The saga over the bribes paid by the monopoly wheat exporter, AWB, has a fair way to run yet. Beyond saying that there is a lot that looks very smelly about the affair, I’ll wait until more evidence comes out before making more comment. However, it has made me give more thought to how desirable it is for one private company to have monopoly rights over all wheat exported from Australia.
John Quiggin posted an item on the AWB saga a few days ago, and I put a comment on that. The gist of it was that, while I’m generally not keen on monopoly arrangments, I’ve supported the AWB monopoly for wheat exports (usually called the single desk) , as I assumed (partly based on comments from farmers) this gave the best price for producers. However, the ‘bribes to Saddam’ incident has made me wonder about whether the ‘best price’ argument is true, as well as whether this apparently unhealthy company culture is one of the other costs that can come from a monopoly arrangement.
Wilson Tuckey has recently called for an end to the single desk arrangement – as mentioned in this post on Yobbo’s blog. I don’t normally take my views on economics (or anything else) from Wilson Tuckey, but his seat does cover the heart of the wheat belt in WA, so I presume he is reflecting the views of some of his constituents.
The item on Quiggin’s blog has produced a lot of comments which traverse the issues well. I won’t try to summarise them here, but for anyone interested in the issue, I recommended having a read through them over on that site (although the comments do tend to deteriorate towards the end into a slanging match about the UN.)
I received media release from the Australian Grain Exporters Association. I thought I would just paste it here for the benefit of anyone interested in wheat export policy.
“The revelations that we have all seen in the past week from the Cole Inquiry, have shown for once and for all time that the current wheat marketing arrangements are fundamentally flawed. This is clearly due to the power that the Act gives to one company, AWB Ltd, and the apparent lack of controls over the activities of that company.
The AWB Export Monopoly has now caused considerable damage to Australia’s reputation in international grain markets. Overseas buyers may well have reservations about dealing with AWB in light of the allegations that have been made to the Cole Inquiry. Unfortunately, for Australian grain growers, the affairs of the AWB Export Monopoly that are being aired in the Inquiry, are coming to light only a few years after the unmitigated disaster of the NSW Grains Board export monopoly collapse in the late 90’s.
The AGEA which has been proposing changes to Australia’s Export Monopoly wheat marketing arrangements for over 20 years, has now developed the following “Proposed Wheat Industry Model” as the best possible way for industry to move forward.
PROPOSED WHEAT INDUSTRY MODEL
• The Wheat Marketing Act be amended to remove AWB’s export monopoly powers.
• A Regulatory Body be established, with authority to register bulk wheat exporters from Australia.
• The Regulatory Body establish criteria (financial capacity / international commodity trading experience / reputation and credibility) that exporters must meet, in order to qualify as a registered bulk wheat exporter.
• The Regulatory Body to regularly review registered bulk wheat exporters in order to ensure compliance with their status as a registered bulk wheat exporter.
• The Regulatory Body to maintain and report Australian wheat shipments and statistics.
• Registered bulk wheat exporters to have no restrictions on tonnage, or destination, of Australian wheat exports.
• The complete deregulation forthwith of the wheat export trade in containers
• The changes be in place by July 1 2006, for the commencement of the 2006/07 season
It is important for growers that these changes are accompanied by a smooth transition.
The AGEA believes that it’s proposed changes will deliver that outcome, and revitalize this crucial industry.
Under this model it is envisaged that some of Australia’s largest existing grain businesses including CBH, Graincorp, Elders and ABB would be registered wheat exporters, as well as major international grain trading companies.
The major Australian companies, and the Australian based international companies are already buying millions of tonnes of wheat in Australia for the domestic market and for delivery to AWB’s export pools so growers already have good relationships and experience in dealing with companies, other than AWB.
AWB would need to apply to be a registered bulk wheat exporter, no different to any other company.
A W B would be expected to maintain a very large market share under this arrangement.
The companies mentioned above already run large wheat pools in Australia, and it would be expected that AWB would continue to run national pools. Competition in running pools will provide growers with more choice and ensure that pools are run efficiently.
From a growers’ perspective under this system, sales will still be to the same companies that they have been delivering to for many years. Growers will be delivering to the same silos, and wheat will be transported on the same trains, and shipped from the same ports, as at present.
A national quality testing organization would be introduced to test all wheat shipments, and report back to the Regulatory Body.
Under the proposed system, Australian wheat trade would continue to be marketed through a number of other companies, in the unfortunate event that an Australian company became involved in a trade dispute. The risk and cost of any dispute would rest with the particular registered exporter involved and not with the growers as is the case under the current system.