New scheme may increase

28 Nov, 2001 10:00 PM


AUSTRALIA'S monopoly wheat exporter AWB Ltd could charge graingrowers twice as much to market their grain under a new payment scheme introduced earlier this year.

The outperformance incentive scheme was introduced on October 1, capped at three percent of the gross wheat pool value, and represents as much as $105m in an average year.

That compares with the $53.6m AWB (International) was paid last year to market 18mt of wheat.

But AWB has hit back at suggestions in the metropolitan media this week that it was simply awarding itself an incentive bonus, saying the new system would ensure better productivity and profit for Australian wheat producers.

Under the new system, 1.5pc of GPV is guaranteed payment to AWB (floored at $45m and capped at $60m), while the remaining 1.5pc is paid only if strict performance indicators are met.

"The factor to keep in mind there is ... if it is costing [growers] an extra $50m a year, that means there is an extra $250m that is being generated for the pool that hasn't been there before," AWB national grower relations manager Andrew McConville said.

"At the end of the day the benchmarks that have been set are not only reasonable, I think they are extremely demanding."

But the WA PGA has hit out at the incentive scheme.

In a newsletter distributed free to PGA members, it claims AWB would be rewarded for natural freight and moisture advantages the marketer has, as well as from improved storage and handling facilities supplied by state-based grain handlers.

AWB in turn said the benchmarks ‹ based on recommendations set by the Australian Wheat Export Authority and independently assessed before implementation ‹ would provide an incentive to undertake investment in the operation of the pool.

It's an incentive Mr McConville said didn't exist under the old cost-plus-margin model.

And while he admitted most fund managers did not have guaranteed returns built into their payment structure, it was vital for the ongoing success of the AWB operation.

"What we have is a series of fixed costs which need to be met in order for the pool to operate and I think, as the pool manager, there needs to be some certainty that there is the capacity to meet those fixed costs," Mr McConville said.

"When it is compared to similar fund management models in different sectors of the economy it is very reasonable and very competitive," he said.

The system has the support of the Grains Council of Australia, which says it has been working in close consultation with AWB on the new model.

"If you look at most fund managers, they (the AWB payments) are not high by any standards," GCA president Keith Perret said.

"[But] we need to make sure the hurdles needed to be jumped [to receive performance incentives] are strong and relevant.

"In return for sharing some of the risk, they (AWB) should also be rewarded with some of the profits."

AWB has also defended the independence of GCA in making this assessment (and the WEA which has GCA representatives), despite the fact it received more than $90,000 in funding from AWB last year.

"GCA is very vigorous in its oversight and assessment of AWB," Mr McConville said.

"They are there to represent the growers' interests and I think they do that very, very effectively."

Independently appointed government members currently hold the majority on the WEA board, Mr McConville said.



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