No Ticket, No Start---No More!
Who Reaps the Benefits?---A Chronicle of the Wheat Debate
'It must be remembered that there is nothing more
difficult to plan, nor more dangerous to manage than
the creation of a new system. For the initiator has
the enmity of all who would profit by the preservation
of the old institutions and merely lukewarm defenders
in those who would gain by the new ones.'
Over the past two years debate has been raging within
the wheat industry about the future of statutory wheat
marketing which has wide ranging implications for not
just the industry itself, but all related sectors of
the Australian economy.
The debate has been at times bitter and divisive,
with those who are comfortable with the status quo
'fighting tooth and nail' to preserve the old institutions.
It has had wide spread coverage in the rural press
but to date, has aroused little serious interest amongst
the city media.
It challenges the very foundations of monopoly grower
controlled marketing within Australia and at the same
time has focused attention on many of the inefficiencies
in the distribution system that have grown up around
It is significant that a Labor Government at the Federal
level has led the push to reform the system and to
introduce many of the efficiencies that come with a
freer marketing system. It challenges the very foundations
of agricultural politics in significant parts of rural
Australia and is reminiscent of the debate that surrounded
wool marketing in the late 60s and early 70s and dairy
marketing in the early 80s. With major economic powers
such as the United States and the Common Market seriously
destabilising the world wheat market through massive
subsidies, this debate has focused attention on the
need for the Australian wheat marketing system to be
The Federal Coalition is torn between loyalty to what
some perceive as the views of traditional supporters
and the knowledge that the Government's proposed changes
to the domestic wheat marketing arrangements not only
make economic sense but also will help Coalition policies
in other areas such as Labor market deregulation.
History of Government Intervention in the Wheat
Government involvement in the wheat industry began
in the first years of white settlement. In the late
1700s, grain production, storage and marketing was
socialised under a system of 'public farming'.
However, by 1793 the system had failed so the Governor
of New South Wales allowed private settlement agriculture
to produce grain, but the Governor remained the sole
A ''lack market' in grain soon developed and by 1825
the government marketing scheme was abandoned. Throughout
the 1800s, particularly in the latter part, government
involvement was directed mainly at granting land and
providing railways. The effect was to develop a wheat
farming community which was undercapitalised and dependent
on government for its land and transport services.
By now the wheat industry was already a captive of
politicians, so new opportunities were emerging for
people we now call agri-politicians.
The Commonwealth Government first became involved
in wheat marketing when it compulsorily acquired the
crop during WWI as a temporary war-time measure. During
the 1920s, the war-time pools were replaced with some
voluntary and some compulsory State pools (depending
on the state), but growers consistently received higher
returns from private traders so the pools faded away.
With the advent of the Second World War, compulsory
wheat pooling and acquisition by the Government was
introduced under emergency war-time powers. The experience
of growers and flour millers with a stable and predictable
price and the opportunities which intervention created
for industry 'leaders' and their counterparts in politics
led to the concepts of 'price stabilisation' and 'orderly
markets' forming the basis of legislation for wheat
marketing which began in 1948. 'Price stabilisation'
and 'orderly marketing' have remained the pillars of
all subsequent wheat marketing schemes.
Since World War II there have been eight wheat marketing
plans. All plans have shared some common features
such as granting the Australian Wheat Board sole receival
and marketing powers for virtually all wheat grown
in Australia; discriminatory pricing of wheat sold
domestically; pooling of sales revenue and marketing
costs; and, assistance provisions which transfer some
(if not all) of the risk of adverse (downwards) price
movements to the Government. Currently Australia exports
80% of its wheat crop out of a total production of
around 14 Million tonnes.
The existing (1984) Wheat Marketing Act brought about
several significant changes. Grower representation
on the Wheat Board was cut from two grower members
per wheat growing state to one. Government underwriting
was set at 95% of the average of the lowest two of
the previous three years crops and the projected price
for the current crop. Significantly the domestic feed
wheat market (which amounts to one third of the whole
domestic market) was effectively deregulated which
has led to growers exercising a freedom of choice.
Enterprising growers soon found they could in fact
get a better price for their feed wheat than the AWB
was offering. One grower has documented this advantage
to be worth $17 per tonne to him. Buyers found benefits
Like all other wheat marketing Acts, because of Section
92 of the Constitution the current Act required complementary
legislation from the States to allow the Wheat Board
to acquire all of the wheat crop apart from the feed
This has always been one of the weaknesses of the
wheat marketing monopoly.
It has allowed the States to demand in return for
the complementary legislation the right to have sole
receivership and in effect the right to, in most cases,
restrict the transport of wheat to the State Rail
Authority. As with the two previous marketing Acts,
this one was subject to review by the IAC prior to
its renewal, In its review the IAC suggested freeing
up of the domestic and export feed wheat market. Not
surprisingly this led to vehement condemnation by wheat
It is pertinent at this point to note that in two
academic studies of Australian wheat policies, (one
published in The American Journal of Agricultural
Economics in November 1982, the other in The
Australian Journal of Agricultural Economics in
April 1985) both supported the case for freer marketing.
1986 was a significant year for the wheat industry.
The 1985-86 export crop earned a record $3 billion
revenue but by 1987-88 this had fallen by over 40%,
even though the decline in the volume of wheat exported
was considerably less than this. 1985/86 also saw some
of the worst industrial disputes in the grain handling
system, particularly in New South Wales where it was
estimated that $200 million of export revenue was
lost through prolonged disputes by the Grain Handling
Authority (GHA). So bad was the fiddling of the system
by the GHA workers that employees on a base rate of
$25,000 per year could earn three times that and yet
work less than 30 hours a week.
It was in response to this and a history of high cost
and poor performance that the Federal Government with
the co-operation of the States, set up a Royal Commission
into Grain, Storage, Handling and Transport, chaired
by Mr J C McColl.
The McColl Royal Commission held hearings in every
wheat growing State and took submissions from all
interested parties. It was notable that the Grains
Council of Australia (GAA), one of the major commodity
councils of the National Farmers Federation (NFF),
found itself in considerable difficulty in making a
submission. In the end it had to call on both the intellectual
and financial resources of the NFF to put forward
It was obvious from the start that the Royal Commission
was going to have some very significant findings.
Equally significant were the arguments that were pout
forward at the time by the various grain grower organisations
in the states. Typical was the submission from the
Western Australia's Farmers Federation which said:
'The system for moving grain from farm to ultimate
market destination must be the most cost efficient
system available from both a grower and the grain
industries viewpoint. In assessing the efficiency,
all the cost incurred must be considered both as
individual costs making up the total cost and the interaction
effect arising from the effect the provision and cost
that one service may have on another. An efficient
system must also ensure that quality and delivery
parameters as defined by the market, are met to ensure
maximum returns to growers.'
It is fascinating to contrast these submissions with
the subsequent reactions in some of the states, particularly
Western Australia and South Australia where the grower
organisations, having argued in their submissions the
need for deregulation in the storage, handling and
transport area, were to find that the co-operative
handling authority in each state set about organising
grower resistance when it saw its monopoly threatened.
Such was the intensity of the campaign by these bulk
handling authorities at the grower organisations in
these states suffered a humiliating backdown and were
forced to change their official position toward the
monopoly of the bulk handling authorities. The findings
of the Royal Commission delivered in early 1988, represented
McColl found that savings of around $10 per tonne
could be achieved by improving the storage and handling
of grain which meant savings of around $150 million,
or some 30 percent, were attainable by the industry.
Not surprisingly some of the bulk handling authorities
and state rail authorities began burning the 'midnight
oil' to try and discredit the figures produced by McColl.
Despite the opposition in some States, the findings
of the McColl Royal Commission gained widespread support.
Although cautiously touching on it, McColl found that
in order to gain the support of the Australian Wheat
Board (AWB) for his recommendations, he had to add
the disclaimer that the savings he had outlined could
be achieved without changes to the marketing system,
although they would require the marketing boards to
act in a competitive manner. Furthermore he hastened
to add that marketing was outside his terms of reference.
While this may be true technically, clearly, the dynamics
of freeing up a monopoly system are going to be severely
impaired if the major player is to continue to maintain
a virtual total monopoly.
In April 1988, the IAC brought down its recommendations
which proposed significant freeing up of the marketing
system for wheat. The GCA as the peak commodity grower
organisation condemned the report as it had previously
argued that not only should the AWB continue to have
its monopoly but indeed the permit marketing of domestic
feed wheat sales should be curtailed.
It seemed ironic that the GCA's submission to the
Royal Commission had favoured the removal of Government
monopoly controls and a freeing up of regulations applying
to those activities at the very same time it was opposing
removal of any regulations in the marketing of wheat
and advocating a tightening of controls.
The position of the AWB is very interesting. The Chairman,
Mr Clinton Condon, a wheat grower from Queensland,
said to the National Agricultural Outlook Conference
in January 1988, in relation to the domestic market:
'We have not been able to compete properly. The Board
must be able to fit in with the system and compete
one for one with all who wish to be involved with the
Condon called for those involved in the industry to
take their 'heads out of the sand and look at ways
of improving efficiency'. He also went on to say:
'It is necessary to focus on the commercialisation
of the Board and I think we should be prepared to
look straight at the question of further deregulation
or total deregulation of domestic marketing.'
Although Condon was anticipating some opposition to
his comments and, straight after delivering the address
he flew to the United States, he could not have fully
anticipated the strength of the reaction. So annoyed
was the GCA that it summoned him back to Australia
so that he had to cut short his visit to the United
States and come back and explain himself.
Clearly he faced a dilemma and in an address to the
New South Wales Farmers' Association in July 1988
he appeared to follow the GCA's line and tried to disclaim
his earlier comments.
Shortly after the delivery of the IAC's final report,
the Government announced that it intended to respond
positively to many of the IAC's recommendations. Not
surprisingly, the GCA reacted very strongly against
In early July, the Coalition Shadow Cabinet discussed
the matter and released a statement through the National
Party Shadow Minister, which supported the McColl Royal
Commission recommendations but did not offer clear
direction on the question of domestic market deregulation.
At the same time the Liberal Party's Federal Rural
Committee, through its Chairman, David Hawker, issued
a statement which said in part:
'There are strong arguments in favour of allowing
the Australian Wheat Board to compete commercially
on the domestic market, trade in other grains and retain
complete control over all wheat exports.'
'The AWB should be more commercialised and strengthened...
board membership should reflect the necessary range
of expertise.... competition and strengthening of the
AWB could be the most effective way of encouraging
the introduction of cost saving methods recommended
by the McColl Royal Commission into Grains, Storing
and Handling Transport.'
The statement noted that partial deregulation of the
domestic feed wheat market had already offered the
opportunity of higher prices to growers. This brought
a hysterical response from the GCA suggesting that
the Liberal Party was, among other things, trying to
split the Coalition. This lead the GCA to embark on
a highly emotional campaign to muster grower opposition
to the Government's proposals. A number of grower meetings
were held around Australia. Following the initial strong
response, numbers at meetings soon dwindled.
The GCA then switched its attack to Elders IXL, accusing
it of a conspiracy to undermine the Australian Wheat
Board. The GCA also attacked ACIL Australia Pty.. Ltd.
as being part of the conspiracy as ACIL had been commissioned
by a number of growers who were keen to see competition
within the market to produce a pamphlet entitled,
'The Right To Choose'.
This pamphlet had been prepared by Ian Wearing of
ACIL who had for seven years been the Executive Director
of the GCA. Wearing had been sacked earlier because
of his views on the question of competition in the
Union Enters Debate
It was at this time a new player entered the debate
namely the Australian Railways Union. In the re-election
platform of 'The Militant Ticket' the Australian Railways
Union strongly endorsed regulation in the wheat industry.
Branch Secretary and prominent Victorian Socialist
Left ALP member, Joseph Sibberas, in seeking re-election,
boasted of how his union had leant on Ministers of
the Cain Labor Government in Victoria to maintain the
virtual monopoly for transport of wheat by rail.
In August the Federal Coalition Shadow Cabinet met
in Brisbane and again discussed wheat marketing.
Following that meeting the Shadow Minister issued
a statement saying the Coalition was disposed towards
supporting the IAC recommendations on the domestic
market. So violent was the reaction to this announcement
among its supporters that National Party Members broke
with their Coalition partners and accused the Liberals
of forcing them to accept their position. None-the-less,
Inside Canberra observed:
'It was a notable victory for Mr. Howard particularly
as the Nationals had already declared publicly themselves
against the Kerin plan. Thus to succeed Mr. Howard
had to get the Nationals to face a humiliating backdown.
It must be the first time a Liberal leader has imposed
a rural policy on the Nationals.'
While the NFF continued to maintain a stony wall of
silence on the issue, it was becoming well known in
Canberra circles that the GCA was causing considerable
embarrassment. The NFF has earned a reputation for
promoting the well-being of farmers through open competitive
markets, yet here was a member of its own 'family'
trying to defend inefficient monopolies.
During this period Andrew Robb left his position as
Executive Director of the NFF and joined the staff
of the Liberal Party. Both organisations have benefited
greatly from his influence.
Meanwhile former NFF President, Ian McLachlan, entered
the wheat marketing debate and attacked the GCA for
taking an illogical approach to grain marketing.
The AWB then cautiously re-entered the debate and
sent the Deputy General Manager to address a meeting
in Moree in September. In his address Mr. Storey carefully
outlined what would happen if the domestic market was
deregulated. Whilst his address carried a disclaimer,
it was quite clear that the AWB by now had decided
that it would have to gear up for competition on the
domestic market and the sooner it started its planning
the better. In outlining what the Board intended doing
he won the clear confidence of growers at that meeting.
Another irony in the debate is that while the GCA
has been fighting its rear-guard battle to maintain
the regulation of the wheat industry, it has, at the
same time, been developing an electronic marketing
system for other grains. When asked whether this system
could also be used for wheat, the GCA had to admit
to its embarrassment that the answer was 'Yes'.
In other words while the GCA was fighting for the
AWB's monopoly on the domestic wheat market, at the
same time it was promoting the benefits of competitive
markets through the National Grain Exchange.
While the wheat debate draws towards a close there
are still many loose ends that will have to be tied
up if the wheat industry is to get the best marketing
system possible. Clearly, inexperience of many of
the current grain industry leaders has highlighted
the lack of real leadership. If the industry is to
move forward and reach anything like its real potential,
it will need to find leadership of a calibre that
has so far eluded it.
Response of State Governments
With the exception of New South Wales, the response
of State Governments to the McColl Royal Commission
has been disappointing. However, New South Wales is
boasting that over the next two years it will provide
a fascinating case study of the deregulation theory
being put into practice. It will:
- Complete transport deregulation by commissioning
road receival facilities at both its export ports
at Newcastle and Port Kembla.
- Commercialise and privatise its grain handling authority.
- Deregulate the GHA's monopoly storage of AWB wheat.
- Commercialise the State's Rail Authority's legislation
and remove its common carrier obligations.
Sadly, the Victorian Government has moved the other
way and recently removed the right of an independent
operator to receive grain and cart it by road to Portland.
The State Government has forced this grain back onto
the rail system making it travel 60 percent further
than it would have, had it gone direct by road.
The question that must be asked through all this is
how can farmers who have established a reputation
as being fiercely independent and proud people, allow
themselves to become so subservient to a self-serving
monopoly system that has not been in their best interests,
or indeed in the best interests of the wider community
throughout country Australia.
On the one hand farmers through the NFF have been
highly critical of the inefficiencies that have been
allowed to grow up through the monopolies in the railways,
in Telecom, in our ports, in our coastal shipping
and yet there seems to be the contradictory attitude
towards a grower-controlled monopoly. There are many
answers for this, some which may not be obvious but
I will try and offer some explanation.
Prior to 1948 there were numerous cases where grain
merchants did indeed take advantage of farmers. The
advantage in those days that the grain merchants could
better utilise was access to better market information.
Obviously that is no longer the case. It is not unusual
today to find a farmer with a home computer getting
access to the Chicago Grain Futures Market anytime
he so wishes.
This simple explanation probably demonstrates how
supporters of the statutory marketing could win the
day. Clearly it was partly fear, partly suspicion and
as the stories of farmers unfairly dealt with by grain
merchants spread through the bush telegraph, the rumours
grew into the stature of the lore.
It is not uncharitable to say that those who wanted
to set up the monopoly marketing had fine ideals. However,
as the system evolved it has become increasingly clear
that those who have followed have not always held such
Today it would not be unfair to say those who are
most strongly opposing the change are those who have
a vested interest in the status quo. Clearly many farmer
leaders have seen the opportunity of being placed on
a board of a statutory authority as just reward for
their efforts in representing their members. The weakness
of the system has been that over the years the boards
and the farmer organisations have been in a most incestuous
Likewise, it would not be unfair to say that many
an idealist upon reaching the top of the farmer representative
tree has found himself compromised by the lure of a
well-paid position on one of these boards if he continues
to support the status quo.
Furthermore, as this grower leader has earned wide
respect within the industry in his climb up the tree
it is not unreasonable to suggest that respect continues
even though his motives become somewhat blurred. It
is not surprising therefore that growers have not been
offered truly independent advice about the performance
of the various statutory bodies related to the wheat
marketing system when it comes to suggesting ways and
means of improvement.
These views have been very effectively reinforced
by various organisations publicity operations. As
one farmer put it:
'Every month I get a newsletter from my farmers'
organisation telling me what a great system we have.
Every two months I get a letter from my bulk handling
authority telling me what a terrific job it does,
every three months I get a newsletter from the wheat
board telling me how marvellous it is and every six
months I get a letter from my State rail authority
telling me how efficient its operation is.'
Is it surprising that farmers find it difficult to
believe otherwise and now accept the status quo as
an 'act of faith'. The other major force that has kept
wheat marketing under such tight control is the influence
of the then Country Party.
Over many decades some have said that the Country
Party used influence over Statutory Grower Boards
as a valuable political tool to both gain power and
to disperse favours. (e.g. The Australian Wheat
Industry: Its Economics and Politics, Tom Connors,
Gill Publications, Armidale, NSW, 1972). But I prefer
to let the readers form their own judgement on this
In more general terms, farmers are noted in many western
countries for being far more politically aware and
astute than most other groups in society.
Couple this with the cyclical nature of farm commodity
prices and it is not surprising to find considerable
protection from adverse market forces has been introduced
in some countries, such as the US and Japan, not to
mention the Common Market.
In Australia's case with the majority of farm commodities
exported, subsidies or import protection are generally
unrealistic (with a couple of exceptions). It is not
unreasonable to suggest that governments would find
it attractive to interpose a grower-controlled statutory
marketing body between the government and agitated
farmers at a time of poor prices. What easier way to
deflect criticism than to say you have your own representatives
controlling your market!
The Business Council in its bulletin of October, 1988
points out there are potential annual savings of at
least $500m from national road transport deregulation
in Australia. Of these savings the grain industry would
receive more than 25 per cent. Furthermore, freeing
up transport could place greater pressure on port charges,
thereby assisting sectors other than the grain industry.
Out of this the implications for deregulation of the
labour market are substantial. While marketing monopolies
shield transport and handling monopolies, the chance
for real progress is severely curtailed.
It is also a chance for the Coalition Parties to demonstrate
their commitment to stated policy. The ability to
hold the line on an application of our principles,
despite sectional interest opposition, will do much
to establish credibility in the wider electorate.
Recent press comments indicate that this point has
not been lost amongst commentators, For example:
'The opposition Parties have talked a great deal
about the need for deregulation in the Australian
economy and would be open to the charge of hypocrisy
if they failed to support concrete moves to achieve
(Canberra Times: 16 February, 1989)
Regrettably, many of the key antagonists to proposed
deregulation of a minor, albeit significant, part
of the wheat market are forsaking not only their own
constituents, but also the opportunity to show real
leadership in times of such need.
The current moves to deregulate part of a major statutory
marketing board represent one of the most significant
developments in agriculture of recent times.
Not only will farmers have more freedom to choose
and the opportunity of higher returns
but also the more competitive climate will encourage
increased efficiency in a range of service industries.
Much of that increased efficiency will flow from pressure
to reform entrenched inefficient work practices.
We cannot expect the union movement to reform their
ways when they are acting rationally in a feather-bedded
environment. Quite simply the market is giving all
the wrong signals.
The environment must be changed to one which encourages
innovation and rewards performance. This starts by
removing barriers to entry and letting those who are
prepared to offer a service, have a go.