An Independent Queensland Regional & Rural
(Cairns... Far North Queensland)
AUSTRALIAN WHEAT BOARD
THE FOOD FOR OIL DEALS... ARE THEY OVER YET?
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!
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.
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.
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
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