costs of the single desk

[liberty]

Here's some news from down under, courtesy of agnewsonline.com:

"Embattled wheat export monopoly AWB faces the loss of up to three-quarters of the export pool it needs to guarantee returns to growers after east coast handler GrainCorp submitted an application to export 230,000 tonnes next year.

Wheat Australia...has also applied to export 500,000 tonnes of wheat... while CBH has re-submitted its application to export 2 million tonnes of wheat.....

According to the Wheat Export Authority, six companies have applied to export wheat since Prime Minister John Howard transferred the veto over the applications from AWB to the federal Agriculture Minister, Peter McGauran, last week.....

GrainCorp managing director Tom Keene said the company was offering $15 per tonne above AWB's estimated pool return. CBH is offering $10 to $20 per tonne above it......

Mr Keene said GrainCorp could offer the higher price "because our costs of marketing services are a lot lower than AWB's. We have also transparently informed the marketplace of what our costs are, which is 1.75 per cent, and we don't have the overhang of that fixed fee that AWB enjoys".....

Mr Keene said that GrainCorp was demonstrating "the benefits that can be delivered through having contestable marketing services, and those contestable marketing services substantially reduce costs, and those costs flow straight back to growers".

A 2003 Senate inquiry found there were 77 uncontested services in handling, storage and transport at issue between AWBL and AWBI, with profit margin built into each. The Kronos Report estimates freeing up the farm gate to port chain would save growers $100 million.

"We believe competition takes costs out of the system, just as it has in the grain industry generally," Mr Keene said. "It is only the wheat industry which has retained those costs.""

More solid evidence that the single desk does little except inflate costs. But judging by the non-existent commentary on this issue by the Canadian mainstream media and Comrade Ritter, you'd think that Australia was on another planet.

[wilagro]

Conclusions from Australia's marketing experience apply to Australia for the most part. Connecting their experience with that of Canada is totally speculative. WE don't sell through Australian means, so to compare is pointless and futile.

[liberty]

To answer the previous post by paraphrasing it:

"WE sell through the almost identical MEANS as the Australians, so to compare them is definitely NOT pointless and futile, since any two systems run on the same basic PRINCIPLES are going to yield very similar results."

Prior to the Australian Wheat Board scandal, supporters of the single desk were always eager to point to Australia as a successful model for grain marketing. They were never critical of it for a second. Now that the tables have turned, the cone of silence has descended.

Where's our senate committe investigating the costs of the single desk? Oh, right....they're too busy trying to think of ways to keep the CWB out of the Access to Information Act.

[Vader]

70 million admin cost for CWB vs 4 billion in sales is .......1.75% - apparently much lower than AWB from the previous post

[bobn]

Vader

It's easy to add up the CWB internal costs, but most people forget to estimate what a farmers costs are.
For example, when a farmer CANNOT sell
his inventory and carries it over until the next summer or even worse into the next crop year there is a carrying cost. When only 60% of the crop is taken and most of that is not delivered until July-August the year after harvest, there is a huge carrying cost. The 40% that is carried over another 1 or 2 years has an enormous carrying cost.

If the price of wheat drops next crop year as compared to the current one, then there is another cost to add to the opportunity cost of lost business.
In the real world a farmer sells all his inventory if he believes prices have peaked, rather than saving inventory so some foreign customer has some for the year after. That should be the customers worry not ours!

This is one of the big costs of the "single desk" that no one seems to mention. Is there anyone in the CWB that can understand the "value of money" or the "carrying cost of grain"?

Why are they pretending these 2 important factors don't exist?

You might try and defend this by saying farmers have access to a cash advance. I would counter that by saying the advance is available for other non-board crops and so does not count, especially when it's interest free portion is limited anyway.

Even if the CWB was to get a premium net price for our grain, which I don't think it does, it doesn't compensate anywhere near enough for the delayed sales and opportunity cost of doing business with them.

I challege you to show me where a net price of $2.75-3.00 per bushel 2005-06 PRO(after estimated carrying costs) for #2 high protein durum grown in 2005 is a premium price!
1 extra year carring charges on 40% of the crop will take care of the extra $.50/bushel in the 2006-07 PRO.

[GrainVac]

The CWB's 1.75% might look "equal" but a good chunk of the benefit to opening up the market will be driving costs out of the actual "handling" part through agents of the CWB. Do you know how much more extra administration every grain company has to do to participate in the CWB segment. I believe many of the extra costs could driven out by going to open marketing on milling wheat where companies would be trading the grain like canola. Not to mention a huge shift in risk away from the pool accounts towards grain companies. right now my elevator says they can't even tender on cars because there are none offered. What does the market look like when all the milling wheat basically goes to a tender/open bid system. I'd be willing to bet there's another 1.75% savings...

[chaffmeister]

I posted a while back the difference between the net cost (for the farmer) to handle CWB wheat vs canola - canola was cheaper in total by about $8. On 19 million tonnes, that's about $152M. Put that together with Vader's $70M gets you to $222. I'm going to use 04-05 total sales of $3.3B - on this the CWB cost you 6.7% of sales.

Is this different enough from 1.75% to worry about?

Of course there's other factors as well:
- the lower value of the WHOLE barley crop due to an impotent CWB export program.
- the lower net value of the canola crop due to it bearing the weight of cash needs
- the lower net value of <enter crop here> due to.......(you get the idea)

What is the true cost of the CWB?
Judging by the directors' eleections, 60% of farmers don't seem to care....

[chaffmeister]

Agriville apparently doesn't like those pointy little brackets. One line above should have read:

the lower net value of (enter crop here) due to.......(you get the idea)