Iraqi market importance questioned

29 Mar, 2006 08:45 PM

WHEN the Iraqi Government said it would not take any more Australian wheat from AWB until the Cole oil-for-food inquiry was over there were increased calls to dismantle the wheat export single desk.

But how important is Iraq to the Australian wheat pool and is it worth pulling down the single desk?

According to AWB, the single desk captures value through price premiums, reducing supply chain costs and risk management and gives Australian wheat growers access to two billion consumers in more than 50 countries around the world.

While AWB would not respond directly to questions about the importance of the Iraqi market, AWB director Chris Moffet told a meeting at Morawa last week that Iraq was Australia's single largest market that took 9pc-12pc of the pool.

Iraq has on average imported 1.6 million tonnes of Australian wheat a year since 2000.

Plum Grove senior commodity trader Tony Smith said Iraq was an important market Australia would want to keep because it was one of the best paying markets.

"But when you spread Iraq over the entire pool it is only worth about $3/t," Mr Smith said.

"So growers should not be jumping out of the windows if we lose the Iraqi wheat market."

Mr Smith said if the single desk had market power and could command market premiums the loss of Iraq should not be of great concern.

"If the single desk works and we have got market power we should be able to tell the Iraqis to go to hell," he said.

Mr Smith said Iraq was a good-paying market because risk payments were added onto contracts.

If nothing went wrong there were good profits to be made.

He said if Iraq became more stable in the next 2-3 years it could become a much cheaper market because the risk payments would no longer be required.

"Egypt is the biggest wheat market in the world and is also the cheapest and I can see that in a few years' time Iraq will go the same way," Mr Smith said.

Wheat Growers Association (WGA) chairman Bob Iffla said the single desk was not worth sacrificing for the Iraqi market.

"I think AWB needs to let Iraq know that too," Mr Iffla said.

Australia planted the best quality wheat in the world but Iraq wanted to punish Australians while the Cole inquiry continued, he said.

"We can't forget the problems in the past such as claims of iron ore filings that weren't there, demurrage costs and money owed to growers from the late 1980s," Mr Iffla said.

"It's not worth sacrificing the single desk for $3/t because the single desk provides benefits to growers of about $15/t."

Mr Iffla said the WGA's proposal of giving AWB International (AWBI) its own board would provide a new culture that should encourage Iraq to again buy through AWBI.

Australian wheat consortium Wheat Australia, which comprises GrainCorp, ABB Grain and CBH, has lodged a tender to supply Iraq with 350,000t of wheat.

Wheat Australia was formed to export wheat to Iraq as an interim measure after Iraq said it would not take grain from AWB until the Cole inquiry ended.

Australian Grain Exporters Association (AGEA) secretary John Begg said its members and other companies in Australia had 500,000t-600,000t of wheat outside the pool available for export.

But he said their applications, which should have been processed in a matter of days, had been with the Wheat Export Authority for more than a month.

"The more competition the better the prices," Mr Begg said.



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