AWB Chairman, Brendan Stewart, today released a new publication examining the value of the Single Desk entitled, Your Single Desk – value for wheat growers, rural communities and the Australian economy.
Mr Stewart said that by publishing this material and collating the research under one document, AWB International (AWBI) hopes to make an important contribution to any public debate on the value of the Single Desk system.
“The publication is largely based on research commissioned by AWBI from leading academics, professional economists and management specialists, who have looked at the value of the Single Desk from a range of perspectives, as well as the impact of proposals for significant change,” Mr Stewart said.
AWBI commissioned research by Professor Joshua Gans and Joseph Hirschberg of Melbourne University as well as nationally-renowned econometric modeling firm, Econtech, and supply chain specialists Tim Hoffman and Neil Matthews.
“While this document attempts to assess the value of the Single Desk from a range of perspectives it is by no means exhaustive – nor could it be,” Mr Stewart said.
“However, it is a genuine attempt to improve the discussion and to meet the very difficult challenge of placing dollar sums on the complex concept of value.
“A major finding from the research is that AWBI, and the Single Desk system, is capturing an average premium across all grades of $13 per tonne. On the current 2003/04 pool of about 19 million tonnes, this has the potential to deliver approximately $250 million back into the hands of Australian growers.
“The research also found that deregulation of the Single Desk would not only negate these premiums, but could also prompt a further reduction in grower returns if an unregulated duopoly or monopoly market emerged – something researchers suggest is highly likely.
“These researchers estimate that the reduction in grower returns flowing from the removal of the Single Desk and in particular the buyer of last resort obligation would be of a significant magnitude, somewhere between $US360 million and $US563 million
“While AWBI does not necessarily endorse the various methodological approaches used by the researchers, and in fact believes that no one approach can come close to measuring the entire value captured by AWBI and the Single Desk, we view this document as a powerful demonstration of the real and tangible benefits delivered to growers, regional communities and the national economy,” Mr Stewart said
Summary of key points
Capturing price premiums
- AWBI and the Single Desk have captured price premiums across nine separate grades since 1996/97, regardless of the econometric model used.
- On the benchmark APW grade, AWBI and the Single Desk system are capturing a premium of between $15 and up to $30 a tonne depending on the economic modelling approach used.
- The estimated average premium across all grades captured through the current wheat marketing arrangements is $13 a tonne, which translates into approximately $250 million, delivered back into the hands of growers (based on the 2003/04 crop).
Contribution to rural communities and the Australian economy
- The Single Desk delivers a net welfare benefit to the entire Australian economy, which results in an increase in private consumption expenditure across the nation, of approximately $50 million per annum.
- The wheat industry employs over 150,000 people nation wide, and the single desk arrangements deliver almost 2,000 jobs across rural Australia.
- Approximately 45,000 non-farm business enterprises in rural Australia rely on the profitability of the wheat industry for their ongoing viability.
- The effects of the Single Desk on economy wide production levels are most pronounced in the agriculture sector accounting for an increase in production to a value of $73 million per annum.
Impact of deregulation on the Single Desk
- The abolition of the current wheat marketing arrangements could see a reduction in grower returns of at least $US134 million and as much as $563 million.
- The regulations (ei ‘buyer of last resort’) governing the Single Desk and pooling arrangements are a highly effective means of preventing AWBI from exercising any single buying power that it might otherwise have because of its Single Desk selling powers.
- The ‘buyer of last resort’ provision ensures that all of Australia’s 36,000 wheat farmers have ongoing access to the export market.
In the event of deregulation, even under a contestable market, access to international markets is likely to be controlled by market power at other steps of the vertical chain, particularly the large bulk handling companies.
Impact of partial deregulation
- Deregulation of container shipments will result in losses of customers, in volume, and in price premiums for the AWB National Pool.
- High numbers of containers are going to countries with high premiums, possibly as a result of attempts to circumvent AWBI
- Non-AWBI container traffic is tracking the markets where AWBI earns the most significant price premiums
- Container traffic has had a negative impact on AWBI’s market power in certain markets.