essay i wrote on awb in late dec
I wrote this background information on AWB in late December last year, looking for all the reasons (non financial reasons) why the company would end up in strife. For those interested in some nice facts have a read:
Alleged Corruption -------------------------- - The AWB has been implicated by a UN enquiry for allegedly paying USD221M in incentives to the former Iraqi Government between 1997 and 2003 to ensure the security of wheat contracts which AWB had with Iraq. This has been found by the Volcker inquiry to be an abuse of the Oil For Food Program. However, the Cole inquiry which is due to start in Australia on January 17, 2006 will investigate the matter further to make recommendations to the Federal Government in March 2006 with respect to the single desk arrangement under which wheat is exported overseas by AWB.
The UN enquiry headed by former US Federal Reserve Chairman Paul Volcker found AWB guilty of 14% of the total amount of incentives payed by various businesses under the Oil For Food Program to Iraq. There were over 2000 companies implicated by the Volcker Inquiry as being involved in paying kickbacks to the Iraqi government. AWB by far payed the more kickbacks to the regime than any other of the guilty companies.
It is alleged that the bribes were payed through a Jordanian Trucking Company, who transported the wheat at a cost of USD 56 per tonne as opposed to the standard price of USD 12. It is alleged that the former Iraqi government insisted that AWB use this particular trucking company for all of their inland transportation.
Early Business Impact ------------------------------- - Before the Australian Government has it's own inquiry, which is due to start on the 16th of January 2006, the US Department of Agriculture (pressured by US Wheat) suspended AWB from their credit export program on the 15th of November. Australian Trade Minister Mark Vaile negotiated the lifting of this suspension on the 16th of November. Mark Vaile asked the US to wait until Australia had it's own inquiry, before considering any further action against AWB. US Wheat Associates are still lobbying the US Government to suspend the AWB from this program. According to one of many news articles worldwide, US Wheat Associates are lobbying US Senators for much tougher bans to be imposed on AWB in future.
-In late November the USDA confirmed a US deal with Iraq for the supply of 200,000 tonnes of wheat. Australia's last wheat deal with Iraq occured in September for the supply of 650,000 tonnes of wheat. The AWB expect to fill this contract by late February. Although the US won the last tender, AWB is continuing to tender for the supply of wheat to Iraq. AWB publicly maintain that they are confident of securing future wheat contracts to Iraq.
2005 WTO Talks in Hong Kong -------------------------------- The most significant agreement at the WTO negotiations in Hong Kong in mid December 2005 was an agreement to remove government subsidies for farming by 2013. Australia was significantly pressured to remove the single desk arrangement which guarantees AWB the monopoly sales over export wheat in Australia. Trade Minister Mark Vaile stated that inspite of supporting the single desk, the government would consider the removal of AWB's veto powers to prevent other potential wheat exporters from exporting to non-traditional markets. Quoting the ABC News website: 'Australia agreed in its free trade agreement with the US to address AWB reforms at the global trade talks.
Weaker Wheat Market for 2005/06 ------------------------------------------------ - The expected harvest for wheat this financial year is 12.8M tonnes, down from last year's 14.6M tonnes. It is debatable as to whether the forecast for this year will be met.
Inspite of wheat prices being in a long term downtrend, with prices expected to continue to slide over the next few years as new wheat growing markets are open, it is expected that this year the wheat price is expected to increase over the next few months. Chicago Board of Trade Wheat Futures up to mid 2006 suggest a bullish trend in wheat: (As of 28th November 2005) 6 March: 339 7 July: 380 *Note: consecutive increases each month between those months.
This may have the potential to offset a weaker crop for 2005, however this remains to be seen by comparing renegotiated wheat contracts with the former contracts of previous years.
AWB Veto Powers ------------------------------------------------- Co-operative Bulk Handling Ltd (CBH) applied to the Wheat Export Authority (WEA - Government Statuatory Body) and was granted a licence to export 100,000 tonnes of wheat to 6 Interflour mills in Indonesia, Vietnam and Malaysia with growers who are contracted to the Interflour Premium pool receiving $10 per tonne more for wheat than AWB would offer. The AWB used their veto powers over bulk export licence applications to deny CBH the power to export to these mills.
On the 23rd of December 2005 CBH reapplied to the WEA to export the 100,000 tonnes to Interflour mills in Indonesia, Malaysia and Vietnam.
