Corrected Version

CORRECTED VERSION

ECONOMIC DEVELOPMENT COMMITTEE

Inquiry into export opportunities for Victorian rural industries

Nhill – 28 August 2001

Members

Mr R. A. Best Mr N. B. Lucas Mrs A. Coote Mr J. M. McQuilten Mr G. R. Craige Mr T. C. Theophanous Ms K. Darveniza

Chairman: Mr N. B. Lucas Deputy Chairman: Mr T. C. Theophanous

Staff

Executive Officer: Mr R. Willis Research Officer: Ms K. Ellingford

Witness

Mr J. Millington, General Manager, Luv-a-Duck Pty Ltd.

28 August 2001 Economic Development Committee 12 The CHAIRMAN — The Economic Development Committee is an all-party investigatory committee of the Legislative Council. Today we are hearing evidence in relation to both structural changes in the Victorian economy and an another reference relating to rural export opportunities. I advise all present at this hearing that all evidence taken by this committee, including submissions, is subject to parliamentary privilege and is granted immunity from judicial review pursuant to the Constitution Act and the Parliamentary Committees Act.

We welcome Mr John Millington the general manager of Luv-a-Duck to our inquiry. How we do this is usually for you to make an opening statement and then we ask some questions. We have 30 minutes to do that.

Mr MILLINGTON — Thank you for the opportunity to come along today. I have been to one of these once before — it was the banking inquiry at Minyip, about the time when Nhill had applied to put in a community bank here. We were one of the first along with Minyip and I remember that I got a fair old grilling. I hope I do not get one today. I will pass these around because I would like to talk to this outline of our company, where we have come from, where we are now and some of the impediments and barriers to export.

Luv-a-Duck is a family-owned company. It was started by Arthur Shoppee a little over 25 years ago. He was originally a drycleaner here in Nhill: he certainly was not a duck farmer. With the advent of drip-dry clothing he had a business which was not particularly successful; it was going downhill, and being a keen duck shooter and a lover of duck he bought 50 day-old ducklings and grew them in his backyard at home, just a little way up the street. Then he got another 100 and they were successful. Eventually the council and his neighbours ran out of patience and he leased a small property on the edge of town which is still there and still part of our enterprise today.

I will not tell you anything about Nhill because I believe the shire has put in a submission. I will only say that one of the reasons we are here and continue to be here is the hardworking country people: they are loyal and have been instrumental in the success of our company. We currently employ a little over 135 people here in Nhill and the surrounding towns. We have a quarantine station a bit south of here at Gymbowen which provides the breeding stock for another farm just a little bit to the south-east of us here at Winiam and then the hatchery here in town supplies the commercial stock to the operation on the edge of town. We would have 350 000 to 400 000 ducks on the property at any one time. We produce 38 000 to 40 000 ducks a week, primarily distributed throughout Australia. As a matter of interest, our weekly payroll is over $55 000, and I dare say that the majority of that is spent in this town or surrounding towns each week.

We purchase over 300 tonnes of feed each week. We are fully integrated in that we are responsible for all of the growing phases from the breeder, as I said before, to the egg, hatchery, growing and on to processing. At that point we do two things. We produce a whole bird which is the traditional bird to go to the Chinese market, and any of you who have been up and down Collins Street will have seen the orange ducks hanging up in the window. With a bit of luck it is our duck, but it is the traditional way of the Asians doing the duck. The Asian population has been instrumental in our success in sales and marketing over the years.

In recent times we have started to develop our products. In the back of that corporate profile brochure you will see some of the value adding things. We are marinating, we are cooking, we are preparing oven-ready meals, particularly for the hospitality trade; the restaurants, the caterers and the airlines want a duck that they can heat and eat, they do not want to be mucking around cooking whole birds in ovens. That is the direction we have taken in recent times. As a result of that, our turnover last year was a little over $18 million and we anticipate that going up this year. That is the main reason for it.

We see our future as being here in Australia. We have a very strong domestic base for our marketing. We have distributors right throughout Australia and depots in all states. We believe that if we maintain a good local market then we can certainly be on a good foot to be able to export. We have a couple of problems there at the moment. The cost of production for us is about 35 cents a kilogram more than what it costs to produce a duck in most of the Asian region. We have some advantages that they do not have but certainly in terms of labour and packaging costs theirs are less than ours. The challenge for us is to drop that 35 cents because if the federal government so pleases and opens the gate to product from Asia it will decimate Luv-a-Duck and the poultry industry unless we take steps to do something about it beforehand. We are very much concerned about that.

We are doing some exporting of our value-added product into Indonesia, the Pacific Islands and more recently Singapore. We have been successful in getting a listing into Singapore; we are one of the first of the poultry companies in Australia to do that and we are very proud of that achievement. In order to trade into Singapore you have to reach very low microbial loads — food-borne bacteria — on the product, and we have managed to achieve that. We are very pleased with it.

28 August 2001 Economic Development Committee 13 We are also very optimistic that Singapore is the springboard to Asia. It is certainly the nerve centre and the hub and we see that as the opportunity to branch out into other parts of Asia. However, we face a number of impediments. I would say at the outset that while they are impediments and barriers they are probably federal issues rather than state issues, but I think this committee should be aware of the issues that face anyone in the meat industry and certainly in the poultry and duck industries. There are issues which are beyond Nhill, beyond this region and certainly beyond Victoria and probably Australia. In a large number of cases there are artificial trade barriers that are set up against us; it is certainly not a level playing field.

I draw your attention to the case of an outbreak of exotic disease. Victoria is a signatory to the exotic disease protocol and the procedures that are followed in the event of an outbreak of disease. In our case the last time there was an exotic disease outbreak in Sydney they closed Sydney and New South Wales down; they closed Victoria and the whole of Australia down because Australia is a very fair-minded country and a signatory to the protocol out of Brussels. The simplified explanation is that Australia notifies Brussels that there is an outbreak of disease and Brussels then says Australia is off limits to importing countries and they shut the borders. At the last outbreak we had containers of product on the wharf ready to go and we were told that there was an outbreak of exotic disease in New South Wales and our product could not move. It took us three weeks to clear that, and for a little company like us that is hard going. Where the inequity comes is if it was France that had an outbreak of disease they would shut France down but Italy, Spain, Switzerland, across the Channel up to England and up into Germany could all continue to trade and it is only a couple of hundred kilometres away; we are 1200 kilometres from New South Wales. There is a case to be mounted for regionalisation or area freedom within Australia. I would encourage you to take that on board when you have the opportunity in the forums that you approach.

We have an issue with the Australian Islamic Council which we also see as inequitable. For the past two years we have been processing all of our ducks as halal — that is, killed in the Islamic way. We are certified with the Australian Islamic Council. Two slaughtermen come up from Melbourne each week, spend the week with us and go home on the weekends. We recently applied to export our product into Malaysia only to be told that the Malaysians do not recognise the Australian Islamic Council. In order to have product go into Malaysia we have to fund two of them to come down on business class air fares with two nights accommodation and $80 a day expenses so we can be given the approval to kill in their particular cultural way. We understand that and accept that there are cultural differences between countries and races. However, something needs to be addressed. The Islamic people should sort it out among themselves as to who is certified and who is not. It should not be foisted on companies such as ours that are battling anyway.

Mr THEOPHANOUS — Have you approached the Islamic council about it?

Mr MILLINGTON — Yes.

Mr THEOPHANOUS — What was their response?

Mr MILLINGTON — They say the Islamic council in Victoria is torn into two camps. They operate out of the same building and even send faxes from the same building, and probably from the same fax machine, but their faxes attack each other. There are serious problems within the Islamic council in Victoria, let alone at an international level. Although we would like to be able to trade with Malaysia and do the right thing by them through providing the product they want according to their cultural requirements, we cannot.

Mr THEOPHANOUS — Is it only Malaysia? I am aware that a lot of stock is sent to the Middle East, for instance.

Mr MILLINGTON — We are not trading into the Middle East, although we are trading into Indonesia, which goes out as halal. A certain amount of our product goes into Hong Kong as certified halal, but not to the Middle East.

Mr THEOPHANOUS — There is no problem there?

Mr MILLINGTON — No.

Mr THEOPHANOUS — Is it just Malaysia?

Mr MILLINGTON — Just Malaysia. We need to solve that problem because Malaysia is on the doorstep of Singapore, and if we are serious about Singapore, we need to be serious about Malaysia.

28 August 2001 Economic Development Committee 14 The final point about exports is the process of value adding, where we feel we are at a disadvantage. When we set out to do an export consignment we have to notify the Australian Quarantine and Inspection Service of the country we intend to export to. They, in turn, send an AQIS officer here to be present at the slaughter. Some countries require us to have ante-mortem inspections. Our company veterinarian inspects the birds, and the countries concerned are happy with that. When the birds reach the processing plant AQIS takes over and picks up the paperwork from the veterinarian and proceeds through the plant. It usually takes one day to kill a bird, process it and put it into a plastic bag or packaging which they can stamp and seal. However, when we want to take it to the next step — the value-adding stage, when we take the whole bird and cut it up — it takes us another three days.

The first day is when the bird is killed and put into the chillers to bring the meat’s temperature down. The boners can only cut duck meat when it is chilled — in other words, when the meat has been set. On the second day the duck is taken out; we bone it out and marinate the duck. We put the flavouring into the pieces. On the third day it is actually cooked and sliced. It takes four days: the first day is for the AQIS inspector to be there and another three days for the value-adding side. Under present AQIS regulations that requires an inspector to be on site. That amounts to $500 a day plus $63 an hour overtime if he works longer than 8 hours. Our processing plant runs on four days of 9.5 hours, so each day we cop 90 minutes at $63 per hour plus $500. In the end that inspector is not qualified to understand what the hell is going on in the value-adding process. If we said the duck was supposed to be blue when it was being cooked, and it was blue, he would be happy with it. If we said it should be red, the same thing would apply. It is unnecessary and an unreasonable cost. We cannot carry that burden into the future. Any weight the committee can bring to bear on AQIS would be appreciated. It is an important issue. You must keep in mind that we are not unique in the world. Our products are good and in some cases they are the first of their types. However, the duck industry is small around the world and once somebody comes up with a good idea, it is quickly copied.

We are at the mercy of the market when we step out of Australia. We are babes in the woods when it comes to competing with the Americans and particularly the European Community with their subsidies and tariffs. We need to keep our costs as low as possible. We have the 35 cents a kilo to concern ourselves with on the growing side, but we also have what we consider are unnecessary costs from departments such as AQIS.

I will flip through some other matters. The matters I have highlighted are particularly relevant, and I will not deal with several smaller matters now as they are in the submission. Moving off exports, one of the questions you ask is, ‘Where can government help?’. I am sure most of these issues regarding high fuel costs, transport costs, water supplies and probably Workcover premiums have been covered by the shire. Those issues certainly impact on small businesses in the country.

I draw attention to a couple of other matters. One is functional information technology. We are very computer literate. We are close to establishing e-commerce across the board for our company. If you have the time, look at our web site; it is pretty good and is certainly one of the user-friendly ones. But we struggle in Nhill because of what we call unsatisfactory information technology. It is getting better, for sure, and in the last two years we have seen enormous steps. But if we are to keep pace with our urban-based competitors around the outskirts of Melbourne we need to enjoy the same facilities.

As to labour shortages, we have a slogan in Nhill that we are proud of — that is, ‘Nil unemployment in Nhill’. However, that also creates challenges for companies such as Luv-a-Duck. Where will the labour come from? We have 135 people working here for us. Our catchment is not just from Nhill, but employees come from Edenhope, Goroke, Gymbowen, Dimboola, Horsham, Kaniva and Jeparit. They travel long distances. We have very good staff. The majority of our people have been with us for more than five years, and some up to 15 or 20 years. We value their expertise greatly.

We need to consider, though, our expansion. We need to consider our growth and make decisions shortly about whether we put a value-adding kitchen here in Nhill or locate it to Melbourne. We do not want to go there. Emotionally, I would prefer to keep the plant here, but if you take the emotion out of it and look at it objectively you must say, ‘Can country towns such as Nhill support large regional businesses such as ours?’. We have the potential to put on another 50 people over time, but probably the biggest issue we have is labour — that is, being able to attract skilled and unskilled people, professionals and tradespeople here.

About two years ago we applied to place in our trade magazines in Australia an advertisement to source a farm manager. You would think that was simple given the poultry industry in Australia. We had a number of applications but none was suitable. We interviewed, but none was able to give us more skills than we already had. Then we advertised in South Africa. The advertising here in Australia cost about $6000, and it took about eight or

28 August 2001 Economic Development Committee 15 nine months before we finally gave up. We got onto the Internet, found out the trade magazine in South Africa that covered the poultry industry and emailed that particular magazine with the advertisement we had run in Australia; it cost me $7 and we got 10 applicants, all of whom were adequate and suitable.

We brought one chap and his wife out to Nhill. They spent a week with us. We put boots and overalls on him and sent him out into the sheds with the staff. We and the staff made the assessment as to whether he was the man we wanted. Also, he was able to assess whether he wanted to live in this country. We, as managers, did not cloister him and paint him a rosy picture, but put him out where it was happening. At the end of the week we sat down and made him an offer, which he accepted. That started the process, which was unknown to us, of how to bring somebody into the country. That has been an absolute minefield. The good news is that after 18 months we were able to get all the paperwork in place. In May this year he received his permanent residency. He has now settled here with his wife and three young children. They are a success story in the town. They are now moving out into the community; they have their own circle of friends, have the kids at school and so on.

If I may move back one step: while that man was preparing himself in South Africa to come here we were advertising here for a diesel mechanic. It was the same story: we could not find one here. Our particular employers group is the Australian Industry Group. I had spoken to them a number of times about getting diesel mechanics. Their message, as a city-based organisation, was, ‘If you can find any, let us know because we need at least six in Melbourne’. I rang South Africa and said, ‘I don’t know whether there are any diesel mechanics over there, but will you run an advertisement for us in whatever you regard as the appropriate newspaper?’. He did that. We received another 10 or 12 applications. We went through the same process of bringing out a young man, his wife and two young kids. On Tuesday last week he was granted his permanent residency. Now we have two imported staff we are thrilled with. They do a great job and are great contributors to the community.

What can government do about it? It can help us. We are not unique. All companies, probably in Victoria but certainly in regional Victoria, are struggling because of a shortage of adequate labour. If you can facilitate that immigration process and make it easier, it would help us. It is not an easy process at the moment.

You have probably copped the story all around the state about mobile phones. We are no different. When the CDMA system was introduced we were hopeful we would benefit and get some improvement, so much so that we waited and did not buy digital phones until CDMA came in. When it did, we bought five or six phones, but we were, and still are, disappointed with CDMA, to say the least. We cannot communicate with all our facilities using mobile phones in this area. There are areas along the Western Highway, for example, where mobile phones do not work at all. It is not just the digital facility but also CDMA.

You ask about liquefied petroleum gas (LPG) and natural gas. We are large consumers of gas for heating in the growing sheds and for heating water in the processing plants. We use 1.5 million litres of LPG annually, making our company probably the largest user in the region. The average cost of LPG over the past 12 months has been 44.88 cents a litre, which is significantly higher than the average motorist pays in Horsham. There is something wrong there! Even with our buying strength we cannot get the price down. That is a serious disadvantage.

Mr THEOPHANOUS — What sources have you looked at for LPG?

Mr MILLINGTON — All of them — Elgas, TXU and so on. We have come to the end of our electricity contract. We were one of the first in the region to go for contestability with power, which we did, and we signed up with Powercor on that occasion. Our contract is due for renewal now and we are speaking to a number of companies that can provide both gas and electricity to us because we cannot sit back and sign off on Powercor. Our electricity costs have gone up by 123 per cent. I am not sure; maybe we were coming from a low base to start with, but I certainly know we need to look closely at electricity and gas prices. If we can talk to a company such as Origin Energy or TXU that provides both gas and electricity, I hope we will get a better deal.

The thought I would like to raise in your minds concerns natural gas. We have natural gas to Horsham and that is all being sourced from the east — it comes from Gippsland. Given the large natural gas field in the Otway Basin, is it appropriate for government to be thinking about looping that and connecting the basin off the Otways through western Victoria, picking up places like Nhill and the Western District and looping into Horsham so that in the event of another Longford we have supply into the major towns being sourced from both areas? That is not unlike what an average farmer would do with his water supply; he is actually pushing water from a number of different directions to ensure that if one pump goes down he still has water. I simply draw that to your attention. I know nothing about natural gas, but I know that there is a field and that it will be commercialised, and I would like to see some of it come to the Wimmera.

28 August 2001 Economic Development Committee 16 On incentives, I guess everyone puts their hand up and says the job would be a lot easier if you gave us something back. Traditionally we have not been great participants in government programs as far as grants and so on go. We had some help with a Hazard Analysis and Critical Control Point-based program we did a couple of years ago and we have done some business planning with the Department of State and Regional Development (DSRD) and Business Victoria, and all of that has been very successful. We thank the government for that and its continuing encouragement to businesses.

There are a couple of things you might consider. It is a huge field I know, but you could consider tax concessions to the companies that are here now. More importantly, and tying in with what I was saying about our labour shortages, consider an isolation allowance for those people who want to come to the country but find it difficult to do so and give those who are here a reason for staying here.

The conclusion is all there. We are a small company in a little town in western Victoria. We aim to be here in 20 years’ time and we would like to be part of the debate that encourages small business to stay in regional and rural Victoria.

The CHAIRMAN — We are pretty short of time.

Mr BEST — As someone who has sold your product before when I was with Golden City Frozen Foods, I say congratulations on the great job you have done. I have a couple of questions about quality assurance (QA) programs. Do they get you past some of the red tape in exporting to other countries?

Mr MILLINGTON — We operate QA at two levels. One is state through the Victorian Meat Authority which is really the domestic market. We also operate a QA system with the Australian Quarantine and Inspection Service which is really for export. Those QA programs give us the opportunity to trade into the majority of the countries we trade with; it is not a barrier.

Mr BEST — Does that still require an AQIS man there time and again?

Mr MILLINGTON — Yes, it does. The AQIS people are verifying that Luv-a-Duck are processing the bird correctly and value adding it according to what is written in the regulation. The fact is that ultimately the consumer is the one who makes the judgment as to whether the product is right, and the last thing we are going to do is send a value-added product at $20-something a kilogram to Asia if it is wrong or full of food spoilage bacteria.

Mr BEST — I think Hugh Delahunty was in this field previously. Do we have AQIS inspectors as residents on sites now?

Mr MILLINGTON — No, because we do not process five days a week or four days a week for export. We are intermittent export traders. The likes of Baiada Poultry or Tatiara over at Bordertown would have an AQIS inspector on site all the time. Still, $500 a day plus $60 an hour overtime adds up.

Mr BEST — I would be very interested in the outcomes of your negotiations with your electricity and gas.

Mr MILLINGTON — Thank you, that is going to be a tough one.

Mr THEOPHANOUS — Congratulations. I encourage you to maintain your commitment to the area. On the issue you mentioned about immigration and bringing people over, I suggest one of the ways of trying to get people to come to places in regional Victoria where there is a population decline at the moment is to do it through migration but that requires some steps to be taken, including if you are to bring somebody here part of doing that needs to be almost a contractual arrangement which keeps them in regional Victoria for a period of time. This is something that I think would be certainly supported by the Victorian government; I am not sure about the federal government. However, are you saying that an increase in that area or something that would allow a streamlining of people to come into regional Victoria might affect your business decisions? You were saying earlier that you might decide not to stay because you cannot get the people and migration is one of the ways of getting the people. Would that affect your decision?

Mr MILLINGTON — It will very much so. We will continue to be here in Nhill; we will grow our ducks here because this is where the grain is and it makes sense to be here. It does not make sense for a poultry farmer to be on the Mornington Peninsula and take his grain from Nhill down there to feed ducks or chooks. We will stay here and grow our birds. Our quandary is whether we want to expand the operation into value adding and put a kitchen in here. It will be a $1.5 million investment. We have the plans drawn and we have put in a submission to

28 August 2001 Economic Development Committee 17 DSRD to look at the feasibility of it. In the end though, one of the major decisions we are going to have to make concerns labour. The problems that I had with immigration were twofold: first, I did not know what the hell I was doing to start with and I had a long learning curve; and second, it is not an easy process and I would challenge anyone who has done it before to say it is easy. It is not easy, it is very difficult and very bureaucratic. I think there is an opportunity for government to look at it and maybe streamline it to make it a bit easier for us.

Mr THEOPHANOUS — I am sure there are quite a lot of people out in the big world who would like to come and work in a kitchen here in Nhill — I am certain of that. There might even be a few in the refugee camps if you went and had a look. However, I do not know what can be done at the state level. This has also been raised in relation to doctors and those sorts of professions, particularly doctors as getting them into regional Victoria is a bit of a problem. I think what you are suggesting is that the state government could seek to encourage the federal government to streamline these things and to make them conditional on people staying in regional Victoria for a period of time.

Mr MILLINGTON — Encouraging them to stay is part of the criteria now. It is necessary to show a contract to immigration that reflects their loyalty to the company for two or three years and we have done that with both these staff. South Africa is a great case study because of the political and social unrest there. People are frightened and do not want to be there. While we will continue to give Australians the opportunity to work in our company it is sometimes not possible — they are not there — and I would not have any hesitation at all in advertising overseas.

Mrs COOTE — Arthur said exactly how you would be and you were. It was terrific, thank you. I am pleased to say that your head office is in my electorate.

Mr MILLINGTON — I will report back.

Mrs COOTE — I will report back to him and tell him how good you were. When we have been talking about exports a number of people have said that they do not want the government involved at all, especially when they have dealt with markets themselves. They have isolated the markets and are dealing with the people concerned. They say they do not want help from Austrade. Supermarket to Asia is one we hear people being quite critical about. What is your feeling about it? Have you established your own contacts with people you have an individual relationship with? Is that the way you want to continue or do you think there is a place for these others?

Mr MILLINGTON — That is the way we want to go. We want to establish our own contacts. We have been down the Austrade path and it was most unsuccessful. There is any amount of evidence around this region of businesses that do not find Austrade helpful. They are prepared to talk to you once you reach $25 million to $30 million turnover, but how the hell are you going to get there unless you use the stepping stone of export to help you? As for the likes of Supermarket to Asia, we currently have an application with them for the food and fibre chain and looking at some of those issues in Singapore about microbial levels. We are putting up a case that says if we can build a model that shows you how to produce a piece of poultry meat, whether it is duck or chicken with minimal microbial loads, then it will able to flow across the whole export of meat out of this country. It has taken us three months but we are still in there. We are still short-listed and they keep coming back each week with another six or eight questions. I will not criticise Supermarket to Asia there; we are still in with a chance.

Mr CRAIGE — The work practices of AQIS are well known in your industry and the meat industry. Have you endeavoured to negotiate satisfactory outcomes with the commonwealth with respect to AQIS?

Mr MILLINGTON — Yes, we have. Perhaps I can update that and show that there is a little bit of light for us. There is a scheme called Meat Safety Quality Assurance. It operates in the red meat industry but not in the poultry industry; it has never been applied to the poultry industry. We have put an application and a submission to them asking why are we different, why is white meat different from red meat, why can we not do it. Effectively what that is saying is we can be our own QA for those last three days of the process. We are not going to try and say we do not want an inspector for when they are killed, but for God’s sake let us do our own thing for the three days when it matters. However, that is a long way off yet.

The CHAIRMAN — Thank you for coming along today; your evidence has been extremely interesting and we have gotten a lot from it. We appreciate the time you have put into making a submission to us. We will send you a copy of the Hansard record for you to check. Thank you very much for your time.

Committee adjourned.

28 August 2001 Economic Development Committee 18