Ausie grain growers will pay... how about CDN growers?

[AdamSmith]

from www.adamyoshida.com

Wednesday, January 28, 2004
Treason
A list has been published of people who were bribed with Iraqi money and oil by the former regime.

From the MEMRI:

Canada: Arthur Millholland, president and CEO of the Calgary-based Oilexco company, received 1 million barrels of oil.

Then, look at this:

Making money first drew Arthur Millholland to Iraq.

He thought getting involved in the Oil For Food program would leave his
company, Oilexco, in good standing when the sanctions ended.

But it didn't take long before he became disillusioned with the program and
an outspoken activist.

The transformation was simple.

``You can't ignore what you see,'' says Millholland, 40, the company's
president, from his office in Calgary. ``It's appalling.''

When he first saw starving children on the streets, he thought that buying
Iraqi crude oil - he pays the United Nations which in turn gives Iraq food
and medicine - would make him feel like he was helping.

It hasn't worked out that way.

``It's a huge problem. The Oil For Food program is just a Band-Aid. It's not
going to fix anything.''

Lifting the sanctions is the only way to make the lives of ordinary Iraqis
better, he believes.

Yep, a real 'activist' there.

[malleefarmer]

It appears at the minute sales sales from awb are progressing as usual except iraq with new sales to india and increased sales to other middle eastern countries.

some comments

AWB and the Single Desk If the single desk survives the current situation, nothing will kill it off. In fact if we do not get changes now, it is very unlikely that the current system can ever be reformed. My guess is that we are in for changes, but that some form of legislated, organised marketing for wheat exports will remain.

The Prime Minister is starting to say things along the lines that we can have a single desk without AWB involved. He and others are also talking a little more about trading the single desk off for concessions from the US and EU in the current WTO multilateral trade negotiations.

I think one of the most difficult ways forward would be to take the whole single desk away from AWB in one hit and give it to another entity, and expect that entity to be able to perform better than AWB can. To be frank I don’t think anyone else would be able to in the first year at least, and what happens to this year’s pool? Does its management get transferred to a new entity part way through its life? And what about AWB shareholders? Is it equitable to simply decimate a core part of their business when no-one has indicated that AWB failed to deliver the best possible returns to growers.

Basically it’s a can of worms of course. The reality is that things have to change to prevent the current situation, or something like it, from happening again. Any entity that has government backing, but is managed autonomously from the government, has the ability to embarrass the government, through to possibly bringing the government down. In my view the current government will not allow the risk of that occurring again in the case of AWB. There will be changes with either AWB being dealt out completely, or in a structure that makes them only one of several parties dealing with exporting wheat from Australia.

A New Single Desk Arrangement It is apparent that the government want to leave wheat exports with Australian companies where growers have a large stake. That means ABB, WACBH, and GrainCorp (and possibly AWB as well). How can you pick one ahead of another? Probably it will be awarded jointly.

One way forward would be a similar model to Grain Australia, where WACBH and ABB operate together to sell barley, with proceeds from every sale split on a pro rata basisA fair approach to all stakeholders would be to involve all four companies.
• They would have a joint venture that handled all export sales.
• Each company would run their own pool and cash buying systems.
• They would all operate in all regions of Australia so that growers would have a competitive choice of pooling and risk management systems, finance products and cash prices.
• At the end of harvest they would all have a share of the crop and therefore, as with Grain Australia, a system for allocating all sales would be able to be determined.

We would still have a single desk for exports, and still have collective marketing, while growers would actually have some real choice in the provision of marketing services.

At the recent ABB meetings in SA, ABB management and directors could not get their heads around the concept of a separate, independent company just handling exports under a single desk. They kept asking where the capital base would come from for grower advances etc. Pretty simply really. The company that is selling into the export market does no make advances, therefore needs no huge capital backing etc. Basically the Grain Australia model, of which ABB is a party, is the answer. Grain Australia sells the barley but does not involve itself in any hedging, grower payments etc.

Why would another entity then provide loans etc against a pool basically being managed by an independent entity over which they have no control? This is only a short step from NAB offering loans against AWB pools, or ABB offering advances against Grain Australia sales etc. It will happen.

Basically, don’t get acquisition (or accumulation) of the Australian wheat crop confused with the concept of a single desk which sells on an fob basis. In the above model, we have four companies allowed to acquire the crop competitively from growers, who then participate in the export of that wheat through a single export entity.

New Systems for Wheat If anyone makes changes to wheat marketing, not only must growers be told what the changes are, we must be told what the changes really mean.

When we lost the GMP system back in 1989, we were not told what it meant. The net result was that all growers lost a lot of money when world prices collapsed in 1990, because no-one had told us that we needed to manage our own price risk before harvest. In fact no-one (ie AWB) even bothered to give us products to replace the GMP until after the bloodbath of 1990. That cannot be allowed to happen again. All players (companies, government, and grower organisations) are on notice to get their act together this time.

Some impacts of a new system could be
1. Very little forward export sales of wheat, hedging of wheat or hedging of currency takes place in a new system.
2. This will leave growers even more exposed than they are now, particularly on currency, but also on wheat prices as well.
3. A lowering of the price management after delivery if a number of companies have to wait and see what tonnage they are managing before they begin actively hedging their stocks even after harvest. Growers may have to extend their own period of price risk management if they are using pools.
4. Much more competitive forward cash prices. This would be novel as it may make fixed price forward contracts more attractive again, at least from the perspective of the prices on offer.
5. Pools that open and close even before harvest commences so that we might actually end up with pools that manage prices before harvest, rather than the current system where all growers have to do it themselves or it doesn’t get done at all.

One thing that must change is truth in pricing at all times.
• Gone must be the current system where pool operators are allowed to post bogus, inflated estimates that do not refect what they will actually, physically end up remitting to growers.
• Gone must be AWB’s system of quoting the APW pool at 10% when there is no such thing as an APW 10% protein wheat anymore.

Basically there must be compete clarity and honesty in quoting pool returns and cash prices, which is not what we have a the moment. The difference is that in any sort of slightly deregulated system it will really matter. Now no grower is going to lose their shirt by choosing one pool over another, although they may currently miss good cash selling alternatives. Going forward with pools that are really independent of each other, in the way they are structured and priced, it really will matter.