Although I’ve worked on agricultural
economics for nearly thirty years, I’ve never given much thought to
“single desk selling,” the policy under which Australia nominates a
single source (formerly a government agency and now a quasi-private
business) to supply exports of commodities such as wheat and sugar. The
scandal engulfing AWB (the former Australian Wheat Board, now
privatised) has naturally raised the issue of whether this export
monopoly should continue. On reflection, I think it should not.

There are a couple of reasons why we might favour an export
monopoly. The first is the classic idea of exploiting Australian
monopoly power to generate higher returns. There are a few problems
with this. First, our monopoly power in the world wheat market is very
limited, even allowing for the fact that wheat is not a homogeneous
commodity. Second, in the absence of restrictions on the aggregate
supply of wheat, this implies diverting additional wheat to the
domestic market, depressing prices there. While that’s a benefit to
consumers, it means that the net gain to wheat growers from the
operation of the AWB will be pretty modest. Finally, it doesn’t appear
to me that AWB acts in the way required. Far from that of a tight-fisted
monopolist, the AWB culture comes across as that of hotshot sales
types, eager to do whatever is necessary to bring home a deal.

The second case for an export monopoly is that of countervailing
power. Here the idea is that the buying side of the market is dominated
by big players who will, if left unchecked, divide and conquer
Australian wheat growers. In a situation where Australian growers were
bargaining individually with monopoly buyers, the establishment of a
publicly-supported export supplier might be a good idea. But, given
that such a supplier exists, it’s hard to see why it needs to retain
monopoly rights. If, as claimed, it gets better prices for wheat growers
than they can get for themselves, or through other exporters, why would
they switch?

As far as wheat is concerned, the question is, I think, academic.
AWB’s reputation has been so badly shredded that any deal they make
from now on will be open to attack by foreign competitors, unless it is
at such a discount as to make it clear that it could not possibly
incorporate a bribe. This is already happening in Iraq, (though the
Americans had grabbed the market for themselves in any case). So if
want to keep the single-desk policy, we’ll have to establish a
completely new enterprise to work it.

Read more on John Quiggin’s blog here.

Peter Fray

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