This exerpt from the following Business Sunday transcript:'......

This exerpt from the following Business Sunday transcript:

'... if the Single Desk is opened to competition, and the big growers pull out, the system will collapse.'

Probably true. But it is better to bankrupt a few than to bankrupt the whole industry. I doubt there is a positive budget in the Australian Wheat Industry this year! (Noone can see the emerging bull so admittedly these budgets are worse case scenarios)

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Against the grain
Sunday, February 12, 2006
"Its not just their reputation that is shot, but indirectly they have shot every Australian wheat grower's reputation at the same time."


Against the background of international scandal and bribery, Ali Moore investigates why the AWB, Australia's sole wheat exporter, is in such hot water over the Oil for Food affair.



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PROF. PAUL KERIN, Melbourne Business School: I think the motivation is just the embedded culture that has been there. The almost 'He-Man' culture that we're going to get things done regardless.







PETER HOWARD, OzEpulse: It's a law unto itself, and certainly proven to be a law unto itself in its dealings with the right.

BRUCE HAIGH, former diploment: They were doing what they felt had to be done.

RON GREENTREE, grain grower: Their reputation is shot.

KERIN: The biggest loser is grain growers.

ALI MOORE: It's been a torrid few weeks for everyone involved. None more so perhaps than Andrew Lindberg, a man who took the AWB public five years ago, well aware his company was a strange beast, publicly owned, but with a legislated monopoly.

ANDREW LINDBERG (Business Sunday, July 2001): It is something that doesn't have any parallels anywhere else in the world. We think it's the best system in the world quite frankly.

MOORE: With hindsight, Lindberg's confidence was misplaced. Even as he was speaking, his managers were slinging Saddam Hussein's regime million of dollars in kickbacks, in blatant breach of U.N. sanctions.

CAROLINE OVERINGTON, The Australian: The former Chairman, Trevor Flugge, several months ago called me in the office, and was screaming down the phone and described this as a storm in a teacup, it was clearly not a storm in a teacup.

MOORE: Meet the journalist Australian officials reportedly tagged a "rogue"… Claiming her story of kickbacks to Iraq was a beat-up from the very beginning. Caroline Overington first saw the Iraqi wheat contracts when she was based in New York.

OVERINGTON: As soon as you raised the question is it possible that an Australian company would be providing upwards of 300 million dollars to Saddam Hussien's regime in the months before Australian troops were due to go to war there? People were outraged by the very suggestion, it seemed like an incredible occurrence such an incredible idea.

MOORE: This is where it's all coming out, the "Cole" Inquiry into the U.N. "Oil For Food" Program. In this room there have been almost daily revelations of bribery and corruption, bags of money and truckloads of gold. Even the most gung-ho trader would be astounded at the scale of the deception. Now the Wheat Board's Andrew Lindberg is the first scalp to go, but as Managing Director just how much was he responsible for? Certainly corporate culture was the Managing Director's job, but Lindberg was handed a corporate "structure" that would have challenged even the most competent of managers.

KERIN: The culture that a monopoly environment creates is very much an aggressive culture and we win at all costs and we can control what happens and doesn't happen…

MOORE: A monopoly environment is exactly what the AWB has. It's in fact not one company, but two. The publicly listed entity is AWB Limited. Which in turn is the sole owner of AWB International, the actual holder of the monopoly to market Australia's bulk wheat exports, the so called Single Desk. All the grain goes into AWB International's "national" pool.

But that pool is "managed" by "AWB Limited" which provides all the services. AWB International pays the bills. And there's no competition for those service contracts.

KERIN: The combination of having shareholders who want a shareholder return and growers who want to maximise their return inevitably causes a conflict of interest amongst AWB.

MOORE: There's the rub. Shareholders in the list company have a direct interest in the earnings of AWB Limited, around a quarter of which come "from" managing the pool for AWB International. Growers on the other hand have a direct interest in the pool itself.

HOWARD: You've got a private company that can charge whatever it likes uncontested to run AWB International, in terms of what chartering of vessels and a whole range of services, there's no-one else in the Australian community who can offer those services. So basically it is a major cash earner for AWB Ltd.

GREENTREE: They don't have to show us growers what costs they've had to charge us to run the pool, we've got no benchmark to see if that price is fair, and reasonable, or they have actually been charging us too much.

MOORE: Ron Greentree is Australia's biggest private wheat grower, in Sydney this week to watch the Cole Inquiry. He goes a step further, saying the key performance indicators, or KPIs, used to determine executive pay are a strong motivator.

GREENTREE: I mean you have the situation where, where the KPIs of the executive will be set on the shareholder return, on the profits, which would then make that they would, make sure they charge at times a price to the pool, which maybe someone else may be able to do it at a lower price.

MOORE: It was directly in the interests of AWB management to maximise the price of service agreements?

GREENTREE: Exactly.

MOORE: So what's the link between the AWB's structure and its monopoly, and what happened in Iraq?

KERIN: If you're a Single Desk operator frankly you don't want as much transparency as growers would like, because there's that sort of that veil of lack of transparency it gives people almost the sense that we can do anything around here and as long as no-one finds out we're OK.

HOWARD: No-one else could really get a look in on how they were actually operating the business, so they ran it, it would appear, on their own and in part considered they were above the law.

MOORE: Peter Howard has done battle with the AWB for years, trying to get his own export permits. He sees the Cole Inquiry as the final nail in the coffin for the Single Desk System.

HOWARD: I believe there would hardly be a blip in the marketing of wheat if there was no AWB tomorrow. I really believe that. But anyway there's no reason they couldn't continue, and if they were a good company and offered good services farmers would support them.

MOORE: And he's not the only one.

KERIN: The answer in my view is the free market. We should let anyone who wants to export bulk wheat the right to do that, which would create competition for the wheat that growers are selling.

GREENTREE: We have to make sure the we don't throw the baby out with the bathwater.

MOORE: But do you keep a Single Desk?

GREENTREE: I think that is probably getting towards the end, particularly as it is now, but we don't want to be irrational, and throw it out overnight.

MOORE: The AWB declined to be interviewed by Business Sunday, but their website includes copious documents aimed at proving the Single Desk does work to the benefit of growers.

And there is clear support, especially among smaller farmers, who form the vast majority of wheat growers and have a big say at the ballot box.

ANGUS McNEIL, wheat grower: The world grains market is unbelievably corrupted by subsidies from Europe and Northern America. It is dominated by three or four very large trading companies. We are minimalists really in the world of grain, and we believe that by having a single desk or a single seller, we are better able to counter the forces that are stacked against us.

MOORE: Angus McNeil is a Senior Vice President of the grower lobby group, the Grains Council, which is making no official statement about the Cole Inquiry.

Speaking as a grower, McNeil, who's just returned to Melbourne from a Council meeting in Adelaide, is fiercely protective of the AWB structure. He says if the Single Desk is opened to competition, and the big growers pull out, the system will collapse.

McNEIL : It begins to pull the whole thing down, doesn't it, once you let some people break away, it starts to, starts to pull a card or two out of the card house, and the danger is the whole lot can come tumbling down.

MOORE: And there are others who say the Single Desk shouldn't be questioned.

HAIGH: The Single Desk wasn't responsible, or the operation of the Single Desk itself wasn't responsible for what happened in Iraq. What happened in Iraq was solely due to the culture of whatever it takes which was embedded in the AWB and perhaps the personalities of some of the people involved. And that's not to condemn them out of hand it's just to say they didn't know at what point to draw the line.

MOORE: Bruce Haigh is a retired diplomat. For twenty-two years he's worked in the Middle East and Asia.

HAIGH: All the postings I had overseas were in hardship posts and in all of those posts the only way that you could get things done was to grease palms.

HOWARD: I think there's a certain number of farmers out there who still don't believe they've done anything wrong and they say bribery or paying whatever it takes to get business done is ok. But I think there's a fundamental difference between breaching a UN sanction which was put in place for good reason so what we would've done, so I think it's beyond just bribery.

MOORE: Perhaps the bigger question is if AWB employees didn't know when to draw the line in Iraq, why weren't they told?

The body tasked with supervising the wheat marketer is the Wheat Export Authority, or WEA.

GREENTREE: Where have they been, and what are they doing on behalf of all wheat growers of Australia?

MOORE: But perhaps that criticism is not entirely fair. The people who run the Wheat Export Authority have got their own problems.

PROF. GORDON MacAULAY, University of Sydney: What do we call that… infant industry.

MOORE: Professor Gordon MacAulay was a founding member of the Authority's Board. He says from the outset, what they could do was limited.

MacAULAY: Essentially only request information from the AWB and we relied on them giving us what we requested. They could refuse. And there was nothing we could do.

MOORE: So you couldn't be an effective monitor?

MacAULAY: Couldn't be an effective monitor.

MOORE: The AWB has promised an audit of internal controls, and a review of Governance procedures. Its Managing Director is gone, all well before any findings from the Cole Inquiry. Indeed, the Commission is still to turn its full attention to the allegations involving BHP. Then there's the potential political fallout, will anyone find a smoking gun? As well, there's the prospect of criminal charges. "The independent inquiry committee into the United Nations Oil for Food Program" While the wheels of inquiry are spinning, growers have been busy delivering up to 25-million tonnes of grain to the silos of the AWB. Now they're worried the AWB is going down, and it's taking their livelihoods with it.

GREENTREE: Their reputation is shot, yes they will continue to be in business, but its going to be a hard slog for them, and as I said, its not just their reputation that is shot, but indirectly they have shot every Australian wheat grower's reputation at the same time.