Friday, December 01, 2006

The single desk

As Australian as the stump-jump plough.

And much less useful.

The Australian's Asa Wahlquist sums it beautifully here.

My go, in tomorrow's Canberra Times, is below the fold.

By Peter Martin
Economics Editor

The Cole Report was just the beginning.

The real battle over the future of Australia’s monopoly wheat exporter AWB started as soon as the report came down. It is pitting wheat farmer against wheat farmer and politicians of all shades against each other.

This week the AWB hit the net sending group email messages to farmers calling on them to defend what it called “Your Single Desk”. It handed out a typically glossy brochure of the same name and announced that it would split itself in two in order to keep the desk – its treasured export monopoly.

Money has never been an object when it comes to the AWB defending its monopoly. Back some years age when I reported economics for the ABC the AWB rang me and promised to fly me to Melbourne for a one-on-one briefing about how good its export monopoly was. It was preemptive. I hadn’t at that time written anything critical of the monopoly. The AWB wanted to get to me before I did.

It has a lot to defend.

It is illegal for an Australian wheat grower to sell wheat overseas without selling it to the AWB (unless the AWB itself permits it to sell to a competitor).

And in an era when the Government is encouraging workers to put their faith in one-on one wage bargains the AWB adopts a particularly collectivist approach to doling out of payments to farmers.

All the money it makes from sales of each grade of wheat is pooled and each grower of that grade receives the same price, regardless of how much money their wheat is actually on-sold for.

It is a good deal for the producers of lower-quality high-yielding wheat within each grade, a bad deal for farmers who produce better wheat but less of it.

As a result, Australian farmers are encouraged to produce lower quality wheat according to the economic consultancy ACIL Tasman, just as in earlier days the wool floor price encouraged Australian farmers to grow lower-quality wool.

ACIL Tasman examined the AWB’s single-desk at the behest of some of the agribusiness companies that would like the opportunity to compete with it.

One of its findings is that the AWB doesn’t obtain particularly high prices for Australian wheat. It might be able to if it had something close to an international monopoly over the sale of wheat, but all it has is a monopoly over the sale of Australian wheat. And Australian wheat accounts for only 16 per cent of the wheat traded worldwide.

The sad truth is that in a competitive market there is no way one of the sellers can get a price too far above any of the others without providing a sweetener, or a bribe.

The Cole report has demonstrated that that is what the AWB did in Iraq. When the cost of its so-called trucking fees was deducted from the extraordinarily good price it was said to be receiving, the price looked only ordinary.

In fact as the only seller of Australian wheat on the international market the AWB faces a significant disadvantage. Its customers know almost exactly much wheat it is trying to shift each year. It can’t bluff them as could other traders.

And because it has to sell all of the wheat it is given there is an incentive for it to undercut other sellers in order to move it. It suffers no penalty if it gets a low price for farmers, but it does if it is left with their unsold wheat.

While the AWB does not enjoy a monopoly on the worldwide stage, it does enjoy a monopsony within Australia. The Macquarie dictionary defines ‘monopsony’ as a situation in which a single buyer deals with a large number of sellers. Monopsonists are able to rip sellers off.

The ACIL Tasman report outlines some of the opportunities: “lack of accountability, ability to shift and pad costs, high levels of personal remuneration unrelated to performance, and opportunities to live the ‘high life’ at wheat growers expense.”

It refers to a culture of secrecy, superiority and arrogance which it said gave AWB’s directors “the impression that they could significantly raise their fees at the very time when their oversight of AWB had manifestly failed.”

ACIL has called for an independent audit of the $A400 million in management fees taken out by AWB since it was privatised in 1999.

It is no accident that the farmers calling for an end to the single desk monopoly are the most efficient ones, mostly in Western Australia.

The much greater number of smaller, less efficient farmers, unable to produce as good a product, support the single-desk. It ensures they get paid without needing to change anything.

At the political level most of the support for an end to the desk comes from Western Australians. The Liberal member for Kalgoorlie Wilson Tuckey describes himself as representing “the biggest export wheat growing electorate in the country”. It is actually the biggest electorate in the country, covering more land than the states of NSW, Victoria and Tasmania put together. Its farms are big, efficient and export-focused.

Most of the support for the single desk comes from the National Party and from eastern states Liberals with rural constituencies such as Senator Bill Heffernan. To them maintaining the AWB is a way of demonstrating to their electors that they matter: that the government is able to continue to keep in place a special arrangement just for them – regardless of whether or not it is actually doing their industry good.

The Prime Minister said on Monday he would announce a decision about the future of the single-desk next week. But his words did not fill opponents of the single desk with confidence. He said that any “unilateral move totally away from the present situation without something being given in return would be foolish.”

Perhaps what’s needed to end the single-desk is civil disobeydeance.

Retail trading laws in NSW were finally liberalised after a hairdresser was arrested for cutting hair after 5.30pm.

Maybe a West Australian farmer will be prepared to fill a container with wheat and illegally sell it overseas, inviting prosecution.

I have heard that some of them are doing it on the quiet already.