‘Invisible’ Sector Answer to Economic, Social Issues

A lack of diversity and competition is holding back Australia’s economy while one of the solutions, co-operatives and mutuals, remains largely “invisible”, a Senate inquiry has heard.

The Senate Economics Reference Committee established an inquiry into co-operatives, mutuals and member owned firms to explore the barriers facing the sector, as well as its potential to deliver marker choice and social outcomes. The initial two-day hearing ran on 29 and 30 October, with the final evidence to be provided in on 4 December.

“One of the big themes emerging is around how the current structure of the economy, our oligopoly structure in certain markets, is really killing competition and we have to have a more diverse economy,” Business Council of Co-operatives and Mutuals CEO, Melina Morrison, said.

“The key messages that came out in the statements and the testimony presented is that Australia has an obsession with the PLC [Public Limited Company] model of business and we need a more diverse economy to create greater sustainability, resilience, but also competition that’s going to be beneficial to consumers in different markets.”

Yenda Producers Co-operative (YPC), wholesale suppliers of farming equipment in New South Wales, made a submission to the inquiry about the mismanagement of the Murray-Darling water and the damage caused by the current market structure.

“We’re in an irrigation area and we support irrigation communities and irrigation farmers as well as the environment, the situation where our water is at the moment and our water training rules, you can own water, it’s quite frankly a mess at the moment,” Managing Director of YPC, Peter Calabria, said.

“And I see the need for the control of water to either be put back in the hands of government or maybe put in the hands of a co-operative type model where your shareholders and your customers are the same person so we haven’t got competing interests as to shareholder return versus the people who are actually consuming the water.

“At the moment it’s a free market model where it’s really left to the highest bidder and what we’re finding now is that a lot of the water out there is just getting put on the open market and it’s getting sold to the highest bidder and that bidder may not have any interest at all in the environment, in the communities or in agriculture itself in the area.”

Calabria said the recent example of Federal Liberal MP for Murray, Dr Sharman Stone, begging the South Australian Premier not to purchase more Murray-Darling irrigation water available for general sale showed the dangers of the current system.

“The response of the South Australian Government was basically that it’s a free market if we want to buy the water we will,” he said.

“To me that message is saying that if two Governments can’t get it right the system we’ve got is completely flawed and I think it’s only going to get worse.”

However, the Senate inquiry also heard that there are significant barriers preventing co-operatives and mutuals from gaining traction in these markets.     

“Obviously there’s a big problem with the visibility of the co-operative part of the economy, the member owned businesses in the economy are not seen, so one of the bit themes emerging so far in the hearings is that we have to do something about education,” Morrison said.  

“At the moment co-operative and mutual business models are not taught in any part of the curriculum. Wherever business and commerce is taught in the curriculum, at whatever level, that it’s inclusive of all forms of business.”

One of the run-on consequences of the lack of visibility is that co-operatives and mutuals have to operate within policies and departments who don’t understand them.

“It’s just too hard to set up a co-operative, our regulatory system makes it too expensive, too complex, too time consuming and it shouldn’t be any harder to set up a co-operative than any other kind of business,” Morrison said.

“We heard lots of stories from co-operatives where they had incurred significant costs in setting up. And then once they were set up they continued to have to deal with regulatory blindness [in] everything from the ATO through to ASIC [Australian Securities and Investments Commission].

“The registration of the business name takes a great deal more effort because the forms or the front-line staff in these bodies don’t necessarily know what a co-operative is. So there are problems at all parts of the process of setting up a co-operative.”

Calabria said regulations that ignored the co-operative business model have caused major problems for YPC.

“In 2005… Australia adopted some international accounting standards. And with the adoption of those standards we had to redefine shareholders equity on our balance sheet,” he said.

“Instead of shareholders equity being treated as equity, similar to how it is in a company, that shareholders equity was to be treated as a payable liability, and we had then reallocate that shareholders capital from the equity side of the balance sheet… to the liability section.

“On the 30 June 2005 our net assets, or our equity, was at $7.5 million and then the very next day our balance sheet had dropped to $915,000 simply by having to record our shareholders’ equity in a different section of the balance sheet.

“We were worried that our bankers in particular would look at our balance sheet and say, ‘you’re borrowing upwards of $9 million but your net assets are worth less than $1 million, and why should we continue that?’”

More than a decade on, Calabria is still waiting for an amendment, which he said could be as simple as changing the definition of member shares. However, he said the sector previously did not have a platform to be heard.

“[With the Senate inquiry] it became evident that the Federal Government finally acknowledged co-operatives and mutuals, particularly a couple of Senators saw the importance of the co-operative model in society in general,” he said.

“Up until now we haven’t had much of a voice out there, if we had a problem in the past we would go to our local member.”

Morrison said she hopes the inquiry, chaired by Senator Chris Ketter will recommend is reforms to “regulation, education and awareness”.

“Because we are not seen in the economy we need much more involvement at the political level,” she said.

“There should be a Minister for co-operatives or mutuals, or there should be a representative in Parliament that ensures whenever policies are being made that co-operatives and mutuals are also considered.

“What we hope will come out of the Inquiry is that an increased level of awareness will mean that our businesses are invited to the table.

“Every time the Government wants to talk to Australian businesses about economic reform, co-operatives and mutuals are forgotten. So we hope that’s going to change and we can be invited into the discussion.”