The standard explanation in news reports is that AWB Ltd., formerly the Australian Wheat Board, last year lost its export monopoly due to fallout from AWB officials paying nearly $300 million in bribes to Saddam Hussein’s government as part of the “Oil for Food Scandal.”
If so, it seems ironic that one of the companies now accredited to export Australian wheat is Glencore, the secretive private company founded by U.S. fugitive from justice Marc Rich, who fled to Switzerland in 1983 after being indicted by the Justice Dept. for racketeering, trading with the enemy (Iran), dodging a $48 million corporate tax bill, and other violations that could have resulted in 300 years of jail time. He was controversially pardoned by President Clinton on his last day in office in 2001.
Glencore is now one of the world’s largest commodity traders, and a huge player in the grain trade. A one-paragraph financial snapshot on Glencore’s website says its financial turnover in 2008 was $152.2 billion, and it has assets of $61.3 billion. Not bad for an employee-owned private company, reportedly now run by Marc Rich’s protegés, appropriately termed “The Rich Boys.” Glencore has a long history of being accused of dealing with rogue states, most recently in being a major player in the same oil-for-food scandal that brought down AWB.
Not that all of the accredited exporters have such a reputation; one is Viterra, having recently taken over grain Australian grain handler and exporter ABB Ltd. And since AWB lost its monopoly, several companies including Australian ones are now competing for sales of wheat, the same system that many want in Canada. Perhaps they are right.
But the Australian example shows where many who call for the end of the Canadian Wheat Board monopoly are not right in claiming that the CWB could survive and prosper under deregulation. After just a year since the end of its monopoly, AWB Ltd. is variously estimated to have a market share of between 13 and 23 per cent.
This is based on having its own elevators and terminals, plus having other assets to secure loans for buying grain from farmers. Several years ago, in the transition from Australian Wheat Board to AWB Ltd., the government ceased its loan guarantees but gave AWB the right to collect what was in effect a compulsory checkoff to build a war chest. AWB was allowed to do just about anything it wanted with it, and did, including setting itself up in competition with others in trading grain other than wheat, cattle trading, grain handling and selling crop inputs and farm supplies. One has to wonder whether such an apparently unfair system had more to do with the loss of the monopoly than did the oil-for-food scandal.
Fair or not, AWB is at least left with some assets. Compare that with the CWB, which has no assets other than an old office building in Winnipeg and a few 30-year-old hopper cars. Without its monopoly and therefore the assurance that it could collect and be paid for the grain, no sane lender would offer the CWB a nickel. Even if it did, it would be at a premium rate, which would make the CWB uncompetitive. It would also have to rent facilities from owners competing with it to make the same sale. As for the claim that the experience of CWB traders would help it keep business, that’s assuming they wouldn’t be lured by higher salaries to other companies.
Grain trading requires access to massive amounts of cheap capital. The only way the CWB could survive in any form without the monopoly would be with a government guarantee on borrowings. That would not be fair to other exporters trying to compete. And we certainly don’t want any Australian-type transition programs where the CWB uses government guarantees or compulsory producer checkoffs to buy facilities and compete with private companies.
An open wheat marketing system may or may not have advantages. But it would – and probably should – mean the immediate end of the Canadian Wheat Board. As in Australia, this would have unintended consequences. Just who do we want representing Canadian wheat and barley? Though not all multinational exporters are as shadowy as Glencore, where will Canadian grain fit on their priority list when they’re also selling grain from four or five other suppliers? When there’s a tender, whose do they offer?
Canadian companies might give preference to Canadian grain but whether they could compete strongly is uncertain. One or two might. But in Australia, CBH, a large player in grain handling, has teamed with Toepfer, which is almost wholly owned by ADM. AWB is openly seeking a multinational partner, said to be Bunge. More consolidations or joint ventures are rumoured.
So let the wheat board debate begin. It’s been going on forever, you say? Not really, because those who want to end the monopoly are claiming the board would survive. The Australian example has shown it won’t. As has been said so often, this is about choice. Quite right. The choice is the wheat board – or not.