Alby Schultz (Hume, Liberal Party) Share this | Hansard source

Australia has about 30,000 wheat growers. On average, 13.4 million hectares of wheat are planted each year. Western Australia is the largest wheat-producing state despite having only 18 per cent of wheat growers. Interestingly, New South Wales and Queensland currently produce only four per cent of the wheat crop despite comprising one-third of all wheat growers. Why is it then that the loudest protest against the scrapping of the single desk is coming from fellow growers in the states which produce the lowest volume of wheat?

Recently, the member for New England, for whom I have a lot of respect, carried out a survey of just over two-thirds of Australian wheat growers—20,000 plus. His press release says that the results of his poll show that only 14 per cent want change from the single desk. Was that 14 per cent of more than 20,000 wheat growers? The answer is no. It was 13.52 per cent of the 2,819 wheat growers who responded to his questionnaire—in other words, 18,026, or the majority of wheat growers from all over Australia whom the member for New England targeted, discarded his very narrow questionnaire into the rubbish bin. Were any of the respondents asked in that survey if they exported wheat? Were they B-class shareholders in AWB or any of its subsidiaries? Or were they simply running a political agenda to support the proponents of the single desk? The obvious answer is no—they were not asked these questions. It was a very subjective use of figures and questions to produce the outcome he wanted. I am bemused as to why the member for New England would undertake an inaccurate representation of export wheat growers in that way, and, listening to him in the chamber this morning, I can only conclude that it was an independent drive for recruitment of disenchanted National Party members.

There are of course a significant number of furphies which the opponents of the single desk for export wheat in this place and in the Senate use to try and protect the status quo. The real agenda on their minds is of course not what is best for the export wheat growers but what is best for their party-political agenda. No wonder they will fight to the death to retain it.

Let me now turn to the mess which you hear pro-single-desk advocates promoting. Classic furphy No. 1: the single desk allows the monopoly exporter—for example, AWB—to extract a price premium. No, it does not. Let me quote a letter from AWB chairman, Brendan Stewart, to the Iraqi minister for trade, his Excellency Mohammed M. Al-Jiboury. It was written on 24 March 2005. The following are some quotations from that letter:

In the spirit of full disclosure I will also provide evidence which demonstrate AWB’s contract prices have, in most cases, been equal to or lower than prices offered by the US. In comparison (with US), not only does AWB wheat exceed the specifications requested by ... (Iraqi Grains Board), it also provides superior milling performance in terms of flour yield.

When all the facts are analysed, it is clear that AWB provides the best quality wheat, delivers it more reliably, provides a valuable package of extra services, and importantly does this at a price that reputable suppliers find difficult to match.

It is clear from the evidence I have disclosed that AWB has consistently provided prices that are either equal to or in most instances lower than supplies of similar quality.

That is all code for saying that, in contrast to rhetoric you hear peddled at grower meetings, it is important to retain the single desk operated by AWB to obtain premium prices and protect Australian growers against the corruption in world markets. AWB was actually providing wheat of a higher quality than requested—that is, not getting the market price—providing services for which it was not charging and undercutting the price of competitors; for example, getting a lower price for Australian wheat than it could have and, indeed, should have obtained for Australian growers.

This is consistent with the complaints that the US agricultural attache, Jim Parker, raised regularly with one of my constituents, with whom he had regular contact in the 1980s—namely, that the US wanted AWB’s powers removed because AWB consistently undercut prices of US suppliers, not that AWB achieved premium prices in the markets in which it competed. Jim Parker also noted to my constituent that Australian growers and their organisations were easily hoodwinked by AWB claims of premiums because they had no way of knowing what prices AWB achieved in world markets and had no way of knowing the cost of operating the pool. They meekly accepted what was left over.

Jim Parker’s views were echoed in the US Wheat Associate’s ‘wheat letter’ of 20 January 2004, in which they complained that AWB:

... set their price by administrative fiat, and the AWB’s ability to work outside the norms of global competition directly and often egregiously undercuts U.S. wheat sales.

The letter went on to say:

“It is terribly frustrating when your competition can underprice you at will,” points out Alan Lee, USW chairman and a wheat grower in North Dakota.

So the evidence tells us that AWB used its single desk status to hide its prices and costs and to sell at prices under the prevailing market value. It is not that we should help the Americans, but, rather, that the assertion that AWB was extracting premiums from the market is rubbish.

There is more evidence, this time from the then Wheat Export Authority, to debunk the assertion of price premiums from the single desk. Comparing container bag exports which are not covered by the single desk monopoly rules, the WEA reported on a price comparison of non-AWB exports with AWB exports and said:

The analysis shows for the 16 countries ... evidence exists that non-AWB(I) exporters gained better prices for container and bag exports than AWB(I) in some of those countries.

That was the Wheat Export Authority addendum to the Growers Report 2006.

There is certainly no independent evidence that compulsory collective marketing extracts premiums from export markets. In principle, the reasons that it is not possible for the single desk—that is, AWB—as a price taker to extract price premiums on export markets are that it cannot: use its monopoly of Australian wheat exports to drive up prices on international markets, where there are many competitive suppliers, by withholding wheat, because potential wheat buyers can source their wheat elsewhere; control sufficient quantities of the world’s wheat to restrict supply to target markets; know the different elasticities of demand—for example, responsiveness to price changes—of each of its target buyers and how these elasticities change over time; and have full knowledge of rival suppliers’ behaviour.

Where increased prices have existed, they have not been premiums due to the single desk. It actually costs wheat growers $10 per tonne, due mainly to higher than necessary supply chain and pool management costs. Various studies—for example, Accenture, 2002; ACIL Tasman, 2005; Allen Consulting Group, 2000; Joint Industry Group, 2000; and GrainCorp, 2006—have estimated increases in net returns of $8 to $10 per tonne, solely due to a reduction in costs if growers were not compelled to deliver export wheat to the AWB.

Furphy No. 2: without the single desk, Australian wheat growers will compete against each other and drive down the price. That is absolute rubbish. This is a variant of the argument that competition equals lower prices. But let us look at the evidence. Decades of experience in the dairy, beef, lamb, wool, barley, canola, sorghum, pulse, wine and horticultural export sectors—all of whom have multiple Australian exporters—shows that growers are better off with several buyers competing for products and offering a range of services for price, delivery, storage and so on. Wheat growers who have diversified into these commodities—and they are in the majority—know that competing exporters do not drive prices down. Competition in these industries drives product innovation and customer service. This adds value to exports and increases growers’ net returns.

Furphy No. 3: the single desk provides wheat growers with a buyer of last resort. There is no buyer of last resort. At best there has only been a receiver of last resort—AWB—but that receiver has no obligation to pay one cent to growers. It took export wheat growers’ wheat provided it met quality specifications, but there has been no protection from the market. The buyer of last resort argument is essentially a demand that some growers of wheat be paid more at the expense of other growers than their wheat is worth in the marketplace. While the Wheat Marketing Act stipulated that the holder of the export licence must receive all grain presented to it, the exporter had the right to accept only the grain that met its receival standards, which were set by AWB Ltd itself. Those receival standards applied across broad quality bands, for which an average price was paid to growers.

The concept of buyer of last resort is, in itself, disingenuous because it implies that without the monopoly market some wheat would be unsaleable at any price. Although that is obviously false, the buyer of last resort creates the impression, which it is designed to do, that in an open market there would be no buyers for some parcels of wheat below the price at which the AWB would have acquired the wheat for the pool. That proposition is of course absurd, because such wheat would never be priced at zero. Rather than some wheat being valued at zero without the so-called buyer of last resort, there is always a market for a very wide range of grain types. What the buyer of last resort argument really amounts to is a plea for AWB to accept wheat into the pool and pay to the grower of that wheat the average pool price, which is above the market value for that wheat.

The proponents of this argument are effectively and knowingly demanding that the market value of all other wheat in the pool be reduced in order to accept their lower valued wheat. The result is that the buyer of last resort culture in the wheat industry creates a situation in which growers who produce good quality grain are subsidising producers of lower quality grain. Under monopolised marketing rules, growers are reliant on a mandated receiver of last resort being supported by those who do not. Also, the industry more broadly is disadvantaged because growers are being encouraged to grow lower quality/higher yielding wheat than they would have if they had received accurate price signals about what the market wanted. Productivity, competitiveness and incomes would improve by replacing buyer of last resort with wheat sold for the best price on offer.

Furphy No. 4: the single desk protects Australian growers from corrupted world markets. This is also false. The argument that the export monopoly provides protection against corrupted world markets relies on the ability of the single desk manager to price discriminate, which in fact is not possible. I refer to my comment on furphy No. 1. A related reason cited in support of the single desk is that, by holding large volumes of Australian wheat, the single desk is a strong negotiator in world markets and can secure access to markets and other non-price outcomes not otherwise available to Australian growers. However, the effect of being the sole marketer of Australian wheat disadvantaged the AWB, as buyers knew that every year AWB must clear most if not all of the wheat it held before the next harvest. In addition to this, domestic consumption in the AWB’s regular markets was well known by most buyers and competitors. In contrast, the competitive market buyers’ and sellers’ stock positions are commercially important items of information that are used as significant negotiation tools. AWB’s negotiating position was further weakened as it had to receive all of the grain that met quality standards offered to it by growers. Also, AWB did not enter into any trade negotiations on behalf of the growers and offered no other counter to subsidies or any other trade distorting policies of competitor nations.

Furphy No. 5: growers need control of the market to protect themselves from other commercial interests. Nonsense! Grower ownership doubles the bet or the risk of the grower since his or her prospects are tied to both the wheat market and the production risk, as is the share price of AWB Ltd. At present, growers provide the capital to grow the grain and, through their shareholding in AWB, finance most of the supply chain as well as the products and services sold back to them. Almost every instance of grower ownership of a commercial company has ended in growers losing considerable money. Two examples are the New South Wales Grains Board, where growers lost $165 million, and the wool stockpile, worth $2 billion, and the industry took at least a decade to recover. At present, AWB Ltd’s grower ownership is only 70 per cent, with institutions making up the rest. Grower ownership creates a serious ambiguity for the directors of the corporation, as they are divided between serving customer and shareholder interests. This reduces the prospect of raising capital from sources other than growers. External investors discount the company because of this ambiguity.

Furphy No. 6: the single desk gives grower protection against fly-by-night traders. Possibly at times, but at a cost. As in every other aspect of their business, growers need to take responsibility for managing their credit exposure and selling only to reputable buyers. As in every other aspect of their business, growers cannot and should not be mollycoddled into looking after their commercial interests. Like most other business people, they should stand by their own decisions and not expect specially legislated privileges. Experience in other grain markets that have been opened to competition shows that growers would retain the option of selling to AWB and would have the additional choice of dealing with the other bulk exporters.

Anecdotal evidence demonstrates that, in deregulated barley markets, new entrants have to gain the confidence of growers before they achieve significant market share. AWB, in its role as operator of the single desk, has cost growers heavily by driving down the domestic price by about $10 per tonne as a result of setting very conservative estimated pool returns, which act as a reference price for wheat on the local market; by allowing bulk-handling transport and loading charges to become higher than competitive rates; by high pool management costs; by high ship chartering costs; and by underselling competitors in export markets. As a result, any protection provided by the single desk against fly-by-night traders has been very expensive, in the order of $15 to $20 per tonne. At the very least, growers should be able to choose if they want that protection and for how much.

What do growers want from the marketing system? The main objective is to maximise net returns to growers at the lowest possible risk. This is achieved by obtaining the best prices and the lowest possible costs; removing constraints on the development of new products and services, which will improve provider choice of marketing options for individual circumstances, including the provision of risk management and financing options; ensuring that prompt and accurate price signals are provided to all players along the marketing chain, allowing growers and others to respond to market trends and improve efficiency; allowing growers to make informed decisions about whom they deal with when selling grain and utilising risk management services; removing the constraints on the development of highly liquid secondary markets that provide efficiency, price discovery and risk management options; and ensuring there is transparency of supply chain costs, operations and services.

How can this be done? Competition between buyers and suppliers of marketing services is the best way. If free to exercise choice, growers will be able to make an assessment of the quality of the product, and the business can choose the one that best satisfies their individual business needs. Each wheat grower will be able to choose with whom he or she deals and the sort of information needed to make that choice. What the single-desk growers who support the status quo will not be able to do is impose, through government legislation, their choice of whom they deliver their wheat to on the 86.48 per cent of growers who decided not to respond to the survey. Growers who sensibly opted to test their options to maximise the profits for their family farming business, by either consigning their wheat to an alternative purchaser, warehousing their grain in a silo while they test their options or retaining it on-farm in their own storage and then making direct sales to flour millers or other offshore buyers, cutting out the middleman, have been the beneficiaries of much better financial returns for their wheat.

The wheat growers of Australia—more specifically, the growers who export wheat—have suffered enough in the way of financial losses by being forced to deal with one government-approved entity. The monopoly system has resulted in high risks, high costs and poor adaptation to market changes. The licensing of accredited exporters will allow wheat growers to exercise their own judgement on how to obtain the best commercial return for their product.

In closing, I point out that the Liberal Party has suggested some common-sense amendments to the Wheat Export Marketing Bill before the Senate, and it is to be hoped that the government will see the merit of these amendments and pass the amended bill in its entirety for the good of wheat growers in the export market.

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