On 20 December 2013 the Productivity Commission (Commission) released its final report as a result of the inquiry into whether safeguard action was required to be implemented for processed fruit and tomato products.
As discussed in our previous article “Results of the accelerated report into the import of processed fruit and tomato products”, the Commission was tasked with reporting on:
- Whether conditions are such that safeguard measures would be justified under the WTO Agreement
- If so, what measures would be necessary to prevent or remedy serious injury and to facilitate adjustment
- Whether, having regard to the Government’s requirements for assessing the impact of regulation which affects business, those measures should be implemented.
Because SPC Ardmona has a major share of domestic production, and for several products it is the only domestic processor, the focus of this inquiry was on SPC Ardmona.
Outlined below are the factors that were considered to determine whether safeguard action was required to be implemented for processed fruit and tomato products.
Have imports increased?
Under WTO requirements, safeguard measures can only be imposed if there is clear evidence of an increase in imports of the relevant goods that is ‘recent enough, sudden enough, sharp enough and significant enough’ either in absolute terms or relative to domestic production.
For the case of processed pears and peaches, the Commission found that the ratio of imports has not increased in absolute terms, but has increased relative to domestic production. The imports of mixtures have increased both substantially and relatively in the past five years. However there has been a decrease in importation of apricots. The increases in respect of pears, peaches and mixtures met the threshold requirement under the WTO’s Agreement on Safeguards.
In the five years to June 2008, annual imports of tomato products increased significantly — from about 21 kilotonnes to about 41 kilotonnes. However, over the subsequent period under investigation, the rate of import growth was significantly slower. In the Commission’s view, this does not meet the standard of a ‘recent, sudden, sharp and significant’ increase in imports, as required under WTO rules.
Is the industry suffering serious injury?
The Commission concluded that based on an assessment of the indicators, including changes in market share, sales, production, productivity, capacity utilisation, profits and losses and employment, the domestic industry is suffering serious injury.
The Commission identified that there was a substantial decrease in production volumes between 2008 and 2013 and that SPC Ardmona’s profit margins declined by over 20 percentage points for all fruit categories between 2010 and 2013, and have been negative since 2011. The Commission also recognised that there was compelling evidence that SPC Ardmona’s tomato processing operations have suffered serious injury as a result of a number of factors in recent years.
Has injury been caused by a recent surge of imports?
While the domestic processed fruit and tomato industry has been suffering serious injury over several years, a key threshold for the imposition of safeguards is whether serious injury was caused by a recent surge in imports.
With the exception of mixtures, no fruit category was found to exhibit an increase in absolute volume of imports. The Commission concluded that the volume of processed fruit imports has not grown substantially in the past five years nor has price pressure increased as a result of imports. With regard to tomato products the Commission determined that there has not been a surge in absolute import volumes during the period under investigation. However, the Commission did identify several other trends that coincide with the period of injury.
While the Commission acknowledged that SPC Ardmona has suffered injury in recent years to both its tomato processing and processed fruit operations, it found that this was not caused by a surge of imports but by other factors including:
- Decreased domestic demand for processed fruit
- Reduced export volumes
- Rising costs of production
- Supermarket private label strategies as a feature of domestic competition
- Imports being used to improve reliability of supply
- Floods reducing Australian processed tomato production.
In conclusion, the Commission determined that for the examined product categories, safeguard measures were not warranted.
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