Wheat chief still chuffed despite the chafeAWB's boss Andrew...

Wheat chief still chuffed despite the chafe
AWB's boss Andrew Lindberg puts on a confident face, writes Asa Wahlquist
January 09, 2006
AWB chief executive Andrew Lindberg dismisses any notion that 2005 was an annus horribilis for the monopoly wheat exporter.

Not the months of trouble at Iraqi ports, the bad press after a UN investigation alleged AWB had paid $300 million in kickbacks to Saddam Hussein in the food-for-oil program, not softer prices, nor criticism of its monopoly from the US, Europe and at home, could qualify 2005 for that description in his eyes.

After all, the year also left AWB almost alone in its monopoly powers, despite a continuing fight with the big West Australian grain handler, CBH.

Its financial performance tells the story. For the year to September 30, 2005, AWB made an after-tax profit of $157.1 million, up from $96.9 million the year before, despite a 17 per cent fall in Australian wheat volumes. "Obviously, we had our challenges, with things like oil-for-food and some market issues, but overall we did pretty well in a pretty difficult year," Lindberg says.

Perhaps the description annus horribilis should be saved for 2006, when AWB will front the Cole inquiry into the food-for-oil program, and CBH will resume its push for the right to export its own grain to its own part-owned wheat mills in the region.









Wheat representative from the Pastoralists & Graziers Association of WA, Leon Bradley, thinks it unlikely the AWB, in its current form, will survive 2006.

"I don't think AWB will come out of the Cole inquiry too well," Bradley says. "The only conclusions that you can draw is that they were either amazingly negligent or they were complicit in serious wrongdoing. Either way, it is untenable that we be forced to continue to surrender our wheat to them."

Bradley argues AWB has irreconcilable conflicts of interest, trading in foreign grain as well as moving into rural financial services, as well as livestock and wool. AWB, the former Australian Wheat Board, a top 100 publicly listed company, has sole rights to export Australia's $5 billion wheat crop.

But it earns an increasing share of its profits through the supply of rural merchandise and fertiliser, livestock and wool, and trade in other deregulated Australian grains and overseas-sourced grain.

Lindberg acknowledges that AWB has core responsibilities to the monopoly, or single desk.

"But we also have a mandate to grow and diversify the group and we are doing that by building a bigger trading business outside just wheat," he says.

AWB also sources grain out of the US and Europe. "We have operations in the US and Geneva and India and, over time, we are looking to expand those operations out of, probably, the Black Sea, Eastern Europe and Latin America," he says.

But he denies they compromise AWB's monopoly powers, which have been under attack at home and abroad.

It was attacked in the wake of the food-for-oil revelations by the US, and then by Europe in December's World Trade Organisation talks.

At home, the NSW Government, faced with a National Competition Policy penalty of $26 million, decided to deregulate the rice industry this year.

The South Australian Government copped its penalty for maintaining its barley monopoly -- the last of the plethora of grain monopolies to survive -- along with AWB's export wheat monopoly. Although the National Competition Council found the federal Government had failed to show that restricting competition in the export of wheat was in the public interest -- it estimates the impact of the monopoly ranges from a loss of $233 million a year to a gain of $71 million -- federal Agriculture Minister Warren Truss said the monopoly would continue. It's up for review in 2010.

Iraq, a long-standing and hard-fought for market for Australian wheat, proved troublesome. For three months, five shipments of grain were held up because of Iraqi claims the grain was contaminated with iron filings. The claims were never upheld, and the shipments were eventually unloaded. In April, former AWB chairman Trevor Folugge, who went to Iraq in 2003 as a senior adviser in agriculture with the provisional authority, claimed the US was pressuring Iraq to stop buying Australian wheat.

Lindberg argues the Cole inquiry will not affect AWB's monopoly.

And, despite US inroads into the Iraq market, Lindberg points out AWB is half-way through a significant contract, "and we will certainly be in there bidding strongly for further business, but we do know what we are up against".

But there are rumblings from the west. While drought has played havoc with east coast crops, WA grain growers have reliably produced big yields: this year they will bring in half the national crop. This year, WA's grower-owned Co-operative Bulk Handling, or CBH, in partnership with the Salim Group, acquired five flour mills in Indonesia and Malaysia, and a grain terminal and flour mill in Vietnam.

In the second week of December, CBH applied to export 100,000 tonnes of wheat to its flour mills.

Their offer to WA wheatgrowers -- at $10 a tonne over the AWB pool price -- was filled within nine hours.

CBH chief executive Imre Mencshelyi says the $10/tonne is a conservative estimate of the savings he says could be made by local efficiencies, quality premium and WA's proximity to the mills.

"If we can give a premium back to our West Australian graingrowers for their investment, and also make a profit in the manufacturing of flour, and the distribution of flour up in that region, they get a double banger," Mencshelyi says.

But AWB International (AWB's export subsidiary) knocked it back.

Two days before Christmas, CBH again applied for the export licence, with Mencshelyi asserting it is essentially a local trade.

"It is easier for me to fly to Jakarta than it is to go to Canberra," he says.

Lindberg argues AWBI's veto right "is the very essence of the single desk. You really can't have a single desk and then allow bulk wheat exports."

And he says AWB's monopoly will remain "as long as it can be demonstrated that it really does add value and retains the support of our farmers and our international customers".

Bradley says that when CBH posted a price $10 above the pool price, it was "knocked over with offers of grain".

"A lot of these would have been from people who were supposedly single-desk supporters," he says.

Bradley argues "a system like the compulsory acquisition of wheat right across Australia has simply outlived its usefulness. I think it should go, but I don't think the politicians will do that."

Lindberg counters that times are tough, "and we shouldn't forget that our farmers have to deal with a very difficult world. At the end of the day, what the single-desk does is really help our farmers deal with a very unfair marketplace and deal with a lot of risk that they wouldn't otherwise be able to control."