Why Meat & Livestock Australia (MLA) entered into a $450,000, 12-month service agreement with Cattle Council of Australia (CCA) without a competitive tender was a key focus of inquiry at a Senate Estimates hearing in Canberra last night.

In questions to senior MLA managers Christine Gilbertson and Dr Peter Barnard, Queensland Nationals senator Barry O’Sullivan said producers had raised concerns that the cross-funding arrangement between MLA and CCA potentially compromised CCA’s independence in its oversight role of MLA.

Senator O’Sullivan questioned whether the contract had been offered by MLA on a contestable basis, to which Dr Barnard replied that MLA had provisions within its guidelines that enabled it not to put contracts out for tender if it had “cogent reasons” not to.

Commenting on the background to the issue, MLA board member and current interim managing director Christine Gilbertson said MLA had entered into an agreement with CCA to undertake consultation with grassfed producers on MLA’s behalf in May 2013.

MLA had a commitment under its constitution to undertake consultation with its producer constituents, and CCA, in its capacity as a peak industry body, was uniquely positioned to be able to provide those consultation services with grassfed producers on MLA’s behalf, she said.

The 12-month service agreement struck between MLA and CCA in May 2013 was worth up to $450,000 (depending on how much of the work CCA was able to complete) and expires at the end of May 2014 (technically at the end of this week).

Under the agreement CCA has run a series of forums with cattle producers across Australia, which have been designed to inform producers about how their R&D and marketing levies are being spent by MLA, and to provide a channel for producer feedback to flow directly back to MLA.

Ms Gilbertson said that soon after she took on the role of interim MLA managing director following Scott Hansen’s resignation in March, CCA approached MLA to negotiate a new funding agreement for the 2014-15 period.

She said she reviewed MLA’s statutory funding agreement at the time to check MLA’s capacity to provide funding to peak councils. She said the agreement quite clearly said MLA could pay for consultation services that were on an “arms length, contestable basis”.

“It clearly says that on an arms length, contestable basis; on a value for money proposition for levy payers, we can contract with peak industry bodies, if they are providing an arms length service that we would otherwise be going to the market if you like and paying market rates for,” Ms Gilbertson told last night’s Estimates hearing.

She said that in that light, she told CCA she was prepared to renegotiate a new service agreement only until the end of December this year.

MLA would then use that time to explore the range of consultation mechanisms available to it, and would then encourage all parties to participate from that time “on a fully contestable basis”.

In response to further questioning by Senator O’Sullivan about whether the original service agreement was put to tender, Ms Gilbertson said she understood that it had not, but work had been done to ensure the work schedule was transparent and passed a “reasonableness test”.

The MLA executives were then asked by Senator O’Sullivan whether MLA was bound by governance guidelines to put contracts above a certain amount of money to tender, noting that $450,000 was a significant contract.

Dr Peter Barnard, MLA’s general manager for trade and economic services, told the Senator that MLA had provision within its guidelines not to put a particular contract out to tender if there were cogent reasons not to.

“Management and the board formed the view that the services being provided by Cattle Council of Australia in terms of advising input to MLA on its programs and activities, both R&D and marketing, were unique services that the CCA was in a unique position to provide,” Dr Barnard said.

“Normally for a contract of that size, yes it would go out to tender, but if there are cogent reasons not to put it out to tender it is always open.”

Senator O’Sullivan asked the senior MLA managers if they could see where MLA’s decision to give funding to CCA on a non-contested basis could feed producer concerns about transparency between MLA and their peak bodies.

Dr Barnard said he believed MLA was an “incredibly transparent organisation”, and told the Senator that MLA had been transparent and upfront about entering into its service agreement with CCA.

“I believe that we have met the conditions of transparency for an organisation like MLA,” he said.

The Senator asked the MLA executives to provide the committee with written material explaining the governance guidelines under which MLA operates, particularly with respect to the tender process and the discretionary provisions that allow MLA “to step away from contestable contracts”.

Could US-style mandatory price reporting work in Australia?

A large part of the 30-minute estimates hearing involving MLA last night centred on the question of whether mandatory price reporting as legislated in the United States would deliver greater transparency and competition if introduced here in Australia.

Dr Barnard said that while he did not believe it would generate greater competition, he said mandatory price reporting could deliver greater price transparency.

However, it would also involve a potentially significant financial cost.

He estimated that the US Government spent tens of millions of dollars each year on the provision of daily mandatory price reports to industry.

The voluntary-price reporting system currently in use in Australia is funded by producer levies through MLA at a cost of around $2m per year.

Dr Barnard said the driver of low cattle prices in Australia at present was drought and not demand, which remained at strong levels.If the market was not under enormous supply pressure, cattle prices would be well above $4/kg, he predicted.

IN response Labor Senator Glen Sterle said it seemed clear there was “a real imbalance” between the prices producers received and the price of beef sold through Coles and Woolworths.

“It just gives me grief, we can’t keep running the open market, free for all, slash and burn, as far as I’m concerned, because what do we do when there is no one left on the land?” he asked.

$350,000 slaughter box

Senator Sterle then questioned Dr Barnard on why Meat & Livestock Australia had spent $350,000 on the development of a slaughter box for Indonesia in the wake of the June 2011 export suspension.

In response Dr Barnard said the industry was in a state of crisis at the time and the Mark I slaughter box, which he said had been funded entirely by Government with no funding from industry, was “now being viewed as an inappropriate slaughter box”.

“We needed to act quickly, and (we needed) an insurance policy, because there was a great state of uncertainty,” Dr Barnard said.

“We didn’t know which way the Government was going to head, we didn’t know what was going to be legal or not legal or deemed appropriate or not appropriate.

“We thought as an insurance policy that another box was needed.”

Mr Barnard said he fully supported the decision to build the box.

“You can blame me. My name wasn’t on the bottom of the contract but you can blame me because I absolutely supported the design of that box, and if I was faced with the same circumstances today I would do exactly the same thing.

“With an insurance policy you hope you never need to use an insurance policy.

“…I’m glad we didn’t haven’t to go in that direction because industry, through other boxes that we designed and through stunning, sort of outpaced us on the issue.

“I’m willing to go anywhere and debate our record during that period because we worked our backsides off to get that trade up and running.”

Independence of major review questioned

In further questioning Senator Sterle turned the spotlight onto an independent review conducted into MLA’s performance by Arche Consulting in the late 2000s.

Senator Sterle said there had been suggestions that MLA had made varying changes to the final report before it was released publicly, which suggested the final report was not truly independent.

Christine Gilbertson said she was not aware that any interference had occurred, adding that she was not with MLA at the time, but understood it was an independently commissioned review.

“So you can tell the committee it was absolutely independent, there was no input, MLA never saw it, there was no suggestions of changing anything out of it, you saw it and what you saw was the final report that went out?,” Senator Sterle asked.

“All I know is that it was an externally commissioned report and they are a professional consulting organisation that delivered that report,” Ms Gilbertson said.

Senator Sterle asked the MLA managers to take a question on notice that the report was truly independent and had no influence from MLA, which they agreed to do.