Want to export wheat your own way? Just try.

That's how it has been until now.

In this morning's Canberra Times I outline the bizzare Catch 22 that awaited would-be exporters, "the best catch there is":

ANALYSIS: Level playing fields with catch in the rye

Until now anyone has had the right to apply to compete with the AWB in selling exporting wheat. Australia’s Wheat Export Authority considered applications on their merits.

But there was a catch, imposed by legislation. Joseph Heller would have called it “Catch 22”.

The Wheat Export Authority was only able to approve applications if they had been approved by the AWB itself.

And the AWB’s criteria for deciding whether or not to let in a competitor?

Well, it had nothing to do with whether or not that competitor had the financial capacity for the job or whether or it would be able to get wheat growers higher prices.

CBH is Western Australia’s third-largest exporter selling around three million tonnes of grain each year. At the moment it is only able to export grains such as barley and canola because the AWB won’t let it export wheat.

Last month it applied for the right to export two million tonnes of Western Australian wheat to Indonesia, Malaysia and Vietnam, at what it guaranteed would be higher prices than the AWB had been offering.

And the AWB’s Response, delivered last month, as it was awaiting what turned out to be damning findings from the Cole Royal Commission?

It said “no” because in its words, approving the application “would not be consistent with the intentions of the Wheat Marketing Act”.

Why not?

Apparently the intention of the Act “is not to create competition with the National Pool that would undermine National Pool returns.”

Indeed, given the AWB’s status as a private company, the directors would have probably been failing in their fiduciary duty to shareholders if they had allowed in a competitor.

That’s why the Prime Minister yesterday stepped in to remove the AWB’s power to veto wheat exports by competitors, and that’s why, despite the bluster of AWB supporters such as Senator Barnaby Joyce, he is most unlikely to ever give it back.



Farmers get new avenue for wheat

Australian farmers will soon be free to export wheat through an organisation other than the AWB.

Prime Minister John Howard announced plans yesterday to remove the AWB's power to veto the export licence applications of its competitors. Instead, for an interim period of six months, that power will be given to Australia's Agriculture Minister Peter McGauran, who will exercise it in consultation with other senior ministers “in the national interest”.

By contrast, the AWB's legislation has essentially required it to exercise its veto power in its own interest. Last month the AWB rejected an export-licence application by the West Australian grower-owned trader CBH, saying that it was obliged to protect the interests of the growers that sold through it. CBH said last night it would resubmit its application to Mr McGauran as soon as the legislation passed.

The compromise legislation was approved by a meeting of Coalition MPs yesterday morning and will be rushed through Parliament before it rises for the year tomorrow.

It is needed to end what is effectively a grains strike by Western Australian growers, 70 to 80 per cent of whom are withholding this year's crop from the AWB, some of them storing it in CBH-funded warehouses, until CBH is granted an export licence.

The circuit-breaker mirrors one proposed last week by Senator Andrew Murray, of the Australian Democrats, who moved in the Senate that the AWB's veto power be transferred to the Treasurer. Mr Howard said yesterday that he had seen Senator's Murray's proposal and that “if there is any coincidence, well there is nothing wrong with that”.

He said he had decided to move the export power to Mr McGauran rather than to the Wheat Export Authority in the wake of the Cole royal commission, because “the Wheat Export Authority itself was, how shall I put it, the subject of comment by Cole”.

Over the next three months the Government will consult widely about whether there is any need to continue with a single-selling desk backed up by an export veto.

“People can now have a proper debate about the merits of a single desk. I mean there are single desks and single desks and it depends who operates it. Some people argue, I am not saying this is my view, but I am injecting this into the debate, some people argue you can have a single desk operated by an entirely different company which is owned by the growers. Others argue you need a situation where an enhanced or changed Wheat Export Authority licenses a number of exporters; others argue for full deregulation, others have got other proposals,” Mr Howard said.

West Australian Liberal MP Wilson Tuckey who had been preparing a private member's Bill to end the single desk, said he was happy with the Prime Minister's interim arrangement.

National Party Senator Barnaby Joyce, who is a strong supporter of the single desk, said he was “far happier with the minister having control than what the alternative was, which was that we lose the single desk complete deregulation”.

He signaled that the fight wasn't over, saying that over the coming months growers had to “absolutely bang their pots and get on their tractors and tell the whole world, especially those living in Canberra, that they do not want to lose the single desk”.

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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.

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The battle to free Australian wheat.

Incomprehensibly in the 21st century, Australian wheat farmers are denied the right to sell what they grow to whoever they want.

Egg boards, grain marketing boards and the old Wool Corporation have all lost the monopoly powers that they once had. But the old Australian Wheat Board, the AWB, has continued to argue that only it can obtain the highest returns for growers on their overseas sales and that it needs a monopoly in order to do it.

In support of this, it has produced figures demonstrating that it earns Australian farmers a much higher gross price for wheat than anyone else could.

Commissioner Terence Cole has found those figures to be fraudulent. The gross prices are indeed (suspiciously) high but after costs, the net prices are not. The gross prices have been inflated by the payment of costly kickbacks.

Among the sad implications of the Cole report is that the AWB misled not only the United Nations, but also the growers compelled to sell through it.

Last week, Canberra economic consultancy ACIL Tasman released the results of an examination of the AWB commissioned by wheat traders wanting to end the AWB's export monopoly...

It found that the revelations made to the Cole inquiry were the ''inevitable outcome'' of the AWB's monopoly culture. The report said that the AWB faced the incentives ''characteristic of monopolies protection from competition, 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.''

ACIL found that the AWB obtained no net price premium for growers as a result of corrupt payments and other expenses and that there was no reason to believe that it could ever have done so. It didn't control much of the world's wheat supply and had no special knowledge about the behaviour of its competitors.

When the AWB broke the law, it believed it could ''avoid scrutiny and preserve political support for its monopoly status with a public relations campaign based on untested assertions and fear of change''. ACIL recommended that wheat growers be free to sell their wheat to whoever they wanted, subject to a transitional licensing system that would last for two years.

Many members of the Liberal Party support a free market for wheat, among them the outspoken Western Australian MP Wilson Tuckey who describes himself as ''the member for the biggest export wheat growing electorate in the country''.

But many of their Coalition partners in the National Party will vehemently resist free trade, not only because they have been swayed by the AWB's arguments but also because of what, even now, the AWB represents orderly socialised marketing, and a sign that the National Party still has influence.

The Prime Minister yesterday headed off talk of an embarrassing Liberal private member's Bill that would end the AWB's monopoly by saying he would soon announce a proposal of his own. But he didn't say what it was or whether it would be a free-market proposal. Asked how he would reconcile the conflicting interests in the Coalition, he replied: ''Reconciliation on these issues is my, you know, other name.''

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