports. These events can be a valuable way for producers and exporters to meet with people interested in importing their goods.

33 Mr Michael O’Loughlin, Chief Executive Officer, Wodonga TAFE, Public Hearing, Wodonga, 3 July 2014. 34 Royal Agricultural Society Victoria, Submission, Number 34, 24 April 2014, p13. 35 Mr Russell Coad, Chair, G21 Agribusiness Forum, Public Hearing, Geelong, 30 April 2014. 36 Victorian Agribusiness Council, Submission, Number 30, 17 April 2014, p 3. 37 Mr Andrew Plunkett, General Manager, Plunkett Orchards, Public Hearing, Shepparton, 2 July 2014.

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11.33 In Sydney, the Committee met with Ms Joyce DiMascio, Chief Executive of the Exhibition and Event Association of Australasia. Ms DiMascio indicated that Melbourne currently lacks the facilities to meet the demand for trade and consumer exhibitions as well as conferences and accompanying exhibitions. As a result, events that could have been held in Victoria have been lost to other states or their scale has been reduced, which may have resulted in fewer Victorian exporters (both regional and metropolitan) attending. She argued that additional facilities in Melbourne would open up export opportunities for Victorian exporters and called for the Melbourne Convention and Exhibition Centre to be expanded.38 This has been included in Appendix 4 of this report.

Finding 11.2

Recommendation 20

Local government

11.34 The Committee heard a number of calls for an increased role for local government in facilitating contacts for exports.39 Some witnesses highlighted the strong relationships that exist between regional businesses and local government, including important relationships with peak industry bodies. Local governments are also particularly well placed to understand the competitive advantages of their regions.

11.35 Although views varied slightly according to personal experience – from the belief that local government could do more to help exporters,40 through to the idea that local government already acts as a lynchpin for success for exporters41 – the Committee agrees that local government has an important role to play in increasing exports from rural and regional Victoria.

11.36 In its submission to this Inquiry, Champions of the Bush states that in many parts of the world

38 Ms Joyce DiMascio, Chief Executive, Exhibition and Event Association of Australasia, Private Meeting, Sydney, 17 June 2014. 39 Dr Timothy James, Manager, SED Advisory, Public Hearing, Ballarat, 29 April 2014; Mr Nick Stanley, Chief Executive Officer, Sky Software, Public Hearing, Geelong, 30 April 2014; Ms Keelie Hamilton, Co-ordinator, Economic Development Unit, City of Greater Geelong, Public Hearing, Geelong, 30 April 2014; South Gippsland Shire Council, Submission, Number 28, 17 April 2014; Champions of the Bush, Submission, Number 44, 2 May 2014. 40 Dr Timothy James, Manager, SED Advisory, Public Hearing, Ballarat, 29 April 2014. 41 Mr Nick Stanley, Chief Executive Officer, Sky Software, Public Hearing, Geelong, 30 April 2014; Ms Keelie Hamilton, Co- ordinator, Economic Development Unit, City of Greater Geelong, Public Hearing, Geelong, 30 April 2014.

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local government plays a substantial export role. However, it believes the opposite is the case in Australia, where ‘… the local and region-specific nature of export activity is often understated when consideration is given to what government can do to support exporters …’. Champions of the Bush argues that all three tiers of government should contribute funding to a program that strengthens the ability of local government to facilitate exports from rural and regional Victoria.42

11.37 An example of local government’s involvement in the export market is Export Gippsland, a body formed to enhance export networks in the Gippsland region. The Victorian Government has supported this body in the past, through direct financial support as well as allocating State Government staff for its use. Baw Baw Shire Council, which was the auspice body for Export Gippsland, recommends that the Victorian Government reinstate its support for Export Gippsland, in a co-funding agreement with local government in Gippsland.43

11.38 Sister city relationships are another conduit for cultural and business exchanges and can be used by Victorian towns to develop contacts with larger populations, especially those in Asia.44 The Committee learnt about several examples of sister city relationships involving rural and regional Victorian towns, including: • Mr Hugh Koch of Southern Grampians Shire Council indicated that the Council is using its relationship with Gaoyou City in China to develop exports45 • In Geelong, Ms Elaine Carbines told the Committee that Warrnambool City Council enjoys a strong relationship with the Chinese province of Changchun46 • Greater Shepparton City Council’s Ms Geraldine Christou spoke about Shepparton’s plans to attract international students from its Albanian sister city, Korçë.47 11.39 The RDA Barwon South West committee recommends that the Victorian Government leverage these relationships by leading trade missions to cities where these relationships have been established.48

11.40 Mr Sean Cameron of the City of Ballarat noted the importance of local government for receiving inbound trade missions. Inbound missions, which are discussed above, frequently follow outbound trade missions, building on the initial contacts made by ministers and high level officials. However, the Committee heard that these inbound missions usually involve local government officials, as this is the level of relationship that many overseas governments expect to precede business deals.49

42 Champions of the Bush, Submission, Number 44, 2 May 2014, p 3. Champions of the Bush Chairman, Dr Greg Walsh, spoke with the Committee about local government at the Committee’s Public Hearing in Melbourne, 23 June 2014. 43 Baw Baw Shire Council, Submission, Number 33, 24 April 2014. 44 RDA Barwon South West, Submission, Number 9, 15 April 2014. 45 Mr Hugh Koch, Manager Economic Development, Southern Grampians Shire Council, Public Hearing, Hamilton, 8 April 2014 46 Ms Elaine Carbines, Chief Executive Officer, G21 & Member, Regional Development Australia Barwon South West, Public Hearing, Geelong, 30 April 2014. 47 Ms Geraldine Christou, Manager Investment Attraction, Greater Shepparton City Council, Public Hearing, Shepparton, 2 July 2014. 48 RDA Barwon South West, Submission, Number 9, 15 April 2014. 49 Mr Sean Cameron, Manager Economic Development, City of Ballarat, Public Hearing, Ballarat, 29 April 2014.

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11.41 The evidence received by the Committee suggests local government in Victoria is happy to engage with foreign governments but will only be able to do so adequately with financial support.50 For example, Mr Cameron told the Committee: “We will have a province come over and bring all their senior government officials and all their economic development officers looking to develop relationships, but we are unable to reciprocate all those because of the pure cost impediments.”51 He explained that the officials: … expect delegations to go back and visit them. We will get an invite once a month out of those. We have gone back once to a delegation. There are a lot of cost impediments there. What actually happens is that the other ones we did not visit at the same time actually got a little bit insulted and they no longer want to deal with the city because we have not gone to that actual province and returned the favour at that government-to-government level.52

11.42 In its submission to this Inquiry, the City of Ballarat reports a view it has observed among the wider community, that local government should stay focused on its traditional responsibilities of ‘rates, roads and rubbish’, rather than take on a trade negotiation role. It says: Unfortunately, this role is not seen as a primary role of local government by many in the community (whereas the business community understands the role as being critical) and when costs are incurred completing this work, local government can be subject to community criticism. This criticism can limit the effectiveness of local government work in international business relations and, in some cases, inhibit its continuation.53

11.43 To overcome this difficulty, the Council recommends that the role of local government be acknowledged and financially supported by the State Government.

Finding 11.3

Local government has an important role to play identifying the competitive advantages of their regions and supporting local businesses.

Free trade agreements and tariffs ‘There is a perception that Australia gives away far too much in return for little at the negotiation table.’ Committee for Greater Shepparton

11.44 Tariffs are a tax imposed on imports thereby increasing their price. They are most commonly imposed with the aim of making imports less attractive than domestically produced products.

50 Mr Peter Kulich, Economic Development Coordinator, Baw Baw Shire Council, Public Hearing, Moe, 3 June 2014; South Gippsland Shire Council, Submission, Number 28, 17 April 2014. 51 Mr Sean Cameron, Manager Economic Development, City of Ballarat, Public Hearing, Ballarat, 29 April 2014. 52 Ibid. 53 City of Ballarat, Submission, Number 26, 17 April 2014, p 11.

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Economic partnership agreements, more commonly known as free trade agreements (FTAs) or market access agreements, are agreements between two or more countries to facilitate trade, including by reducing or removing tariffs.

11.45 The Commonwealth Government is responsible for setting tariffs and negotiating FTAs. Australia currently has seven agreements in place – New Zealand; Singapore; Thailand; the United States of America; Chile; ASEAN (with New Zealand); and Malaysia54 – and has recently concluded negotiations with South Korea and Japan.

11.46 Australia is currently engaged in seven FTA negotiations: • Three bilateral FTA negotiations (China, India and Indonesia) • Four plurilateral FTA negotiations: the Trans-Pacific Partnership Agreement; the Australian Gulf Cooperation Council Agreement; the Pacific Agreement on Closer Economic Relations (PACER); and the Regional Comprehensive Economic Partnership Agreement. 11.47 The countries covered by these negotiations account for around 30 per cent of Australia’s total trade.55 The Commonwealth is also jointly leading, with the United States of America and the European Union, a ‘Trade in Services Agreement’ between 23 countries.56

11.48 The majority of evidence received about FTAs throughout this Inquiry was very broad, although it can be fairly summarised as arguing that the current FTAs do not do enough for regional industries. The recent agreement that Australia reached with Japan, for example, upset many in the dairy industry. This is despite the fact that the Australian Dairy Farmers Federation, the Australian Dairy Industry Council and Dairy Australia were all involved in the negotiations.

11.49 In relation to agribusiness, an impression exists that the Department of Foreign Affairs does not consult enough with regional producers while FTAs are being negotiated.57 The East Gippsland Food Cluster was one group expressing this belief. It said that existing FTAs penalise food processors because pre-cooked meats have to meet the same stringent requirements as riskier raw product foods. The organisation says that situations such as this could be avoided if the Department consulted processors as well as peak industry bodies (such as Meat and Livestock Australia and the National Farmers Federation).58

11.50 SPC Ardmona’s Mr Stephen Harper spoke to the Committee about the agreement with the United States. He explained that this agreement saw tariffs on canned fruit exports from the United States into Australia eliminated immediately but only a gradual reduction to zero over 18 years for exports of Australian fruit into the United States. Mr Harper said that it is in the best interests of government agencies to consult industry because “… it is very hard to get down to the level of 54 See Appendix 1 of the Victorian Government’s submission to this Inquiry. 55 See: http://www.dfat.gov.au/fta/; accessed 29 July 2014. 56 See: http://www.dfat.gov.au; accessed 29 July 2014. 57 City of Ballarat, Submission, Number 26, 17 April 2014; SPC Ardmona, Submission, Number 18, 17 April 2014; Committee for Greater Shepparton, Submission, Number 29, 17 April 2014. See also Mr David McKenzie, Chair, Committee for Greater Shepparton, Public Hearing, Shepparton, 2 July 2014. 58 East Gippsland Food Cluster, Submission, Number 22, 17 April 2014.

19 0 Rural and Regional Committee |Chapter eleven: Establishing relationships with overseas markets

detail to highlight those discrepancies unless you get input directly from the coalface”.59

11.51 The Australian Fodder Industry Association also calls for greater involvement of its sector in trade negotiations.60

11.52 In Canberra, representatives of the Department of Foreign Affairs and Trade indicated that they welcome input from interested stakeholders into FTAs under negotiation.61 The Committee notes that Austrade provides information on its website about how to provide input62 and that, for the China FTA, the Department has received over 150 submissions as at August 2014, from a range of industry bodies, private firms, individuals and others.

11.53 Ms Collins Rex, acknowledging that FTAs are a Commonwealth responsibility, suggested the role of the Victorian Government is to “… inform the change that needs to happen”.63 The Victorian Government does act as a liaison between business and the Commonwealth while FTAs are being negotiated. For example, the Department of Environment and Primary Industries conducts research to support technical market access submissions.64

11.54 In addition, the Victorian Government states that it seeks the views of Victorians while FTAs are being negotiated. In relation to the FTA with China it says: DEPI and DSDBI recently held consultations with current and potential exporters to China to ascertain what the major impediments to market access are. This included representatives from key rural and regional exporters such as the Victorian Farmers Federation, Dairy Australia and the Grains Industry Access Forum. This type of direct intelligence from exporters forms an important part of Victoria’s advocacy efforts to the Commonwealth on FTAs.65

11.55 Government agencies also carry out modelling of how FTAs affect different sectors. For example, the Rural Industries Research and Development Corporation has recently commissioned modelling to quantify the costs of Australia not completing bilateral FTAs with South Korea, China and Japan.66

11.56 The Committee notes that FTAs cover a wide range of interests and that it is not always possible to reach an agreement that satisfies all sectors. When an agreement does not achieve the desired outcomes for a particular sector, it is not necessarily because the negotiating team was unaware of the needs of that particular sector.

59 Mr Stephen Harper, Regional Sales Director Asia, SPC Ardmona, Public Hearing, Melbourne, 23 June 2014. 60 Australian Fodder Industry Association, Submission, Number 24, 17 April 2014. 61 Department of Foreign Affairs and Trade / Austrade, Private Meeting, Canberra, 18 June 2014. 62 For example: http://www.dfat.gov.au/fta/acfta/index.html; accessed 28 July 2014. 63 Ms Collins Rex, State Manager Victoria/Tasmania, Export Council of Australia, Public Hearing, Melbourne, 23 June 2014. 64 Victorian Government, Submission, Number 51, 11 June 2014. 65 Victorian Government, Submission, Number 51, 11 June 2014. 66 See: http://www.rirdc.gov.au/docs/default-document-library/nri-north-asia-fta-benefits.pdf; accessed 5 August 2014.

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11.57 Nevertheless, it seems that some aspects of the negotiation position Australia has presently found itself in are hampered by the decision to unilaterally reduce tariffs prior to entering into bilateral FTAs.

11.58 The Committee received evidence indicating that, once FTAs have been finalised, the Victorian Government could do more to explain export opportunities arising from the agreements.67 Explaining opportunities post-agreement is particularly important because of the highly complex nature of FTAs. Others argued that more information about export markets would be useful, including making it easier to find out what tariff rates apply to different markets.68

11.59 The Victorian Government states that it promotes the opportunities from FTAs through its business programs. It further says: The Victorian Government also works closely with Austrade to promote opportunities for exporters. Austrade engages with businesses across the country to help them understand the benefits of and opportunities from specific FTAs. For example, later [in 2014], Austrade will run a series of events and publish information to help businesses unlock potential opportunities in the recently concluded Korea–Australia FTA.69

11.60 However, the Committee notes the difficulty of accessing information about tariffs and other trade restrictions from government sources. The Committee understands that industry peak bodies are often best placed to provide this information. However, in line with the one-stop-shop concept advocated in Chapter 5 of this report, the Committee considers that it would be appropriate for the Commonwealth and State Governments to make this information more accessible.

11.61 From the perspective of accountability, the Committee also considers that there should be facilities for the tariff decisions of the Commonwealth Government to be readily understood by the community.

Finding 11.4

11.62 A common complaint heard from industry is the fact that many tariffs imposed on Australia are higher than those paid by other countries selling products in Australia. For example, the IXL Group’s Chief Executive Officer, Mr Bernard Brussow, told the Committee that vehicle components imported into South Africa attract a tariff more than double that of the same components imported 67 Committee for Greater Shepparton, Submission, Number 29, 17 April 2014. See also Mr David McKenzie, Chair, Committee for Greater Shepparton, Public Hearing, Shepparton, 2 July 2014. 68 Mr Sandy Harman, TradeStart Adviser, Export Council of Australia, Public Hearing, Geelong, 30 April 2014; SPC Ardmona, Submission, Number 18, 17 April 2014. 69 Victorian Government, Submission, Number 51, 11 June 2014, p 33.

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into Australia.70

11.63 The Committee notes that successive Commonwealth Governments during the 1970s, 1980s and 1990s engaged in what has been described as ‘one of the major unilateral liberalisations in the world.’71 As a result, Australia has small or no tariffs on many products for which other nations have much higher tariffs. In short, Australia has gone from arguably having one of the most protected economies in the OECD, to arguably having one of the most under-protected.

11.64 This policy setting is said to be one underlying reason for Australia’s long economic boom period. However, the position in relation to other countries’ now greater trade barrier protection raises genuine concerns among many exporters, particularly manufacturers, about Australia’s relative trade inequity and lack of competitiveness.

11.65 Examples of different tariff rates for packaged fruit are listed below in Table 11.2.72

Table 11.2. Tariff rates for packaged fruit* Tariff rates importing to Australia Tariff rates exporting from Australia Multiserve fruit Tariff China EU South Africa Peaches 5% 20% 18.4% 5% Pears 5% 20% 16.8–19.2% 5% Mixtures Free 20% 18.4–19.2% 5% * Source: SPC Ardmona submission, p3. 11.66 The fact that there may be a difference between tariffs paid by Australian companies exporting to China and Chinese companies exporting into Australia is important to the overall business performance of a company operating in both domestic and overseas markets and therefore on a company’s overall competitiveness. This is especially the case in relation to import substitutes.73

11.67 However, tariffs on imports to Australia do not have a direct impact on Australian export sales. The tariffs of other countries are the barrier for exporters. In particular, it is the rate of tariff compared to other competing countries that can be a major barrier.74

11.68 The Committee is aware of an argument that, when negotiating with other countries, Australia would benefit from having the ability to offer lower tariffs as a bargaining tool. While this may be true, Australia has already removed or greatly reduced many of its tariffs. Therefore, Australia could only regain this bargaining tool by increasing or reintroducing tariffs.

11.69 Research commissioned by the Department of Foreign Affairs and Trade suggests that Australia’s unilateral tariff reductions have provided a number of benefits to Australia, including to

70 Mr Bernard Brussow, Chief Executive Officer, IXL Group, Public Hearing, Geelong, 30 April 2014. 71 Department of Foreign Affairs and Trade, Benefits of Trade and Trade Liberalisation, Commonwealth of Australia, Canberra, 2009, p 7. 72 SPC Ardmona, Submission, Number 18, 17 April 2014, p 2. 73 That is, low tariffs on imported products make it more difficult to sell in the Australian market, while high tariffs overseas act as a barrier to exports, making it difficult for the company to sell in both markets. 74 SPC Ardmona, Submission, Number 18, 17 April 2014, p2.

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Australian exporters (though some individual sectors have experienced negative impacts).75 Representatives of the Department of Foreign Affairs and Trade informed the Committee that they consider Australia to possess other negotiating advantages. Further, they believed that the best way to tackle tariffs in countries where Australia is not negotiating FTAs is through World Trade Organisation agreements involving all nations.76

Finding 11.5

There is a disparity between community expectations regarding tariffs and the economic and policy conditions facing Commonwealth trade negotiations.

Recommendation 21

75 Department of Foreign Affairs and Trade, Benefits of Trade and Trade Liberalisation, Commonwealth of Australia, Canberra, 2009. 76 Department of Foreign Affairs and Trade / Austrade, Private Meeting, Canberra, 18 June 2014.

194 Chapter twelve: Promotion and branding

Findings

12.1

12.2

Victoria’s education promotion activities take place under the Study Melbourne brand. The ‘Melbourne’ brand is a strong marketing tool with the potential to attract international students and tourists to Victoria. It needs to be managed carefully, to ensure it effectively promotes regional Victoria’s higher education providers, including the different experience students can enjoy in a regional institution.

12.3

Awards can be an effective marketing tool for rural and regional exporters, enhancing Victoria’s reputation as a producer of high quality goods and services.

12.4

Marketing can be prohibitively expensive for individual businesses, especially SMEs. Marketing cooperatives are one method of mitigating this problem. The Committee heard a number of calls for the Victorian Government to facilitate these cooperatives. However, it was recognised that collaboration can be difficult.

Recommendations

Recommendation 22

12.29

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Recommendation 23

That the Victorian Government support the expansion of award and recognition programs with the potential to enhance rural and regional Victoria’s reputation in a way that promotes exports.

12.47

Promotion

12.1 Throughout this Inquiry the Committee heard that promoting Victoria overseas is a key responsibility of the Victorian Government. For example, both Sovereign Hill Museums Association1 and Bass Coast Shire Council2 argue that the Victorian Government should increase its promotion of regional Victoria in overseas tourism markets. Sovereign Hill’s Chief Executive Officer, Mr Jeremy Johnson, added that the lack of promotion of ‘cultural tourism’ (galleries, museums etc.) in general in Australia is a ‘blind spot’ but that cultural tourism is a potential growth area in Victoria.3

12.2 As discussed in Chapter 8, the Victoria Tourism Industry Council believes Victoria should increase promotion in the State’s ‘traditional’ tourism markets of the United Kingdom, Europe and the United States.4

12.3 The Committee for Greater Shepparton recommends that the Victorian Government partner with regions and industry bodies, to promote the quality of food produced in regional Victoria to overseas markets.5

12.4 The Victorian Government undertakes a considerable amount of promotion overseas. The fact that the effectiveness of this promotion is difficult to measure may explain why the vast majority of evidence received by the Committee can be distilled to a simple request for the Government to do more when it comes to promoting Victoria and Victorian exporters.

12.5 Ways in which the Victorian Government promotes regional Victoria overseas are discussed below.

Branding – national, state or regional? “I have seen boxes in mainland China that have ‘Product of Australia’, but they have photos of elephants and giraffes on them with a kangaroo.” Mr John Moore, Chief Executive Officer, Summerfruit Australia

12.6 The Committee received a wide range of evidence on the concept of branding; that is, a way of 1 Sovereign Hill Museums Association, Submission, Number 14, 16 April 2014. 2 Bass Coast Shire Council, Submission, Number 46, 5 May 2014. 3 Mr Jeremy Johnson, Chief Executive Officer, Sovereign Hill Museums Association, Public Hearing, Ballarat, 29 April 2014. 4 Victoria Tourism Industry Council, Submission, Number 27, 17 April 2014. 5 Committee for Greater Shepparton, Submission, Number 29, 17 April 2014.

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easily identifying the origins and attributes of a product, such as a logo or a phrase, that also enhances the reputation of that product. In terms of Victorian products, the evidence mostly related to the agribusiness sector and the best way of exploiting Victoria’s advantages – such as the State’s ‘clean and green’ reputation – as discussed in Chapter 2 of this report.

12.7 Effective branding distinguishes a Victorian product from a competitor’s in the international marketplace. In addition, a successful brand links producers with consumers. In a November 2013 presentation to the Rural Press Club of Queensland, Mr Mick Keogh, Executive Director of the Australian Farm Institute, said: To be successful [a brand] has to be a vehicle for two way communication that involves an understanding of consumer wants and desires, and identifies ways that characteristics of Australian farming satisfy those. It is definitely not just Australian farmers telling their story. And it is certainly not just an ‘Australian Made’ sticker added to a product label.6

12.8 Several witnesses mentioned New Zealand as an example of effective branding (as did Mr Keogh). Mr Michael Gobel from Wodonga City Council said: I travel a lot and I cannot help but notice when I go overseas – it does not matter whether it is Europe or whether it is North America – that if you are going into supermarkets where you are purchasing goods, you see ‘New Zealand’ all over the place. It does not matter whether it is wines or lamb or dairy or cheese or whatever, it is very, very prominent. I think the strength in their approach is that it is really a very clear message. There is only one New Zealand, so there is no confused branding, and it is clean and green. They position themselves, in terms of niche and marketing the message, really, really well.7

12.9 The Committee heard that one of the attributes of the New Zealand approach is that it presents a united or cohesive image (such as the ‘100% Pure New Zealand’ tourism brand). Mr Keogh added: In contrast to many of our competitors including New Zealand, Australia has a disjointed, State-by-State and commodity by commodity approach to trying to secure better trade access and to promote Australian agricultural products … It would be far better to have all these efforts and resources coordinated behind a single national brand.8

6 Keogh M, ‘Australian agriculture needs a brand and a brand champion’ Presentation to the Rural Press Club of Queensland, 28 November 2013. 7 Mr Michael Gobel, Consultant, Wodonga City Council, Public Hearing, Wodonga, 3 July 2014. 8 Keogh M, ‘Australian agriculture needs a brand and a brand champion’ Presentation to the Rural Press Club of Queensland, 28 November 2013.

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12.10 The Committee requested comment from the Victorian Farmers Federation on this issue, in particular in terms of advocacy groups in the agriculture sector. The VFF is of the view that while consolidation would be overwhelmingly positive, it should only be done in such a way as to minimise the risk of smaller, niche producers losing their voice.9

12.11 In recent years some agriculture sectors have used a ‘single importer’ model to achieve a national branding for their particular products. For example, until recently all Australian citrus exports to the United States were sold and branded as Australian through a single importer, DNE World Fruit Sales.10 This arrangement was phased out from 2013 onwards.11

12.12 In Sydney, the Committee met with Ms Samantha Jamieson from Meat and Livestock Australia. She explained that MLA has recently developed a new brand for Australian meat – ‘True Aussie’. This brand was developed to be a single brand replacing a variety of brands previously used in different markets. True Aussie remains restricted to beef, lamb and goat meat sold in export markets.12

12.13 The Royal Agricultural Society of Australia refers to a ‘fragmentation’ of the agriculture sector in Victoria, which has led to the absence of a ‘… clear and consistent brand and marketing in the international sphere’.13

12.14 Many participants in this Inquiry expressed support for more common branding of export products. However, opinion varied as to whether exports should be branded as originating in Australia, Victoria or a specific region in Victoria. This makes it difficult for the Committee to identify a clear consensus as to which level of branding would be most effective.

12.15 For example, Mr John Moore from Summerfruit Australia said that, when it comes to agribusiness, a strong national brand is preferable. He said that: “… there should a coherent national food brand that everyone can use”.14

12.16 In its submission to this Inquiry, the City of Ballarat argues the merits of a national brand across the whole economy, stating that ‘… being able to include some reference to Australia results in greater international customer engagement through a range of brand values that act across sectors, from food (clean, quality), tourism (outdoors, gold and indigenous) and education (value for money)’.15 The submission includes a comment that Federation University Australia, which recently adopted that name, believes that adding ‘Australia’ to its name engendered a stronger response in the

9 Mr Peter Tuohey, President, Victorian Farmers Federation, Personal Communication, 11 August 2014. 10 Moir B, Thompson N and Hogan J, Horticulture: Review of the export efficiency powers, Department of Agriculture, Fisheries and Forestry, Canberra, 2012. 11 ‘Minister approves export regulation phase-out for citrus’, Media Release, Senator Joe Ludwig, 21 December 2012. 12 Ms Samantha Jamieson, Collaborative Marketing Program Manager, Meat & Livestock Australia, Personal Communication, 24 June 2014. 13 Royal Agricultural Society of Victoria, Submission, Number 34, 24 April 2014, p 11. 14 Mr John Moore, Chief Executive Officer, Summerfruit Australia, Public Hearing, Wodonga, 3 July 2014. 15 City of Ballarat, Submission, Number 26, 17 April 2014, p 7.

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international marketplace.16

12.17 The Committee notes that individual businesses or sectors often choose to include their own region as part of their branding and marketing campaigns. In Victoria, this is particularly the case with the dairy industry, though there is still widespread use of the ‘Made in Australia’ brand.

12.18 Meat and Livestock Australia’s ‘True Aussie’ brand of meat exports is an example of one sector taking responsibility for its own branding, in this case choosing to align itself with a national identity.17

12.19 At a Commonwealth level, the Australian Government has funded the Building Brand Australia Program. The program, which is administered by Austrade, includes the Australia Unlimited website, designed to ‘… project an image of Australia as a confident and globally engaged business partner’. The Australia Unlimited brand was developed to be used in conjunction with other government and industry brand marks in fields such as: business; culture; design; environment; food; science; society; and technology.18

12.20 In May 2014, Austrade released results of a survey it carried out on the concept of a national food brand. Austrade spoke to industry and government stakeholders, both in Australia and overseas. A summary of the results can be found in Appendix 11 of this report.

12.21 Although Victoria has its own branding, generally using ‘Melbourne’ as its key focus (see below), there has also been a recognition of the importance of national branding. At a meeting of State, Territory and Commonwealth ministers with responsibility for trade and investment in February 2014, ministers ‘… agreed in principle to embrace a “Team Australia” approach in promoting Australian exports and investment opportunities during international trade shows and missions’.19

12.22 Other evidence regarding branding products as either Victorian or coming from a particular region of Victoria was more equivocal. While a number of participants expressed support for branding goods and services as Victorian or regional, the Committee also heard that Victoria and its regions are not well recognised internationally.

16 Ibid. 17 Ms Samantha Jamieson, Collaborative Marketing Program Manager, Meat & Livestock Australia, Personal Communication, 24 June 2014. 18 See: http://www.australiaunlimited.com/brand-australia/about-brand; accessed 21 July 2014. 19 ‘Ministers endorse national investment priorities’, Department of Foreign Affairs and Trade, Media Release, 14 February 2014.

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12.23 For example, Mr Moore supported a national brand because: For us, in international markets putting Gippsland on the product would be of no benefit and would probably be confusing. Melbourne, especially in a country like Malaysia, where there are a lot of students who have studied in Melbourne, is quite recognisable. With Victoria, is it Victoria in Canada or Victoria in Australia?20

12.24 The Victorian Government has expressed similar concerns, noting that Victoria, Australia can be confused with Victoria in Canada or, with respect to higher education, with Victoria University in New Zealand. In contrast, Melbourne ‘… has salience in key overseas markets and serves as a gateway for international visitors to engage with the rest of the State’.21

12.25 As a result, the Victorian Government has used a Melbourne branding for a number of its international promotion activities, even when these are promoting the whole of Victoria. This includes education, tourism and investment attraction (see below). The Government has also undertaken tourism marketing in China with the branding ‘Open Up to More – Melbourne’, though the Government notes that this has promoted regional Victoria as well as metropolitan Melbourne.22

Left to right: Branding used forthe international pages of www.visitvictoria.com and Invest Victoria, and Study Melbourne.

12.26 Some regional exporters have been concerned that this approach may marginalise regional Victoria. This is discussed in more detail in relation to Study Melbourne below.

12.27 The Committee heard evidence about the potential of a Victorian brand to exploit both Victoria’s and Australia’s competitive advantages. For example, SPC Ardmona recommends ‘… developing and promoting a brand for ‘Regional Victoria’ food products to further enhance the Brand Australia strategy’. SPC Ardmona cited, as an example, branding products as ‘Products of the Goulburn Valley, Victoria, Australia’. The company thought that including regional branding would benefit regional businesses by increasing awareness of regions’ products and better representing regional businesses at international trade shows.23

12.28 A similar idea was expressed by the East Gippsland Food Cluster, which used the term ‘branding

20 Mr John Moore, Chief Executive Officer, Summerfruit Australia, Public Hearing, Wodonga, 3 July 2014. 21 Victorian Government, Submission, Number 51, 11 June 2014. 22 Ibid. 23 SPC Ardmona, Submission, Number 18, 17 April 2014, p 2.

200 Rural and Regional Committee |Chapter twelve: Promotion and branding

hierarchies’. These hierarchies, it argued, should be shaped in such a way as to support regional Victoria’s regional branding at the ‘premium end’ of the marketplace,24 where it is increasingly important for discerning consumers to know and appreciate the ‘story’ behind a product and its environment.

12.29 However, overall Mr Moore’s statement above is reflective of much of the evidence received by the Committee. The impression the Committee takes from this Inquiry is that at this stage arguments against ‘Brand Victoria’ are easier to find than arguments for it.

Finding 12.1

Recommendation 22

Study Melbourne

12.30 The majority of evidence regarding branding received by the Committee covered promotion of Victorian agriculture’s ‘clean and green’ image (as discussed in Chapter 2 of this report). However, the Committee also discussed the ‘Study Melbourne’ brand.25

12.31 Study Melbourne is the Victorian Government’s overarching brand for its international education program. The Study Melbourne website provides information and advice on topics of interest, such as: Victoria’s education system; living in Melbourne; finding a job; and accommodation options. Although the website’s home page does contain the phrase ‘Study in Melbourne and Victoria’, the Committee notes that the vast majority of information on the website refers solely to Melbourne.26

12.32 It is clear that higher education providers understand the logic of using Melbourne branding. However, they also expressed concern over the impact of this approach on regional institutions.

12.33 In Shepparton, the Committee heard from Professor John Dewar, Vice-Chancellor, La Trobe University. Professor Dewar spoke about Melbourne’s popularity among overseas students compared to regional areas. He said: A lot of our international students themselves come from large Asian cities on the whole, so for them coming to a small regional Victorian town would probably be a bit of a culture shock. The industry tends to use Melbourne 24 East Gippsland Food Cluster, Submission, Number 22, 17 April 2014, p 10. 25 See: http://www.studymelbourne.vic.gov.au/; accessed 1 August 2014. 26 Ibid.

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as the brand to attract students to come to Victoria. In fact I think the State Government’s current brand campaign around international students is ‘Study Melbourne’; it is not ‘Study Victoria’. But that is probably because it addresses what in any case are the students’ preferences.27

12.34 Federation University Australia’s Professor Mike Willis indicated that the focus on Melbourne may be compounded by a lack of information about regional Victoria. He revealed: “Last year a university in China asked me if Ballarat had power and water.”28

12.35 In its submission to this Inquiry, La Trobe University suggests that regional campuses have the potential to attract international students, at least on a short-term basis. This could be achieved by encouraging students to undertake ‘for credit’ programs in regional Victoria as part of their courses.29 Federation University Australia and Deakin University both already have significant numbers of students at their regional campuses (see Chapter 3) and see potential for these numbers to grow.

12.36 While acknowledging the sound reasons for the Study Melbourne branding, La Trobe University in its submission notes that ‘… regional Victoria may find it difficult to build enrolments and export income without a mechanism to promote the distinctive benefits of a regional higher education experience’.30

12.37 Professor Willis from Federation University Australia noted Melbourne’s ability to attract overseas students but added: “The only thing we find difficult is we would like to do more and have more support about marketing the benefits of the regions internationally …”.31

12.38 Deakin University’s Vice-Chancellor, Professor Jane den Hollander, talked to the Committee about the Victorian Government’s International Education Strategy for Victoria 2013–2018.32 She argued that the Strategy is a “fantastic thing [but] the problem is ‘Victoria’ reverts to ‘Melbourne’ very quickly”.33 She agreed that ‘Melbourne’ is a very powerful brand but wondered if more could be done promoting specific areas in, for example, south-west Victoria, stating: … we might eventually bring something forward which better locates Geelong in Victoria. We spend a lot of time looking at how you sell Geelong and, might I also say, how you sell Warrnambool. We have genuine, world-class marine science and aquaculture. The food bowl – the future food bowl for the Northern Hemisphere – is around here. How

27 Professor John Dewar, Vice-Chancellor, La Trobe University, Public Hearing, Shepparton, 2 July 2014. 28 Professor Mike Willis, Pro-Vice Chancellor (International and Partnerships), Federation University Australia, Public Hearing, Ballarat, 29 April 2014. 29 La Trobe University, Submission, Number 36, 28 April 2014. 30 Ibid, p 3. 31 Professor Mike Willis, Pro-Vice Chancellor (International and Partnerships), Federation University Australia, Public Hearing, Ballarat, 29 April 2014. 32 See: http://dsdbi.vic.gov.au/__data/assets/pdf_file/0005/67064/PDF-International-Education-Strategy-2013-2018. PDF; accessed 1 August 2014. 33 Professor Jane den Hollander, Vice-Chancellor, Deakin University, Public Hearing, Geelong, 30 April 2014.

202 Rural and Regional Committee |Chapter twelve: Promotion and branding

do you sell Warrnambool when it does not get a mention? … We need to think about those things and we need to sell them better.34

12.39 Professor Jane den Hollander’s colleague, Mr John Molony, Executive Director of Deakin International, suggested that the Victorian Government should investigate whether there is room for the ‘Study Melbourne’ approach to be broadened in a way that further promotes rural and regional Victoria.35

12.40 In its submission to this Inquiry, Deakin University responds to 13 of the 19 initiatives contained in the International Education Strategy for Victoria 2013–2018, five of which relate to Study Melbourne. One of the suggestions is that a ‘Study Beyond Melbourne’ sub-brand be considered. That full submission is on the Rural and Regional Committee’s website (www.parliament.vic.gov. au/rrc).

12.41 The Victorian Government informed the Committee that its Study Melbourne brand is used to attract students both to Melbourne and regional Victoria.36 It believes that Melbourne ‘… serves as a gateway for international visitors to engage with the rest of the state’.37

12.42 The Government added that it regularly evaluates the efficacy of this approach. One of the methods it employs is ‘targeted engagement’ with regionally based higher education providers, whose feedback helps the Study Melbourne website to include up-to-date content on regional education centres (and tourist attractions), including social media content. The Government believes that this ensures ‘… regional opportunities are well represented and highlighted’.38

12.43 However, the comments from regional education providers listed above suggest that they do not all feel entirely comfortable with the current strategies. The Committee notes that studying at a regional university or TAFE provides a different experience to studying in metropolitan Melbourne. This difference is a potential selling point, but it is not clear that this can be captured effectively under the Study Melbourne brand.

Finding 12.2

Victoria’s education promotion activities take place under the study Melbourne brand. The ‘Melbourne’ brand is a strong marketing tool with the potential to attract international students and tourists to Victoria. It needs to be managed carefully, to ensure if effectively promotes regional Victoria’s higher education providers, including the different experience students can enjoy in a regional institution.

34 Ibid. 35 Mr John Molony, Executive Director, Deakin University International, Public Hearing, Geelong, 30 April 2014. 36 The International Education Strategy for Victoria 2013–2018 also contains four ‘strategic action areas’. One of these action areas is ‘marketing and branding’, which has as its aim: ‘To build Victoria’s international education profile in a crowded and competitive global market’, p 5. 37 Victorian Government, Submission, Number 51, 11 June 2014, p 37. 38 Ibid, p 38.

203 Rural and Regional Committee | Inquiry into Increasing Exports

Awards

12.44 One suggestion heard by the Committee for enhancing the reputation of Victorian goods and services involves integrating industry awards – from general business awards through to dedicated export awards – into promotional campaigns that highlight the quality of exports originating in rural and regional Victoria.39

12.45 The Royal Agricultural Society of Victoria believes that ‘… awards and medals from credible award programmes can be leveraged by Victorian businesses to denote quality and credibility in the export marketplace’. Its submission to this Inquiry includes four case studies of Victorian businesses it believes have successfully leveraged awards, to gain more success in the export market.40

12.46 The website for the Governor of Victoria Export Awards states that winning one of these awards ‘… gives your business recognition in the local and international marketplace’.41

12.47 Deakin University suggests that the Victorian International Education Awards42 would be an ideal way of showcasing the high standards of Victoria’s international education sector.43 Similarly, the Royal Agricultural Society of Victoria argues that the Victorian Government ‘… should include integrating the benchmarking results and identification of quality provided by award programs, to help improve the Victorian brand and to highlight premium product’.44

Finding 12.3

Awards can be an effective marketing tool for rural and regional exporters, enhancing Victoria’s reputation as a producer of high quality goods and services.

Recommendation 23

That the Victorian Government support the expansion of award and recognition programs with the potential to enhance rural and regional Victoria’s reputation in a way that promotes exports.

Marketing cooperatives ‘We are well regarded but not well differentiated.’ Austrade

12.48 For a brand to be effective it has to be marketed well. However, international marketing can be very expensive. For SMEs, such an expense may be prohibitive and therefore a barrier to exports.

39 Committee for Geelong, Submission, Number 21, 17 April 2014; Ms Sonia Smith, Submission, Number 42, 2 May 2014. 40 Royal Agricultural Society of Victoria, Submission, Number 34, 24 April 2014, p 4. 41 See: http://www.business.vic.gov.au/grants-and-assistance/awards/governor-of-victoria-export-awards-2014; accessed 1 August 2014. 42 See: http://awards.studymelbourne.vic.gov.au/; accessed 1 August 2014. 43 Deakin University, Submission, Number 25, 17 April 2014. 44 Royal Agricultural Society of Victoria, Submission, Number 34, 24 April 2014, p 11.

204 Rural and Regional Committee |Chapter twelve: Promotion and branding

For example, Mr Jeremy Johnson told the Committee that Sovereign Hill Museums Association spends around $2 million per year on marketing. Mr Johnson added that an attraction such as the Museum of Australian Democracy at Eureka, which is owned by the City of Ballarat, would need an annual marketing budget of $1.2–1.5 million to fully establish it as a tourist destination.45

12.49 One way to mitigate this problem is through establishing marketing cooperatives, where multiple (usually small) businesses jointly market their products and achieve the economies of scale needed to compete in the marketplace.46 In Geelong, the Committee spoke with Mr Roger Grant from Great Southern Touring Route, a collective of around 60 tourist organisations in south-west Victoria.47 Mr Grant told the Committee that each business contributes around $2,000 to the organisation, which gives them the type of global presence that they would find hard to achieve if acting individually. Mr Grant said that: “… working in a cooperative and collective sense allows us to engage particularly with the international travel trade”.48

12.50 In its submission to this Inquiry, Baw Baw Shire Council suggests the Victorian Government provide funding for a program to help develop ‘marketing cooperatives’. The Shire believes that such a program ‘… consisting of a number of businesses with shared overseas-based marketing staff could be beneficial and would assist with“ brand development” in new markets’.49

12.51 The Royal Agricultural Society of Victoria recommends a slightly different role for the Victorian Government, that of ‘… leading collaborative efforts to improve Victorian (and Australian) branding for international markets’.50 This collaborative approach, it argues, is particularly needed in the ‘fragmented’ agriculture sector. This fragmentation, it suggests, is ‘… part of the challenge in creating a clear and consistent brand and marketing approach in the international sphere’.51

12.52 Mr Sandy Harman, a TradeStart Adviser with the Export Council of Australia, noted that there is already some encouragement for collaboration coming from the Victorian Government, stating: “Some of the best State Government grants are available for groups of five or more …”. However, he found from his experience that: “… it is hard to get people to work together, especially if I want to get five winegrowers together. They all fight and argue.”52

12.53 The East Gippsland Food Cluster also considers that collaboration does not always come easily to Australia’s agriculture sector, stating: ‘Australia does not naturally reflect a “collaborative” culture.’ In recognition of this, the East Gippsland Food Cluster, which comprises 16 members, lists one its key principles as ‘… striving to achieve mutually beneficial outcomes for our businesses and community through collective effort, whilst respecting that there will sometimes be competitive

45 Mr Jeremy Johnson, Chief Executive Officer, Sovereign Hill Museums Association, Public Hearing, Ballarat, 29 April 2014. 46 Agribusiness Gippsland, Submission, Number 43, 2 May 2014. 47 See: http://www.greatsoutherntouring.com.au; accessed 1 August 2014. 48 Mr Roger Grant, Director, Great Southern Touring Route, Public Hearing, Geelong, 30 April 2014. 49 Baw Baw Shire Council, Submission, Number 33, 24 April 2014, p 2. 50 Royal Agricultural Society of Victoria, Submission, Number 34, 24 April 2014, p 4. 51 Ibid, p 11. 52 Mr Sandy Harman, TradeStart Adviser, Export Council of Australia, Public Hearing, Geelong, 30 April 2014.

205 Rural and Regional Committee | Inquiry into Increasing Exports

tensions’.53

Finding 12.4

53 East Gippsland Food Cluster, Submission, Number 22, 17 April 2014, p 6.

206 Appendix 1: Bibliography

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Grainger A, ‘Trade facilitation: a conceptual review’, Journal of World Trade, Vol 45, No 1, 2011, pp 39-62.

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208 Rural and Regional Committee |Appendix 1: Bibliography

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Committee for Economic Development of Australia & Regional Development Victoria, Reinventing the regions, Committee for Economic Development & Regional Development Victoria, Melbourne, 2013.

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‘Australian coalmining is entering ‘structural decline’, reports says’, The Guardian, 6 May 2014.

209 Rural and Regional Committee | Inquiry into Increasing Exports

‘Australia’s free trade agreement with South Korea should be scrutinised’, The Guardian, 20 February 2014.

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www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/ rp1314/ForeignInvest

210 Rural and Regional Committee |Appendix 1: Bibliography

www.firb.gov.au/content/who.asp?NavID=48 unctadstat.unctad.org/wds/ReportFolders/reportFolders.aspx?sCS_ChosenLang=en www.csu.edu.au/go/murraydarlingpartnership insight.regionalaustralia.org.au www.regionalaustralia.org.au/research-policy/insight www.rdv.vic.gov.au/information-portal www.business.vic.gov.au/export www.exportfinance.gov.au http://www.immi.gov.au/Visas/Pages/457.aspx http://www.dfat.gov.au/publications/trade/trade-at-a-glance-2013/trade_policy_at_a_glance/ part07_intellectual_property.html http://www.transport.vic.gov.au/freight/freight-projects-and-initiatives/msis http://www.transport.vic.gov.au/freight/freight-projects-and-initiatives/murray-basin-rail-project https://www.nhvr.gov.au/road-access/performance-based-standards/about-performance-based- standards http://www.mailtimes.com.au/story/1693249/wimmera-container-liner-below-target-in-its-first-year- at-dooen/?cs=225 http://www.logicwodonga.com.au/ http://www.wda.org.au/images/Remote%20Data%20Use%20in%20Agriculture%20-%20Final%20 Report.pdf http://www.environment.gov.au/topics/water/rural-water/sustainable-rural-water-use-and- infrastructure/farm-irrigation-efficiency https://www.veet.vic.gov.au/Public/Public.aspx?id=Home http://rdagippsland.com.au/gippsland-food-plan-launched-28-march-2014 http://dsdbi.vic.gov.au/our-department/organisational-structure/red-tape-commissioner http://www.business.vic.gov.au/grants-and-assistance/programs/victorian-government-business- offices http://www.invest.vic.gov.au/offices http://www.austrade.gov.au/About-Austrade http://www.business.vic.gov.au/grants-and-assistance/programs/trade-missions http://www.dfat.gov.au

211 Rural and Regional Committee | Inquiry into Increasing Exports

http://www.rirdc.gov.au/docs/default-document-library/nri-north-asia-fta-benefits.pdf

http://www.australiaunlimited.com/brand-australia/about-brand

http://www.studymelbourne.vic.gov.au/

http://dsdbi.vic.gov.au/__data/assets/pdf_file/0005/67064/PDF-International-Education- Strategy-2013-2018.PDF

http://www.business.vic.gov.au/grants-and-assistance/awards/governor-of-victoria-export- awards-2014

http://awards.studymelbourne.vic.gov.au/

http://www.greatsoutherntouring.com.au

212 Appendix 2: Submissions

Number Name/Organisation Location Date 01 Mr Adrian Kidd Mildura 5/2/14 02 Pyrenees Hay Processors Co-Op Avoca 26/2/14 03 RACV Melbourne 25/3/14 04 Wakefield Transport Group Merbein 10/4/14 05 Great Southern Touring Route Geelong 10/4/14 06 SPE Management Pakington 10/4/14 07 McCain Foods Wendouree 11/4/14 08 Latrobe City Council Morwell 11/4/14 09 RDA Barwon South West Geelong 15/4/14 10 Mr Mac Fergusson Caulfield 16/4/14 11 Glenelg Shire Council Hamilton 16/4/14 12 Surf Coast Shire Council Torquay 16/4/14 13 Mr Don Lawson Mansfield 16/4/14 14 Sovereign Hill Museums Association Ballarat 16/4/14 15 Wodonga City Council Wodonga 16/4/14 16 G21 Agribusiness Forum Geelong 17/4/14 17 Export Council of Australia Sydney 17/4/14 18 SPC Ardmona Camberwell 17/4/14 19 Wimmera Development Association Horsham 17/4/14 20 Federation University Australia Ballarat 17/4/14 21 Committee for Geelong Geelong 17/4/14 22 East Gippsland Food Cluster Bairnsdale 17/4/14 23 Horsham Rural City Council Horsham 17/4/14 24 Australian Fodder Industry Association Melbourne 17/4/14 25 Deakin University Geelong 17/4/14 26 City of Ballarat Ballarat 17/4/14 27 Victoria Tourism Industry Council Melbourne 17/4/14 28 South Gippsland Shire Council Leongatha 17/4/14 29 Committee for Greater Shepparton Shepparton 17/4/14 30 Victorian Agribusiness Council Leongatha 17/4/14 31 Nestlé Sydney 17/4/14 32 Shipping Australia Sydney 17/4/14 33 Baw Baw Shire Council Warragul 24/4/14

213 Rural and Regional Committee | Inquiry into Increasing Exports

34 Royal Agricultural Society of Victoria Melbourne 24/4/14 35 Victorian Farmers Federation Melbourne 28/4/14 36 La Trobe University Melbourne 28/4/14 37 Victorian Caravan Parks Association Melbourne 28/4/14 38 Mr Murray Davis Dergholm 30/4/14 39 VECCI Melbourne 30/4/14 40 Destination Phillip Island Cowes 2/5/14 41 Mansfield Shire Council Mansfield 2/5/14 42 Ms Sonia Smith Ballarat 2/5/14 43 Agribusiness Gippsland Warragul 2/5/14 44 Champions of the Bush Cudgee 2/5/14 45 Victorian Association of Forest Industries Melbourne 5/5/14 46 Bass Coast Shire Council Wonthaggi 5/5/14 47 Food & Fibre Supply Chain Institute Werribee 9/5/14 48 Great South Coast Group Warrnambool 16/4/14 49 Mr Paul McPhee Ballarat 26/5/14 50 RMIT University Hamilton Hamilton 27/5/14 51 Victorian Government Melbourne 11/6/14

214 Appendix 3: Public consultation program: witnesses

8 April 2014 Hamilton Public Hearing 9 April 2014 Hamilton Site Visits 9 April 2014 Portland Site Visits 10 April 2014 Warrnambool Site Visit 29 April 2014 Ballarat Public Hearing 29 April 2014 Ballarat Site Visits 30 April 2014 Geelong Public Hearing 5 May 2014 Melbourne Public Hearing 26 May 2014 Geelong Site Visit 3 June 2014 Moe Public Hearing 3 June 2014 Heyfield Site Visit 3 June 2014 Traralgon Site Visit 4 June 2014 Wonthaggi Public Hearing 16 June 2014 Sydney Briefings 17 June 2014 Sydney Briefings 18 June 2014 Canberra Briefings 23 June 2014 Melbourne Public Hearing 1 July 2014 Tahbilk Site Visit 1 July 2014 Tatura Site Visit 1 July 2014 Ardmona Site Visit 2 July 2014 Shepparton Public Hearing 3 July 2014 Wodonga Public Hearing 3 July 2014 Wodonga Site Visit

8 April 2014 Hamilton – Public Hearing

Name Position Organisation Mr Hugh Koch Manager Economic Southern Grampians Shire Development Council Ms Paige Smallacombe Agribusiness Development Southern Grampians Shire Officer Council Mr Phil Schultz Manager Hamilton Techwool Ms Elisabeth Cuming Owner Grampians Pure Sheep Dairy Mr David Whyte Branch Manager Elders International Trading Mr Cameron Hall General Manager for Trading Elders International Trading

215 Rural and Regional Committee | Inquiry into Increasing Exports

Mr Andy Smith Director Grampians Sandstone Mr Frank Yang Mr Sand Liu Mr Mark Diedrichs Regional Manager Australian Blue Gum Plantation Mr Graham Ryan Managing Director Ryans Group Mr Richard van Bergeijk Specialised Services Manager Ryans Group Mr Murray Davis Farmer Dergholm 9 April 2014 Hamilton Site Visits

Name Position Organisation Dr Kaye Scholfield Senior Manager Community RMIT University Hamilton Partnerships and Projects Ms Mary Johnson Research Fellow RMIT Rural & Regional Futures Research Group Mr Ronnie Calvert Murray Basin Commercial Iluka Resources Manager

9 April 2014 Portland Site Visits

Name Position Organisation Mr Malcolm Geier Business Development Manager Port of Portland Mr Craig Cochrane Terminal Manager GrainCorp Mr Geordie Cook Operations Manager GrainCorp Mr Shaun Williams Container & Export customer GrainCorp Manager Ms Sharon Kelsey Chief Executive Officer Glenelg Shire Council Mr Stephen Kerrigan Acting Group Manager Glenelg Shire Council of Planning and Economic Development

10 April 2014 Warrnambool Site Visit

Name Position Organisation Mr Noel Kelson Quality Assurance Manager Midfield Group

216 Rural and Regional Committee |Appendix 3: Public consultation program

29 April 2014 Ballarat Public Hearing

Name Position Organisation Mr Jeremy Johnson Chief Executive Officer Sovereign Hill Museums Association Professor Mike Willis Pro-Vice Chancellor Federation University Australia (International and Partnerships) Dr Paul McPhee Lecturer in Economics Federation University Australia Mr Jim Fraser Deputy Chair Central Highlands Agribusiness Forum Mr Andrew Edmonston Sales and Commercial Gekko Systems Manager and Company Secretary Mr Sean Cameron Manager Economic City of Ballarat Development Dr Timothy James Manager SED Advisory Mr Bruce Edward Managing Director Ferndale Confectionery Mr Murray McIntyre Managing Director Tradelink Asia Ms Sonia Smith Mr Tim Grandfield Business Development and Ballarat Regional Tourism Events 29 April 2014 Ballarat Site Visits

Name Position Organisation Mr David Leevers Export Manager McCain Foods Australia Mr Gerrard Richmond Director of Business Process McCain Foods Australia Mr Michael Smith McCain Foods Australia Mr Darryn Schultz McCain Foods Australia Mr Paul Buttler General Manager – MaxiTRANS Manufacturing 30 April 2014 Geelong Public Hearing

Name Position Organisation Ms Keelie Hamilton Co-ordinator, Economic City of Greater Geelong Development Unit Mr Roger Grant Director Great Southern Touring Route Mr Brendan Sanders Destination Officer Tourism Greater Geelong and the Bellarine

217 Rural and Regional Committee | Inquiry into Increasing Exports

Ms Elaine Carbines Chief Executive Officer G 21 Mr Nigel Harper Regional Strategic Manager RDA Barwon South West Ms Clare Cartledge Development Officer RDA Barwon South West Mr Nick Stanley Chief Executive Officer Sky Software Mr Sandy Harman TradeStart Adviser Export Council of Australia Mr Peter Dorling Business Manager Avalon Airport Professor Jane den Hollander Vice-Chancellor Deakin University Mr Gary Heyden Director Deakin Research Commercial Mr John Moloney Executive Director Deakin University International Mr David Owen General Manager VCAMM Mr Ian Bridger Program Manager VCAMM Mr David Thornton Manager Thornton Engineering Mr Russell Coad Chair G21 Agribusiness Forum Mr Jake Dingle Chief Executive Officer Carbon Revolution Mr Bernard Brussow Chief Executive Officer IXL Group 5 May 2014 Melbourne Public Hearing

Name Position Organisation Mr Tyran Jones President United Dairyfarmers Victoria Mr Peter Hunt Executive Policy Manager Victorian Farmers Federation Mr Jacob McElwee Senior Policy Adviser Victorian Farmers Federation Professor Ross Garnaut Professorial Research Fellow in University of Melbourne Economics Mr Colin Radford Partner, Government Services Deloitte Professor German Spangenberg Co-Director Agribio 26 May 2014 Geelong Site Visit

Name Position Organisation Mr John Murray General Manager – Ports Patrick Ports and Stevedoring Mr Ken Stanley Operations Manager/Port GeelongPort Security Officer 3 June 2014 Moe Public Hearing

Name Position Organisation Mr Peter Kulich Economic Development Baw Baw Shire Council Coordinator Mr Simon Gatt General Manager Gippsland HPV Plantations Mr Ross Bertoli General Manager Hydro Australia

218 Rural and Regional Committee |Appendix 3: Public consultation program

Mr Adam Moore Managing Director Bonkers Retail and Baby Royale Mr Paul Ford Chair Agribusiness Gippsland Ms Sue Webster Executive Officer Agribusiness Gippsland Ms Donna Taylor Coordinator Business Latrobe City Council Development Mr Mary Aldred Chief Executive Officer Committee for Gippsland Mr Ben McLean Supply Chain Development Australian Paper Manager 3 June 2014 Heyfield Site Visit

Name Position Organisation Mr Dave Gover Operations Manager Australian Sustainable Hardwoods 3 June 2014 Traralgon Site Visit

Name Position Organisation Mr Keith Douglas Chief Executive Officer GippsAERO Ms Reena Dahiya Chief Financial Officer GippsAERO Mr George Morgan Director GippsAERO Ms Marguerite Morgan Product Release Manager GippsAERO GA8/GA10 & Regional Business Development Manager - China 4 June 2014 Wonthaggi Public Hearing

Name Position Organisation Mr Jon McNaught Secretary Gippsland Resources Infrastructure Development Ms Roslyn Jenzen Economic Development Bass Coast Shire Council Coordinator Ms Teresa Mahood Acting Tourism Manager Bass Coast Shire Council Mr Jack Jiang Chief Executive Officer Tabro Meats Mr Shaun Brorsen Deputy Chief Executive Officer Tabro Meats Mr Ashleigh Martin Chief Operations Officer Tabro Meats Mr Craig Nuske Commercial Manager Longwarry Food Park Mr Ken Fraser Economic Development South Gippsland Shire Council Coordinator Ms Kim Storey General Manager Destination Phillip Island Ms Nicoleta Giurgiu Sales & Marketing Manager Phillip Island Nature Parks

219 Rural and Regional Committee | Inquiry into Increasing Exports

16 June 2014 Sydney Briefings

Name Position Organisation Mr Geoff Honey Chief Executive Officer Grain Trade Australia Ms Samantha Jamieson Stakeholder Relations Manager Meat & Livestock Australia Mr John Wotton Executive Director Australia Korea Business Council Mr Angus Armour Deputy Secretary NSW Trade and Investment Mr Chris Hanger Director Office of Regional Development Mr Andrew Watson Executive Director SME Export Finance and Insurance Corporation Ms Amelia Joyner Adviser, Government and Export Finance and Insurance External Relations Corporation 17 June 2014 Sydney Briefings

Name Position Organisation Mr Tim Reardon Deputy Director General, Policy Transport for NSW & Regulation Ms Joyce DiMascio Chief Executive Exhibition & Event Association NSW Mr Rod Nairn AM Chief Executive Officer Shipping Australia Mr Peter Mace General Manager Export Council of Australia 18 June 2014 Canberra Briefings

Name Position Organisation Mr Ross Bray Trade Manager - Food and Department of Foreign Affairs Consumer and Trade / Austrade Mr James Wiblin Director Food Trade and Quarantine Section, Department of Foreign Affairs and Trade Ms Helen Stylianou Assistant Secretary Services and WTO Trade Policy Branch, Department of Foreign Affairs and Trade Mr Paul Fairhall Senior Adviser (Investment) Agribusiness and Food, Department of Foreign Affirs and Trade Mr Charles Adamson Department Liaison Officer Office of the Minister for Trade and Investment

220 Rural and Regional Committee |Appendix 3: Public consultation program

Mr Lyall Howard Senior Adviser Office of the Minister for Trade and Investment Mr Greg Evans Deputy Chief Executive Universities Australia Ms Keely Dreghorn Poliyc Analyst Universities Australia Mr Paul Morris First Assistant Secretary (Chair) Agricultural Competitiveness Taskforce Mr David Turvey Assistant Secretary Agricultural Competitiveness Taskforce Mr Andrew McDonald Assistant Secretary Agricultural Competitiveness Taskforce Professor Don Markwell Senior Adviser for Higher Office of the Minister of Education Education Mr Mick Stephens Strategic Policy Manager, Pulp Australian Forest Products and Paper Association Mr Gavin Matthew Manager - Processing Australian Forest Products Association

23 June 2014 Melbourne Public Hearing

Name Position Organisation Ms Shalini Valecha Strategic Manager SPC Ardmona Mr Steve Mickan Sales Director SPC Ardmona Mr Steve Harper Regional Sales Director Asia SPC Ardmona Dr Greg Walsh Chairman Champions of the Bush Mr Alex Arbuthnot AM Deputy Chair of the Board Victorian Agribusiness Council Ms Bronwyn Debenham Executive Officer Victorian Agribusiness Council Ms Collins Rex State Manager Victoria/ Export Council of Australia Tasmania Mr Mac Fergusson

1 July 2014 Tahbilk Site Visit

Name Position Organisation Mr Alister Purbrick Chief Executive Officer The Tahbilk Group Mr Andrew McPherson Chief Executive Officer Ozpak

221 Rural and Regional Committee | Inquiry into Increasing Exports

1 July 2014 Tatura Site Visit

Name Position Organisation Mr Stuart Pickworth Owner Pickworth Orchards

1 July Ardmona Site Visit

Name Position Organisation Mr Andrew Maughan National Business Manager Holman Fresh

2 July 2014 Shepparton Public Hearing

Name Position Organisation Mr Steven Schoots Owner 3D FilmPro Mrs Nicola Schoots Owner 3D FilmPro Ms Geraldine Christou Manager Investment Attraction City of Greater Shepparton Mr Ken Wakefield Managing Director Wakefield Transport Group Mr Michael Auld Chairman & Managing Director Australian Consolidated Milk Mr Paul Ingleby Director Australian Consolidated Milk Mr Chris Macbeth Site Manager Tatura Tatura Milk Mr Stewart Carson Planning Manager Bega Group Tatura Milk Mr Matt Nelson Chief Executive Officer Committee for Greater Shepparton Mr David McKenzie Chair Committee for Greater Shepparton Mr Chris Norman Chief Executive Officer Goulburn Broken Catchment Management Authority Mr Peter Gray Manager Kreskas Bros Transport Mr Peter Hill Governance, Risk & Kreskas Bros Transport Compliance Manager Ms Sue McKenzie Co-Founder Riversdale Organic Farm Mr Linton Ryan General Manager Ryan Meat Company Professor John Dewar Vice-Chancellor La Trobe University Mr John Wilson General Manager Fruit Growers Victoria Mr Andrew Plunkett General Manager Plunkett Orchards Mr Taylor Hall Transport Manager Valley Pack Cold Storage

222 Rural and Regional Committee |Appendix 3: Public consultation program

3 July 2014 Wodonga Public Hearing

Name Position Organisation Mr Michael O’Loughlin Chief Executive Officer Wodonga TAFE Mr Bryan Blake Executive Director Wodonga TAFE Mr Ray Hortle Business Development Manager RDV Hume Ms Patience Harrington Chief Executive Officer City of Wodonga Mr Michael Gobel Consultant City of Wodonga Mr Anthony Ainsworth Supply Chain Manager Vitasoy Mr John Moore Chief Executive Officer Summerfruit Australia

223 Rural and Regional Committee | Inquiry into Increasing Exports

224 Other areas / General areas Other government’s ‘The primary is to maintain role including infrastructure communications, rail, roads, and services in townships to township life and promote growth.’ Tourism Ports Rail Proposed government support for government support for Proposed

Key transport links needed: transport Key corridor; Dandenong rail duplication of regional highways; interstate construction of the Shepparton bypass. Roads Roads Roads Rail Ports charges) (including Tourism comments. and general areas Other • • • • • Mr Adrian Kidd RACV Organisation infrastructure Appendix 4: Appendix include: covered areas needs. Infrastructure submissions to this Inquiry the on identified infrastructure from table below collates proposals The

225 Rural and Regional Committee | Inquiry into Increasing Exports 1 See: http://www.glenelg.vic.gov.au/files/Green_Triangle_Region_Freight_Action_Plan.pdf; accessed 21 July 2014. Don Lawson Coast ShireSurf Council Glenelg Shire Council South WestRDA Barwon Council Latrobe City SPE Management Group Wakefield Transport Highway. Upgrade the Melba Torquay.’ Ocean Road Journey in commence their Great directing visitors to the Geelong Bypass ‘Improved signage along Australian border.’ from Colac to the South the Princes Highway be the duplication of ‘A long term goal would south-west Victoria. Improve local roads in freight line. Upgrade the Sunraysia freight line.’ Heywood–Penola rail of the re-opening ‘Advocate for the regional businesses.’ access are barriers for challenges, cost and port and infrastructure ‘In relation to transport competitively priced.’ throughwe export are ‘Ensure which the ports Victoria. facilities in south-west Invest in intermodal Action Plan.’ Triangle Region Freight are outlined in the Green investment in road and rail ‘Priorities for ongoing 1

226 Rural and Regional Committee |Appendix 4: Proposed government support for infrastructure ‘Governments have a role in ‘Governments have a role that delivering infrastructure enhances competitiveness and access to markets vital to global that are competitiveness.’ ‘Provide support for ‘Provide and Logic operator rail industrial estate to increase export capacity of Wodonga.’ ‘Maintenance of the lines is critical to the rail efficiency of transporting to markets. grain Critical issues include congestion in the the port system, metropolitan access and ‘last mile’ (in)efficiencies, weight and speed restrictions due to maintenance of and of infrastructure, the inefficiencies of the course dual gauge systems.’ the ‘State Government support for logic industrial estate including for infrastructure and services such as roads furthergas gate, to attract industry to Wodonga.’ ‘The continuation of the continuation of the ‘The Western duplication of the Highway between Buangor and Stawell. The task on this highway freight with communityis growing, safety issues, as well as cost effectiveness of for grains transport road The produce. and other travel duplication reduces time between region the Portand the of Melbourne and markets.’ City of Wodonga G21 Agribusiness G21 Forum Wimmera Wimmera Development Association

227 Rural and Regional Committee | Inquiry into Increasing Exports Council Rural City Horsham export markets.’ export of Melbourne and the Port the regionbetween and help to reduce travel time Buangor and Stawell will Western Highway between ‘The duplication of the Incentive Scheme.’ to fund the Mode Shift State Government continue ‘… it is imperative that the freight.’ alternative routes for rail rolling stocks and open up utilisation of currentbetter gauge; this would allow for more rail lines to standard are needed to upgrade ‘Further improvements upgrading.’ of line that needs major has an 80 kilometre section of Melbourne and the Port Intermodal Freight Terminal the Wimmerabetween ‘Currently the main rail line

228 Rural and Regional Committee |Appendix 4: Proposed government support for infrastructure ‘Critical issues include congestion in the the port system, metropolitan access and ‘last mile’ (in)efficiencies, weight and speed restrictions due to maintenance of and of infrastructure, the inefficiencies of the course dual gauge systems.’ the ‘To assist the growth of the of the growth assist the ‘To export fodder industry in government Victoria the that there needs to ensure is continued investment in In particular, focus roads. and on access for larger efficient vehicles (b more trains) doubles and road and over dimensional also should loads. This of include consideration access to ports which is critical to continuing growth exportin the hay sector.’ Australian Australian Industry Fodder Association

229 Rural and Regional Committee | Inquiry into Increasing Exports Shepparton for Greater Committee Shire Council Gippsland South Council Industry Tourism Victoria needs of local roads.’ to understand the freight to work with local industry assistance for municipalities more and support governments providing ‘There is merit in Melbourne].’ by rail [of into the Port of freightin the delivery achieve greater efficiency ‘More work is required to attractions.’ accommodation and sector investment, in new required, including private infrastructure will be … significantly more and their requirements with international visitors local operators in dealing visitors but also assist the area to international critical role to promote ‘Governments have a destinations accessible.’ transport, to make regional public particularly services, improvements to existing of good infrastructure and through timely provision as competitive possible ‘Assist in becoming industry

230 Rural and Regional Committee |Appendix 4: Proposed government support for infrastructure ‘SAL members believe ‘SAL members is [Portthe Licence Fee] on exporters’ a burden (and importers’) ability to compete with other has a nations and arguably impact on regional heavier trade.’ of port costs review ‘A be undertaken to should see if export costs can be an or [provide] reduced time for first initial grant exporters to assist with freight.’ Port of the of ‘Oversight Melbourne lease. ‘Invest Port of Melbourne into critical lease revenue for regional infrastructure exports.’ Supply chain infrastructure: Supply chain infrastructure: Melbourne to Brisbane and Project Inland Rail Port access to the of direct Melbourne by rail. Mode Shift Incentive The to ‘… is helping Scheme shift the to rail encourage which is vital transport viability future of for the exports’. regional ‘Staged standardisation network rail on an of the industry needs basis. VFF has identified that ‘The needs to at least $250m be invested to standardise Mildura the and upgrade line and build a new link Donald to Murtoa. from 2 ‘Regional studies to studies ‘Regional B-double improve access and facilitate high productivity vehicles (HPVs).’ Supply chain infrastructure: Supply chain infrastructure: Continued duplication Goulburn Valley of the Highway and Shepparton bypass. mass limits on ‘Increase 68.5 to B-doubles from tonnes.’ 74.5 Number 26, 17 April Committee City informed the that it is developing its policy for HPV 17 of Ballarat access: City, Submission, Number 26, of Ballarat The April 2014. 17 Submission, Number 29, 2014. The Committee for Greater Shepparton reports that transport operators estimate HPVs may increase productivity Shepparton by up to 30 per cent vehicle: Committee, may increase for Greater estimate HPVs Shepparton Committee operators that transport reports for Greater The Shipping Australia Baw Shire Council Victorian Farmers Federation 2

2 31 Rural and Regional Committee | Inquiry into Increasing Exports 3 NB. Commonwealth funding. Association Parks Caravan Victorian Board Tourism Regional Phillip Island efficiency.’ freightimprove dairy Gippsland Highway to ‘Upgrade the South Murrayville and Pinnaroo.’ Australian line between connecting the South freight lines should include ‘Standardisation of the great effect.’ swimming pools, etc to adventure playgrounds, parks, conference facilities, such as children’s water already funded projects tourism. Such grants have greater levels of regional the visitor experience attract upgrades that will enhance to assist in funding park operators of caravan parks T-QUAL and TIRF grants to funding available through ‘Expand the levels of the attraction sites.’ for visitors to move around on Island transport system and lack of VLINE services region from Melbourne via Barrier: ‘Access to the 3

232 Rural and Regional Committee |Appendix 4: Proposed government support for infrastructure ‘Policy should maintain a focus should ‘Policy need to maintain and on the feeder links into food improve and consider areas production opportunities to develop local hubs in distribution freight conjunction with enterprise supply to reduce clusters costs and to facilitate efficient access to new markets. ‘Establish a regional ‘Establish a regional targeted stream funding public investment toward on public land to progress development of tourism investment opportunities of significance in Alpine National Park.’ an investment ‘Provide incentive to kick start private enterprise solutions to transport Victoria including regional Mansfield, to cater for the – The international market Bus.’ Adventure Mansfield Shire Mansfield Shire Council Agribusiness Gippsland

233 Rural and Regional Committee | Inquiry into Increasing Exports Industries of Forest Association Victorian the estimates.’ forward upgraded each year over of timber roads to be for the number of kilometres with a quantitative target set Improvements), Network Local Infrastructure (Road Transport, Planning and of for the Department Deliverables Quantity a Major Outputs/ roads be included as ‘That maintaining forestry disadvantaged.’ arethe Geelong Port not throughwanting to export to ensure local exporters and international ports against other domestic chargesassess their port ‘That the Geelong Port sourced products.’ at 7:45am for regionally time slots to be available to allow more country assess their time slot systems ‘That of Melbourne the Port industry.’ wood and paper products development of the forest, supply chain to underpin the requirements across the infrastructureand ports) the transport (i.e. road, rail to identify with industry, a strategicundertake study, ‘That the Government grain.’ near Sale for grain / feed shipments, and anotherforestry future horticulture, mining and Hillside, near Bairnsdale for establish intermodal links at ‘Another need would be to a third at Tooradin. airport base while also investigating flights using RAAF East Sale the benefits of civilian freight should advocate to Canberra ‘The Victorian Government

234 Rural and Regional Committee |Appendix 4: Proposed government support for infrastructure ‘Secure new international ‘Secure airline services to Melbourne. Expand the Melbourne Expand the Convention and Exhibition to allow more Centre, events accessible trade Victorian to regional businesses to be held. ‘Fund the Phillip Island the ‘Fund infrastructure Park Nature development Summerlands Peninsula Master Plan Penguin including 2012 upgrade.’ Parade Development of rail freight freight Development of rail Melbourne Portinto the as a sustainable alternative to road. Works to allow axle Works to weights to increase tonnes: completion 23 of bridge surveys; and Morwell River bridge upgrade. to Support upgrades (est Maryvale siding rail $1.5m). Install automated / spur rail interlocked connection to main line (est $700k). spur upgrades Support rail (est $0.6 m). Maryvale spur rail Transfer maintenance to VicTrack. ‘Provide good road and good road ‘Provide access.’ public transport 4 Presentation to the Committee to the in Moe, 3 June 2014. Presentation 4 Bass Coast Shire Bass Coast Shire Council Australian Paper Paper Australian Ms Joyce DiMascio, Chief Executive, Exhibition and Event Association of Australasia

235 Rural and Regional Committee | Inquiry into Increasing Exports

236 Appendix 5: Competitiveness: firms, regions and productivity

Regions differ from firms in several ways, including: • In most regions, the vast bulk of goods and services are consumed by the region itself rather than exported, whereas most of what a firm produces is sold outside the firm • Whereas different firms are usually clearly distinct, economic activity often goes across the boundaries of regions, which reduces the meaningfulness of comparing one region with another • Trade between regions is not necessarily a ‘zero-sum game’. The success of one region’s economy does not necessarily come at the expense of another’s – in fact, because ‘competitor’ regions are often also major trading partners, the success of one region can benefit another • Regions do not have clearly defined ‘bottom-lines’ in the way that firms do, making it difficult to measure a region’s ‘success’.1 As a result, some academics consider that the concept of competitiveness is not meaningful when applied to regions.2 Others have sought to define and calculate the competiveness (or the competitive advantage) of regions differently to the way that it is defined or calculated for firms.3

Many definitions of regional or national competitiveness emphasise productivity. In the modern world, where ideas, technology, labour and capital can be moved from one region to another, productivity can be an important factor determining where firms operate.4 As Michael Porter has explained, ‘Nations compete in providing a platform for operating at high levels of productivity and therefore attracting and retaining an ample investment in those activities that support high returns to capital and high wages.’5

1 Krugman, Paul, ‘Competitiveness: A Dangerous Obsession’, Foreign Affairs, Vol 73, 1994, pp 31, 34; Snowdon, Brian and George Stonehouse, ‘Competitiveness in a globalised world: Michael Porter on the microeconomic foundations of the competitiveness of nations, regions and firms’, Journal of International Business Studies, Vol 37, 2006, pp 164-5; Bristow, Gillian, ‘Everyone’s a “winner”: problematising the discourse of regional competitiveness’, Journal of Economic Geography, Vol 5, 2005, p 296. 2 Krugman, Paul, ‘Competitiveness: A Dangerous Obsession’, Foreign Affairs, Vol 73, 1994, p 44; Berger, Thomas ‘Concepts of national competitiveness’, Journal of International Business and Economy, Vol 9, 2008, p 92. 3 For overviews, see Berger, Thomas ‘Concepts of national competitiveness’, Journal of International Business and Economy, Vol 9, 2008, pp 91-111; Bristow, Gillian, ‘Everyone’s a “winner”: problematising the discourse of regional competitiveness’, Journal of Economic Geography, Vol 5, 2005, pp 285-304; Budd, Leslie and Amer K. Hirmis, ‘Conceptual Framework for Regional Competitiveness’, Regional Studies, Vol 38, 2004, pp 1015-28. 4 Snowdon, Brian and George Stonehouse, ‘Competitiveness in a globalised world: Michael Porter on the microeconomic foundations of the competitiveness of nations, regions and firms’, Journal of International Business Studies, Vol 37, 2006, p 167; Berger, Thomas ‘Concepts of national competitiveness’, Journal of International Business and Economy, Vol 9, 2008, p 93; Budd, Leslie and Amer K. Hirmis, ‘Conceptual Framework for Regional Competitiveness’, Regional Studies, Vol 38, 2004, p 1021. 5 In Snowdon, Brian and George Stonehouse, ‘Competitiveness in a globalised world: Michael Porter on the microeconomic foundations of the competitiveness of nations, regions and firms’, Journal of International Business Studies, Vol 37, 2006, p 165 (cf. p 167).

237 Rural and Regional Committee | Inquiry into Increasing Exports

Following this approach, the World Economic Forum has defined a country’s competitiveness as: ‘… the set of institutions, policies, and factors that determine the level of productivity of a country.’6 The Forum’s report on global competitiveness explains that:

The level of productivity, in turn, sets the level of prosperity that can be reached by an economy. The productivity level also determines the rates of return obtained by investments in an economy, which in turn are the fundamental drivers of its growth rates.7 Many definitions of regional or national competitiveness emphasise productivity.8 The concept of productivity used in this context is more than just efficiency in production. It also includes other features of a nation that may enable a firm to achieve a high return on investment, such as infrastructure, natural resources, related and supporting industries and macroeconomic conditions.

The World Economic Forum has developed a Global Competiveness Index for assessing nations’ competitiveness. It identifies 114 indicators which are thought to be relevant to productivity and competitiveness (see Box A5.1).

6 Sala-i-Martín, Xavier, Beñat Bilbao-Osorio, Jennifer Blanke, Margareta Drzeniek Hanouz and Caroline Ko, ‘The Global Competitiveness Index 2013-2014: Sustaining Growth, Building Resilience’ in Klaus Schwab (ed.), The Global Competitiveness Report 2013–2014: Full Data Edition, 2013, p 4. 7 Ibid. 8 In Snowdon, Brian and George Stonehouse, ‘Competitiveness in a globalised world: Michael Porter on the microeconomic foundations of the competitiveness of nations, regions and firms’, Journal of International Business Studies, Vol 37, 2006, p 165 (cf. p 167).

238 Rural and Regional Committee |Appendix 5: Competitiveness

Box A5.1 The Global Competitiveness Index

The Global Competitiveness Index assesses countries’ competitiveness by comparing them on 114 indicators which are divided into the following 12 categories: • Institutions • Infrastructure • Macroeconomic environment • Health and primary education • Higher education and training • Goods market efficiency • Labour market efficiency • Financial market development • Technological readiness • Market size • Business sophistication • Innovation Source: Schwab, Klaus (ed.), The Global Competitiveness Report 2013–2014: Full Data Edition, 2013.

Some academics argue that factors in addition to productivity need to be understood as contributing to a region’s prosperity. They note that increasing productivity does not always improve an area’s prosperity. These academics consider that a broader concept of regional competitiveness should be adopted, which includes the standard of living as a separate part of the definition to productivity, with distinct indicators.9

In the context of this inquiry, the Committee has found the work of Alan Rugman and colleagues particularly helpful. In relation to multinational firms, they have sought to bring together concepts of an area’s competitiveness and a firm’s competitiveness. The Committee considers this a useful way of understanding competitiveness for exporting firms.

The Committee notes that debate remains about the relative importance of firm-specific and country- specific advantages and about whether it is the advantages of a local area (such as a city), a region or a nation which are most relevant to a firm’s performance.10

However, the Committee considers that, in broad terms, the model set out by Rugman and colleagues (as discussed in Chapter 2) is helpful in understanding exporting firms in regional Victoria and what facilitates or impedes their ability to export.

9 Bristow, Gillian, ‘Everyone’s a “winner”: problematising the discourse of regional competitiveness’, Journal of Economic Geography, Vol 5, 2005, pp 288-9, 293-5. 10 Bristow, Gillian, ‘Everyone’s a “winner”: problematising the discourse of regional competitiveness’, Journal of Economic Geography, Vol 5, 2005, pp 292-3; Budd, Leslie and Amer K. Hirmis, ‘Conceptual Framework for Regional Competitiveness’, Regional Studies, Vol 38, 2004, p 1021; Rugman, Alan M., Chang Hoon Oh and Dominic S.K. Lim, ‘The regional and global competitiveness of multinational firms’, Journal of the Academy of Marketing Science, Vol 40, 2012, p 220.

239 Rural and Regional Committee | Inquiry into Increasing Exports

240 Appendix 6: Exports from areas within Victoria

Data from Regional Development Victoria

Municipality Value of goods Gross Export intensity exported ($ million) regional (exports as a product percentage of gross ($ million) regional product) Ballarat 503.3 4,273.3 11 . 8 Greater Bendigo 288.1 4,575.2 6.3 Greater Geelong 1,277.0 9,207.9 13.9 Greater Shepparton 510.7 2,685.2 19.0 Horsham 102.4 933.5 11 . 0 Latrobe 228.3 3,283.2 7.0 Mildura 313.9 2,149.1 14.6 Wangaratta 162.6 1,119.0 14.5 Warrnambool 128.1 1,423.2 9.0 Wodonga 320.6 1,897.5 16.9 Source: Regional Development Victoria, unpublished data. Data from Regional Australia Institute

Region Proportion of business sales revenue earned from exports (per cent) Barwon South West 3.02 Grampians 3.55 Loddon Mallee 2.08 Gippsland 4.68 Hume 6.28 Northern Melbourne 2.76 Southern Melbourne 4.31 Western Melbourne 5.32 Melbourne East 3.15 Source: Regional Australia Institute, [In]Sight, , accessed 10 June 2014.

241 Rural and Regional Committee | Inquiry into Increasing Exports

242 Appendix 7: Victoria’s major export partners

Major destinations of Victorian goods, 2012-13

Country Value of goods exported ($ million) China 3,748 New Zealand 1,932 Japan 1, 741 United States of America 1,553 Republic of Korea 1,025 Saudi Arabia 978 Singapore 817 Indonesia 804 United Arab Emirates 747 Thailand 725 Malaysia 699 Hong Kong 586 Taiwan 561

Note: Only includes countries to which more than $500 million of exports were sent. Source: Department of Foreign Affairs and Trade, Australia’s Trade by State and Territory 2012-13, 2014, p 42.

243 Rural and Regional Committee | Inquiry into Increasing Exports

Major origins of international students in Victoria (enrolment numbers), 2013

Country Enrolment numbers China 43,373 India 21,138 Vietnam 10,915 Malaysia 8,078 Indonesia 4,983 Pakistan 4,824 Republic of Korea 4,072 Thailand 4,044 Colombia 3,357 Sri Lanka 3,106 Singapore 2,801 Nepal 2,669 Saudi Arabia 2,382 Japan 1, 974 Brazil 1,702 United States of America 1,702 Taiwan 1,649 Philippines 1,528 United Kingdom 1,203 Greece 1,161 Italy 1 , 112 Note: Only includes countries providing more than 1,000 enrolments. Source: Australian Education International, Department of Education, International Student Data, 2013.

244 Rural and Regional Committee |Appendix 7: Victoria’s major export partners

Major origins of international overnight visitors to Victoria (international visitor nights), 2012-13

Country International visitor nights China 8,683,000 United Kingdom 4,268,000 India 3,796,000 New Zealand 2,678,000 Malaysia 2,588,000 United States of America 2,064,000 Singapore 1,696,000 Hong Kong 1,582,000 Taiwan 1,402,000 Japan 1,392,000 Indonesia 1,303,000 Germany 1,285,000 Italy 1,229,000 Korea 1,159,000 France 1,110,000

Note: Only includes countries with over 1,000,000 visitor nights. Covers the period September 2012-September 2013. Figures are rounded to the nearest thousand. Source: Tourism Research Australia, International Visitors in Australia: September 2013, December 2013, p 23.

245 Rural and Regional Committee | Inquiry into Increasing Exports

246 3,636 1,404 3,379 4,334 1,338 2,571 8,018 1,862 7, 933 2012- 13 3,003 1,479 3,303 4,431 1,877 2,647 8,086 1,656 7, 331 2011- 12 2,962 1, 513 2,914 4,745 1,336 2,302 8,320 1,178 6,511 2010- 11 2,830 1,396 2,925 5,242 984 1,692 9,018 1,082 5,652 2009- 10 3,061 1,543 2,559 4,967 1,168 1,334 10,148 1 , 411 6,315 2008- 09 2,965 1,753 2,657 4,064 1,545 1,203 10,773 1,369 5,650 2007- 08 2,751 1, 716 2,454 3,309 1,202 1,545 10,440 1,273 5,589 2006- 07 2,292 1,653 2,316 2,800 947 1,392 9,626 1,167 5,799 2005- 06 2,038 1, 612 2,131 2,541 1,042 1,364 9,253 1,069 5,784 2004- 05 1,900 1, 574 2,426 2,287 1, 013 1,407 8,897 1,308 5,388 2003- 04 2,007 1, 471 1,982 1, 931 1,696 1,685 9,182 1, 071 5,270 2002- 03 Other servicesOther Transport services Transport Other travel Other Services Education-related travel Other goods Other Other primaryOther products Manufactured goods Manufactured Minerals and fuels Minerals Goods and (processed Food unprocessed) Sources: Committee calculations based on Department of Foreign Affairs and Trade, Australia’s Trade by State and Territory, 2006-07 to 2012-13 and Australian Bureau of Statistics Cat Bureau and Australian to 2012-13 2006-07 by State and Territory, Trade Australia’s Affairs and Trade, Committee calculations based on DepartmentSources: of Foreign No. 5368.0.55.003. Appendix 8: Victorian exports by category, 2002-03 8: Victorian exportsAppendix by category, 2002-03 to 2012-13

247 Rural and Regional Committee | Inquiry into Increasing Exports

248 Jurisdiction State Commonwealth State Commonwealth Proposed government financial support for government financial support for Proposed

‘Expansion of the Export Market Development Grant Scheme (EMDG Federal Government (EMDG Federal Scheme Export Development Grant ‘Expansion of the Market which have to support existing products beyond its 8-year maximum term is required scheme) emphasis.] .’ [Their entitlements to expand into new markets used their Proposal support Victorian government has funding be clearly documented for exporters,‘If the this should is somewhat dependent on and sent to all exporters on a yearly basis given that this funding yearly budget allocations.’ potential to mitigate risk for of [EFIC] has the promotion targeted and / or more ‘Increased expansion of an existing export or the into the market entrance new businesses and encourage business’. offshore seeking to expand their that are ‘… identify investors VGBOs should overseas wanting to expand Victorian farmers portfolio with proactive agricultural by matching them to meet export capital’. demand but lacking the production Some proposals relate to the Commonwealth, others to the Victorian Government to the Commonwealth, others to the relate Some proposals terms general in more expressed are specific while others are Some proposals government in businesses and sectors investment from direct to more capital investment, others to encouraging relate Some proposals generally in Chapter 8. is covered to infrastructure relating Funding • • • • Organisation McCain Foods RDA Barwon South West Hill Museums Sovereign Association Appendix 9: Appendix exports government financial support for exports. submissions to this Inquiry following points: Please note the from regarding table below collates proposals The

249 Rural and Regional Committee | Inquiry into Increasing Exports City of Ballarat City for Geelong Committee Federation University SPC Ardmona Australia Council of Export Wodonga Council City Development Grant (EMDG).’ example this could include providing Market a Local Government component to the Export to Local Government (as well as regional in trade businesses) to participate delegations. For benefits and outcomes of their participation. This should also include providing funding support regional in international tradeand supporting participation development and promoting the ‘State (and Federal) Government therefore, can assist Local Governments with advocating for centre for creative innovation and excellence.’ practice artistic around the high quality world, showcasingcompanies to export Victoria as a for project grants and touring. This for export of regional will seriously limit the art capacity organisations in receipt of multi-year funding, however modest, are not eligible to apply ‘The Victoria, has recently Victorian State Government, via Arts determined that arts activities.’ than other regional of support to export Victorian businesses dedicatedworthy solely or in part business in its own right and thereforeUniversity, but as a specific, income-generating no less of on-going teaching and learning programs not as a by-product exports developed by the ‘Seeks from for the Victorian Government financial and institutional support regional educational revenue value (e.g $50M).’ less than a certain from market the growth; export businesses in the strategic growth sectors and with export number of small to medium enterprises indirectly by the business, which will benefit supported factors such as: the regional and rural employment and regional investments by businesses; the Market Development Grants] criteria [of Export should be widened to include other‘Eligibility as a market failureSubmission lists ‘financial support’ that governments can help with. Victoria so regional municipalities grow and prosper, creating vibrant regional centres. Government to provide significant incentives / provisions for business to invest in regional Both State State Commonwealth Not specified State

250 Rural and Regional Committee |Appendix 9: Proposed government financial support for exports Commonwealth State State State State Both State State State .’ ‘The Federal Government’s EMDG plays an important enabling role in developing international an important EMDG plays enabling role Government’s Federal ‘The from support attract should separate exporters feel that new products However larger trade. EMDG.’ a support‘State Government often attending official international stipend when provides businesses. Further by regional incentive is certainly encouraged missions. This trade initiatives would also be welcomed.’ funding export-related ‘Properly fund Regional Tourism Boards to ensure sustainability to ensure new and longevity, giving these Boards Tourism fund Regional ‘Properly everystructures possible opportunity to succeed.’ Industry with quantifiable measures. is frustrated fund and execute tourism strategies ‘Properly KPIs and do not have resourcing measurable which have no clear, by government strategies attached.’ ‘There is significant interest in overseas investment in businesses that can supply food products to investment in businesses that can supply food products in overseas is significant interest ‘There Government life. Assistance from that have a long shelf is particularly true for products Asia. This required.’ will be in facilitating this investment, a beneficial manner, Farm Irrigation Efficiency On The Commonwealth for continued financial supportLobby the for: Catchment Management Authorities. Financial Counselling Program; Rural Program; This such as Export export Gippsland is beneficial. groups for regional of funding ‘Consideration and some funds State Government resources could be supported with councils providing and staff access.’ grants providing Missions by Trade success of recent on the include building of government should role the ‘That for potential international investors a marketplace investing in agri-events (inbound) that create world.’ to the Victorian agriculture and that showcase and buyers to maintain and strengthen is provided adequate funding ensure State Government should ‘The facilities.’ research capabilities at agricultural research Victoria Tourism Industry Victoria Tourism Council South Gippsland Shire South Gippsland Shire Council Committee for Greater Shepparton Council Baw Shire Society Agricultural Royal of Victoria Victorian Farmers Federation

251 Rural and Regional Committee | Inquiry into Increasing Exports Agribusiness Gippsland VECCI Association Victorian Caravan Parks vendors providing farmers.’ vendor finance to young, start-up into on-farm capital expenditure,income diverted and sales tax-minimalisation benefits for farm generation. The of Treasury tax-exemption for off-farm Department might consider state-based Victorian Government might consider advocating R&D tax concessions for on-farm energy co- applicants who invest in agribusiness – or to allow more liberal travel conditions. Likewise, the applications through the Business Innovation and Investment Visa (Provisional) (Subclass 188) for We also recommend that the State Government proposes to the Federal Government that suggest that there‘We are more for foreign opportunities investment in R&D partnerships. beyond.’ operation of [VECCI’s Ready Export Program Skills Briefing Program] and Export into 2015 and recommend the funding‘We further be provided the to the continuing Inquiry to support emerging from the Asian century.’ to capitalise on opportunities Strategy to ensure opportunity are Victorian exporters given every funding recommend that further be allocated to the‘We International Engagement to the Inquiry parks, conference facilities, adventure playgrounds, swimming pools, etc to great effect.’ levels of regional tourism. Such grants have already funded projects such as children’s water parks to assist in funding park upgrades that will enhance the visitor experience attract greater ‘Expand the levels of funding available through T-QUAL and TIRF grants to operators of caravan might also be offered to assist regional training to undertake employers courses.’ to assist staff courses in regional areas. Incentives of Customer-Service-based increased levels of delivery ‘Improve the Government subsidy to training providers – TAFE and private – to incentivise State State Commonwealth State Both

252 Appendix 10: Examples of research as an educational export, Federation University Australia, 2014

Information Technology

Information Technology researchers from Federation University Australia’s Centre for Informatics and Applied Optimization (CIAO) and Centre for Multimedia Computing, Communications and Applications Research have ongoing research and publication collaborations with leading researchers in Europe, China, Japan, North America, South America, and the Middle East. The two centres have earned substantial overseas research funding in recent years through the US Air Force Awards scheme, the Australia-India Strategic Research Fund and the Chinese Government’s 111 program, and have pending applications through the AISRF and the US National Institute of Health. CIAO hosted 18 visitors during 2013 for collaborative research from 10 different countries. In addition CIAO organises the biennial Australia-China Workshop on Optimization.

Environmental Management

The University’s Centre for Environmental Management (CEM) plays a significant role in international research in environmental management and climate change, with representation on the Scientific Steering Committee of the International Geosphere Biosphere Program project PAGES (Past Global Changes). In 2013 CEM hosted the Ramsar Convention Workshop which brought eminent paleoecology researchers from overseas to Queenscliff, and also led to the formation of the Australia-China Wetland Network Research Partnership. CEM researchers maintain ongoing research collaborations with researchers from many nations including France, the UK, Japan and China

Sports Injury and Prevention

Federation University Australia’s Australian Centre for Research into Injury in Sport and its Prevention (ACRISP) conducts research across a range of sports injury and sports injury prevention projects. The aim of the research is to ensure sport and physical activity is safe, with a minimal risk of injury. The ACRISP structure enables new and ongoing collaborative opportunities with local, national, and international research partners. ACRISP has been recognised as Australia’s premier sports injury prevention research centre, being only one of four such centres worldwide to be selected by the International Olympic Committee (IOC) as a member of the IOC Medical Research Network.

Source: Federation University Australia Submission.

253 Rural and Regional Committee | Inquiry into Increasing Exports

254 Appendix 11: Austrade National Food Brand research summary1

The research done to date as part of the food brand study provides a snapshot of current perceptions and positioning of Australian food and beverages in key export markets. The research also identifies some opportunities to maximise Australia’s market presence and boost export and investment revenue through a coordinated approach to branding that builds on our reputation for high quality, safe food and beverages.

To develop the evidence base to support a unified brand position for Australian food and related technology, the National Food Brand Strategy initiative conducted a multi-phase program of research which was completed in April 2014. This included: • A desktop review to identify and summarise relevant completed or ongoing research by industry, industry associations, Rural Research and Development Corporations, the Department of Agriculture and states and territories • Australian industry consultation to determine the key reputational issues facing Australian food producers offshore • Global food brand research into perceptions amongst consumers, business and decision makers in six key export markets: China, Japan, India, Indonesia, the USA and UAE. This comprised quantitative interviews with trade stakeholders (e.g. retailers, wholesalers, major hospitality providers and food bloggers) as well as quantitative online consumer research (n=6000 across the six markets). Results of the research have been shared with industry and government stakeholders via webinars. A recording of the webinar presentation is available on the Austrade website.2

Key insights from the desktop review and interviews with Australian stakeholders were: • In international perceptions, Australia is strongly associated with physical beauty, being enjoyable, its lifestyle, friendly and welcoming people, and being an education destination. It still lags in the areas of technology and innovation. • Industry stakeholders have commented that Australia’s food landscape is fragmented both by region and industry. • The national food brand will need to be built on Australia’s key attributes and associations, drawing on hero brands and industries, our tourism image and our people. • Research into perceptions amongst non-G8 countries shows that compared to its major food export competitors, Australia ‘owns’ the categories of ‘safe’, ‘sustainable’, ‘healthy’ and ‘good value’. This aligns strongly with the Australian industry and consumers’ perceptions of our strengths, frequently expressed as ‘clean, green and safe’.

1 Source: Department of Foreign Affairs and Trade, Personal Communication, 27 June 2014. 2 See: http://www.austrade.gov.au/eventpresentations; accessed 27 June 2014.

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• A national food brand needs to leverage the strengths of categories and brands, provide a unified approach and be flexible enough to span regional and commercial categories. The national food brand positioning comes out of the collective strengths of Australia’s producers. • Current international brand and marketing trends in food align well with Australia’s strengths: gourmet travel and internationalisation of eating habits; the ‘digital age of food’; growing interest in provenance and farm to table dining; demand for transparency and country-of- origin labelling; an interest in food for health; and a ‘chemical backlash’. Key insights from the international trade and consumer research were: • Australian food and beverages have strong ‘clean, green and safe’ credentials and that these resonate strongly with current global food trends for healthy, authentic food and a growing interest in provenance. However, although Australia is strongly associated with these core values, competitor countries such as New Zealand and the USA are as strong or stronger. • Australia’s overall food brand is not currently differentiated from competitors like the USA, Canada, New Zealand, Chile, Italy and Spain. However, very few countries currently have a differentiated position and so there is an opportunity for Australia to gain an advantage. • In contrast, the overall ‘Brand Australia’ enjoys a well differentiated position – driven by values like a pristine natural environment, enjoyable lifestyle, energy and vitality – that would fit well with a national food brand. • While ‘clean, green and safe’ are not differentiating in themselves they are cost of entry values (they give us ‘know-how’) so we need to have them. Differentiation can come initially from expressing those values in the context of an Australian personality e.g. ‘safe’ – healthy, natural and vital’; ‘green – vibrant and energetic, fresh growth’. • A national food brand will need to be flexible enough to work for diverse categories driven by very different consumer needs (e.g. wine versus baby food) and in diverse market environments (e.g. high-value processed foods versus bulk grain). However, a common platform of core values that leverage Australia’s national strengths can provide the basis of consistent messages across the sector. This in turn will deliver higher returns on investment to exporters by allowing their promotional efforts to reinforce each other. As part of the 2014 Budget decisions the Brand Australia Global Food Strategy (National Food Brand project) will not continue past its initial research phase. The information gained from the research will form an important input to the Agricultural Competitiveness White Paper in the context of a broader debate about agricultural productivity and profitability. A full presentation on the research can be downloaded on the Austrade website.3

3 See: http://www.austrade.gov.au/ArticleDocuments/1418/Food-Brand-international-webinar-2014.pdf.aspx; accessed 27 June 2014. 256