Canada’s future in Australia
(December 3, 2013) Just over five years ago the Australian government stabbed its rural supporters in the back by ending the Australian Wheat Board’s single desk. This benefitted Canadian farmers as our single-desk Wheat Board scooped up quality conscious markets in Asia no longer being reliably served by the private trade which took control of grain away from Australia’s farm community.
Speaking at the time, New South Wales farmer Jock Munro was quoted by the Australian Broadcasting Corp. as saying “This is just handing our industry straight over to the American multinationals . . .Without a national pool all the risk will be transferred straight back to growers’ balance sheets and there’s absolutely no chance of most of us surviving.”
Another New South Wales farmer John Ridley was blunter when addressing the Australian Senate: “The obvious answer … is give us back our national pool, and our national pool manager, that gives us the collective bargaining power we need to fix all these things that are clearly designed to screw us.”
But that was then. Less than two years ago the President of the Grain Producers South Australia said “It is critically important that we tidy up the three main issues – equal port access and supply chain competition, stock disclosure of the wheat stocks in Australia and the quality of wheat that is leaving Australia.”
If this sounds familiar to western Canadian grain farmers it should. Our major customers in Asia are now on public record complaining about the lack of service and quality from the private trade controlling our grain sales. Producer Car shippers are paying much more for access to the private trade’s port terminals while small private grain traders are complaining about a lack of transparency now that our farmer controlled Canadian Wheat Board has been killed by Ottawa.
Not much has changed in Australia either simply because the big four multinationals who control the world grain trade are quite happy to exercise their power to prevent regulations levelling the playing field between them and the thousands of Australian grain farmers who export wheat and barley. As of a few weeks ago the pretense of putting regulations in to protect Australian farmers had been dropped and a non-binding industry ‘code of conduct’ process put in place to divert farmers and pacify the public.
The Australian situation also serves as a grim reminder that once the collective bargaining power of a single desk wheat board is taken away from farmers, they are at the mercy of the same giant corporations that are now running Australian grain exports and politicians will be reluctant to fix the problems they created.
Thanks to an unprecedented drought in the United States Canadian farmers are living in a honeymoon period of higher grain prices and the more optimistic among them are using the equity of their higher valued farmland to expand with more land and bigger equipment.
However a quick look at another Australian report from six weeks ago shows there are clouds on the prairie horizon. Australian farm writer Roger Cook observes:
“It’s no secret that farming in Australia today … is going through difficult times. Debts are high, land values are falling and banks are casting a jaundiced eye as debt-to-equity ratios inevitably change.”
One of the roots of this is after Australia’s farmers lost their Wheat Board they sought economies of scale by borrowing money against their land, which was then rising in value, to purchase more land and equipment – exactly what many western Canadian farmers are now doing.
An aging Australian farm population is finding that young people are not interested in taking on the high risks of farming without a safety net. With aggregate Australian farm debt in the (AU) $70 billion range and falling land prices their bankers not especially interested in providing further financing either. Western Canada also has record levels of farm debt and an ageing farm population so time will tell if a similar process takes place in Western Canada.
Meanwhile the Harper Conservatives have been busy removing or crippling the remaining structures put in place to enable farming in the west. Australia is well ahead of us in this process and now the main buyers for Australian farm land are Chinese investors intent on obtaining grain land as a strategic resource
China understands famine and the Australian government, following the same neo-Liberal economic policies favoured by the Harper Conservatives, has chosen to throw its farmers overboard.
Chaos with end of Australian Wheat Board
(August 15, 2011) On July 1, 2008 the single desk export powers of the AWB were removed and 26 exporters have since been accredited by Wheat Exports Australia (WEA), a government agency. Although chaos ensued the Australian government has concluded that even this bit of regulation should be abandoned, thus opening the market to any would-be exporter.
The single desk AWB had the same objective as the CWB maximize overall revenue for farmers. Knowing it had the supply, the AWB could develop a market strategy and match price, quantity, quality, and logistics combinations for the maximum farmer value. Without the single desk, the AWB, and every other seller could only focus on the margin available to them on each individual sale. With multiple sellers of the same product the successful seller was the one with the lowest price which ultimately lowered returns to the farmer.
Single desk AWB pricing was generally at premiums to the US Pacific Northwest (PNW) ports, reflecting AWB’s freight advantage to Asia. After deregulation companies competing for market share drove prices down to values $50-60US below PNW levels. The most extreme example was in sales landed in Japan (C&F) at $99.37 above US prices in June 2008 declining to a $27.67US discount by December 2008. The price discounts have narrowed since then but the ability for anyone to earn single desk premiums is gone. AWB’s market share dropped from virtually 100% (there were a few bags and containers exported legally outside AWB) to 23%.
With its single desk AWB had a similar approach as the CWB and CIGI with branding, customer education, technical assistance and other market development efforts returning benefits to farmers through AWB. After deregulation AWB immediately recognized that any other seller could pick off its customer and its investment in market development just added to its operating costs. It has ceased any market development activities with customers. Discussions have begun in Australia likely to lead to a checkoff funded industry body to take on this work but it is unlikely to be as effective and cannot regain any single desk price premiums. The American model is the US Wheat Associates, funded by a checkoff matched 4 to 1 with government dollars and it is still rated poorly by CWB customers compared to CWB and CIGI performance.
The single desk AWB had a large role in matching and managing grain handling and transportation capacity to export sales. With deregulation multiple sellers scrambled to book up capacity or made sales without regard for their ability to execute. This resulted in ships waiting up to 5 weeks to load.
Like the CWB, the AWB focused on quality and consistency and customers appreciated and paid premiums for that assurance. With deregulation key Asian (including Indonesia, Australia’s largest customer) and African countries have expressed concerns about quality issues and reliable supplies. The CWB has picked up some African customers because of this. Some think Austalian wheat will be further commodified, with fewer classes and quality segregations since the ability to maintain and get paid for quality has been eroded.
The single desk allowed the AWB to be a significant power in the world grain trade and the AWB had been building a capital and asset base (with farmers’ money) for nearly 20 years. Even so, its market share collapsed to 23% of Australian exports without the single desk and its officials openly acknowledged its future was bleak. From a Sept. 23, 2009 Reuters story…”We recognized that when the statutory market environment ended that over time the value of our market position would be under challenge, principally because the global grain business is truly global,” AWB chief executive Gordon Davis said. “We don’t bring enough to the table as a small Australian entity to be more than a niche player.”
AWB has since entered a joint marketing venture with Gavilon which will now be nullified by a takeover by Agrium. The grain operations may be sold off to another party, possibly Viterra. Wherever the consolidation leads the successors to AWB will be serving the interests of shareholders rather than farmers.
If the AWB couldn’t make it as a grain company when it had significant assets, what would happen to the CWB without the single desk? Multi-nationals would only have to hire away some key CWB people for their expertise and contacts and they would be foolish not to accept.