528 Lonsdale Street
Vision: Grains managed by AWB will be the world grains of choice. Mission: AWB will be the leading global manager of Australian grain. Business Objective: Maximize value for growers, customers, and shareholders.
AWB Ltd. is redefining itself for the new century. Formerly government-regulated Australian Wheat Board, AWB Ltd. is transforming itself into a publicly listed, vertically integrated agribusiness. Nonetheless, AWB retains its monopoly position as the country's sole wheat and grains exporter through its unique single-desk system that not only maximizes prices for its farmer-shareholders but also contributes to ensuring Australian wheat exports' high-quality reputation. Australian grain production, which averages 35 million tons per year, accounts for less than 5 percent of the total world wheat market. However, because the country exports as much as 80 percent of its wheat production, the country ranks among the world's top five wheat exporters. Although wheat accounts for 90 percent of AWB's export business, the company also markets barley, sorghum, oilseeds, and pulses. AWB is especially active in the Asian markets, where wheat is slowly replacing more traditional rice and other grains as a staple food. The company's main markets include Iran, Indonesia, Japan, Egypt, and South Korea; AWB has also been a strong supplier of wheat to Iraq. In addition to its core export business, AWB has been investing in grain storage facilities in Australia and in feed and flour milling operations elsewhere. The company's attempt to acquire the milling assets of Australia's Goodman Fielder--worth some 40 percent of the total Australian market--were thwarted because of competition concerns. Instead, the company has taken a major shareholding stake in Futuris, which controls Australian agricultural services group Elders, and has expressed an interest in acquiring Grainco, which provides agricultural logistics services. AWB's freely tradable Class B shares are listed on the Australian Stock Exchange. The company's Class A shares are restricted to a pool of 38,000 grain farmers, each of whom must grow a minimum of 100 tons of wheat per year. This class of shareholders elect the majority of AWB's board of directors.
Wheat farming began in the Australian colonies in the early part of the 19th century but remained limited until the development of the country's railway system. By the middle of the century, however, the accessibility of increasing portions of the country spurred farming development. Grains, and especially wheat, became an important crop, and by the beginning of the 20th century had become largely centered on the states of New South Wales, Victoria, and South Australia. Western Australian became another important grains-growing region at the end of the first decade of the century. In the 1930s, Queensland developed into another major Australian grain-grower.
Australia emerged as a prominent wheat exporter at the end of the 19th century when the colony's limited population led it to seek markets for its expanding wheat production. The United Kingdom became the most significant market for the country's grain exports and remained so until the 1960s. In the early years of the 20th century, Australian farming was dominated by independent and typically family-owned farmers, a situation that left the country's wheat production financially vulnerable. At the same time, farmers were unable to invest in updated farming technologies.
The outbreak of World War I led to significant changes in the country's grain export system as a large number of the country's farmers joined the war effort, causing wheat production to drop sharply. The Australian government responded by setting up the first Australian Wheat Board, which took over marketing of the country's wheat exports. By the end of the war, the Wheat Board had succeeded not only in granting farmers a strong measure of financial security but had also established the highest wheat prices in decades. The first Australian Wheat Board was disbanded after the war, however.
During the 1920s, a number of Australian states set up temporary agricultural cooperatives to fill in the gap left by the shutdown of the Wheat Board. In the meantime, wheat production expanded strongly throughout the decade, in part because of the Australian government's policy of setting aside land for returning soldiers after the war. By the end of the decade, wheat production in some parts of the country had risen some 400 percent. At the time, Australia, with its apparently limitless natural resources, remained heavily reliant on its agricultural sector.
Grain Farmer Protection in the 1930s
The collapse of the worldwide economy during the 1930s, and the Australian government's response to it, set in motion the emergence of a new and more lasting Australian Wheat Board. With the nation's economy floundering, the government, believing it could grow its way back to economic prosperity, launched a program in 1930 based on the slogan: "Grow More Wheat." The collapse of many small farms over the next decade led to the emergence of a growing number of large-scale producers.
The increases in Australia's wheat production in the meantime had placed the country's smaller, independent farmers more or less at the mercy of "parasitical" wheat buyers both at home and on the export market. Indeed, throughout the 1930s, the worldwide international grain trade was dominated by just five companies: Cargill, Continental Grain, Andre, Louis Dreyfus, and Bunge and Born.
The emergence of large-scale grain producers led to an increasing number of complaints from smaller farmers as the larger farms were better equipped financially to negotiate with the grain traders, thereby forcing down wheat prices. In 1938, the Australian government enacted legislation under the Wheat Industry Assistance Act in order to create new taxes that would standardize prices on domestic flour prices and wheat exports.
Australian Wheat Board Created
With the outbreak of World War II, national security imperatives brought about the creation of a new Australian Wheat Board (AWB) by the Commonwealth Government in 1939. The AWB was given the authority to oversee the marketing, storage, shipping, pooling, and payment, including advance payments, of the country's wheat output.
The AWB implemented its first wheat pricing stabilization measures in 1940, which took effect after the 1941-42 growing season. The policy provided for guaranteed prices, created a stabilization fund, and put in place new growing licenses. The AWB continued to adjusting its stabilization policies throughout the war. By the end of the war, the necessity and desirability of maintaining a postwar stabilization policy found general acceptance. Nonetheless, an initial attempt to legislate a peacetime stabilization failed in 1946. It was only in 1948, when production controls were dropped from the legislation package, that the Australian government finally passed the Wheat Industry Stabilization Act.
Under the AWB, which initially controlled both the domestic wheat and wheat export sectors, Australia's wheat exports grew strongly. By the 1950s, the country exported some 60 percent of total wheat production, and the wheat industry accounted for some 15 percent of the country's total export sales. By the 1980s, exports had risen to account for 80 percent of total production. In the meantime, however, Australia's the expansion of the country's industrial sector had reduced the wheat export market to just 5 percent of total exports.
Nonetheless, Australian wheat gained a reputation as a quality leader on the international grains market. The AWB had been instrumental in leading genetic research to improve both the variety and quality of the country's grains crops. The AWB's efforts resulted in the introduction of a number of grains brands, including the well known Australian White Wheat. This development led the board to institute a classification system that divided the country's grains brands into some fifty or more grades targeted for specific foods and feed markets. At the same time, AWB's "single-desk" system allowed it to control the quality and purity of its exports, thus winning it steady customers against a number of international competitors.
The AWB began to shift its export focus from the United Kingdom and other western markets--where grain production remained heavily subsidized--to more promising markets in the Middle East as well as in rapidly developing Asian countries. As Western influences took hold in these markets, consumer preferences slowly began to shift away from a reliance rice consumption to adopt wheat-based foods. In 1960, the board began marketing wheat to China; by the end of the 1960s, the company's Chinese exports had grown to a significant share of its total.
Privatization and Deregulation
In the 1980s, the Australian government, then led by Prime Minister Robert Hawke, began an attempt at deregulating much of the country's state-dominated industries, including the wheat industry. In 1989, the Hawke government passed the Wheat Marketing Act, which stripped the domestic grains market from AWB's control. The same legislation also created a separate Wheat Industry Fund, which was administered by the Australian Wheat Board. The deregulation of the domestic market led to the creation of a number of new businesses, including Grainco and GrainCorp.
AWB remained the state-controlled wheat export monopoly into the late 1990s. By then, however, deregulation caught up to the grains export market as well. In 1998, the government, now under John Howard, passed the Wheat Marketing Amendment Act, which created a new Wheat Export Authority (WEA) to take over the AWB's regulatory powers. Yet the legislation that created WEA also in effect affirmed the AWB's monopoly over wheat exports by granting it a veto over third-party requests for bulk exports. (Third parties were, however, allowed to export smaller quantities of grains.)
The Australian government remained under heavy pressure, both from the major international grains trading groups such as Cargill, as well as other governments, including the United States, which, under the Bush administration, lobbied the Australians to abandon the single-desk system. In the meantime, the Australian government continued the process of privatizing the AWB. In 1999, the government placed the Wheat Industry Fund under the AWB's direct control. The government then issued shares in the AWB, granting Class A shares, which were non-tradable and non-transferable, to grains growers that averaged at least 100 tons over a three-year period and Class B shares to shareholders in the Wheat Industry Fund. Under the terms of the Fund transfer, however, AWB was required to maintain at least 75 percent of the Fund, which by then totaled A$600 million.
A Public Company in the 21st Century
The Australian Wheat Board reached the end of the privatization process in 2001, when it changed its name to AWB Ltd. and listed its Class B shares on the Australian stock exchange. The newly public company announced its intention to develop into a full-scale, vertically integrated agribusiness. AWB began a series of investments, including adding grain storage operations as well as taking shares in milling and feed businesses in a number of chiefly Asian markets.
Yet AWB was thwarted in its first attempt at large-scale vertical expansion in Australian. The company had made a bid to purchase the milling operations of Goodman Fielder, which would have given it control of some 40 percent of the Australian and New Zealand milling markets. However, the government body regulating monopolies and mergers struck down the deal due to competition concerns in 2002.
Instead, AWB looked elsewhere for expansion. At the beginning of 2003 the company began buying shares in Futuris, a diversified business which controlled, among other companies, the Elders agricultural services group. By May 2003, AWB, amid a new drought that threatened grain production and exports, began merger talks to acquire grain-growing group Grainco. A month later, the Australian High Court upheld AWB's monopoly on grain exports, defeating a suit brought against the company by would-be rival NEAT Domestic Trading. At the same time, a four-month investigation by the Australian Senate concluded that AWB's monopoly should be placed under an independent review board in order to guard against potential conflicts of interest between the company's obligations to its grower-owners and to shareholders of its publicly listed stock. Despite the uncertainty over its status, AWB Ltd. remained committed to developing itself as a major international agribusiness in the new century.
Principal Subsidiaries: AWB International (AWBI) Limited; AWB Finance Limited; AWB Seeds Ltd.
Principal Competitors: Cargill International S.A.; Cenex Harvest States Cooperatives; Royal Cebeco Group Cooperative UA; Ets Jean Soufflet; Canadian Wheat Board.
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