Mallee,
I see the Single Desk "Idea" of "Market Power" is sooo seductive... to the powerful, and those who may control the reins of this power.
Excellent points in this article!
"A cure worse than the disease"
By Paul Kerin. Paul Kerin teaches strategy at Melbourne Business School.
"There is no point sticking to the single desk notion, writes Paul Kerin.
Prime Minister John Howard met farm lobbies last Friday, seeking feedback on his rudimentary wheat
export marketing plan. It pleased no one, as it won't solve the fundamental problem and could make things
worse.
In the 80 minute meeting, Howard enunciated what he believes is the cause of the problem that the
single desk holder (AWBI) had held veto power over bulk wheat exports and vowed that it would never do
so again.
He proposed keeping the single desk, but tendering it out, and provided almost no other specifics.
Apparently, the government would seek tenders to operate the single desk for a multi year term. Only one
criterion for choosing the successful tenderer was mentioned: grower ownership/control.
Economists distinguish between competition in the market and competition for the market. Tenders fall in the
latter category. Economists generally favour in market competition, as constant competitive pressures drive
efficient outcomes. In market competition may sometimes be impossible or detrimental, say when natural
monopoly conditions or risks of over exhausting depletable resources exist. This is not so for wheat.
Stacks of independent evidence show that in market competition would not reduce export prices. So too does
common sense: Australian wheat represents only 16 per cent of world exports and competes against close
substitutes offered by 100 plus sellers internationally.
While our single desk faces plenty of sell side competition, it faces zero competition, both for and in the
market, for procuring/marketing export wheat. The net result: growers don't get better prices, but bear
substantial costs. Independent parties like Allen Consulting Group have estimated annual grower gains of up
to $360 million through in market competition.
Rather than tendering a single desk that makes growers worse off, Howard should abolish it and allow
in market competition. Imagine Agriculture Minister Peter McGauran had not rejected 72 export licence
applications since mid December! Licensees would be falling over themselves to procure wheat, and
growers would reap the benefit.
Howard's plan could make things worse. The ridiculous grower ownership/control criterion caps the number
of tenderers at five (AWBI, three bulk handlers and Wheat Australia, the three handlers' cartel), breaking the
cardinal rule of tendering: maximise competition.
If a handler wins the tender, it would reap a wheat procurement/export monopoly on top of its existing
state based handling monopoly. Other handlers would be at its mercy and any hopes of serious competition
between handlers would evaporate. Handlers would rather co operatively tender as Wheat Australia
leaving only two tenderers! And if Wheat Australia wins, growers would be at the mercy of a cartel holding
nationwide monopoly power throughout the entire domestic value chain.
A non incumbent tender winner would face a massive task: ramping from zero market share to a 100 per
cent share within months. In contrast, under in market competition multiple rivals would gain experience,
the better ones gaining share in manageable increments.
Howard mentioned no other tender decision criteria. Do we really want government deciding them?"
It sure looks like the "Old World" monopolistic and teeth shattering command and control Imperial colonial habits... are VERY hard to break!
Sucking the "Monopoly" soooother is so seductive... yet believing this "control" over our own destiny... as grain growers has so many holes in it!
THE Monopoly "single desk" wet nurse is VERY expensive to have around... and it is very prone to bad habits that are soooo infectious...
Who has the self discipline to clean it daily... and fix the teeth it deforms?
Are we mature enough to wean ourselves?
I see the Single Desk "Idea" of "Market Power" is sooo seductive... to the powerful, and those who may control the reins of this power.
Excellent points in this article!
"A cure worse than the disease"
By Paul Kerin. Paul Kerin teaches strategy at Melbourne Business School.
"There is no point sticking to the single desk notion, writes Paul Kerin.
Prime Minister John Howard met farm lobbies last Friday, seeking feedback on his rudimentary wheat
export marketing plan. It pleased no one, as it won't solve the fundamental problem and could make things
worse.
In the 80 minute meeting, Howard enunciated what he believes is the cause of the problem that the
single desk holder (AWBI) had held veto power over bulk wheat exports and vowed that it would never do
so again.
He proposed keeping the single desk, but tendering it out, and provided almost no other specifics.
Apparently, the government would seek tenders to operate the single desk for a multi year term. Only one
criterion for choosing the successful tenderer was mentioned: grower ownership/control.
Economists distinguish between competition in the market and competition for the market. Tenders fall in the
latter category. Economists generally favour in market competition, as constant competitive pressures drive
efficient outcomes. In market competition may sometimes be impossible or detrimental, say when natural
monopoly conditions or risks of over exhausting depletable resources exist. This is not so for wheat.
Stacks of independent evidence show that in market competition would not reduce export prices. So too does
common sense: Australian wheat represents only 16 per cent of world exports and competes against close
substitutes offered by 100 plus sellers internationally.
While our single desk faces plenty of sell side competition, it faces zero competition, both for and in the
market, for procuring/marketing export wheat. The net result: growers don't get better prices, but bear
substantial costs. Independent parties like Allen Consulting Group have estimated annual grower gains of up
to $360 million through in market competition.
Rather than tendering a single desk that makes growers worse off, Howard should abolish it and allow
in market competition. Imagine Agriculture Minister Peter McGauran had not rejected 72 export licence
applications since mid December! Licensees would be falling over themselves to procure wheat, and
growers would reap the benefit.
Howard's plan could make things worse. The ridiculous grower ownership/control criterion caps the number
of tenderers at five (AWBI, three bulk handlers and Wheat Australia, the three handlers' cartel), breaking the
cardinal rule of tendering: maximise competition.
If a handler wins the tender, it would reap a wheat procurement/export monopoly on top of its existing
state based handling monopoly. Other handlers would be at its mercy and any hopes of serious competition
between handlers would evaporate. Handlers would rather co operatively tender as Wheat Australia
leaving only two tenderers! And if Wheat Australia wins, growers would be at the mercy of a cartel holding
nationwide monopoly power throughout the entire domestic value chain.
A non incumbent tender winner would face a massive task: ramping from zero market share to a 100 per
cent share within months. In contrast, under in market competition multiple rivals would gain experience,
the better ones gaining share in manageable increments.
Howard mentioned no other tender decision criteria. Do we really want government deciding them?"
It sure looks like the "Old World" monopolistic and teeth shattering command and control Imperial colonial habits... are VERY hard to break!
Sucking the "Monopoly" soooother is so seductive... yet believing this "control" over our own destiny... as grain growers has so many holes in it!
THE Monopoly "single desk" wet nurse is VERY expensive to have around... and it is very prone to bad habits that are soooo infectious...
Who has the self discipline to clean it daily... and fix the teeth it deforms?
Are we mature enough to wean ourselves?
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