Michael Pascoe writes:

You’ll never convince the Nats or most
Depression-era farmers, but there are real problems with AWB and the single
desk aside from deafness, dumbness and whatever happened in Iraq.

The AFR‘s very fine commodities writer,
Steve Wyatt, spent much of the 1990s trying to convince farmers that all was
not rosy with the single desk. It’s generally a thankless task, questioning
another’s religious beliefs, but someone had to do it. As a long-time observer
of the corrupt business model, correspondence with the now-Shanghai-based Wyatt
uncovers several ongoing non-Iraqi concerns.

In brief, there’s plenty of doubt how leaky
the Chinese Walls with AWB Ltd might be. With AWB being both a company and
single desk operator, there is a suspicion that AWB has been trading its own
book against the pool ie trading for the profit of its shareholders and
management against the farmers’ best interests. (Many farmers don’t really
understand that AWB is not a mutual, what’s good for AWB isn’t necessarily good
for farmers anymore.)

There is a myth about the domestic wheat
market being de-regulated. In theory, it is, but in practice the local price is
export parity plus one. AWB of course sets the export price through the pool
system it manages – and thus has the potential to make money for jam trading
ahead of any change it makes in the pool price. AWB the grain trader doesn’t
share its profit with AWB the pool manager’s clients, the farmers.

There’s also doubt about AWB’s aggressive freight
trading, with suggestions AWB has again traded against the pool, going long
freight while the pool is short. When there was a huge rally in freight, AWB
Ltd booked the profit while the growers simply paid the higher freight rates.

Asked about the trading this morning, Mark
Vaile’s reply was that the international grain traders would be doing the same
thing to Australian farmers if they were allowed to export too. That seems a
particularly weak defence.

And then there are the financing profits. According
to the Graingrowers’ Association, the entry of the banks into the market has
resulted in a saving of $50 million in financing costs for growers.

Trust a corrupt business model? Sure can –
to be corrupt.

Peter Fray

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