Qld sugar dispute highlights constraints on minority government

The current commercial dispute between Wilmar and Queensland Sugar Limited has highlighted the constraints on the Queensland Government’s ability to prosecute sound economic policy from its position as a minority government. Wilmar is the Singaporean-based company that bought CSR Sugar in 2010, mills 60 percent of Australia’s exported sugar, and now intends to market sugar as well. This has brought it into conflict with Queensland Sugar Limited, which has traditionally been the “single desk” marketer of sugar. Wilmar and QSL cannot agree on revenue-sharing arrangements between the miller and cane growers. An agreement is needed because cane growers, whose cane is milled by Wilmar, are expected to opt for QSL to market their sugar rather than Wilmar, a choice which is guaranteed by Queensland’s “Real Choice in Marketing” law.

The “Real Choice in Marketing” law was passed by the Queensland Parliament, but opposed by the Government, in late 2015. The Government lacked the numbers to defeat the Katter’s Australian Party bill which was supported by the LNP and Billy Gordon. The Government does not have the numbers in the Parliament to overturn the law, and instead the policy agenda is being set by the Opposition, which has announced it may legislate to intervene in the dispute and force arbitration:

Qld LNP calls for end to sugar dispute

Being part owners of QSL, cane growers will receive much higher revenue if QSL is the marketer of the sugar produced from their cane rather than Wilmar (see this ABC News report). The Opposition is getting the politics of the dispute right, as it is backing local cane growers against the foreign-owned Wilmar. However, its policy position is dubious from an economic perspective. While the sugar mills effectively have local monopsony power, the right way to deal with that is not to re-regulate the sugar industry, but to rely upon existing laws against the abuse of market power.

The “Real Choice in Marketing” law has been denounced as anti-competitive and as a deterrent to foreign investment and structural adjustment by both the Queensland Productivity Commission in a Regulatory Impact Assessment and the Australian Productivity Commission in a draft report on agricultural industry regulation. The Australian PC rejected the “Real Choice in Marketing Law” noting (on p. 420):

“The Commission agrees that reregulation of the sugar industry is an inappropriate means of achieving the underlying policy goal of ensuring an equitable allocation of risk and return between growers and millers. Australia has comprehensive laws governing the misuse of market power…and the concentrated nature of the industry provides sugarcane growers with an opportunity to take advantage of the collective bargaining provisions in the Competition and Consumer Act 2010 (Cwlth).”

The Queensland Government has the right policy position, but it lacks the power to enforce it. It can only resort to weak measures such as making Freedom Of Information requests for the Australian PC’s final report on agricultural industry regulations:

Palaszczuk Government to use FOI in bid to save Qld’s sugar industry

If the Government wants to re-establish its authority over economic policy, it really ought to call an early election.

For background on the sugar marketing dispute, see Anne Hyland’s AFR article from November last year.

Posted in Agriculture, Uncategorized | Tagged , , , , , | 2 Comments

Comments in Courier-Mail on Qld regional economies and structural change

Today, the Courier-Mail is re-launching its GoQld campaign, this time with a focus on regional economies. It has rightly identified the large divergence in employment growth between SEQ and the rest of Queensland, and it is reporting a loss of 43,000 full-time employed persons in regional Queensland in the last twelve months, based on Pete Faulkner’s trend estimates (see Queensland in shock as 43,000 jobs vanish).

Given the large sampling error in the ABS Labour Force Survey at the regional level, it is hard to be precise about regional employment estimates, but it is very likely the regions have lost jobs in net terms, particularly in the Townsville and Queensland outback regions. That said, there is a large variation in economic performance across regions, with the Gold Coast and Toowoomba regions performing strongly. Also, Central and Northern Queensland regions dependent on mining are now starting to feel the benefits of the recovery in coal prices in the second half of last year, as mines are increasing production and taking on new workers.

Partly, the divergence in employment outcomes between the regions is a result of long-term structural factors (e.g. automation, technological change, and rising labour costs making Australian manufacturers less competitive). Hence, we may not see a strong recovery in some regions, and government policy measures to revive these economies may prove ineffective. As I have noted before, I am concerned particularly about the Townsville economy, and I am also worried about the economic viability of many towns in western Queensland. I emphasised the importance of structural change in comments reported by Paul Syvret in today’s Courier-Mail (Voter sentiment reflects economic divide making change key to a bright future):

Economist Gene Tunny attributes the downturn in many regions to lower commodity prices (which he notes are recovering) and the end of the mining investment, but stresses longer term structural change is the most important factor.

“Quite simply, we don’t need as many people in mining, manufacturing and agriculture as we used to,” he said.

He stresses that as economies evolve over time, it is inevitable that there will be winners and losers.

Mr Tunny stresses that even though many in the regions think that “if we get more money for dams, roads, power stations and so on everything will be fine … there is no magic bullet”.

Ultimately, Mr Tunny says: “There may even be a case for regional government and re-examining state boundaries that reflect a very different era.”

Posted in Labour market, Macroeconomy, Mining, North Queensland, Townsville, Uncategorized | Tagged , , , , , , , , , , , | 3 Comments

HSBC’s Paul Bloxham on the economic outlook and President Trump

Last Thursday, Paul Bloxham, HSBC Chief Economist for Australia and NZ, gave an excellent briefing on the economic outlook at a lunchtime event organised by the French Australian Chamber of Commerce and Industry (FACCI), and hosted by Clayton Utz at their Brisbane CBD offices. Bloxham is highly optimistic about Australia’s (and Queensland’s) growth prospects due largely to:

  • our close ties to China and other Asian economies, which will continue to grow and buy our resources and send us ever-increasing numbers of tourists (see chart below), and
  • the rebound in commodity prices, turning what was a headwind in recent years into a tailwind, encouraging the re-activation of mines and an expansion of output and employment in the resources sector, with positive flow-on impacts to the rest of the economy—and a large increase in State Government royalties revenue and Commonwealth company tax revenue which could avert a loss of Australia’s AAA credit rating.


As you would expect, Bloxham qualified his observations by noting the huge amount of uncertainly arising from the US and possibly from elections in Europe later this year. Bloxham speculated on what Trump’s policies might mean for Australia, noting there could be one benefit from a US-China trade war, as we could then export more agricultural products to China. I would note that, of course, we may also suffer if the US buys fewer products from China and then this flows through to their demand for our resources. Also, Bloxham suggests, a higher US dollar caused by Trump’s policies and more restrictive immigration rules in the US might send foreign students who might otherwise go the US to Australia instead.

If you are interested in the economic implications of Trump, as Secretary of the Economic Society of Australia (Qld), I would encourage you to attend our upcoming event at the Ship Inn, South Bank on Wednesday evening 22 February:

The economics of President Trump

Posted in China, Mining, Uncategorized | Tagged , , , , , , , , , , , , | 1 Comment

Coal and LNG push Qld commodity exports up to $1 billion per week

The surge in coal prices in the second half of 2016 and increased exports of LNG from Gladstone’s Curtis Island have pushed Queensland’s commodity exports to over $52 billion in 2016, or $1 billion per week, up from around $49 billion in 2015 (see chart below, based on the Qld Treasury briefing noting LNG exports are included in the confidential category, along with alumina and metallurgical coal from some exporters). The recovery in coal prices has led to production increases at several mine sites and hundreds of new jobs in the sector, but, as I have noted previously, it is unclear how long higher prices will be sustained. Along with Queensland’s strong tourism sector and increasing business confidence (see the recent CCIQ Pulse survey results), a revival in coal mining, even if temporary, should mean a positive economic outlook for Queensland in 2017. That said, I remain concerned about the contractionary impact that will come as residential construction falls from elevated levels, which will reduce the rate of economic growth to an extent.


Posted in Macroeconomy, Mining, Uncategorized | Tagged , , , , , , , , | 3 Comments

Property market shows parents are willing to pay for high-performing State Schools

There is a report from Domain today about the impact of school catchment areas on house prices (House prices in some Queensland state school zones rise by up to 40 per cent):

“With the new school year just underway, the Domain Group has released its annual school zones report, uncovering the primary and secondary government school catchment zones that have experienced the highest house price growth rates in 2016.

Despite a 3.5 per cent decrease in Brisbane city price growth last year, top performing primary and secondary catchment areas in southeast Queensland have seen between 19 and 40 per cent growth in prices…

…Some of Brisbane’s best performing schools made the top 10 list for catchment zone house price growth, including West End State School (up 21.7 per cent), Brisbane State High School (up 11.1 per cent) and Indooroopilly State High School (up 9.6 per cent).”

The study does not appear to have controlled for the wide range of factors that would affect property prices in any area, but there is no doubt that property prices are affected significantly by school catchment areas, and real estate agents have started using school catchment areas in their marketing of properties. The Brisbane State High and Milton Primary School catchments are particularly popular, for example.

Given the extent to which house prices are being bid up in the catchment areas of desirable schools, it is clear parents have the capacity to make a greater contribution to the costs of running state schools. Currently, existing property owners in desirable catchment areas are capturing a monetary benefit that could be captured by the State Government, through higher parental contribution charges at popular schools, to help it cover the costs of education provision. Of course, the State Government may need to make some concessions for poorer households living in desirable school catchment areas. Ideally, we would have a means-tested school voucher scheme across Australia.

The increasing popularity of high-performing State Schools is partly a reflection of lacklustre economic conditions and large increases in private school fees, which have seen a large slowdown in the growth of private school enrolments (see chart below for the independent schools sector).


For more commentary, see my earlier post on this issue:

St Lucia property owners capturing value from Ironside State School

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Brisbane unit values fell nearly 3% on average over 12 months to end of January

The huge supply increase in Brisbane apartments has resulted in a fall in unit values of 2.7% in the 12 months to 31 January, according to new CoreLogic estimates published yesterday (see Chart 1, based on data available in the CoreLogic report you can download at the link provided). Perth also saw a decline in unit values, no doubt due to ongoing weakness in WA’s economy after the end of the mining investment boom. At the same time, Sydney has experienced double-digit growth in unit values, approaching the growth rate for houses, as the property price bubble in that city continues to expand.


It has been widely reported that the decline in unit values is raising issues at settlement time, with unit valuations coming in below contract values, and buyers hence having to provide larger deposits to secure loans (see Warning over unit values coming in under contract price). On the issues of the huge unit supply shock and settlement risk, Realestate.com.au economist Nerida Conisbee has made some interesting and insightful comments, as reported in the Courier-Mail article I linked to:

‘Realestate.com.au chief economist Nerida Conisbee said unit supply was at a very high level, with Brisbane seeing 10,000 come on-stream over 18 months while Melbourne was seeing 18,000 in the same period.

“That, in itself, isn’t a problem,” she said. “The problem is when people start defaulting on apartments and when that becomes a bit of a flood as multiple people decide to walk away from their units.”

Ms Conisbee said Brisbane was in a better position than Melbourne, given it had already turned the corner.

“One of the good things for Brisbane is that the pipeline of supply coming beyond this year is pretty low so that’s good news for Brisbane. My concern is for Melbourne which continues to see more units in the pipeline, that’s a worry.”’

Ms Conisbee is right to highlight the smaller pipeline of unit supply beyond 2017 in Brisbane. While this will stabilise unit prices, it is a concern from a macroeconomic perspective, because residential apartment construction has been a major stimulus to growth in SEQ over the last couple of years. The sector will start dragging on economic growth, as it falls from its currently elevated levels, and it is unclear to what extent activity in other sectors, such as non-residential construction (e.g. on the new Queen’s Wharf development), will make up for it.

Posted in Brisbane, Housing, Macroeconomy, Uncategorized | Tagged , , , , , , , , | 2 Comments

Valley the victim of retail trends

A report in last Thursday’s Courier-Mail highlighted the decline of Fortitude Valley as a retail hub:

‘Boarded-up shops and “for lease” signs are regular sights in Brisbane’s Fortitude Valley as retailers abandon the once-bustling area…

…Chairman of the CBD’s Economic Development Board, coffee king Phillip Di Bella, said there was a problem and more retailers would go out of business unless there was a change.

“The biggest problem is that retailing is in big trouble,” Mr Di Bella said.

“Dick Smith, Howards Storage, Masters have all gone out of business and there will be many more.”’

Mr Di Bella identified a lack of parking in the Valley as an issue, which may well be the case, and Council should be receptive to any plans for new multi-storey car parks. Another possible intervention that would improve the attractiveness of the Valley, in my view, would be re-opening the Brunswick St Mall to traffic, as I have long considered the Mall was a huge mistake:

Brunswick St Mall should have been re-opened to traffic

Improvements such as these may help, but I would suggest fundamental economic trends are against the Valley re-emerging as a major retail destination. Those trends are:

  • online shopping, obviously, which will become even more important as same-day delivery by drone increases in prevalence; and
  • the trend toward highly-efficient big box stores in outer suburbs with huge floor areas and ample parking, such as Ikea at Logan and North Lakes.

The impact of these trends on traditional retailers is possibly showing up in the recorded fall in retail trade’s share of the economy, measured in terms of employment and value added (see charts below). The noticeable decline in retail trade’s share of total part-time jobs has no doubt disproportionately affected young people.



So the decline of retail in the Valley is consistent with broader trends affecting the retail sector, although there may well be Valley-specific factors such as those identified by Mr Di Bella. Fortunately, other sectors appear to be doing just fine in the Valley. As the Courier-Mail article suggests, the Valley’s night-time economy is thriving, and the Valley nightclubs will be very pleased the Queensland Government backed down on its 1am lockout law. Also, being so close to the CBD, the Valley is highly suitable for office accommodation and residential apartments.

Finally, I should note deregulating retail trading hours would be highly desirable, and may provide a boost to remaining Valley retailers. The Queensland Government should have received John Mickel’s review of trading hours regulation by now, and I am keenly awaiting the Government’s response to his recommendations, which are widely expected to include a significant deregulation of trading hours.

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