Andrew Farran on the loss of the Australian grain industry

Below is the full text of a piece by my colleague Andrew Farran, of which an edited version was published in today's Weekly Times. It is a sad story of Governments paying insufficient attention to what is going on around them

In a later post I will explain the true intent of the Wheat Export Authority - established on my advice as a shield against the extra-territorial application of US anti-trust law, but rendered ineffective in that regard before it got under way, as a result of government succumbing to pressure from an uninformed industry.

The loss of the Australian Grain Industry – No Accident

by Andrew Farran

The loss of Australian control over the production and international marketing of grains, particularly wheat, is no accident and can be traced back to the establishment of the Australian Wheat Board and the ‘single desk’ for bulk exports in the late 1930s; to the mishandling of its later privatisation; to misconceived policy stances over free trade in international commodity negotiations; to a government failure to stand up for its trade interests in Iraq between the Gulf Wars; and finally to short-termism on the part of major Australian investors and superfunds.

In the late 1930s the government of the day established the Australian Wheat Board with the single desk for bulk wheat exports. This ensured that wheat growers, many of whom worked marginal farms, got a fair go with storage and trading. To some this looked like agrarian socialism rather than rural efficiency. Internationally, particularly among North Americans, the AWB and the single desk was anathema and became a target for destruction.

It took decades to destroy, regrettably with Australian government connivance (both sides of politics). Unlike the Reserve Price Scheme for wool market stabilisation in the 1980s, the Wheat Board was a success, both in terms of quality controls for exports and profitable marketing. Advised by the then Department of Trade it had access to the best market research and analysis available. This was done for the national benefit for a commodity that was critical to the well-being of the economy.

Now the industry has toppled. With the forthcoming third of the major disposals - GrainCorp to the US monolith Archer Daniels Midland - its control rests in foreign hands. This takeover means that 75% of eastern Australia’s grain production and 90% of Australia’s bulk grain exports are controlled from North America. The currency exchange advantage to the US will also disadvantage Australian wheat in international markets.

Shareholders and the major superfunds more interested in quick profits and short-term deals ensured this outcome. It is as if the nation’s assets were being capitalised in order that we might become rent-seekers dependent on foreign enterprise and investment rather than our own endeavours. 

How did this happen? First, in an environment of indiscriminate free trade, anything looking like agrarian socialism had become an anachronism, even if structured to rationalise the handling of specific aspects of a unique industry. The AWB as originally structured was not a socialist concept. It was a monopoly for the wider good, a rare type which nurtured farming enterprises, big and small, in its sector.  

Secondly, with privatization AWB’s monopoly over bulk exports was exposed to US anti-trust (monopolies) laws which were deemed to have extra-territorial reach. This could have been circumvented had the government of the day stuck with its plan to establish a Wheat Export Authority (WEA) as a government entity immune from US laws. This could then have directed the AWB’s international trading operations. But the government succumbed to grower pressure to drop the WEA without realizing the implications.

Meanwhile wheat farmers were being required to live on their wits with little government assistance while our trade negotiators persistently sought to leverage a free trade objective against agricultural protectionists in the then European Communities and the US. The futility of this policy was evidenced year after year by the refusal of those countries to yield an inch on protectionism except for unavoidable budgetary constraints. Meanwhile grain growers here were kept marginal without market support no matter how critical their overall importance was to the economy. Over time lay social and cultural failure quite apart from struggling family budgets.

Thirdly, while retaining many of its original features the single desk fell victim between the two Iraqi Wars which gave its enemies the chance they had waited for. Iraq had been a major established market for Australian grains but its market share was under siege by external interests that were virtually directing and funding the UN sanctions regime imposed on that country. For food exporters to Iraq there was no longer a level playing field. Australia was to be either cut down or cut out.

Meanwhile the Iraqi population, leaving aside Saddam Hussein with his non-existent weapons of mass destruction, had to be fed. If Australia were to be cut out others would be cut in - and that was what was to happen. Strategically the AWB negotiators had to find a way to stay in. Technically it involved some degradation of the sanctions regime, but this was happening everywhere at the time. The sanctions regime had in effect already failed. When AWB was ‘exposed’ the government went defensive, and into denial, instead of calling it for what it was. To have held ground shouldn’t have been too hard, at least for a government that subsequently lied in going to war a short time thereafter, in defiance of the UN and international law – a war in which the resulting levels of death and destruction made any kind of trade infraction a relatively trivial matter.

Not content to leave the structure of our wheat trade at risk to US pressure, both major parties then sought to make capital out of the AWB’s predicament, chipping away at it with, as it turned out, a largely nonsensical Royal Commission, with rising threats of criminal prosecutions (which by and large have fallen by the wayside for want of credible cause), and cranking up earlier arguments about ‘market forces’ against this one-time successful but now floundering international market manager.

In these circumstances AWB succumbed to its own take-over, and the subsequent inability of the surviving firms (that is, the former ABB Grains and GrainCorp) to hold their ground has led, or will lead, to the lot going over to the North Americans, just as planned decades ago. Yet we still regard ourselves, in international trade circles, as a foremost agricultural nation. Not for long it seems!