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Selwyn Johnston



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The Cole Inquiry into the Iraqi wheat dealing practices of the Australian Wheat Board (AWB) Group of companies is now concluded and the report has been duly handed to the Prime Minister who has in turn had those findings published. It is now out there for all to see and for those people with any interest in agriculture or the marketing of agricultural products, particularly those for export there are some lessons to be learned. 

Perhaps the most significant part of the whole episode is the environment in which the AWB dealing took place and to date this has been given, at best, scant attention. If however you take the time to cast an eye over that environment then you can hardly be left but wondering why AWB Ltd got into so much trouble when others went free. Let’s get it all in context. 

The AWB is a public company that grew out of the old Australian Wheat Board. On becoming a company it retained the monopoly marketing powers that vested in the Board. What this means is that it is [or rather was] the monopoly wheat exporter of wheat from Australia. It was what is referred to as the “single desk”. Until recently the company traded with the highs and lows of most traded companies and generally was the subject of only normal attention. Iraq was one of its biggest customers and a reasonable relationship had been built up between the two countries as far as wheat sales were concerned. 

Iraq, formerly Mesopotamia, has a history that goes back to antiquity. The relevant recent history starts from about 1983 when the United States became concerned about the rising revolutionary power of Iran. Consequently from 1983 to 1990 Iraq received billions of US dollars in U.S. aid, including military aid, and agricultural aid. Towards the end of this period Iraq considered it needed another outlet for its oil through Kuwait and negotiated with Kuwait to achieve this end. By 1990 however the negotiations proved unsuccessful and after discussing the matter with the US ambassador in Iraq [versions of the discussions and outcomes differ] Iraq invaded Kuwait on 2nd August 1990. Iraq considered that Kuwait was a part of Basra anyway and of the remainder was the old 19th province of Iraq. But in 1990 Iraq had completely misread the US intentions on its proposed invasion of Iraq or perhaps was completely mislead as to those intentions. 

Iraq, believing it had United States approval [or at least its complete indifference] invaded Kuwait and started what has been to date a two-decade debacle. The United Nations at this time, and following Iraq’s invasion of Kuwait, passed Resolution 661 [dated 2nd August 1990], which was the start of the international sanctions, imposed on Iraq. The rest is history. On 17th January 1991 a United Nations Force, led by the United States commenced bombarding Iraq and early in February entered Iraq [covertly initially] and on 3rd March 1991 Iraq surrendered. 

The 1991 Desert Storm War was so extensively covered by television that it needs no further explanation. The upshot was that Iraq was left to recover the extensive damage done to its infrastructure under the economic sanctions of Resolution 661. By 1995 it was established that those sanctions were so damaging to the Iraqi people that the United Nations, in 1995, passed Resolution 986, which eased the economic sanctions and started the present “food for oil scheme”. Interestingly enough the initial drafts of Resolution 986 did not require the contracts to be approved by the Iraqi Government. The final draft did and of course it was this required approval by the Iraqi Government that facilitated all the corruption both in relation to the sale of oil contracts and the food purchasing contracts. Both Resolutions 661 and 986 were centrepieces in the Cole Inquiry. The corruption potential of Resolution 986 simply had to be recognised before it was passed and in this regard could be considered as either incompetence or something worse on the part of the United Nations.  

So when the Iraqi markets both for the sale of oil and the purchase of food were opened up they were opened up into an environment virtually designed for corruption and many took advantage of it. 

It was in this environment that AWB traded in the market. One keen competitor in the wheat field was the U.S. grain industry but relations between Iraq and the U.S. were understandably strained, notwithstanding that the U.S. had poured hundreds of millions of dollars into the country through its agriculture program. Prior to the Resolution 986 opening up of the market only food and medical supplies could be sent to Iraq for humanitarian purposes and much of this was Government aid. But fairly obviously and because of these sanctions, and notwithstanding the prior U.S. aid, the U.S. was not viewed favourably by Iraq. 

The corruption in trading arrangements was not restricted to food and other purchases. The sale of oil contracts to pay for these purchases was every bit as corrupt and while AWB has been quoted as the largest rorter, quantum wise, it is unlikely that it would take the cake percentage wise. So AWB was dealing in an environment that was inherently corrupt and in which corruption was a prerequisite to trade. Not only was this the case but also Governments throughout the world would have known this. 

AWB, it would seem, entered into this challenge with enthusiasm. AWB met Iraq’s market, which clearly would have returned money to either certain individuals in Iraq or the Iraqi Government. But since the all-inclusive price for grain was paid for by the sale of Iraqi oil, who really was the looser here. Superficially it seem to be the Iraqi people but by this system they escaped the onerous sanctions of Resolution 661 which were much worse and had a cost in human suffering rather than cash. Australian farmers received their usual price, the transporters were paid, in fact the whole thing accounting wise was a book entry. Who participated in the profits [providing it wasn’t the Australian representatives] would really be of academic interest only. Particularly since the oil sales were corrupted in any case. 

It was of course not the done thing to circumvent the U.N. prohibition on supplying cash to Iraq but just how serious an offence was this in any case. Some countries have a track record of completely ignoring United Nations resolutions and some would say that the breaching of U.N. resolutions is something of an international sport even to the level of nuclear weapons.  

So why was it that the AWB has been singled out for such drastic punishment. Following the Cole Inquiry and late in December 2006 the U.S. decreed that AWB, along with 11 of its former employees [all of whom had by then left the company] will not be able to take part in any U.S. funded food relief programs.  

Immediately after the Cole Inquiry Australia’s Prime Minister announced that AWB was to at least temporarily loose its single desk status which for the time being would be parked with the Federal Minister for Agriculture, National Party member Peter McGauran. Since then Mr. McGauran has elected to allow other entities to export Australian wheat to Indonesia and Iraq. So the single desk status for AWB could from here on be considered removed, not by decree but rather by stealth. 

It is interesting to note that almost simultaneously with Mr. McGauran’s decision, the Canadian Minister for Agriculture Chuck Strahl had given the Canadian Wheat Board President, Adrian Measner, a show cause notice why he should not loose his job. Measner is a supporter of the Canadian Wheat Board and its single desk status. The new Canadian Harper Government has apparently agreed to abandon Canada’s single desk, a move greatly supported by U.S. wheat interests. In support of Measner, the Council of Canadians, [a local lobby group] has said that “The Government of Canada should maintain the Canadian Wheat Board and supply-management mechanisms that support family farms, protecting them from the prejudiced impact of international trade agreements." Realistically the Canadian single desk is all but gone. 

The Canadian Wheat Board reports that a article from “Inside U.S. Trade” [a magazine owned by a group called Inside Washington] states in part as follows… 


Date: October 27, 2006 

A Canadian task force plans to complete a report by today (Oct. 27) on how best to implement the Conservative government's plan to eliminate the grain marketing monopoly operated by the Canadian Wheat Board (CWB), according to the task force chairman. The U.S. government for years through the WTO has tried to eliminate the monopoly powers of the CWB, which it argues gives Canadian wheat growers the ability to underprice U.S. growers. 

Howard Midgie, a senior official at Agriculture and Agri-Food Canada, told Inside U.S. Trade that the task force formed last month by Agriculture Minister Chuck Strahl was meeting this week by telephone and drafting the report, which will make recommendations on how to address technical and transitional issues associated with removing CWB's status as the only entity that can legally export grain grown in western Canada or sell it on the domestic market.” 

So from this it is pretty clear from this that there is a solid group trying to eliminate the world’s two most effective single desk, farmer orientated organisations driven by forces within the U.S. who make it quite clear that the reason is because they are able to under cut U.S. grain prices.” 

There can be no doubt who the “world’s two most effective single desk, farmer orientated organisations” are. In the U.S. Wheat Associates wheat letter of 29th June 2006, and referring to WTO negotiations stated… 

“The U.S. wheat industry continues to remind negotiators of the importance of dismantling the exporting monopolies. In addition to facing growing internal domestic disapproval, the Canadian and Australian wheat boards distort trade. If they are as efficient and fair as they assert, they should be able to operate profitably without the crutch of monopoly control over exportable supplies.”

And again in the U.S. Wheat Associates 2005/2006 Annual Report stated… 

“Of the 112 MMT of wheat traded world wide in 2005/2006, half was exported by either the U.S., or by the monopoly wheat sellers in Australia and Canada. This year brought the best initial prospects for eventually dismantling the monopolies. In Canada, a new Prime Minister, was elected on the platform of providing Canadian wheat farmers with a choice in who they can sell their wheat to. In Australia, a major scandal unfolded where it was shown that AWB—the Australian Wheat Board—paid at least $200m in kickbacks to Saddam Hussein’s regime.”

While it is interesting to note the reference in the above quote from the 2005/2006 Annual Report to the Australian Wheat Board looking back at what is happening in Australia one can only wonder. Despite the fact that the AWB Group of companies is now under new management, and has none of the old management on staff we can now have a better idea why the U.S. would pursue AWB by revoking its ability to participate in U.S. programs. 

Ultimately the real target of the Cole Inquiry was the single desk. Perhaps the Government knew that the National Party could simply not live with knocking the single desk on the head as Canada did. They needed a good excuse for the National Party to come on board and the Cole Inquiry looked like being just what the doctor ordered. To fluster the National Party some Liberal backbenchers are strongly pushing the case for free trade but some of the Nationals have baulked at the idea, even with the “excuse”.  

It is interesting to note that the Cole Inquiry recommended that some authorities should look at the behaviour of certain named individuals with a view to ascertaining whether any offences were committed. The great likelihood is that no charges will ever be brought against these people as a criminal defence is not fettered by terms of reference as the Commission was and is potentially capable of going where Cole was never intended to go, such as the environment within which AWB operated.  

As with many of these matters, it pays to look at who stands to benefit from all this and there is really only one group of people who can unquestionably do so. It is not the American wheat producers, and Australian producers were never in contention. But the large agribusiness companies of the world are much better placed to benefit. By removing the two troublesome grower owned and operated single desk organisations, which undercut their pricing, not only did agribusiness remove competition but it effectively allowed it to set the world grain prices free from competition. The U.S. position on this is really no secret. They want both the Canadian and Australian wheat single selling system disbanded and they make no secret about it.  

It’s certainly worth thinking about. And also thinking about just what the Cole Inquiry was all about. Probably the next thing to consider is whether or not it is at all plausible that no Australian Federal politician knew anything about this. Lets face it everyone else seems to have known. Further more, an even more obvious question would be, “were Australian politicians unaware of the U.S. agribusiness position and intentions and were they totally incapable of joining up the dots?” 

The Federal Government had the option at the beginning of the whole fiasco of saying “Yes, AWB did the deal with the Iraqi Government and if they hadn’t done it someone else would have”, there is a very good chance that without the American agribusiness involvement it would have been the end of the story. The transgressions AWB occasioned to the integrity of United Nations Resolutions, when considered in the context of world transgressions, would amount to zilch.

So who is our Government working for? 

After the Mark Vaile accepted terms and conditions of the Australia-American Free Trade Agreement our struggling primary producers could well be asking just that question! 





AWB scandal impacts on U.S. wheat farmers 04-02-2006
Wheat Letter - Edition 23-02-2006
Wheat Letter - Edition 20-04-2006
Wheat Letter - Edition 18-05-2006
Wheat Letter - Edition 19-09-2006
Wheat Letter - Edition 30-11-2006
U.S. Wheat Industry Statement on the Cole Inquiry 30-11-2006
A bribe by any name 28-12-2006




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Written and Authorised by Selwyn Johnston, Cairns FNQ 4870