by Patrick J. ByrneNews Weekly
Barley deregulation - Victorian ALP backs agribusiness
, June 30, 2001
The Victorian government has decided to abolish the single selling desk for export barley, despite several polls showing farmers were overwhelmingly opposed to deregulation.
A 1997 report by the Centre for International Economics, commissioned by the National Competition Council, recommended deregulating the domestic and export barley industry.
National Competition Policy rewards the States with billions in Federal government payments for deregulating various industries.
According to Gerald Feeny, Deputy-President of the Victorian Farmers Federation Grains Group, "The report was long on economic theory and short on understanding of barley marketing."
Farmers pointed out to the Kennett Government that there was no country in the world where deregulation had benefited farmers. Extension
Regardless, Kennett deregulated the domestic barley market, but the Victorian National Party managed to achieve a two year extension of the single selling export desk. The Victorian Farmers Federation (VFF) supported the extension.
A McGregor-Tan poll showed that 85% of Victorian farmers supported the single selling desk. At a Victorian Farmers Federation conference, delegates voted 180 to 20 in favour of the status quo, and 99% supported a barley farmer vote on the issue.
Subsequently, a Victorian Electoral Commission poll of 4,310 farmers saw two-thirds respond, and again 85% voted against deregulation. While the Government sought to discredit the poll, claiming it did not cover all farmers, Gerald Feeny told News Weekly, "Two polls and a vote can't be wrong."
The Victorian Labor Treasurer, John Brumby, has continually criticised the VFF for supporting a farmer vote on the issue.
All single selling desks have a sunset clause that can be renewed. NSW, South Australia and Western Australia have all extended their desks.
Despite strong farmer opposition, the Victorian Labor government will allow the sunset clause for the barley single selling desk to expire at the end of June.
Consequently, Victorian farmers will lose their buyer of last resort, ABB International (formerly the Australian Barley Board). It had run the single selling desks in Victoria and South Australia, the two main barley producing states and had guaranteed the purchase of all barley crops.
The Board was able to deliver an up front payment at the time of delivery, a first advance on the later sale into the market at the most profitable moment for farmers. Because of its size it was able to gain discounts for bulk handling and transport, and had a high credit rating for borrowing money in the financial markets to on-lend to farmers at low interest rates.
Also until now, each state had a cooperative approach to marketing. Now Victorian farmers and traders will be in competition with the NSW, South Australian and Western Australian single selling desks, and Victorian farmers will also be competing against each other into a buyers market.
Barley is a specialised product. Its malting grade barley cannot be used until three months after harvest. There is very little forward selling and no futures market to manage risk.
The fastest expanding market is China. Farmers now fear that at their time of delivery, buyers will vanish and drop the price of barley, only to buy at rock bottom prices when it suits them.
The ABB used to deliver 91% of its product direct to end users, without any middle men being involved.
Now farmers will go from having a grower owned, central Board selling at the most profitable time and returning all proceeds, minus costs, to farmers, to selling through middle men who will buy at the lowest price to maximise their own profits.
The world's barley market is dominated by European Union traders who operate in a highly-subsidised market.
Those traders play off sellers to bid down the price and will not be interested in promoting Australian produced barley.
"This is deregulation gone mad", according to Feeny. "It is a return to stone age marketing. Deregulation does not increase the number of buyers into the market. It only increases the number of sellers, forcing thousands of farmers to compete against each other."
He says the loss of a single selling desk will have other intangible consequences.
"A single selling desk can guarantee quality of supply to customers. But the US experience shows that when a small number of grain traders are able to beat down the price to competing farmers, then farmers will not produce to the highest quality and have grain traders cream off the premium. Instead, farmers plant to get maximum production volume at the minimum quality necessary."
US farmers have formed large grower co-ops to combat the middle men.
The barley growers' experience is a salutary lesson for Australian wheat farmers who are under pressure from international grain dealers, National Competition Policy and a planned US-Australia free trade deal to do away with the single selling desk.