farmers agree to end monopoly

Ditch AWB but keep wheat export single desk: VFF

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Ill-gotten grains? Farmers agree on ending AWB's monopoly.

Ill-gotten grains? Farmers agree on ending AWB's monopoly.
Photo: John Woudstra
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Philip Hopkins
September 11, 2006

WITH the Cole inquiry into the AWB-Iraqi wheat scandal due to report at the end of the month, Victoria's grain farmers are pushing for acceptance of their plans to reform wheat marketing.

The Victorian Farmers Federation grains group's wheat marketing model is being considered by the Grains Council of Australia. Government and industry are waiting on the inquiry's outcome before making their move.

AWB's reputation has been sullied by revelations at the inquiry, which is investigating $290 million in kickbacks AWB paid to Saddam Hussein's regime in Iraq during the United Nations oil-for-food program.

Critics blame AWB's monopoly on Australian bulk wheat exports — the single desk — for its behaviour. However, the VFF grains group wants to retain the single desk, but to strip AWB of the monopoly right.

It wants subsidiary AWB International to become a separate, non-listed company to operate the single desk and manage all wheat sales on behalf of growers.

AWB has put in place some reforms to make AWBI more independent, but the grains group believes they don't go far enough.

According to group president Ian Hastings, there is an inherent conflict of interest between shareholder returns and grower returns. AWB class A shareholders — growers — elect the AWB board, while B class shareholders that own the company include non-growers.

"AWB directors have responsibility to maximise shareholder returns," he said. "How does AWB reconcile this with maximising grower returns? We need to remove this conflict of interest."

For the grains group, pool returns are more important than returns for a grower/shareholder.

Mr Hastings said the kickbacks highlighted by the Cole inquiry were a corporate governance issue. "It's all about risk management … There can be internal audits," he said. "Other corporations have these in place."

He said a grower-owned AWBI, with its own staff and incentives linked to pool returns, would always look for ways to maximise pool returns and minimise pool costs.

"Growers are now fully aware of the unreasonable costs and fees associated with (AWB) operating the pool."

He said the grains group was very concerned about a break fee that grains growers might be forced to pay if AWB lost the export monopoly. Estimates have put this as high as $400 million. It would compensate AWB for setting up infrastructure to operate the single desk.

Mr Hastings said any business in providing a service put its equity at risk. "Shareholders should carry the risk," he said. "There is not a God-given right to get your money back."

The VFF group, however, has not won over a maverick band of farmers, the Eastern Grain Growers, which wants total deregulation of the export market.

A spokesman, Mark Johns, said the VFF model relied on many of the principles that had proved disastrous in all previous grain marketing monopolies.

"Grower election of board members has provided a career path for agri-politicians encouraging inefficiencies aimed at political solutions," he said. "For most grain farmers the VFF model is just more of the same."

The Australian Grain Exporters Association also favours complete deregulation.

The association, which represents multinational grain companies, wants an independent regulator to control export wheat. Registered bulk wheat exporters would obtain their wheat from Australian growers, and market it to international customers.

The Age 11 September