Australia Wheat Trade Squeezed by Iraq Scandal
Oil-for-Food Kickback Probe Offers U.S. and EU Wedge To Try to Crack Monopoly

By Patrick Barta
March 27, 2006
The Wall Street Journal
Original Source: http://online.wsj.com/article/SB114342087528708654.html

SYDNEY, Australia -- Pressure is mounting on Australia to dismantle its powerful wheat-export monopoly amid allegations that it paid kickbacks to Saddam Hussein's regime to win lucrative wheat contracts in Iraq.
Australia ranks as the world's second-biggest exporter of wheat, behind the U.S., according to U.S. Department of Agriculture statistics, and is a major competitor for U.S. and European farmers overseas. Australia exports about 16 million tons of wheat a year, compared with about 29 million tons by the U.S. Iraq, one of the most important wheat markets, took in about three million tons last year in a global export market of about 110 million tons valued at about $17 billion.
Australia punches above its weight in the market by requiring all its export wheat to be sold through a single desk monopoly managed by AWB Ltd., a publicly traded firm that markets Australian grain to foreign buyers. Local growers believe AWB's shared costs and combined supply increase Australia's market clout and generate economies of scale that help it compete with subsidized competitors in the U.S. and elsewhere.
U.S. and European farmers have long argued the single-desk system is a monopoly that distorts the world's wheat trade. They say that if it is dismantled, new markets would open for U.S. and European farmers -- including the Iraq market -- and result in higher prices for their crop. They also argue that tearing down the Australian single desk would pressure other countries to make trade-related concessions -- particularly Canada, the other big wheat exporter with a similar single-desk program.
Allegedly unfair competition from AWB has led to reduced U.S. wheat exports, which in turn leads to lower U.S. prices -- which hits American wheat farmers in the pocketbook and increases government-support program costs, said Alan Tracy, president of U.S. Wheat Associates, in a recent report to the board of the trade group, based in Washington.
Australia's single desk has survived numerous attacks in the past. But now, Australian government officials are investigating claims that AWB paid more than US$220 million in illegal kickbacks to the Hussein government as part of the scandal-plagued United Nations oil-for-food program. The government agreed in November to open an inquiry, and formal testimony began in January.
A report headed by former U.S. Federal Reserve Chairman Paul Volcker last year found AWB paid the money to a Jordanian company to transport wheat through Iraq. But the funds were channeled to the Hussein government. To some critics, that suggested AWB made the payments as kickbacks to secure wheat contracts. AWB was the biggest supplier of wheat to Iraq under the U.N.'s oil-for-food program.
An AWB spokesman declined to comment on the allegations. AWB has said it is reviewing its governance policies and will take any necessary actions to restore confidence in the company.
The government inquiry isn't expected to release its findings until late June at the earliest. A commission reviewing the matter has emphasized that its mission doesn't include deciding the future of the desk itself. But other Australian officials and wheat-industry leaders have said they would be willing to revisit the system in light of the allegations.
In Iraq, grain-board officials recently said they won't buy wheat from AWB until after the commission releases its findings. A group of Australian agricultural companies has organized to offer wheat in AWB's place -- a potentially significant crack in AWB's export monopoly.
U.S. wheat producers have seized on the scandal to try to drive a wedge deeper into that rift. A U.S. Wheat Associates resolution expressed moral outrage and thanked the Australian government inquiry for bringing sunshine to a dark corner of corporate misbehavior by AWB. The resolution demanded dismantling of the AWB monopoly. Sen. Norm Coleman (R., Minn.) demanded explanations from the Australian government.
Australian farmers have responded in kind, led by the Grains Council of Australia, which represents about 30,000 growers. In one statement, it warned, The U.S. Wheat Industry Should Back Off.
The council said in a separate release that U.S. companies such as Cargill Inc. already control the lion's share of global trade and that it has been a clearly stated aim of [U.S. Wheat Associates] to re-capture the Iraq wheat market from Australia. It also says that U.S. farmers receive much larger government subsidies than Australian farmers do.
---- Christopher Chipello in Montreal contributed to this article.