The Hon. Mark Vaile, MP
The Hon. Mark Vaile, MP
FORMER MINISTER FOR TRADE

Speech at the ABARE Outlook Conference 2006

Canberra, 1 March 2006

The Single Desk in the Doha Round

In the last five days, I have flown 26 thousand kilometres in commercial aircraft, C-130 military transports and American Blackhawk helicopters.

I went to Iraq to make sure that Australian wheat growers would still be able to bid for its wheat contracts. I wasn't prepared to rely on speculative media reports or vague assurances from unnamed officials.

The Iraqi wheat market is too important to leave to chance. It is our third most important wheat market.

I met the Prime Minister, Dr al-Jaafari, the Deputy Prime Minister, Dr Chalabi and Trade Minister Mawlud.

I secured an iron-clad guarantee that Australian wheat growers will be able to continue bidding for Iraqi wheat contracts, although AWB will remain suspended from the Iraq market until the Cole Inquiry is over. We did not have this guarantee before I left.

The Government will now work with Australian wheat growers to set up the trading arrangements that we will need.

Deputy Prime Minister Chalabi told me that the Iraqi Government is very concerned about the allegations against AWB. I don't blame them for being concerned: the allegations are very serious.

He did, however, thank the Australian Government for moving very quickly in setting up the Cole Inquiry.

I assured the Iraqi Government that the Cole Inquiry is independent and transparent. Commissioner Cole will be very thorough in investigating whether any laws have been broken.

He is not, however, investigating the single desk. It is not on trial. The single desk has served Australia well since 1939.

The 1930s were years of overproduction and dumping by the United States, Canada and Argentina. Australian wheat growers were the ones who suffered.

In 1931, wheat was less than 2 shillings and sixpence a bushel: the lowest price since Queen Elizabeth the First was on the throne in the 16th century. During the entire 1930s, many wheat growers only succeeded in making a profit in 1936 and 1937.

The rest of the time, they worked long hours, suffered through poverty and hoped for better times to come. There were several attempts at stabilisation plans; none of them worked.

Finally, the Australian Government used the war powers that it gained in 1939 to establish the single desk and the Australian Wheat Board to manage and market the Australian wheat crop.

The world market for wheat was unfair in the 1930s. It is still unfair now.

Wheat growers in the United States receive 32 per cent of their income from government subsidies. These subsidies encourage American farmers to produce too much wheat and distort the world market.

The European Union is even worse. Wheat growers in Europe receive A$17.2 billion a year in subsidies. That's 39 per cent of their income.

In 2002-03, Europe exported 12 million tonnes of subsidised wheat and flour. Australia's entire wheat production that year was only ten million tonnes. The Europeans dumped more wheat and flour than we could grow.

The single desk helps our farmers compete in world of unfair trade. It delivers enormous advantages for Australian wheat growers, without distorting trade.

The single desk is an integrated management and marketing system that is controlled by growers and run for their benefit.

As a result of the desk, the Australian wheat industry has one face in international markets, so our customers cannot play Australian growers off against each other.

The size of the national pool means that the Australian wheat industry has the ability to secure reductions to its transport and storage costs within Australia. AWB was able to reduce its supply chain costs by $5.41 per tonne between 1999 and 2005 by developing its GrainFlow Centres and by negotiating collectively on behalf of Australian wheat growers.

And the single desk gives us the ability to divide our market into segments and to sell our customers the wheat they value the most.

In the 1930s, before we had the single desk, there was just one standard for Australian wheat – Fair Average Quality. It wasn't even an objective standard. It changed from season to season and district to district, and was managed by the local chambers of commerce.

Today, Australian wheat growers export at least 18 different grades of wheat. The standard grade of wheat, ASW, only accounted for 27 per cent of our wheat exports.

When you turn all these advantages into numbers, the single desk gives Australian wheat growers an average price premium of $13 per tonne. It is even higher for our premium grades of wheat.

In total, the single desk delivers the wheat industry an extra $200 million a year – but the European Union and the United States are arguing that we should scrap it; they claim it distorts world trade.

There's no doubt that some export enterprises in other countries receive government subsidies. AWB isn't one of them. In fact, there are no Australian state trading enterprises that receive preferential financial support from taxpayers – unlike many of the organisations that are complaining about the single desk.

In the United States, the main lobby group campaigning against the single desk is called US Wheat Associates. It represents an industry that receives A$4.6 billion in subsidies from American taxpayers every year. Its board members received US$19.5 million in subsidies from the US Department of Agriculture between 1995 and 2004.

Organisations like US Wheat Associates sometimes argue that the national pool is unfair because it helps protect our wheat growers from risk. However, there are agricultural price pools all over the world. They're operated by both public and private sector organisations.

In the United States, Cargill has pools for wheat and canola. Union Elevator has them for wheat, soybeans, corn and barley. I haven't noticed anyone claiming that those price pools are unfair.

It has also been argued that our single desk means that the wheat industry imposes higher prices on its domestic customers in order to subsidise its sales in export markets.

It's a claim that is simply wrong. In Australia, we have a deregulated domestic wheat market. If AWB tried to overcharge its domestic customers, it would just lose its share of the market to other companies. In any case, AWB has an obligation to maximise its returns to growers, so it has to get high prices overseas, not low prices.

Finally, it is asserted that our wheat industry uses the monopoly power provided by the single desk to get an unfair share of the global market. It's an argument that depicts the Australian single desk as a monstrous, ravening price setter that dominates the world.

In reality, Australia only accounts for 14.5 per cent of the world's wheat trade. AWB's total revenue is tiny compared to agricultural giants like Cargill, ADM and ConAgra.

Saying that AWB can use its monopoly power to distort the world wheat market is a bit like Coles and Woolworths arguing that the local IGA is competing unfairly against them.

The Australian Government will therefore reject the calls to eliminate the single desk as long as the world wheat market remains unfairly subsidised. It does not distort world trade. Instead, it enables our wheat industry to survive in a market distorted by domestic support arrangements, tariffs and export subsidies.

There may come a day when we no longer need a single desk for Australian wheat growers. That day will only come if the world agrees to free up agricultural trade through the Doha Round.

ABARE will shortly present a paper to you on the potential trade impacts of the agricultural reforms in the Round.

The paper concludes that a market focused outcome to the Round would increase the value of the world's agricultural exports by US$30 billion in 2011. Exports of commodities such as beef, fruit and vegetables would account for a substantial share of the increase in world trade.

The outcome would greatly benefit consumers in the European Union, with an increase in sugar and dairy imports.

Agricultural trade reform would also have an enormously beneficial impact on global poverty. The latest World Bank estimate is that full trade reform would lift 32 million people out of desperate poverty.

I agree with Bob Geldof and Bono that we should make poverty history. but it will take more than increases in aid flows to achieve; it will take more than debt forgiveness; it will take trade liberalisation and improvements in governance.

Of course, Australian primary producers would also benefit from a market focused outcome to the Round. ABARE estimates the value of our major agricultural exports would be 15 per cent higher in 2011, compared to the figure if the existing trade rules continued.

Our wheat exports would be 10 per cent higher than would otherwise be the case. The income of Australian wheat growers would rise by a comparable amount.

The next ten months will determine whether the world can achieve these results. The US Fast Track negotiating authority expires in mid-2007, and no-one is willing to predict that it will be renewed before the next presidential election in 2008.

So we have to reach a conclusion to the Round by the end of this year or put off any hope of an agreement until 2009 at the earliest.

The WTO member countries made important progress at the Hong Kong ministerial meeting in December last year, when we agreed to phase out all agricultural export subsidies by 2013. These subsidies are the most distorting form of agricultural support, and their elimination will make a major contribution to our broader efforts to reform the world's agricultural trade.

Countries typically use export subsidies to get rid of the surplus food that their farmers produce because they receive domestic support from taxpayers. The overproduction in those countries will become much more obvious once they can't dump the excess on world markets. I predict that their taxpayers will start to ask penetrating questions about why they are paying for mountains of butter and wheat that can't be sold and block out the sun.

We also agreed that we need to reach a decision by 30 April 2006 on the formulas and methods for reducing tariffs. The plan is that each economy will then submit its new tariff schedules by 31 July, as well as a final offer on liberalising services.

Last month, I chaired a small group meeting of ministers representing the United States, the European Union, India, Brazil and Japan. The group is looking for ways to push the negotiations forward.

We have recognised that it is now necessary to move ahead on all of the areas of the negotiations in concert, rather than trying to resolve them one at a time; i.e. agriculture, NAMA, services and rules.

It is an approach that will only succeed if, as part of this process, the European Union comes forward with a plan that goes much further toward providing new opportunities in its markets.

Otherwise, we will not be able to achieve progress on reducing the barriers to trade in the other areas of the negotiations that are important to both Australia and the European Union. It is the only way we will be able to reach an agreement that frees up world trade and makes it fair.

The Australian Government will defend the wheat single desk until that day comes, when the subsidies, domestic supports, and tariffs that distort the wheat market come to an end.

We will defend the single desk because it is the only equalising mechanism we have for wheat growers.

Without it they would be no better off than the wheat growers of the 1930s. We know what they went through, because there was a Royal Commission into the wheat industry in 1934.

One wheat grower from northern Victoria wrote to the commission and said:

I am ashamed of being in debt; do not like to meet my creditors, my position is so hopeless. I work and work and work for what? Everything I make is paid out immediately.

Another wheat grower, from the Mallee, said:

Through hard work and economising by wife, self and children we have been able to look after our essentials, depriving ourselves of all recreation. But this way of living must cease as it is pure slavery.

The Government's aim is to make sure that those are voices from our past and not voices from Australia's future.

We will stand by the single desk, because it benefits Australian wheat growers. It is not an export subsidy, it does not distort trade. It will continue to be controlled by our wheat growers and will stay in operation as long as the world wheat market remains distorted.

Thank you.

 

 

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