In this issue I republish the simple truth from a leader in Australian grain marketing, Mr Palmquist from GrainCorp. He confronts us with the unpleasant reality that an antiquated infrastructure is being paid for by grain growers and I suppose by definition he is saying the only ones paying, are the growers. An expensive infrastructure, together with the poorest world wheat prices for more than a decade are wrecking the budgets of Australian wheat producers. This grain trader says he has no option but to pass the costs on to the grower — he would say that wouldn’t he? He only has to answer to shareholders — growers only have to answer to the bank. As an example he claims it’s cheaper to move grain from Ukraine to Indonesia than it is to move it 350 kilometers from Swan Hill to Geelong.
The World Wheat Market – Where is it going and where are we going with it?
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.
Money and Greed Conquer All — Including the Law?
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.
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.
European Bank Subsidised Lidl Expansion with A$1200 million.
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?
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.
The Australian Livestock Exporters Council (ALEC) CEO Allison Prescott has been telling the international press that a significant investment is being made in building and upgrading slaughtering facilities and feedlots in Vietnam and exporters from Australia were expecting the trade between the two countries to continue to grow into a long-term and sustainable market. The question must be asked, who pays for the upgrades? And where are the cattle going to come from?