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Selwyn Johnston



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While the Cole Inquiry is dealing with the local aspects of the Iraqi ‘Food for Oil’ dealings by AWB Limited and others, there is a field of associated activities not necessarily directly connected with that Inquiry!  

These activities, which engulf the whole trading scene, also throw considerable light on the circumstances operating at the time that these food for oil deals, together with many other deals, were done. They are, if you like, ‘activities’ environmental in nature. 

The United Nations ‘Food for Oil’ Program was designed to be a humanitarian gesture to relieve the hardships being vested upon innocent Iraqi civilian population by supplying things such as food and medicines to minimise the adverse effects of the United Nation sanctions that applied at that time.  

Initially, the program was designed as a fairly ‘clean cut’ authoritarian operation, but was changed to include Iraqi approval, presumably to prevent rorts, or perceived rorts by suppliers. It was also recognised that it was after all Iraqi oil that was being dealt with and consequently the Iraqis should have some say. It was, as it turned out, to be simply another form of redirecting the ‘interests’, or as some would cynically say, cutting Iraq in on the action. 

Primarily, the program ran something like this. Contracts for the sale of oil would be granted and sold to people and firms, and quite often people who were in a position to assist the Iraq administration one way or another. It seems they need have no connection with the oil industry. It has been reported that these contracts were sold at a figure below the going rate for the price of oil and as there was no fetter regarding on-selling the contract it was extremely negotiable.  

This meant that the recipient of one of these contracts stood to make a considerable financial gain simply by on-selling the contract. Whether these contracts were sold with an expectation of favours or perhaps for a “kickback” to the issuer is a moot point but that suggestion has certainly been made. 

The monies for the sale of this oil was to be paid to an account and from this account would come the money to pay for the food, medicines and other humanitarian goods so desperately needed in Iraq. There seems to be little doubt that some goods purchased were purchased at an inflated price and from this price some form of dividend or kickback was paid along the supply chain. This is the nature of some of the matters before the Cole Inquiry and they can be safely left in the Inquiries hands. 

It is therefore not unreasonable to say that the ‘Food for Oil’ Program was designed without rigour foremost in the minds of the architects. This is not an unusual situation but it does signal to experienced operators that there may need to be some ‘unusual’ conditions associated with the dealings or perhaps even with related dealings. The bottom line is that it indicates that extreme flexibility is possibly both desirable and necessary.

How do the various types of trading entities deal with such a situation? Private business, which is accountable to itself and its shareholders, handles it with consummate ease. It has no statutory reporting procedures, it’s the companies businesses dealing entirely and all that really matters is that it makes it usual profit level for that type of deal.  

How then does a bureaucracy deal with this type of situation? The bureaucracy can come in a couple of forms but usually as a Government Authority such as a Marketing Board or some other form of Statutory Authority. All these organisations also try to operate so as to make a profit for the equity holders while at the same time keeping their noses clean. This is to ensure they do not accrue approbation onto themselves or their ultimate managers, the Government, and in particular the Minister, his advisors and senior public servants who really are terribly persuasive regarding staffing and employee survival.  

The main problem arises when these bodies are required to operate in a field also occupied by private enterprise and particularly foreign owned and operated private enterprise. While the following is not always the case it is not a bad generalisation. The private operators have the agility and speed to rapidly accommodate a purchaser’s needs. They have the backing of their governments and quite often Government support in a number of forms. These can include persuasion, contra deals, time to pay and the like.  

On the other hand the Australian Government entity, dealing in its own right is generally a little more cumbersome though they will still seek and often receive the assistance of their Government. They are about equal in the favours to clients department but to offset the Government entity’s lack of manoeuvrability they generally find them selves dealing with another bureaucracy in the recipient country. This leads to some sort of rapport, which, by and large, makes it all a pretty level playing field except for the involvements of the various Governments. 

To maintain its ability however the management of the Government entity ensures that their every move has at least the tacit approval of the top level managers, the Government. Remember they may need to seek assistance with some part of the deal. Apart from the usual reason of survival of the individual and the organisation for following this course it has to be recognised that it is not prudent to surprise the Government, particularly when some adverse publicity may follow. Consequently as a general rule it could be said that for every significant move by an Authority some responsible person in government knows about it in detail. There may be an arrangement where, by frequent application of a practice the Government indicates that it doesn’t need to be informed on a deal by deal basis. But you will find that the messages still tend to go up the line as a consequence of the survival doctrine. 

Of course not all advice that goes up the line gets to the end of the line. Generally someone at some senior level will decide that it would be unwise for the Government to be overtly informed. So from that level on there will be no formal trail of information but would you believe it gets there anyway and in full detail. 

So in the case of the AWB Limited, provided that it operated within the generally accepted parameters, then the great likelihood is that firstly it was operating in such a way as to optimise the companies return and consequently the growers return. Secondly that it was dealing in a market that had very special circumstances that simply had to be addressed, and thirdly that those circumstances would have been so special that there is simply no imaginable way the company would have done it of its own volition. 

In short and given the circumstances set out here put simply “the Government would know”. 

Now when AWB Limited was operating in Iraq it had considerable opposition from other grain dealing companies, which had worldwide experience and connections. These companies are based mainly in the United States and Europe. Both of these places heavily subsidise the production of grain in their countries and it is accepted that grain is not sold in these countries “at retail” for subsequent export. The reality is the export is subsidised however that may be stated. Arrangements must be made to ensure that their sale is even marginally competitive. No such buffer exists for Australian producers. Their agents have to find other ways. In addition both Europe and the USA have significant aid programs to which local grain, and quite often grain from other countries is diverted yet another form of subsidisation. They also have extensive credit arrangements. So at no stage does there seem to be a level playing field for Australian producers or agents who receive no subsidies and precious little credit support. 

That however is not where the intrigue stops. Major world grain dealers have branch offices in Australia and operate within the local market. Their export deals, if they do any, are done through the “single desk” presently the exclusive domain of AWB Limited. Were it not for their extensive connections with grain production in the rest of the world, together with the access to foreign credit, that can be available to them, you would have to wonder why they bothered to operate in Australia at all. Well of course they do it because they can make a profit here competing with local firms and that’s fine. 

Another view has been put forward which is far more involved and imaginative. It has been said that their presence in our local market is to get the confidence of local growers and so get them accustomed to dealing with these firms. In fact it is to “position themselves” or so the claim goes. It is then suggested that the real intention of these companies is to get into the export field from Australia on an “equal footing” with AWB Limited. Presumably this means that the exclusive export market “single desk” would be a best option for AWB Limited, shared by AWB Limited and these companies. That would, it is suggested, make all things equal and would possibly be very consistent with the Australian Governments disastrous Competition Policy. 

But how equal would that really be? Given as has been suggested that these overseas based companies have all these additional connections and benefits from overseas, and to mention the credit aspect merely as an example, how could a local based firm, without extensive support of a similar nature compete. Clearly it would be very difficult. A further problem arises it is suggested when a conflict of interest arises between Australia’s grower’s interests and their base countries interests, whether Australian grain is involved directly or not. It may, for example be a choice of country of origin of grain to be supplied for export.  

It has also been suggested that with a large independent and grain rich player in the international grains field it is more difficult and possibly more costly for overseas companies to manage the world grain market. At present this large and grain rich player is Australia and it single desk seller AWB Limited. Companies wishing to manage the world market would some how either have AWB Limited on board or negated. Perhaps negated would be their preference. 

So the interesting thing to watch in the near future, given some of the theories that have been expounded, will be the ultimate fate of the AWB Limited single selling desk monopoly. The result of this matter and it is now being given extensive publicity in the media, and by political statements, will not only be of great interest but also of great importance to our grain industry. 

Given the fate of other rural industries that have recently been deregulated, I would suggest this spot be well watched... and particularly by Australian grain growers.

Monday 13 February 2006




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Written and Authorised by Selwyn Johnston, Cairns FNQ 4870