As the Canadian Wheat Board watched wheat prices collapse in the winter of 2002-03, it could take comfort in the federal government committment to cover losses in the pool account.
Its counterpart in Australia had no such comfort zone.
AWB Ltd., that country’s privately owned single desk selling agency, knew that if market returns dipped below the initial payment, it would drive the company’s bottom line into the red.
“We’re not underwritten by the government, so if that situation were to occur, we’d take it on the chin along with our shareholders,” said AWB chair Brendan Stewart.
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So facing the same market collapse as the Canadian board in the winter of 2003, AWB closed down its 2002-03 pool at the end of February and opened up a second lower-priced pool.
That enabled it to protect the income of wheat growers who had sold into the pool earlier in the crop year and avoid going into a deficit.
That kind of flexibility and attention to risk management is a hallmark of the restructured, privatized Australian marketing agency, Stewart said.
While AWB’s predecessor, the Australian Wheat Board, was also rigorous about risk management in its price-setting and financial policies, the fact that the new entity has no government guarantee to fall back on makes it an even more critical issue.
“Privatization has made the board of directors very much aware that it’s shareholders’ money that you’re dealing with,” he said in a telephone interview from Winnipeg. “The role of the board is to grow and enhance shareholder value. You don’t do that by calling on your reserves, which in our case are minimal anyway.”
Stewart was in Winnipeg to meet with CWB directors attending the agency’s board meeting.
He made a presentation outlining changes introduced since AWB replaced the Australian Wheat Board in July 1999 and talked about issues and challenges the two marketing agencies have in common.
While the CWB shows no signs that it will give up the federal government guarantee of initial payments, the board has introduced pricing and delivery programs designed to give farmers more options in marketing their wheat and barley. Many of those programs resemble those that AWB offers.
Stewart said privatizing and restructuring AWB has enabled it to respond to farmers’ wishes.
“It allows us to be much more flexible in terms of payment options and financing options and being able to send better signals to growers from customers in terms of the quality profile,” he said.”That’s all been very positive.”
Stewart, who farms grain, cotton and cattle at a 7,900 acre operation near Chinchilla, Queensland, said one of the agency’s biggest challenges is devising policies that serve the interest of farmers who support the pooling and single desk selling systems and those who don’t.
“We try to create innovation and flexibility so that those people who are ideologically opposed can still feel comfortable working within the single desk environment,” he said.
The Australian wheat marketing system has been through a “tumultuous” time in the past decade, with the demise of the Australian board and the creation of the privately owned AWB.
There were periods when support for the single desk seemed to be slipping, but that seems to have turned around in the past two years.
A recent survey showed that 85 percent of Australia’s wheat growers rate the single desk as “very important” and a good system for exporting Australian wheat. The survey indicated that the strong support reflects an “us versus them” mentality among wheat growers, a belief that because Australia is a comparatively small player on world markets its growers can fare best by sticking together.
Stewart said that while AWB and the CWB have different structures, they are both victims of unfair attacks because of their single desk status, especially from U.S. wheat groups and politicians.
The U.S. has singled out the AWB’s monopoly powers as a key issue in free trade discussions between the two countries and has launched a World Trade Organization challenge against the CWB. But Stewart dismissed the U.S. criticism, saying there is no foundation to claims that because of its single desk status, AWB is a market-distorting enterprise.
“I think the American farm lobby, particularly U.S. Wheat Associates, will clutch at any straw they possibly can to try to score some political points,” he said.
