December 3rd 2005

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Articles from this issue:

COVER STORY: HIGHER EDUCATION: Top university accused of elitism

EDITORIAL: Trade talks: smoke and mirrors

CANBERRA OBSERVED: Workplace changes set to change societal fabric

SCHOOLS: Vouchers for schools - giving parents choice

PRIMARY PRODUCTION: Advantages of single-desk for Australian wheat

SUGAR DEREGULATION: Beattie to abolish single selling-desk

STRAWS IN THE WIND: Working women and pensions / One hand washes another: European-style / Those were the days, my friend / The burning Bush

ABORTION PILL: Part of the disease, not part of the cure

OPINION: The difficult dilemma of Australia's Muslims

FOREIGN AFFAIRS: Why North Korea got one more chance

CULTURE AND SOCIETY: Great Russian writers on the riddle of humanity

CINEMA: Three Australian films fall flat: The Proposition, Jewboy and Little Fish

BOOKS: The Lost Executioner: A Story of the Khmer Rouge, by Nic Dunlop

BOOKS: Victoria Cross: Australia's Finest and the Battles They Fought, by Anthony Staunton

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Advantages of single-desk for Australian wheat

by Ken Francis

News Weekly, December 3, 2005
Recent economic studies have warned that abolishing the single selling-desk marketing system for wheat will greatly disadvantage wheat-growers, reports Ken Francis.

The Australian wheat crop currently benefits from a single-desk marketing system, which has provided growers with a premium price greater than one available from a deregulated marketing system.

The single-desk for wheat was analysed in a report published by Australian Wheat Board (AWB) International in February 2004.

The system is hugely popular with grain-growers such as Brendan Hickey from Narembeen in Western Australia, who said: "Growers throughout Australia recognise that, in a market corrupted by subsidies from the US and Europe, their best chance for financial survival is to present a united front in international markets."

This united front is offered by AWB Ltd, which is a grower-controlled, publicly-listed company, whose single-desk marketing activities are managed by AWB International Ltd on behalf of wheat-growers.

In 2004, AWBI engaged Chris Murphy of Econtech to calculate the actual price benefits that growers received from this export marketing structure.

The consultant found that wheat-growers' prices were 2 per cent to 26 per cent higher, which meant an extra $A15 to $A30 per tonne for the dominant benchmark grade wheat (APW). Across all grades, growers were better off by $13 per tonne, or by $200 million over the whole crop.

In addition to these financial returns, there are real benefits to be obtained from a unified growers' voice through the single desk as opposed to a deregulated marketing system.

Professors Joshua Gans and Joseph Hirschberg of Melbourne University investigated the impact of deregulation on wheat marketing.

They concluded that returns to growers would be reduced by amounts ranging from $US134 million to $US563 million, depending on the type of deregulation.

They noted that a major advantage of the current single-desk system was to align the interests of both growers and exporters and so enable additional value to be created along the supply chain.

Major risk

This alignment would disappear were the single desk to be dismantled. Major risks in a deregulated system would be:

  • the increased power exercised by other players in the supply chain; and

  • the likelihood that "access to international markets is likely to be controlled by market power at other steps of the vertical chain, particularly the large bulk-handling companies".

AWBI has the capability, under existing legislation, to veto the export of bulk quantities of wheat, and this enables it to present a united front to overseas customers.

Under deregulation, this advantage would be lost, and we would see several sellers dealing in the Australian wheat crop.

Inevitably, such competition would depress prices, as observed in Western Australia.

In that state, the Grain Pool of WA is the single-desk marketer of canola, barley and lupins.

However, a government agency, the Grains Licensing Authority (GLA), has the authority to issue export licences for the disposal of bulk grain outside the Grain Pool of WA's single-desk system.

Export licenses have been issued for large quantities of barley, lupins and canola, such that "this has had a direct negative impact on the integrity of the single-desk marketing system in that state and, as a consequence, grower returns".

Other advantages flow from the single-desk system for wheat:

First, AWBI is able to use the power derived from its position as the marketer of the whole Australian wheat crop to negotiate storage, handling and transport rates on behalf of growers, and hence drive down the costs in moving the export wheat crop from the farm to ship. In 2001/02 these savings amounted to $A41 per tonne.

Second, the single desk allows for control over segregation of wheat into various quality categories, with the capacity to blend and deliver wheat to customers' specifications and receive premium prices for a quality, branded product.

Third, the single desk permits the management of price and currency risks inherent in export trade, more efficiently than if risk management was the responsibility of the individual grower.

  • Ken Francis

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