Incognito;
These AWB troubles in AU Parliment this week;
Mr Deputy Speaker
The purpose of this grievance speech is to call for the Government to establish immediately an independent
forensic financial audit of all the entities of the AWB Ltd conglomerate, particularly in terms of the internal
transactions of the publicly listed company and its subsidiary AWB International.
Mr Deputy Speaker, to support this request I quote the following examples provided to me by a knowledgeable
witness, whom if given appropriate protection, would I am sure be prepared to assist such an inquiry:
Mr Deputy Speaker, the Australian wheat industry has been subject to regulated single desk marketing since the
late 1940’s, conducted until 1999 by a Government Statutory Authority called Australian Wheat Board which
managed a pooling operation based on the simple principle of sharing with growers the total proceeds of its
sales, less operating and marketing costs, which according to Grains Council Australia totalled some $53m
in its last year of operation.
In 1999 these operations were corporatised with two major entities being established; that is, AWB Ltd, which
was listed on the Australian Stock Exchange in August 2001, and its subsidiary AWB International (AWBi),
identified as Company B in the legislation, which was responsible for the management of the ongoing Wheat
Pool operation with a constitutional responsibility to maximise growers returns.
AWBi also held a veto over the issuance of export licenses to other operators; this provided a monopoly over
wheat growers dependant on the export market, such as those in my electorate of O’Connor.
However as the parent company AWB Ltd opted to undertake all of AWBi duties under a service agreement,
AWBi operated with no directly employed staff and under a board of directors dominated by the board and senior
executives of AWB Ltd, leaving it open to AWB Ltd to manipulate its financial affairs as it chose.
In its later years of operation the Australian Wheat Board commenced offering its pool participants a variety of
products, particularly in terms of its expanding operations in the derivatives markets where it took a fairly
conservative position.
Upon the transfer to AWB Ltd derivative trading and the operation of an extensive loan book, became the
foundation of AWB Ltd operations including on behalf of the AWBi pool.
Whilst AWB Ltd has constantly claimed an ability to gain sale price premiums due to its monopoly marketing
status, it appears where this has occurred it resulted more from derivative trading than exceeding world prices
for physical sales, this risky practice has now been fully exposed.
Mr Deputy Speaker under the corporatised model, growers have to borrow against the value of their as yet
unsold wheat deliveries, as the AWB pool only provides an estimated pool return (EPR) which varies
significantly from time to time.
AWB Ltd provides underwriting product at a cost of approximately $1.60 per tonne by which growers can ensure
themselves to borrow up to 80% of the EPR announced at harvest time . In the absence of any claims this
service delivers revenues to its shareholders, possibly around $20m per annum.
Mr Deputy Speaker the 01 /02 pool deliveries were approximately 17m tonne followed by an 02 / 03 delivery of
4.5 m tonnes which is almost identical to the 05 /06 06/ 07 deliveries at 18m tonne and an estimated 4m tonne
respectively. The significant difference however is that in the 02 /03 year of low production world prices fell
significantly commencing early in 03, whilst this year they are rising
In fact early in the year 03 the harvest EPR was reduced by about $40.00 per tonne, or approximately
15%, which raised the threat that this reduced value of growers wheat could no longer cover their
borrowings as underwritten by AWB Ltd and its shareholders.
However there was available a carry over of wheat from the 01/02 season which needed to be sold forward in
the 02 / 03. I am advised that to avoid the possibility of breaching the underwriting, the management of AWB Ltd
decided to transfer 2m tonne of wheat at below market value. When sold at market value by the 02 / 03 pool,
the profit increased the pools per tonne EPR, to a figure in excess of the trigger level at which AWB would have
had to pay compensation to lenders.
The value of this transaction was approximately $50m which increased the 02/03 EPR by approximately $10 per
tonne but had a minimal per tonne impact on the 17 m tonne delivered in 01 /02
The effect on growers return was however two fold , those who delivered to the 01 / 02 pool had their overall
pool returns reduced by $50m, and those who delivered to the 02 /03 pool should have received approximately
$50m from the profits of AWB Ltd which was avoided by this device.
Those in the AWB Ltd workforce who prided themselves on the mantra of maximising growers returns, made
formal protests to the AWB Ltd senior executive whose name has been provided to me, but were ignored , I am
advised that during 2001 an email was directed to the chief executive of AWB Ltd protesting about scams of
this nature and that attempts were subsequently made at the most senior level to have this email removed from
the company data base.
Another initiative first implemented by the Australian Wheat Board was termed the “Basis Pool” which allowed
participating growers to receive the proceeds of physical sales from the National Pool excluding any profit or
loss from its derivatives trading, which they were free to conduct on their own behalf. However upon
corporatisation this scheme was not retained by AWBi but taken over by AWB Ltd.
The explanation for this change had something to do with financial backing which ignored the fact that AWBi
actually owned all the wheat in the pool, clearly AWB Ltd saw profit opportunities for its shareholders.
In its first year of operation under this management but prior to share market listing the differential
between the Basis Pool and the National Pool was a negative $5.33 per tonne, which probably represented a
reasonable assessment f the profits accrued by AWBi through its derivative tradings.
However by the 02 / 03 season this differential had become a negative $56.16 per tonne which after adjustment
for the difference in the closing of the Basis Pool in November and the National Pool in the following March of
$7.00 per tonne could be rounded out to $50.00, which under the operating conditions of the Basis Pool should
have represented only the profit achieved by the National Pool through derivatives trading a most unlikely
scenario.
I am advised that in fact a substantial and undisclosed amount was deducted by AWB Ltd for service fees over
and above those charged to the National Pool which included the notorious $65m and bonuses.
Further more if this were the case the value of physical sales from the pool must be discounted by $50.00 to be
compared to the National prices over that period.
In fact it appears that by then AWB Ltd treated this pool as its own property and on one occasion a senior
executive also named to me, simply ordered the staff who were responsible for the management of the Basis
Pool to transfer the sum of $2m or $10 per tonne to AWB Ltd as management fees, this figure was subsequently
reduced to $1m when the staff involved protested vigorously
Mr Deputy Speaker the Basis Pool concept was embraced by a number of farm improvement groups in my
electorate, such as the South Eastern Wheatgrowers, the Liebe Group and the Mingenew Irwin Group.
Put simply their expectation was to receive a payment equal to the net value of the National Pool excluding the
futures trading effect. Yet every year they received an escalating negative return culminating in $50.00 per tonne
for the 02 / 03 season and $40.00 for 03 /04. For instance , to substantiate the $40 differential for 03 /04
indicates that AWBi’s futures trading over that pool of 20m tonne was $800m.
This situation stands in stark contrast with the claims now promulgated by the new management of AWB Ltd that
unless it can obtain all of the approximately 4m tonne of the 06 /07 production at prices well below that available
to wheat growers from other traders such as CBH, that they will be unable manage the losses on their forward
position, which if true should be a responsibility for AWB Ltd and its shareholders not distressed wheatgrowers
battling to recover their cost of seeding.
Clearly the first and simple task for the forensic audit is to analyse the annual profits from derivative trading
within the National Pool to establish the integrity of these figures, or that undisclosed fees and charges have
been deducted from the proceeds otherwise available to participants in the Basis Pool scheme.
Mr Deputy Speaker I seek leave to table a press release from AWB Ltd which is supposed to explain this
otherwise simple process.
HON WILSON TUCKEY
30.10.2006
These AWB troubles in AU Parliment this week;
Mr Deputy Speaker
The purpose of this grievance speech is to call for the Government to establish immediately an independent
forensic financial audit of all the entities of the AWB Ltd conglomerate, particularly in terms of the internal
transactions of the publicly listed company and its subsidiary AWB International.
Mr Deputy Speaker, to support this request I quote the following examples provided to me by a knowledgeable
witness, whom if given appropriate protection, would I am sure be prepared to assist such an inquiry:
Mr Deputy Speaker, the Australian wheat industry has been subject to regulated single desk marketing since the
late 1940’s, conducted until 1999 by a Government Statutory Authority called Australian Wheat Board which
managed a pooling operation based on the simple principle of sharing with growers the total proceeds of its
sales, less operating and marketing costs, which according to Grains Council Australia totalled some $53m
in its last year of operation.
In 1999 these operations were corporatised with two major entities being established; that is, AWB Ltd, which
was listed on the Australian Stock Exchange in August 2001, and its subsidiary AWB International (AWBi),
identified as Company B in the legislation, which was responsible for the management of the ongoing Wheat
Pool operation with a constitutional responsibility to maximise growers returns.
AWBi also held a veto over the issuance of export licenses to other operators; this provided a monopoly over
wheat growers dependant on the export market, such as those in my electorate of O’Connor.
However as the parent company AWB Ltd opted to undertake all of AWBi duties under a service agreement,
AWBi operated with no directly employed staff and under a board of directors dominated by the board and senior
executives of AWB Ltd, leaving it open to AWB Ltd to manipulate its financial affairs as it chose.
In its later years of operation the Australian Wheat Board commenced offering its pool participants a variety of
products, particularly in terms of its expanding operations in the derivatives markets where it took a fairly
conservative position.
Upon the transfer to AWB Ltd derivative trading and the operation of an extensive loan book, became the
foundation of AWB Ltd operations including on behalf of the AWBi pool.
Whilst AWB Ltd has constantly claimed an ability to gain sale price premiums due to its monopoly marketing
status, it appears where this has occurred it resulted more from derivative trading than exceeding world prices
for physical sales, this risky practice has now been fully exposed.
Mr Deputy Speaker under the corporatised model, growers have to borrow against the value of their as yet
unsold wheat deliveries, as the AWB pool only provides an estimated pool return (EPR) which varies
significantly from time to time.
AWB Ltd provides underwriting product at a cost of approximately $1.60 per tonne by which growers can ensure
themselves to borrow up to 80% of the EPR announced at harvest time . In the absence of any claims this
service delivers revenues to its shareholders, possibly around $20m per annum.
Mr Deputy Speaker the 01 /02 pool deliveries were approximately 17m tonne followed by an 02 / 03 delivery of
4.5 m tonnes which is almost identical to the 05 /06 06/ 07 deliveries at 18m tonne and an estimated 4m tonne
respectively. The significant difference however is that in the 02 /03 year of low production world prices fell
significantly commencing early in 03, whilst this year they are rising
In fact early in the year 03 the harvest EPR was reduced by about $40.00 per tonne, or approximately
15%, which raised the threat that this reduced value of growers wheat could no longer cover their
borrowings as underwritten by AWB Ltd and its shareholders.
However there was available a carry over of wheat from the 01/02 season which needed to be sold forward in
the 02 / 03. I am advised that to avoid the possibility of breaching the underwriting, the management of AWB Ltd
decided to transfer 2m tonne of wheat at below market value. When sold at market value by the 02 / 03 pool,
the profit increased the pools per tonne EPR, to a figure in excess of the trigger level at which AWB would have
had to pay compensation to lenders.
The value of this transaction was approximately $50m which increased the 02/03 EPR by approximately $10 per
tonne but had a minimal per tonne impact on the 17 m tonne delivered in 01 /02
The effect on growers return was however two fold , those who delivered to the 01 / 02 pool had their overall
pool returns reduced by $50m, and those who delivered to the 02 /03 pool should have received approximately
$50m from the profits of AWB Ltd which was avoided by this device.
Those in the AWB Ltd workforce who prided themselves on the mantra of maximising growers returns, made
formal protests to the AWB Ltd senior executive whose name has been provided to me, but were ignored , I am
advised that during 2001 an email was directed to the chief executive of AWB Ltd protesting about scams of
this nature and that attempts were subsequently made at the most senior level to have this email removed from
the company data base.
Another initiative first implemented by the Australian Wheat Board was termed the “Basis Pool” which allowed
participating growers to receive the proceeds of physical sales from the National Pool excluding any profit or
loss from its derivatives trading, which they were free to conduct on their own behalf. However upon
corporatisation this scheme was not retained by AWBi but taken over by AWB Ltd.
The explanation for this change had something to do with financial backing which ignored the fact that AWBi
actually owned all the wheat in the pool, clearly AWB Ltd saw profit opportunities for its shareholders.
In its first year of operation under this management but prior to share market listing the differential
between the Basis Pool and the National Pool was a negative $5.33 per tonne, which probably represented a
reasonable assessment f the profits accrued by AWBi through its derivative tradings.
However by the 02 / 03 season this differential had become a negative $56.16 per tonne which after adjustment
for the difference in the closing of the Basis Pool in November and the National Pool in the following March of
$7.00 per tonne could be rounded out to $50.00, which under the operating conditions of the Basis Pool should
have represented only the profit achieved by the National Pool through derivatives trading a most unlikely
scenario.
I am advised that in fact a substantial and undisclosed amount was deducted by AWB Ltd for service fees over
and above those charged to the National Pool which included the notorious $65m and bonuses.
Further more if this were the case the value of physical sales from the pool must be discounted by $50.00 to be
compared to the National prices over that period.
In fact it appears that by then AWB Ltd treated this pool as its own property and on one occasion a senior
executive also named to me, simply ordered the staff who were responsible for the management of the Basis
Pool to transfer the sum of $2m or $10 per tonne to AWB Ltd as management fees, this figure was subsequently
reduced to $1m when the staff involved protested vigorously
Mr Deputy Speaker the Basis Pool concept was embraced by a number of farm improvement groups in my
electorate, such as the South Eastern Wheatgrowers, the Liebe Group and the Mingenew Irwin Group.
Put simply their expectation was to receive a payment equal to the net value of the National Pool excluding the
futures trading effect. Yet every year they received an escalating negative return culminating in $50.00 per tonne
for the 02 / 03 season and $40.00 for 03 /04. For instance , to substantiate the $40 differential for 03 /04
indicates that AWBi’s futures trading over that pool of 20m tonne was $800m.
This situation stands in stark contrast with the claims now promulgated by the new management of AWB Ltd that
unless it can obtain all of the approximately 4m tonne of the 06 /07 production at prices well below that available
to wheat growers from other traders such as CBH, that they will be unable manage the losses on their forward
position, which if true should be a responsibility for AWB Ltd and its shareholders not distressed wheatgrowers
battling to recover their cost of seeding.
Clearly the first and simple task for the forensic audit is to analyse the annual profits from derivative trading
within the National Pool to establish the integrity of these figures, or that undisclosed fees and charges have
been deducted from the proceeds otherwise available to participants in the Basis Pool scheme.
Mr Deputy Speaker I seek leave to table a press release from AWB Ltd which is supposed to explain this
otherwise simple process.
HON WILSON TUCKEY
30.10.2006
Comment