Lee and Freinds;
I took a little time and am reporting on some Ausie lessons I believe we can learn from in our situation here in Canada.
Lets learn from our brothers experiences... downunder!
How Monopolies tend to Behave
Upon reflection, back in the 2002 drought, we are told a
Tamworth based feedlot bought wheat off AWB for delivery
from March to October 2003 after AWB had told the feedlot
that if they did not buy then, at the top of the market, there
would be no wheat available from March onwards in 2003.
These claims were being made by AWB at about the same
time that AQIS issued permits for imports. When the news
of the imports became known generally, wheat prices fell
by as much as $70/t in one day.
An AU. Federal Court ruling has found that AWB misled
domestic purchasers of wheat during the 2002 drought.
Basically AWB was found to have indulged in misleading
and deceptive conduct, with other buyers also indicating
that they had been given the same story from AWB.
AWB claim that they would never have said that at the time
because the AWB National Pool had a carryover of 4
million tonnes from the previous harvest. If that is the case,
why did not AWB sell all of that carryover and remove the
need for imports?
Clearly the single desk system has failed primarily
because of the lack of freely available information about
grain stocks and production and what stocks are in fact
freely available for the domestic market. If AWB did try
and keep prices up by restricting sales from the old season
pool they probably cost growers as well when they still had
unsold stocks after imports came into the country.
This year we have had ABB declaring that there are ample
supplies of grains in eastern Australia, with prices for
growers falling away at that time. Since then prices have
risen again - not an expected outcome in a market
swamped with freely available grain.
• • •
Basically single desk operators should not make statements
about grain supplies that could be seen as favouring their
own trading operations. Instead they should be forced to
make available, on a regular basis, just what unsold grain
stocks they are holding so that growers and domestic
endusers are not operating at a disadvantage to those who
have the excessive market power.
Cole Inquiry
1. Directors got off the hook too easily;
2. The way executive remuneration systems resulted in a
culture of chasing pool returns at all costs;
3. Growers don’t make the best directors on
offer for large listed corporations, or even for single
desk managers for that matter.
AWB directors probably
appointed Managing Directors (MD)’s who were likely to build a
culture consistent with the culture of the board. We cannot
disagree with that point, and it supports observations that
even if the board were not aware of the details of Iraq
dealings, the culture of the organisation was plain for
everyone to see, and they did nothing to curb it.
It may be wrong to emphasise that we don’t think
people can blame the AWB board for the culture of the
organisation. The reason is that it is the MD and
executives appointed by the MD who generate the culture
of the organisation. We must take into account that the board
probably appointed MD’s over the years who would generate
a culture the board themselves were comfortable
with.
Selection & Remuneration systems for Directors.
To have maximizing growers returns to those who deliver to the
pool as a key objective seems astute… in the end it cannot be
the end game.
Then we have to minimise returns to growers who
do not deliver to the pool!
We need to be maximizing returns to all growers… stop.
In the Australian experience, AWB were given the task of
maximising pool returns.
As an incentive, AWBI set up benchmarks for AWB to meet,
and then had out performance fees payable to AWB. It all
sounded good except that AU growers thought that the
base fee was high and bonuses were very generous, or the
benchmarks were suspect. On the surface it looked as
though there was an alignment between AWB objectives
and grower objectives in terms of maximising pool returns.
Executive bonuses were linked to the performance of AWB
Ltd. So here’s the link. The MD and other executives earn
more if AWB Ltd earns more. AWB Ltd gets more if they
exceed the WIB hurdles. So, pursuing maximum premiums
over the WIB at whatever cost became the culture, which in
turn maximised remuneration to AWB executives.
Why do growers think that other growers automatically
have the best skills to be directors of our large marketing company? If
that were the case, framers would be well and truly
represented in the boardrooms of other companies across
the country.
We need to access the full pool of available people with
corporate skills to join the boards of companies like AWB,
GrainCorp, AWB and AWBI. We should only allow growers
on if they were selected in much the same way as directors
of other companies are selected. If no growers shape up, so
be it. Popular election based on state based electorates is
just plain stupid.
Another legacy of grower organisations obsessed with
grower control.
I took a little time and am reporting on some Ausie lessons I believe we can learn from in our situation here in Canada.
Lets learn from our brothers experiences... downunder!
How Monopolies tend to Behave
Upon reflection, back in the 2002 drought, we are told a
Tamworth based feedlot bought wheat off AWB for delivery
from March to October 2003 after AWB had told the feedlot
that if they did not buy then, at the top of the market, there
would be no wheat available from March onwards in 2003.
These claims were being made by AWB at about the same
time that AQIS issued permits for imports. When the news
of the imports became known generally, wheat prices fell
by as much as $70/t in one day.
An AU. Federal Court ruling has found that AWB misled
domestic purchasers of wheat during the 2002 drought.
Basically AWB was found to have indulged in misleading
and deceptive conduct, with other buyers also indicating
that they had been given the same story from AWB.
AWB claim that they would never have said that at the time
because the AWB National Pool had a carryover of 4
million tonnes from the previous harvest. If that is the case,
why did not AWB sell all of that carryover and remove the
need for imports?
Clearly the single desk system has failed primarily
because of the lack of freely available information about
grain stocks and production and what stocks are in fact
freely available for the domestic market. If AWB did try
and keep prices up by restricting sales from the old season
pool they probably cost growers as well when they still had
unsold stocks after imports came into the country.
This year we have had ABB declaring that there are ample
supplies of grains in eastern Australia, with prices for
growers falling away at that time. Since then prices have
risen again - not an expected outcome in a market
swamped with freely available grain.
• • •
Basically single desk operators should not make statements
about grain supplies that could be seen as favouring their
own trading operations. Instead they should be forced to
make available, on a regular basis, just what unsold grain
stocks they are holding so that growers and domestic
endusers are not operating at a disadvantage to those who
have the excessive market power.
Cole Inquiry
1. Directors got off the hook too easily;
2. The way executive remuneration systems resulted in a
culture of chasing pool returns at all costs;
3. Growers don’t make the best directors on
offer for large listed corporations, or even for single
desk managers for that matter.
AWB directors probably
appointed Managing Directors (MD)’s who were likely to build a
culture consistent with the culture of the board. We cannot
disagree with that point, and it supports observations that
even if the board were not aware of the details of Iraq
dealings, the culture of the organisation was plain for
everyone to see, and they did nothing to curb it.
It may be wrong to emphasise that we don’t think
people can blame the AWB board for the culture of the
organisation. The reason is that it is the MD and
executives appointed by the MD who generate the culture
of the organisation. We must take into account that the board
probably appointed MD’s over the years who would generate
a culture the board themselves were comfortable
with.
Selection & Remuneration systems for Directors.
To have maximizing growers returns to those who deliver to the
pool as a key objective seems astute… in the end it cannot be
the end game.
Then we have to minimise returns to growers who
do not deliver to the pool!
We need to be maximizing returns to all growers… stop.
In the Australian experience, AWB were given the task of
maximising pool returns.
As an incentive, AWBI set up benchmarks for AWB to meet,
and then had out performance fees payable to AWB. It all
sounded good except that AU growers thought that the
base fee was high and bonuses were very generous, or the
benchmarks were suspect. On the surface it looked as
though there was an alignment between AWB objectives
and grower objectives in terms of maximising pool returns.
Executive bonuses were linked to the performance of AWB
Ltd. So here’s the link. The MD and other executives earn
more if AWB Ltd earns more. AWB Ltd gets more if they
exceed the WIB hurdles. So, pursuing maximum premiums
over the WIB at whatever cost became the culture, which in
turn maximised remuneration to AWB executives.
Why do growers think that other growers automatically
have the best skills to be directors of our large marketing company? If
that were the case, framers would be well and truly
represented in the boardrooms of other companies across
the country.
We need to access the full pool of available people with
corporate skills to join the boards of companies like AWB,
GrainCorp, AWB and AWBI. We should only allow growers
on if they were selected in much the same way as directors
of other companies are selected. If no growers shape up, so
be it. Popular election based on state based electorates is
just plain stupid.
Another legacy of grower organisations obsessed with
grower control.
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