Australian Wheat Export Act success or failure?

by World Grain Staff
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The Wheat Export Marketing Act 2008 signaled the end to the single desk monopoly over Australian wheat exports held by AWB Limited. Lauded as a victory for proponents of the free market, a new era of open competition was widely expected to follow. Two harvests later, some of the most ardent proponents of reform have criticized the new system. Others are calling for more radical, liberalizing reform.

By July 1, with two harvests having been completed under the new wheat export regime, the Australian government will be handed a major report about its performance so far. Conducted by the Productivity Commission, the Australian government’s independent research and advisory body, the review will cover a wide range of issues related to the implementation of the Wheat Export Marketing Act 2008 and the Wheat Export Accreditation Scheme which it ushered into being. By putting forward potential refinements or suggesting reforms of the Act or the institutions associated with it, such as Wheat Exports Australia (see box, page 34), the Commission’s findings could shape the future of Australia’s wheat export business for decades to come.

Not surprisingly, the battle to sway the Commission one way or another was joined early in the review process. Representing the views of a veritable "who’s who" of the Australian grain industry, almost 60 submissions were made to the inquiry in anticipation of its first draft report due at the end of March.


The arguments cover a range of issues, including quality control and the government’s role in oversight of the regime. But the most divisive issue of deregulation so far has been port and transport access, and in particular the roles played by the three bulk handling companies which control much of the infrastructure used for exporting wheat in Australia.

As things stand, the three companies operate all but one grain export terminal. Viterra, which took over ABB last year, runs ports in South Australia. GrainCorp operates all but one of the grain facilities on the east coast, while CBH runs a string of terminals in Western Australia. The main gist of criticism of the bulk handling companies is that deregulation has allowed them, as the key port handlers and with a strong position in related hinterland logistics, to establish de facto regional monopolies based on their infrastructure.

The key sticking point for many exporters is that the three companies are now not only providing export services, they are also competing with their customers as accredited exporters in their own right, having been cleared by the Australian Competition and Consumer Commission (ACCC) to do so after making access undertakings.

The Australian Grain Exporters Association (AGEA) argues that although undertakings to the ACCC by the three bulk handling companies have prevented port loading protocol terms conditions and fees being changed without consultation, "there are still some practices that are resulting in inefficiencies and un-commercial practices" which limit access to facilities for wheat exporters.

A spokesman for AWB Limited, the free market successor of AWBI, told World Grain that the companies are monopoly providers of port terminal services and that in the absence of more access regulation, the formation of "regional monopolies" is inevitable. AWB has also called for the introduction of "upstream" access tests in addition to the current port access regime.

AGEA believes the three bulk handling companies should be more accountable for services provided, "including implementation of commercially based risk-sharing activities such as demurrage and dispatch." The allocation of shipping slots should be brought into line with international best practice with the three bulk handling companies taking on more risk in relation to ship loading and introducing more flexible timetables.

AGEA argues that the ACCC undertakings are inadequate. "The nodiscrimination and no-hindering access clauses by the (companies) are insufficient to deliver fair access," said the AGEA in its submission to the Productivity Commission.

When booking shipping stems, exporters are forced to pay a booking fee which is lost if capacity is not used. But the AGEA argues that the three bulk handling companies frequently hold the bulk of capacity in certain shipping periods. "A significant amount of this capacity has been removed from the stem without being used," said AGEA. "The tonnages booked and not used have been significant, and this is not a position that exporters could afford to take as they need to absorb the fees foregone for capacity not used."

AGEA also noted that the current regime allows too much latitude for discrimination and does not encourage the three bulk handling companies to "behave fairly or make investments to maximize supply chain efficiency."

AWB would like to see the companies effectively ring-fence their operations activity from their trading activity. "If this occurred, the bulk handling companies’ operator would be solely driven to maximize returns through grain handling assets by creating a common standard for all customers who would assist in maximizing the attractiveness of their offering to grain buyers and sellers," said the AWB in its Commission submission. "This change could be mandated as part of an effective open access regime requirement under the oversight of the ACCC."


It is hard to argue that the three bulk handling companies have not done well out of deregulation, with all three winning sizeable shares of their region’s export crops in 2009-10.

CBH, which is owned by its member growers, has been lauded in the Australian press as one of the clear victors of the post-monopoly period, having succeeded in attracting mighty numbers of growers to its banner, or more specifically, to its far-reaching marketing, storage and logistics network and associated wheat products.

CBH CEO Dr. Andy Crane believes that it is still too early in the process to draw firm conclusions on "winners" and "losers." Nevertheless, Crane is proud of CBH’s achievements thus far, with the company now accounting for a quarter of Australian wheat exports and around half of Western Australia’s exports through Grain Pool, its marketing and trading arm.

Not least, the company’s dominance in Western Australia has been down to the company’s Grain Express product, which assists growers in Western Australia by coordinating and managing the grain supply chain. Separate from the company’s marketing business, Grain Express streamlines the receival process, offers all growers full marketing options and improves transport utilization, according to CBH.

"Early wrinkles" in the 2008-09 season, which saw port congestion and delays in Western Australia, have now been "ironed out," argues Crane, and an online auction slot process for shipping has been introduced to ensure more transparent access for exporters.

Crane calls the Act a "very useful transitionary instrument" but believes that enough legislative safeguards are in place to ensure fair access for all.

He responds vehemently to those who accuse CBH and other bulk handling companies of operating regional monopolies

"It is strange that those that argued for deregulation now want more regulation," he tells World Grain. "If those entities believe in the market, then we are here to serve the market. We want to provide access to our system for commercial reasons, not just because of regulations — the more tonnes in our system, the better for us. We have that incentive commercially."

However, Crane concedes that work can be done to better allocate shipping risk and says CBH is in discussions with customers to better "balance that value and risk" for all.

"But in the end our system is built and paid for by our growers, and in the end our starting point is what is in their interest. We have submitted an access undertaking showing how we provide open and transparent and equal access to ports, so that’s clearly regulated and documented, and that limits us to a two-year accreditation timetable rather than three like non-bulk handling companies, so that’s a competitive disadvantage. Plus there’s the cost of meeting that undertaking, which could be better spent on our network.

"We make no apology for being an integrated company, but the key point is that people can enter the market easily here; they don’t need to build their own infrastructure."

CBH’s submission to the Commission radically calls for the removal of the entire accreditation system for exports which, it claims, offers no value to growers who eventually bear the burden of compliance costs. CBH further argues that wheat exports should be treated the same as other grains and asks that the Wheat Exporting Marketing Act 2008 be abolished. If the government does not do so, then the Access Test under the Act should instead be abolished and replaced by a voluntary access arrangement and an industry code of conduct overseen by an appropriate grain industry body.

Much depends on the Commission’s report. It might be too early yet to determine who the winners and losers of Australian wheat export reform have been. After July 1, the picture should be much clearer.