COVER STORY: by Patrick J. ByrneNews Weekly
AUSTRALIAN EXPORTS: Why we need a single desk for wheat
, March 18, 2006
A single selling-desk is necessary for Australian farmers to "punch above their weight" in global markets, writes Pat Byrne
.The mood at meetings of thousands of wheat-growers has been one of suspicion that the Federal Government has not come clean on its role in the Iraq bribes scandal.
There is a deep fear that the scandal has become an excuse for an orchestrated attack by powerful opponents of the single selling-desk for wheat, in the face of a Federal Government that has a record of compromising on difficult issues and of supporting the deregulation of many other rural industries. Politicians have been talking of finding a "compromise" solution; but farmers fear that any compromise on the integrity of a single selling-desk for wheat will strike a crippling blow to the wheat industry.
Surveys show that 70-80 per cent of Australia's 36,000 grain-farmers strongly support retaining the single desk. While Government leaders have said that this arrangement is needed because our farmers are selling onto a world market corrupted by subsidies, the same Federal Government has insisted on the deregulation of industries such as sugar and dairy that also have to sell onto subsidy-corrupted world markets.
In the United States - the world's biggest wheat exporter - farmers receive as much in subsides as they do for the sale of their grain. Australian farmers, on average, receive only 4-5 per cent of their gross income as subsidies.History
Historically, the Australian Wheat Board, the sole marketer of Australian wheat, was established by forward-thinking producers who did not want to see a repeat of the 1930s, when international traders exploited Australian growers. Its single selling-desk arrangement stopped international traders forcing down the price of wheat by bidding farmer against farmer.
The Australian Wheat Board was established as a statutory authority by Wheat Acquisition Regulations contained in the National Security Act 1939. It continued in existence as a government-controlled marketing authority under successive legislation until July 1, 1999, when it was privatised and became known as AWB.
Today, it is largely owned by grain farmers and other industry stakeholders. While the domestic wheat market has been deregulated, all wheat to be sold for export is handled through the AWB single desk.
For many years international grain traders - like ConAgra, ADM, Bunge, Cargill and Louis Dreyfuss - have campaigned hard to have Australia abolish its AWB single selling-desk arrangement. This would allow these huge corporate grain-traders to again make Australian farmers compete against each other and accept a lower farm-gate price. Yet the single desk was originally set up precisely to overcome this problem.
Alan Mitchell, economics editor of the Australian Financial Review
(February 15, 2006), has typified the argument against the single desk. He tried to argue that there is no justification for the single desk. As Australia produces only 4 per cent of the world's wheat, we are unable to bargain a higher price by withholding supply. "To play that game you need to control a large share of the [world wheat] market." Therefore, he argued, we are better off abolishing the single selling-desk and allowing multiple sellers of Australian wheat to gain benefits from competition.
Mitchell misses the essential point about how the single desk markets Australia wheat. Australia doesn't just sell wheat. It sells into what are effectively niche quality
markets, whereas its major international grain-trading competitors sell on volume
at a price,
with no guarantee of quality. Australia sells a quality-guaranteed, differentiated product tailored to the quality demands of specialised markets - hence that ability of the single desk to achieve premium prices.
To achieve this quality of supply, a stack management system has been developed that sets clear criteria for each grade of wheat and grades into which each variety is acceptable. Lower-grade varieties, with poor milling and/or poor baking quality, are used for feed grain, while higher grade varieties fetch a premium, as with high grade wheat for noodle production in Asia.
Every load of wheat is subjected to a series of tests before being given a grading. The test records for each load its hectolitre weight, protein, moisture, screenings, foreign seeds, chaff and insects. At the completion of harvest, the quality standard of every grade at every delivery place is known.
This comprehensive testing procedure allows for computer-monitored quality management for all grades of wheat. Then grains can be blended to quality specification and to volume, so that millers and bakers around the world can reasonably predict the end product.
Repeat consignments can be blended to the same specifications, knowing the grade supplied is going to conform to the same quality as previously, regardless of the how the vagaries of the weather, pests and disease affect production in particular wheat-growing regions.
Quality and reliability of supply have real cost benefits for Australia's customers. Continuity of supply at a known quality makes milling profitable. The miller doesn't have to do the blending and consequently doesn't need to keep high stocks-to-use ratio stockpiles.
This highly efficient quality management system gives Australia's single desk for wheat a powerful marketing advantage. It promotes confidence in the buyers and translates into Australia's wheat growers receiving a premium of about $13 per tonne, equating to $200 million annually to growers.
This system also gives a "line of sight" between the needs of international customers and the ability of Australian wheat research community and farmers to increasingly provide high quality wheat grown for specific markets.
For example, this arrangement has led to close collaboration with millers in Japan and South Korea to identify the properties valued in wheat for producing noodles. This has lead to the creation and supply of high-valued grains to meet the specialised demand of these countries.
In short, contrary to Alan Mitchell's assertions, the single desk is not an antiquated system. It allows Australian farmers to punch well above their weight in the global market place.
A warning of what could eventuate if the single desk were to be lost can be seen in Western Australia where the Grain Licensing Authority has granted licences to multiple traders for the export of barley, canola and lupins. These traders, competing against the single-desk marketing system and each other, have depressed returns to growers.
The single-desk arrangement provides other financial benefits to wheat farmers.
In a deregulated market, grain prices can be bid down at the farm gate; but Australia's singled desk is by law a buyer of last resort where the farm gate price to farmers must reflect its revenue.
The single-desk arrangement has meant that AWB has been able to use its size to drive efficiencies in storage and handling facilities, reducing supply-side costs to farmers.
The single desk has also provided a currency risk-management system to the benefit of farmers.Policy line
The bottom line is that there should be no removal or compromise to the single desk so long as world markets are corrupted by subsidies. There will need to be some restructuring to prevent a repeat of the bribery problems that have arisen with the single desk. This will require a far more powerful replacement to the embattled Wheat Export Authority, with strong government representation on the board to rigorously oversee the operations of the single desk and be answerable to parliament.
However unlikely it might be, given the Government's hands-off approach to industry policy, the best way to protect the national interest and the interest of farmers would be to have the Federal Government take over the single desk and operate it as a statutory authority.
Another proposal recently floated was for four major domestic grain companies to take over the export role of AWB. But four exporters would mean there is no longer a single desk.
The final outcome will depend on the bulk of Australia's grain-growers, spread across numerous federal electorates, remaining united and using their political muscle to back an ongoing single-desk selling arrangement and to resolutely oppose any proposals that compromise the integrity of a single desk.- This is a longer version of the article by Pat Byrne that appeared on page 6 of the printed edition of News Weekly.