There are various views in the market about full-recourse finance and payment products, the value of underwriting and its benefits to farmers.
As Australia's market leading harvest finance specialist, AWB is assisting growers by giving them some key facts on underwriting. This helps growers make an informed decision about their preferred pool payment or finance option.
What is Underwriting?
Underwriting protects growers against certain market risks that are out of their control including:
- Commodity price risk
- Foreign currency risk
- Basis risk
- Changes in quality payments
- Changes in supply chain costs
- Customer quality claims and default
The AWB Loan, AWB Advanced Payment and AWB Deferred Payment solutions are all fully underwritten.
Where a relevant AWB product is underwritten, you will not generally have to repay any shortfall if the total of your net AWB Pool distribution payments are lower than your total loan or payment amount, including anyTop Up payments made by AWB.
In general, underwriting provides a protective buffer against uncontrollable market and commercial factors that affect pool returns.
With AWB, growers have certainty and peace of mind that should prices fall and/or costs rise causing shortfall in net returns, they are fully protected and will not have to repay any funds to AWB.
When was Underwriting last triggered?
Underwriting - in some instances - is triggered every season. This is the result of many compounding factors at different times impacting world prices, supply chain costs and many other variables which AWB manages on behalf of its growers in order to maximise returns.
The last underwriting event occurred in the 2010/11 AWB Pool where reduced returns combined with higher site to sea cost triggered underwriting for a number of grades.
Why doesn't AWB offer a non-recourse product solution to growers?
AWB fully understands the risks associated with offering non-recourse harvest finance products. We know the majority of growers support the provision of underwriting. That is why we provide a range of underwritten harvest finance products to meet their needs.
If AWB were to offer full recourse products to the market and prices were to fall or costs blow out, some growers could incur significant debts that AWB would need to recover from growers.
What does AWB charge for underwriting?
AWB charges $2.00 per tonne for providing Underwriting. In our view $2.00 is a very low price to pay for protection against unforseen and often uncontrollable market factors.
Is underwriting always available?
AWB underwriting does not release the client from repaying their outstanding debit or other obligations if:
- You are in default of your obligations to AWB
- Priority encumbrances or grower liabilities are met
- Pool payments have been paid in error
For more information call the AWB Grower Service Centre on 1800 4 GRAIN (1800 447 246) contact your local Grain Marketer, or visit your nearest AWB Office.