Bottom-Up Change At The Australian Wheat Board

Changes to the Canadian Wheat Board Act contained in Bill C-72 died on the order paper when an election was called.

Changes to the Canadian Wheat Board Act contained in Bill C-72 died on the order paper when an election was called. No loss. The provisions fell far short of their public billing.

Before a new Parliament revives the measure, it ought to consider what’s happening in Australia. Its government has drafted a new model for the Australian Wheat Board that transforms the organization into a strong commercial player.

On July 1, the AWB will cease to be a government authority and become a private corporation owned by growers. The only remnant of the former operation will be a monopoly on export sales of wheat. Ten years ago, Australia forced the board to offer farmers a range of normal commercial amenities, including futures markets for hedging, cash options and flexible pooling.

In 1989, the Australian government also levied a “wheat tax” and used the proceeds to build a Wheat Fund. By the 1999 target date, the Fund should reach A$550 million. The new commercial Wheat Board will use the money to leverage private-sector underwriting of its advance payment schedules. The tax will expire at the same time. In addition, the Crown will cease to guarantee the AWB’s borrowing, estimated at A$3 billion a year.

This last detail is important for the Canadian Wheat Board. American grain farmers regard our government’s support of Board debt as a hidden interest rate subsidy. Removing that thorn, although it’s not the only one, would help forestall the ever-present threat of American trade actions.

The growers who will own the new AWB Ltd, will receive an equal Class A share, plus Class B shares equivalent to the amount he or she previously contributed to the Wheat Fund. According to the Wall Street Journal, Class A shares will be non-transferable, won’t earn dividends and will confer the power to elect a majority of directors. Class B shareholders will choose a minority of directors but receive a commercial return on their holdings. At least until a Competition Review reports in 1999, Class B owners will be able to trade their shares with other growers.

To let the new company establish a track record for ratings agencies, it will open in October, functioning under the wing of the current Wheat Board until the growers take control on July 1, 1999. At the same time, Class B shareholders will decide by ballot whether or not to float their shares on the Australian Stock Exchange. According to the AWB’s current chairman, a commercialized Board will be worth A$700-800 million.

In contrast to the comprehensive, bottom-up restructuring underway down under, the reforms in the new Canadian Wheat Board Act offered producers a shadowy sort of “farmer control” that proved more rhetorical than real. The new Australian Wheat Board will necessarily be accountable because farmers will be free to unload their shares if they disagree with its policies. That’s real clout compared to the Canadian producers’ meaningless “right” to elect directors who serve at the whim of the Minister of the day.

With the exception of export wheat, the AWB already competes head to head with the private sector in all the grain markets. Its continuing success blows up claims that dual marketing doesn’t work.

It now promises to explode other myths as well.

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