Q&A with Peter Woods
Month Day, Year
by Michael King
For 35 years, Peter Woods has held a variety of roles within the Australian agriculture industry including management and operation of rural enterprises. He was a key player in the reform of the Australian wheat industry as the chief executive officer (CEO) of the Federal Government regulator Wheat Exports Australia (WEA) for six years, which both regulated the export of Australian wheat and was also the watchdog for pools operated by accredited wheat exporters.
Before joining the former WEA, he was regional manager for Castlegate VGS (now Castlegate James) marketing a wide range of stock feeds. Prior to that he was CEO of the Gilgandra Marketing Co-operative Limited where he introduced and managed grain pools for members.
Woods has also lectured in agricultural marketing and finance at the University of Sydney and Orange Agricultural College and leased a property in the Bathurst district where he managed a 4,000-sheep enterprise.
Most recently, Woods co-founded an innovative grain marketing start-up called AvantAgri. World Grain recently interviewed Woods to get his thoughts on the fast-changing Australian grain industry.
WG: Would you say the Australian wheat liberalization process over the last decade and more has been a success?
Woods: The big gains for the Australian grain industry were achieved when the domestic market was deregulated in the 1990s and growers were no longer forced to deliver grain to an export-based pool in drought years. That process also opened up the forward market for growers and the cash market during and after harvest. The export bulk wheat liberalization process was, for its speed, relatively smooth. Exporters knew that there would probably be some short-term issues that would need to be managed. These were largely with shipping stems, industry good functions and managing the legislative changes.
WG: What were your main achievements at Wheat Exports Australia in terms of smoothing the transition?
Woods: The main achievement was providing some regulatory stability during a period of turmoil in the Australian export wheat industry. The agency took pride in the fact that it was seen as useful and necessary by government and growers from 2007 to 2012. WEA was a team of committed individuals, mostly with an agricultural background, who cared about agriculture. I hope WEA was viewed as a responsive yet responsible agency that implemented a wide and diverse range of legislation in record time, including a bag and container quality assurance scheme in 2007 and, in 2008, a bulk wheat export accreditation scheme.
WG: What are your main regrets in terms of reforms that you would like to have seen implemented?
Woods: I believe that the WEA no longer needed to be regulating bulk exports, but there was and probably still is a need for some sort of assurance/regulation on the quality of Australian grain exported. Yes, there are contractual obligations between the seller and the buyer in terms of quality, but this is only regarding protein, screenings, moisture and test weight. There is no binding obligation regarding fit for purpose, by that I mean restrictions on blending.
WG: Do you think there should be more curbs on blending?
Woods: There is nothing wrong with blending. It is done across the world. Specifically, I mean not being able to blend across grades, for example, not blending biscuit wheat with milling wheat or noodle wheat. This is not done on a large scale but those few who do it run the risk of damaging Australia’s reputation as a supplier of quality. Flour millers produce flours for different uses, and they need to be assured that the Australian wheat they receive is fit for purpose.
WG: Could other parts of Australian agriculture learn from the experience of the wheat sector and the reforms it underwent?
Woods: I think it may be better to ask why didn’t the wheat sector learn from the experience of the wool sector, the dairy sector or the failed NSW Grain Board? Because of entrenched positions in the various state grower organizations regarding the single export desk held by AWB, which in the end was revoked without any government assistance package for growers. Nor was there any significant reduction in trade barriers for Australian grain or commodity exports on the international side, in comparison to the dairy industry, that received almost A$2 billion for structural adjustment pressures when it was deregulated in 1999.
WG: Have growers been among the winners of liberalization?
Woods: Although growers have gained more transparent prices as a result of wheat liberalization, there have been some negatives. Growers have more choice now that the market is fully deregulated — there is better and more transparent price discovery — but growers who have not adapted their marketing strategies to the new environment will not be getting a better deal.
WG: Please explain more?
Woods: Well, feed barley prices are now more heavily discounted against wheat. Malt barley premiums are now lower than they were under regulation. And at times Australian wheat prices are driven by things other than the underlying global wheat market, creating winners and losers across the Australian wheat belt, depending on logistics issues, trader positions and grower behavior. When bulk exports were regulated, domestic end-users had to accumulate grain at harvest, and during the year prices tended to be harvest price plus storage and carry. In a deregulated market, and with growers storing more on farm or warehoused in the bulk handling system for sale during the year, domestic end users and domestic traders simply have to price grain at just above export parity to get what they need during the year, and they do not accumulate as much at harvest time. However, in dry seasons, domestic end users are now having to outbid bulk exporters who may be short, rather than just needing to attract grain away from a regulated pool or outcompete other domestic end users. This creates supply uncertainty in the face of limited or restricted stock information to the broader market.
WG: Do you think Australian growers are being rewarded for bringing quality to market?
Woods: The current market does not reward growers for quality apart from grade allocations which have created cliff face pricing at key protein levels. There is now a need to be careful as some exporters only operate on price and thus there has been some negative press regarding the lowering of Australian quality.
WG: So you think there has been deterioration in Australian grain quality?
Woods: No. Australian quality hasn’t changed and the bulk handlers’ receival standards haven’t changed. What has changed is that buyers are now getting the quality for which they have contracted and paid. So the buyers now need to be more careful with their contract specifications, especially if they are multi-origin. The one standard feature of the deregulated market that has flowed to all growers is that pre-harvest basis levels are much stronger now that the forward market has been opened up to full competition. Once grain is in the bin, basis levels are much more variable, and it is only growers who know how to trade who are getting the full benefits of the deregulated bulk export market.
WG: What do you think is the general outlook for the Australian grains industry, are you optimistic?
Woods: Grain production in Australia has a positive future, although we do have high cost structures, which is a general problem in the Australian economy. If that is not resolved, it will make it harder for Australian farmers to compete in the global market. However, the industry is likely to become more fragmented as the drive for competition sees more grain traders become logistic and export providers, limiting the number of buyers that individual growers might be exposed to. AvantAgri’s unique pooling system across port zones and storage networks will give all grain pool participants exposure to all grain traders regardless of which trader owned storage network a grower delivers their grain.
WG: What services is AvantAgri offering Australian growers not currently available to them? What’s your USP?
Woods: Both directors of AvantAgri — myself and Malcolm Bartholomaeus — have for many years been working to increase grower returns through better advice, market knowledge or grain marketing. We are now offering a complete package for pre-harvest, harvest and post-harvest marketing at a fair and affordable price. If growers choose not to use our pools, they can still get access to our other services to support their own grain marketing at very affordable rates.
WG: What are you doing to improve grower insight and understanding of their markets?
Woods: AvantAgri pools bring a new level of transparency via regular performance reports, independently audited pools and monthly marked to market projections of all future pool payments, right down to the site at which a grower has delivered their grain. We do not forecast or predict pool returns and they are not inflated to attract more tonnage. We determine our EPRs by adding the total value of current sales to the marked to market value for unsold grain. Thus our pool estimates are transparent, auditable and honest.
WG: How do you ensure that your managed pools deliver a competitive to return?
Woods: The benefits of our managed pools are more than just the final return. Because we manage third party trade risks on behalf of growers, their grain returns are not exposed to corporate collapses. We also deliver monthly cash flows. To support our net payments to growers we have low total fees, and the bulk of our fees are set at 1.6% of the port based sale price, so that under weaker market conditions our fees are also lower. Outside of that, our final returns are determined by where the underlying market actually goes and not from speculative derivative trading or physical trading.
WG: What markets are you currently serving, and how do you intend to expand AvantAgri’s reach?
Woods: We serve both domestic and overseas markets. We sell grain to a diverse range of domestic manufacturers, container packers, and bulk accumulators. These include Australian companies and multinationals. This is year one, and we have successfully achieved what we set out to do. Our intention is to consolidate and grow our initial grower base from 2013-14 in southern NSW, Victoria and South Australia. Over the next few months we will be attending a number of major field days in Victoria, South Australia and New South Wales so that we can see and talk to many growers personally. For the 2014-15 harvest, which starts in October 2014, we will also open up our offering to Western Australia and be more proactive in northern NSW if their season is better. In the 2015-16 season we will probably include Queensland. As we build our grower base and tonnages it will open up opportunities in the domestic and container markets and allow a better balance between those markets and bulk export outlets.
WG: Where do you see AvantAgri in the long term?
Woods: In 5 to 10 years we should be established as a major provider of grower-centric grain marketing services, with grain pooling under our model of transparency and performance making up a dominant part of the post-harvest grain marketing of our client base.
Michael King, a freelance journalist and editor, has been writing about shipping, transport and commodities for more than a decade. Currently based in Indonesia, he can be reached at: Michael@borderline.eu.com.