The Mandatory Grain Port Code of Conduct (the Code) was introduced to address a perceived lack of flexibility in the previous Government regulation, the Wheat Export Marketing Act (WEMA). Even though it has only been in operation for little over half a year, the Code appears to be having that effect, with the Australian Competition and Consumer Commission (ACCC) already assessing four applications for reductions in regulation.

The Code is structured so that operators of grain terminals can apply to the ACCC for a reduction in the level of regulation applied to their grain terminal where there is adequate competition for the services provided by that terminal to create a sufficiently competitive market. 

If an exemption is granted the Code provides for a lower level of regulation, namely, removing a non-discrimination requirement and dispute resolution procedures for negotiations with access seekers.  However, there is ongoing monitoring and reporting required of exempt terminal operators, including ship loading reports, capacity information and demand and standard terms and reference prices for access.

The ACCC has already received applications in relation to six separate grain terminals, including:

  • Emerald's Melbourne Port Terminal Facility (Victoria) (application approved 25 June 2015);
  • GrainCorp's terminals at
    • Carrington (Newcastle) Port Terminal Facility (NSW) (application approved 1 October 2014);
    • Geelong Port Terminal Facility (Victoria) (application approved 25 June 2015);
    • Portland Port Terminal Facility (Victoria) (application rejected 25 June 2015); and
    • Port Kembla Port Terminal Facility (NSW) (application currently under consideration, draft determination due in July 2015); and
  • Quattro Ports' Port Kembla Terminal Facility (NSW) (application currently under consideration, draft determination due in July 2015).

The most detailed consideration to date has been that recently released in relation to the GrainCorp and Emerald facilities in Victoria. In coming to its decision the ACCC focused primarily on the issue of substitutability and whether the particular port in question was adequately constrained by competitors with reference to the size, demand and export options available within each Victorian grain catchment area. 

The ACCC concluded that Emerald's Melbourne facility and GrainCorp's Geelong facility were sufficiently competitive and faced competition from container shipping at the Port of Melbourne and Bunge's soon to be completed terminal at Geelong respectively. However, due to the absence of port terminals in Western Victoria, the GrainCorp Portland facility was not found to be similarly constrained.

Importantly, in considering Portland the ACCC noted that while some grain growers might have another export option, there was a core group of growers in Western Victoria for whom the transport costs would be too substantial to export from anywhere else. The ACCC noted speculation that Quattro Ports might be interested in a new Portland facility, however, did not consider it to be a competitive constraint at this point in time. The ACCC's analysis of the competitive pressures of the relevant market was considerably narrower than that proposed by the parties, which not only included the Portland terminal in the market but also suggested that there may be some competitive pressure from terminal facilities in South Australia. This argument was rejected by the ACCC. 

While the ACCC has granted reduced regulation at the Melbourne and Geelong facilities, it has noted that it will continue monitoring those facilities. ACCC Chairman Rod Sims stated that the ACCC would be concerned by evidence of increasing market share through the ports. The ACCC has the power to revoke exemptions if it finds that the reasons for granting the exemptions no longer apply.

A key point to note is that the ACCC investigated export capacity constraints, up country storage facilities, road and rail transport capabilities and existing or proposed terminal developments in great detail. Further, this data was instrumental in the ACCC's analysis of the effective competition within the market for each individual terminal. While a proportion of this data was provided by the parties, the ACCC undertook thorough market inquiries and engaged with exporters to obtain other industry information and data.  

In this context, it is likely that other port terminal operators will monitor data and market conditions to consider whether they too may be able to release at least part of the regulatory requirements applied under the Code.