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The World Wheat Market – Where is it going and where are we going with it?

Interflour has added to its Vietnam flour mill portfolio, with the purchase of an existing mill at Da Nang on the central coast adding to its site at Cai Mep (pictured). Photo Fairfax

Interflour has added to its Vietnam flour mill portfolio, with the purchase of an existing mill at Da Nang on the central coast adding to its site at Cai Mep (pictured). Photo Fairfax with thanks.

The recent comments reported to be made by Greg Harvey, Interflour’s Australian born Chief Executive, that Australian wheat is too expensive for the markets in Indonesia and Singapore defies belief. If we cannot be competitive in the big and expanding markets on our doorstep, with wheat at the price it is at present, where will that leave Australian grain merchants selling into markets around the world? What price for growers at the next harvest?

The move into Interflour was strategic for Cooperative Bulk handling making vertical integration a reality for Australian wheat growers. Recent announcements have reported Interflour expanding into Vietnam. Cooperative Bulk Handling the West Australian grain handling and marketing cooperative owns 50% of Interflour. Interflour, which now owns nine flour mills across Vietnam, Indonesia, Malaysia and Turkey is, one would think, integral to the prosperity of WA wheat production, if it is to meet the challenges of market expansion in the region in which Interflour operate.

This story fits in quite nicely with another story. A few years ago I was talking to a lady whose family had decided to build a new biscuit factory in Indonesia rather than Perth and then export their biscuits into Australia and around the world. I found their biscuits and good they were too, on the shelves of Woolworths. Out of curiosity and because of what was on their label I phoned their Perth office.  The lady was quite open in claiming that it was cheaper ‘for them’ to build a new factory and manufacture in Indonesia than in Perth. She claimed their factory was as clean as any Australian hospital and having a base in Indonesia it opened up the world wide Halal biscuit market to them.

I said I hoped they always used Australian wheat. Her answer was something like ,’We do when we can, at the moment we are using British wheat. Sometimes we can’t get Australian wheat.’ I never thought to ask if that was because of price — It never entered my head. If Australian wheat remains too expensive — just look at the markets below.

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“This is not the end, this is not even the beginning of the end, this is just perhaps the end of the beginning.”

The first three parts of this series ‘National Bank Bastardry’, dealt with the simple fact that the NAB seized over $9 million worth of the Cronin family assets to settle a debt to the NAB of just over $5 million. The Cronin’s assets were six farms (Chambejo Farms), including the family home. When the NAB seized the Cronin’s land they (the Cronins) had four farms on the market with Landmark. The seizure was unnecessary and according to every reference I can find, probably illegal. The law is unequivocal, the mortgagee can only seize asset(s) to the value of the mortgagors debt to the mortgagee, and the family home should only be seized as the last resort. The NAB ignored that ruling and seized six farms including the family home worth, according to the only FH valuation we have been allowed to see, some ~$8.5 million— an independent valuation $9.4 million both valuations  well in excess of the debt. That didn’t stop the NAB — they seized the lot. There was a now famous court case Nolan v MBF Investments. It’s not unreasonable to assume that banks and receiver managers know of the judge’s determination in this landmark case. This reference also explains in detail what is meant by ‘duty of care’ as it applies to property sales. I have quoted this ruling many times in previous articles and neither the NAB or Ferrier Hodgson have replied.

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Money and Greed Conquer All — Including the Law?

So who in this land of the free protects the weak and poor, like the Cronin family, from the financially strong like Ferrier Hodgson and the National Australia Bank? The answer is nobody, at least nobody that we have been able to find—we are still looking.

Man walks up to jewellers shop window, chucks a brick through it, grabs a couple of trays of diamond rings and then an hour or two later finds himself wearing steel bracelets and in the back of a Paddy Wagon.

His mate, who the robber had taken into his confidence, had hidden around the corner, took a video of the robbery, sold it to the police and collected the reward.

No excuses for the NRL player recently videoed behaving very badly, but the cockroach, the traitor who took and sold the pictures got something like $40k from the media scum is different. That cockroach deserves a punishment far worse than that metered out to the player.

The other one dobbed in his mate and if he has any vestige of a conscience will have to live with his treachery all of his life.

What motivated the two video enthusiasts? Greed. Greed caused the Global Financial Crisis and few if any ‘on Wall Street’ who caused that crisis were punished, they took their government funded retirement packages and disappeared as wealthy men.

Money Never Sleeps – Neither do the Greedy.
Gordon_Gekko

Gordon Gekko

Perversely the 2010 film ‘Wall Street-Money Never Sleeps’ the sequel to the famous 1987 film ‘Wall Street’ starring Michael Douglas became almost cult films. Both stories concentrated on greed and both, apparently, caused a rush of graduate applicants both in America and the UK wanting to work in the banking industry.

One of the few advantages of being over a three quarters of a century young is (thankfully) I can still look back with a deal of clarity and compare yesteryear with today. Don’t jump to conclusions—this is not about the good old days. I have only reached this age because there are cures for what killed many of my ancestors. ‘Jack the Magic Dancer’ is not the man he was and I continue, helped by some very clever people, to beat him. I cannot help but compare our wonderful health system with our antiquated legal system. It is as if we are frightened to change, little realising that an antiquated legal system increases the cost of the health service. Think about it.

My age and my experience were on my mind a lot while was writing the last two episodes of the Global Farmer. I have contemplated if the world has changed or whether I have? Whenever I have started to write this series, the word GREED has materialised on the screen—so I thought this month I should pay it some attention.

I should also declare I have only been to one mortgagee’s sale in my life. I only went to fly the flag. I was a farm manager so the chequebook wasn’t all mine but there was nothing to stop me, for a mate, pushing the bidding if needed.

I saw the mortgagor’s wife in tears while she was serving tea and sandwiches with the other ladies from the CWA. I didn’t stay for the sale. The mortgagor had borrowed to pay a family member out who was a ‘sleeper’ in the family farm. Then we had two dry years and he had a fire over half the farm. I learned later they had a good sale, the neighbours rallied round so he didn’t need me after all. Someone bought his farm ute and gave it back to him.

Then I heard that a neighbour had bought the farm from the receivers and leased it back to the original owner. That was back in the 70s. Maybe many of us were still pulling chains and rakes around clearing land, just like those before us had done going back generations? Maybe there were too many ‘battlers’ there to kick a ‘mate’ when he was down? There were the exceptions of course, there were the ‘greedy’ ones hunting a bargain, but the neighbours outbid them.

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Persistence.

The Cronin family deserve answers from Ferrier Hodgson and the National Australia Bank, answers which at the time of writing they are both either refusing to answer all questions or they are giving what can only be called puerile reasons for delaying answering our questions. The law protects the mortgagor. The law says that all the financial activities of the receiver manager and the manager in possession for the mortgagee, must be transparent and made available to the mortgagor. The National Australia Bank and their appointee Ferrier Hodgson appear to disagree with the law. So persistence is our only recourse.

The stand out feature following the publication of ‘National Bank Bastardry’ in the last issue of the ‘Global Farmer’ was the number of people, including those on Facebook, who encouraged us to keep on going with the story and wished the Cronin family all the best for Christmas and especially for a better New Year. Many identified with the Cronin’s problems, some related ‘tough’ experiences with their bank and as a result, did not want to go public with either their name or their story, except to say they had one. That is not a healthy relationship between borrower and lender – between the farmers and their banks. For every Charlie Phillott in Queensland and Cronin family in Western Australia, it appears there are many others with similar stories, which will never be told.

Smoke Screens and Threats.

Harold Cronin wrote to Ferrier Hodgson (FH), appointed by the National Australia Bank (NAB) as the receiver managers and manager for the mortgagee in possession of what was formerly Chambejo Farms, the Cronin family farming business. He asked for a copy of all (two or three) the valuations on Chambejo Farms that FH had commissioned from a firm of valuers, Opteon, and for which Chambejo Farms had paid. Harold wrote based on this advice:

  • The Corporations Act obliges receivers to keep financial records that “correctly record and explain” transactions they enter into while they are controlling a company. Directors and shareholders of the company have the right to inspect those records. These provisions appear in section 421 of the Act.

What follows is the body of the letter he got back from FH. It appears to be the very antithesis of section 421 0f the Corporations Act. If you don’t want to read the whole letter here is a short review, you should read the letter, because it’s a blinder:

FH wrote back to Harold and stated that they couldn’t release the information he requested because they, FH, had signed an agreement with Opteon invoking the Privacy Act 1988. Their contention was and is that the results of the valuations, paid for by Chambejo Farms as mortgagor are secret and unavailable to Chambejo Farms unless they signed an agreement, which absolved Opteon and FH from any action or proceedings based on the valuations. Even if they signed, it only meant that FH and Opteon would further consider the request; in effect they could still say no. It’s true – FH and Opteon wanted Harold and his family and their Trustee in Bankruptcy to give them an escape from possible prosecution. Why would they do that? It’s obvious isn’t it?

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An unnecessary foreclosure by the National Bank of Australia in 2013 has left a couple who pioneered the Ravensthorpe area destitute and reliant on the old age pension. Their only possessions are their furniture, a far-from-new Jeep station wagon and their clothes. They live by ‘grace and favour’ on a friends farm. As you will see, because of a legal precedent, there is every reason to believe that National Australia Bank may have acted in contravention of the law. The question we have to ask as laymen is; is there now a case for damages against the National Australia Bank and if there is, from where do those who believe they have been damaged get the money to pursue one of the most powerful corporations in Australia, who are well known to have bottomless legal pockets?

After seizing their farms in May 2013 and putting them in the hands of Ferrier Hodgson (FH) as receiver and managers and agents for the mortgagee in possession, the National Bank of Australia (NAB), on November 11 2015, informed Harold, Barbara and Christopher Cronin, formally of Chambejo Farms Pty Ltd, that the NAB and FH, over  28 months, spent an amazing $6.0 million dollars, in what can only be called a failed attempt to recover a $6.0 million debt from Chambejo Farms.

Final returns were submitted to ASIC by FH in September 2015. If Harold Cronin had not asked the NAB and FH for the details of the costs and returns regarding the sale of the assets and properties that had comprised Chambejo Farms, recent experience has shown there is no reason to believe that the information would have been volunteered by either the NAB or FH.

On the contrary, FH and the NAB have been obstructive and repeatedly refused to provide information to the Cronins. The Cronins now know why FH did not wish to publicise what some might call their incompetence. We will show that FH were and are obliged by law, to provide detailed information to the Cronins as mortgagors.

As you will see later it is open to question, by their actions, whether both organisations abrogated their obligations under Section 420A(1) of the Corporations Act and their obligations under common law to act in good faith, particularly when it comes the family home.

It is open to speculation if this is what the NAB board and senior management really think of farmers after a couple of bad seasons? It’s certainly not their public position.

Does the NAB management not understand that farming is all about risk? The Cronins weren’t on their own after the bad seasons of 2011 and 2012. The records show many farmers in their region went deeply into debt in those two years.

“It’s ironic,” says Harold,  “That 2013/14 was a very good season in the Ravensthorpe area and had we been allowed to put a crop in, it would have solved most of our financial problems.”

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The reason there has not been an issue of the Global Farmer for a while is because I have been investigating the circumstances which led to a major Australian bank, quite unnecessarily, foreclosing on a large family farming business in the south of Western Australia. Conspiracy is always hard to prove, so all I can do is tell the story and let you make up your mind.

There can be few among us who have not witnessed the distress and trauma in the eyes, demeanour and behaviour of relations, friends and associates when they are confronted with the awful news that their creditors have appointed receiver managers.

They stumble and fall as they search for a quiet place to go through all the emotions that well up inside of them. Fear, resentment, shame, humiliation, panic, anger, rage, embarrassment and guilt. For far too many, it is more than they can endure and they withdraw from family and friends and the society in which they live.

Some have a breakdown from which they never really recover. Some, unable to cope, take their own lives.

I must make a few things absolutely clear. Contracts should be honoured; debts should be paid as and when they fall due. For every willing borrower there has to be a willing lender. Prior to the Global Financial Crisis (GFC), Australia, like most of the developed world was awash with money. The Global Farmer explored the rise and rise in land prices in a previous article, ‘Self Inflicted Injury’.

The crucial difference in the philosophy of lending today compared to when I was a young man , over fifty years ago, is that these days there seems to be a complete lack of understanding with so many bankers that agriculture is a risky business. Their public face, which no doubt senior management and their boards see, is different to what happens in the real world. At least that has been the experience of the subjects of this story and I believe many more.

Many years ago, when agriculture was Australia’s biggest exporter and we had learned some bitter lessons from the evictions of the Great Depression, banks were set up in all states and federally, to cater for the special needs of primary producers, they understood risk.

It was recognised at that time by governments and the banking industry, that when all is said and done, farmers have different banking needs to the businesses on the high street. Put simply farmers, those who make a living from agricultural enterprises, from million acre stations to relatively few acres of horticulture, are different because they have no alternative but to gamble huge amounts of money on the weather and as exporters, put their faith and their produce on fickle international markets, which can be and are manipulated by the strong nations. Most of the world pays subsidies to farmers so they can manage the bad seasons and prices. Australia does not believe in subsidies.

When Australia entered the modern era of bank deregulation, rural banks disappeared and with them a culture of an understanding of agriculture formed by generations of experience in the bank and in government, but there was no room for that thinking any more.

Bob Hawke and Paul Keating are credited with moving Australian banking into what was at that time the modern Thatcher and Reagan theory of economics, which made rural banks and special purpose banks like the Commonwealth Development Bank (CDB) an anachronism in the face of what they believed to be progress.

In March of this year, several years work on behalf of a few dedicated farmers, academics and politicians failed to convince the Senate Economics Legislation Committee of the merits of a bill described as: The bill is a private senators’ bill co-sponsored by Senators John Madigan and Nick Xenophon. It proposes to amend the Reserve Bank Act 1959 to establish an Australian Reconstruction and Development Board (ARDB) of the Reserve Bank of Australia (RBA). The ARDB would have the task of forming and implementing a rural reconstruction and development policy. For the full report here.

If we had a bank similar to that proposed in the ARDB. A bank philosophy that recognised the special needs of farmers – that recognised there is a difference between running a business on the high street and one hundreds of kilometres in the bush that relies on the fickleness of ‘Mother Nature’, there would have been no need for this article.

Pain, distress, trauma.

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There can be few among us who have not witnessed the distress and trauma in the eyes, demeanour and behaviour of relations, friends and associates when they are confronted with the awful news that their creditors have appointed receiver managers.

They stumble and fall as they search for a quiet place to go through all the emotions that well up inside of them. Fear, resentment, shame, humiliation, panic, anger, rage, embarrassment and guilt. For far too many, it is more than they can endure and they withdraw from family and friends and the society in which they live.

Some have a breakdown from which they never really recover. Some, unable to cope, take their own lives.

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There is a paradox, an absurdity of enormous proportions happening in agriculture in much of the Developed world. In spite of the US$486 billion a year being paid to farmers in the 21 top food producing countries in the world – heavily subsidised farmers in the European Union (EU) have embarked upon a civil disobedience campaign, some of it has been violent and massively disruptive to the rest of society. Their problem is that in spite of being paid over US$100 billion a year in subsidies, they are going broke. Their costs are greater than their returns. Across Britain, France, Germany, the low countries – everywhere in Europe, mainly family farmers are saying ‘enough is enough.’  They are  taking to the streets and the supermarkets to show those who buy and consume the food what the difference is between what it costs to produce food, what the producers are being paid for it and what the consumers are paying for it at the supermarket. There is a sober lesson here for Australian agriculture as the value of the food we import goes up every year it is mostly from countries who subsidise their agriculture. According to the Worldwatch Institute, ‘Agricultural subsidies are not equally distributed around the globe. In fact, Asia spends more than the rest of the world combined. China pays farmers an unparalleled US$165 billion. Significant subsidies are also provided by Japan (US$65 billion), Indonesia ($US28 billion), and South Korea ($US20 billion).’

The value to Australian agriculture from Free Trade Agreements (FTAs) can be put into perspective when we contemplate having to compete against the home grown subsidised produce of much of Asia. If their ‘home grown’ produce, for instance beef, is subsidised, then to compete we have to be price competitive with a subsidised product – can we compete with subsidised agriculture? Only if we can sell at a price that is competitive, which may mean lower, than the subsidised product. For decades, since the seventies, Australian farmers have been duped by politicians of all colours and from agriculture, that ‘market forces’ and a ‘free market economy’ will eventually prevail. Fig 1 and Fig 2 (later) puts a lie to that propaganda and shows what it has cost. To compete we can see that Australian farmers ‘chased’ the ‘get big or get out’ mantra of the 70s with debt. More of that later.

As a child growing up in post-war Britain anything from Australian from wool to meat, to apples both fresh and dried, dried fruit and the delicious Sunday treat of Australian canned peaches, was a sign of absolute quality. The only exception to that rule was the processed cheese we were served in the army in the nineteen fifties. I am sure it had been imported during the war. Second World War, I think – maybe?

How times have changed. Britain is part of the EU, the European Union. This is what the EU say about themselves:

The EU is an attractive market to do business with:

  • We have 500 million consumers looking for quality good
  • We are the world’s largest single market with transparent rules and regulations
  • We have a secure legal investment framework that is amongst the most open in the world
  • We are the most open market to developing countries in the world

That is a proud boast and if you look at the link you will see the truth of it. They are indeed a powerful union – even a nation. To protect their agriculture the EU pays their farmers subsidies amounting to about US$100 billion a year.

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The team from Copa – Cogeca – Brussels.

In ‘Farming on Line’  a UK farming journal came this alarming news on Wednesday 29 July 2015. Copa and Cogeca warned at the EU Milk Market Observatory meeting today that the EU dairy market situation has deteriorated rapidly in the past 4 weeks, and without EU action, many producers will be forced out of business by Winter. Speaking at the meeting, Chairman of Copa-Cogeca Milk Working Party Mansel Raymond said “The market is in a much more perilous state than it was 4 weeks ago, with producer prices far below production costs. It’s a critical situation for many dairy farmers across Europe”.

Who or what are ‘Copa’ and ‘Cogeca’? ‘Copa’ was formed in 1959 to represent farmers within what we now know as the EU, it had 13 affiliates at that time. It now speaks in Brussels for sixty farmer organisation’s within the EU and another thirty six affiliates like Norway and Turkey, outside of the EU, but in Europe.

Cogeca? Straight off their website : On 24 September 1959, the national agricultural cooperative organisations created their European umbrella organisation – COGECA (General Committee for Agricultural Cooperation in the European Union) – which also includes fisheries cooperatives.

COGECA’ s Secretariat merged with that of COPA on 1 December 1962.

When COGECA was created it was made up of 6 members. Since then, it has been enlarged by almost six and now has 35 full members and 4 affiliated members from the EU. COGECA also has 36 partner members.

So ‘Copa & Cogeca’ to our antipodean ears may sound like a dance from South America, is in fact a very powerful agricultural lobby in Brussels and the Parliament of Europe. Stuck down here at the other end of the world we tend to forget that Europe is now a bigger trading bloc than America and China.

Vive la France !

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French farmers are a passionate lot and in support of Copa & Cogeca, last month on warm summer days in the middle of the tourist season they dumped loads of animal manure in the middle of Paris and other cities. For those who don’t know what the machine below is, it’s a ‘muck spreader’. Normally filled with animal manure and coupled to the power take off on the tractor it ‘spreads’ the manure on the fields or paddocks. In this case it looks like it is being used to ‘clean’ windows – on a bank perhaps?

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Photo: Oxygen IE

European Bank Subsidised Lidl Expansion with A$1200 million.

This article owes its origins to an intriguing report originally published by GRAIN. You will see why I found it intriguing when you get to it. I have spent some time on the Global Farmer discussing agricultural subsidies, little did I know and I’m sure you didn’t, that the Guardian Newspaper recently revealed German discount supermarket giant Lidl and its sister chain Kaufland have benefited from almost US$900 million (A$1200 million) in public development money over the last ten years. Is this just another form of subsidy to encourage the global expansion of European supermarkets and European food?

The companies, owned by the large retail company Schwarz Group and controlled by one of Germany’s wealthiest families, received loan funding from a little-known wing of the World Bank and from the European Bank for Reconstruction and Development (EBRD). There is no suggestion there was anything ‘wrong’ with the funding, as you will see it is part of the specific mandate of these organisations funded by taxpayers and owned by governments to encourage local development, in this case in Europe.

The German Federal government, on their website has been heavily promoting both Lidl and Aldi in America to help it to become established in that country and, no doubt, sell food that has been made or produced in Germany. Lidl like Aldi, also sell a range of German made hardware, electrical goods and many other things.

Aldi already have stores in Australia and it is understood they plan many more. Lidl are also planning a chain of stores throughout Australia. In what seem like a few years in the UK they have secured over 10% market share and are causing both Tesco and Waitrose, the two biggest food retailers in the UK, to review their business plans.

They have made no secret about being ‘aggressive’ with their entry into America. Maybe interesting times for the Australian consumer, but what about the producers and what few processors are left, what of the future for them?

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Below is an email I received on June 3 from Jay Horton from Strategis Partners, the company that is promoting Multi Peril Crop Insurance. I have attached a copy of the spreadsheet to the email I sent to you informing you of this article. I hope it works, if not then write me in the comments section at the end of this piece and I will forward it to you.

I circulated the email among consultant friends and I have to say that none have been enthusiastic. One said he could see ways of taking advantage of the proposition. Some of the comments I cannot repeat. Let’s say they were from non-believers. But here is a sample of the comments and questions about the commercial proposal to provide MPCI:

  • Fire and hail is only 1% or $5/ha compared to $$21/ha. Do not tell me that isn’t an extra cost.
  • It will happen(government assistance) and I wish I could have that sure bet on it.
  • Benefits are imaginative. In risky areas where the cover would be most useful the premium will reflect the risk.
  • I fail to see why interest is saved. We normally pay insurance (F + H) after harvest. I am sure they will require payment before.
  • What about the interest on extra inputs?
  • Real cost $32,000 net of saved insurance. You could get the yield by extra inputs anyway, nothing to do with insurance.
  • For every winner with forward pricing there is a loser. Is the farmer better at this than the speculator? In the end forward pricing is a COST. Frankly it has to be to pay for the broker of the deals. Otherwise everyone would be in on the act. It is only sensible when prices are towards to top decile as currently with wool. How much can you cover forward anyway, safely? (Remember this was written early June, just this morning wool has continued to go down and wheat up. It needs an expert to comment but I have noticed the Shanghai Stock exchange has taken a hit over recent times. Once again China controls the market this time in wool. Ed)
  • Only a % of the output is covered. 70% as I read it. To me that business will have a serious loss if only 70% of the proposed output is achieved.
  • Jay relies on security of income to make business decisions that could or might pay off. Returns from extra inputs. Forward pricing. True should they work but they are not assured. Observe Canola prices this year. Early pricing, which looked pretty safe has been eclipsed. Do you hedge currency as well?-you should at extra cost.

End of comments. I welcome comments from farmers and anyone else in agribusiness. If in this article I have missed something, then tell me. Same goes if you think I am wrong.

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