IRAQ: Australia May Be Forced to Suspend Wheat Monopoly

SYDNEY --Iraq appears close to achieving a goal sought by the European Union in the ongoing round of global trade talks - an end to the AWB Ltd's (AWB.AU) monopoly on exporting Australian grown wheat.

Australia's Deputy Prime Minister Mark Vaile, who defended the AWB's monopoly during a World Trade Organization gathering of trade ministers in Hong Kong in December, has attempted to separate the wheat exporter's privileged sales position from the ongoing inquiry into its business dealings with the former Saddam Hussein regime in Iraq.

But Iraq appears to have forced the Australian government to contemplate forcing the AWB to agree to at least a temporary lifting of its marketing monopoly when the local grain board suspended all purchases from the grain exporter until an inquiry into Australia's role in the oil-for-food scandal comes to an end.

The AWB has assured the federal government that it won't exercise its veto against any contracts negotiated with rival exporters during the suspension if its the only way to retain Australia's slice of the Iraq grain market.

This accommodation comes as Vaile prepares to head a delegation of Australian grain growers to Iraq to try and broker a way around the suspension before Iraq completes its delayed tender process.

Unless the Iraq Grain Board relents, anything short of suspending the AWB monopoly could put millions of dollars of grain contracts to a key export market on hold at a time when Australian growers should be contemplating a bumper wheat harvest after several years of crippling drought.

Both Vaile and Australian Prime Minister John Howard have argued that the issue of the single desk and the oil-for-food program which is the subject of the Cole inquiry should be kept separate.

But the government is struggling to distance current tenders from past practices as Iraq's decision to suspend negotiations with AWB seem to undermine any success that approach may have had.

   Temporary Window For Competitors

Opposition to AWB's continuing monopoly, attacked by the E.U. during negotiations in the ongoing Doha round of global trade talks, appears to be growing among local grain growers.

The E.U. identified the AWB, a similar grain monopoly in Canada and New Zealand's dairy exporter, Fonterra Cooperative Group (FCO.YY), as trade enterprises that should be reformed if other WTO members are to contemplate reducing or axing their rural export subsidy programs.

Vaile defended AWB's monopoly, stressing that it is a publicly listed company rather than a government-controlled entity, and challenged the E.U. and other antagonists to prove that its operations are trade distorting.

The former Australian Wheat Board was established to allow Australian grain growers to pool their harvest and negotiate sales with a united front to ensure competition between exporters didn't drive down prices.

That should provide a premium for Australian wheat even in competition with subsidized competitors.

But some grain growers have queried the efficiency of the AWB's marketing strategy and the returns it delivers to its shareholders.

Details of hundreds of millions of dollars in payments by AWB through a bogus transport company to Saddam's regime under the cover of the UN oil-for-food program appears to have only added ammunition to critics of the former wheat board's ability to ensure the best returns for grain growers.

Some grain growers have argued they can possibly secure better deals for their wheat than available through the AWB, even before the allegations triggered by the Volker report into the UN oil-for-food program.

The Eastern Wheat Growers Group, a splinter organization of farmers pushing for industry reform, used Iraq's suspension of dealings with the AWB to repeat its argument that the single desk monopoly is well and truly past its use by date.

But Iraq's decision to sideline the AWB from the current tender for grain supply contracts might provide a temporary window to allow these growers to prove their case, if only until the Cole Inquiry hands down its findings.

The AWB isn't going to surrender its monopoly without a fight.

Relinquishing its veto against rival exporters including sales to Iraq will only be considered as a last resort and only after all other options have been exhausted, AWB Executive Chairman Brendan Stewart said.

But even the AWB's shareholders, represented by the Grains Council of Australia, are beginning to sense a change in marketing arrangements might just be inevitable following the oil-for-food fracas.

Speaking Tuesday at a grain farmers forum in Moree in rural New South Wales, Council Chairman Murray Jones said feedback so far from farm organizations and growers is that there is still overwhelming support for a grower-owned and controlled wheat marketing system.

While Jones called the Iraq Grain Board's decision disappointing and pre-emptive, he conceded that a return to the status quo before the establishment of the Cole inquiry is impossible.

"It is obvious that the system of wheat marketing - whereby AWB holds a monopoly - will have to change," Jones said.

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