Rivals are lining up to step into AWB's shoesCritics hope the...

Rivals are lining up to step into AWB's shoes
Critics hope the the Government will eliminate the monopoly, says Asa Wahlquist
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February 09, 2006
AGROWER-OWNED co-operative, two publicly listed but grower-dominated grain companies, the largest privately owned company in the world, as well as a number of multi-national and Australian companies are all contenders to export Australian wheat, if AWB loses its monopoly.

The so-called single desk looks set to become a political casualty in the wake of the Cole inquiry into the $300 million in kickbacks AWB allegedly paid Iraq. It is in the sights of Prime Minister John Howard, Treasurer Peter Costello and Opposition Leader Kim Beazley.

That monopoly, over Australia's $3.5 billion wheat exports, was enshrined in AWB's predecessor, the Australian Wheat Board, in 1939.

In 1999 the statutory authority became a private company with a monopoly - AWB Limited. In 2001 it was listed on the Australian Stock Exchange.

Under the Wheat Marketing Act, approval for all wheat exports must be sought from the Wheat Export Authority. AWB not only holds an exemption from having to apply to the WEA, it holds power of veto over all bulk exports, a power it has exercised over all but one of the requests put to WEA since 1999.









The Australian Grain Exporters Association wants the single desk to be replaced by a regulatory body that would license wheat exporters and regularly review them. Association president Philip Hughes argues that growers are very familiar with all the prospective wheat exporters, "they are trading with them on a daily basis".

They include West Australian grower-owned co-operative CBH; east coast grain-handler and publicly listed grower-dominated company GrainCorp; the former Australian Barley Board (ABB), also a grower-dominated publicly listed company; grain marketing giants Cargill, Louis Dreyfus and Bunge; Brooks Grain; Alfred Toepfer; and smaller traders such as Peter Howard's OzEgrain.

Hughes points out that all the other grain markets, with the exception of South Australian barley exports, have been deregulated. "We have seen total deregulation in Victoria, they haven't looked back; and total deregulation this year in NSW for barley, canola and sorghum. That has occurred without a hitch," Hughes says.

He argues that, after the evidence presented to the Cole Inquiry, "we don't see that AWB deserves to have a privileged position. Under our proposed model, AWB would still be a significant player. But not everyone likes to deal with AWB, so there will be opportunities for Australian wheat growers to sell to new markets that currently don't like dealing with AWB".

A spokesperson for ABB said: "As one of the top three grain marketers in the country, if the (export wheat) market deregulated, ABB would obviously be looking at it."

Neither GrainCorp or CBH were prepared to comment on their roles in an open wheat market. But CBH is still hurting from AWB blocking its proposal to export 100,000 tonnes of wheat from West Australian growers to mills in Asia that CBH part owns.

West Australian growers had rushed CBH's offer, which was $10 a tonne above AWB's price.

CBH chief executive Imre Mencshelyi says the decision "clearly demonstrated faults within Australia's wheat marketing arrangements. The growers of Western Australia are missing out on a golden opportunity and are being disadvantaged by a wheat marketing system that is clearly inflexible and unworkable in its current form".

In a submission to the 2004 review of the Wheat Marketing Act, GrainCorp argued: "It is incongruous that AWB can export containers of other grains in combination with AWB wheat, but reciprocal rights for other exporters to combine wheat with coarse grains and oilseeds is denied."

GrainCorp argued it could develop a market (for wheat exported in containers), then AWB could "seek to displace our market and customers without compensation".

Peter Howard, from OzEgrain and OzEpulse, knows about that. In 1993, his company, New England Agricultural Traders (NEAT), started selling durum, or pasta, wheat to Turkey, using export permits to service the new niche markets. But the business, which had an $80 million turnover, came to a halt in 1999, when AWB refused NEAT's applications for bulk permits. Howard took his battle all the way to the High Court. In June 2003 it ruled in favour of AWB. Unbowed, Howard today is exporting a range of grains, including wheat in containers.

He wants an end to what he calls the interference of the WEA, and perhaps even a return of the durum business he built up in the 1990s.

Howard argues small companies like his can move more quickly than large companies like AWB. "If you look at the NEAT case, we were offering $36 a tonne better than the AWB consistently over a long period of time. We didn't have the cost structure. We dealt on a spot basis using the current exchange rates and we weren't locked into an overall portfolio, such as AWB, when they have large hedging positions and deal at the book value rather than the spot value."

Howard says there would only be "a short blink between what the AWB had and a new era".

"I think the gaps would be filled quickly," he said.

Cargill, the largest privately owned business in the world, has an investment of $US250 million in Australia, including Allied flour mills which it co-owns with GrainCorp.

In the 1920s and 1930s, Louis Dreyfus was the leading exporter of Australian wheat. Alick Osborne, the Melbourne-based commercial manager for Louis Dreyfus, says they currently export Australian sorghum, barley and canola.

Osborne says the company is already shipping wheat, and servicing customers worldwide, "and we would like to be able to export Australian wheat to those people overseas".

He explains that being able to export wheat would make their domestic wheat trade more efficient, "knowing, if we do buy grain that is not required by the domestic market, that there is an export outlet for it".

Hughes argues barley, canola, sorghum and other grains have been deregulated "and the industry hasn't fallen off the perch". But the export trade in all the other grains amounts to around $2.2 billion a year. Wheat, bringing in export income of between $3.1 to $4.6 billion over the past six years, is the golden grain, the most prized grain of all.