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How Monopolies tend to Behave

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    How Monopolies tend to Behave

    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.

    #2
    Tom, it has been eons since I took my micro economics courses but I don't disagree with you on the behaviour of monopolies althought I didn't read your whole post - gotta earn my keep, you know.

    Question is: What are you going to do differently if you are elected to the CWB Board? Going together with that question is this: Do CWB Directors carry directors' liability insurance? I hope so and I hope it big coverage cause I wonder about big class-action suits against directors by pro-Board or anti-Board producers depending on what happens to the Board over the next while.

    Comment


      #3
      "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."

      As my good friend Jack Sparrow said, "that's interesting". lol when I read the second statement.

      Comment


        #4
        Had an interesting discussion with an old cronie from - well, I'll just say from "downtown Winnipeg".

        Some of you who have been posting and reading here for a long time may remember an Agriville discussion I got into about 3 years ago (maybe longer) with "thalpenny" (who worked for the CWB at the time). I was saying that the CWB had been paying demurrage almost every year until one year it seemed to stop. When I asked, the CWB just said "we've improved our logistics so we control the flow of grain much better and we don't pay demurrage as much any more." No surprise - Thalpenny supported that comment.

        I didn't. I theorized that the CWB could be playing games with the load terms in their vessel charter parties (ocean freight contracts).

        The CWB could have asked for extended load terms - instead of the standard 3 days for Vancouver, they could ask for 6, or 7, or 10 days - whatever. This would give the CWB more days to load before demurrage would kick in, cutting the amount of demurrage it paid. This would effectively raise the net ocean freight rate, but the CWB could adjust the price of the grain accordingly (lower) so the net delivered price was the same. Net results:
        - Less (or no) demurrage
        - possible despatch (for taking less time than the terms - but at half the rate of demurrage - making the CWB look even better)
        - No change to the net price to the customer. (customer's happy.)
        - Higher freight rates (who would know?)
        - Farmers get a lower FOB prices for wheat (who would know?)
        - no one the wiser (even the CWB BOD who wouldn't know where to look for this - actually, what the CWB shows them wouldn't even come close to showing this game)

        Now - back to my conversation today. We were talking about CWB inefficiences. My "friend" confirmed that the CWB uses its own terms when it comes to vessel loading - larger loading "windows" than the trade would use. Lower demurrage - yes. Higher total cost - yup. Lower net price for the wheat - has to be.

        Interestingly, about a year after my "discussion" with thalpenny about the change in demurrage, the CWB also changed its annual reports. No more separate line for demurrage - now its buried under total sales.

        Equally interesting is that other vessel loading statistics - time in port, average number of berths, etc - havn't changed. So even though the CWB is paying less demurrage, the vessels are loading in about the same amount of time.

        Curious.

        In another thread a few days ago, the question of where the money is going was posed. How about to vessel owners to hide inefficiencies in the CWB system.


        It's how business is done when you want to hide stuff.

        Comment


          #5
          That is so interesting and revealing, and somehow, not surprising either, chaff.

          Comment

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