Grain licensing push continues

06 Aug, 2014 02:00 AM
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A licensing scheme would bring Australia in line with many of its major rivals

THE Victorian Farmers Federation (VFF) is continuing its push to license grain traders in a bid to cut down on insolvencies and unpaid debts to growers.

Last week, at the Australian Grains Industry Conference (AGIC), the VFF offered to convene a working group into minimising the problem.

Grains group president Brett Hosking said a central platform in their plan would be a grain trade license for traders, along with a grain trade guarantee fund.

Mr Hosking said research by the VFF indicated any such project would have to be administered under individual State laws, but said he believed this could be overcome simply with mutual recognition between States.

Founder of igrain, Tom Roberts, was not so confident.

“I agree with the concept and absolutely applaud the VFF for taking this project on, but getting a workable licensing system across the State boundaries is the big issue.

“How will the licenses be issued, what will the buy-in from the trade be like and how will the licenses transfer across the States, there’s a lot of issues to overcome,” Mr Roberts said.

However, Mr Hosking said he did not think the push for licenses represented a move towards over-regulation by the industry.

“We’re looking for something that is low cost and industry driven.

“When you consider the direct cost of insolvencies over the last 18 months to industry of $45 million in Victoria alone, any scheme that can minimise these losses would be cheap.”

“We are advocating for a form of self-funded self-regulation to introduce standards for the industry”

However, managing director of Finesse Solutions, accountant Malcolm Finlayson, said individual risk mitigation could be just as effective.

“Just by doing little things, such as requesting a copy of the financial report, knowing how long a trader has been in business and getting specific clauses put in your contract, such as the retention of title of the grain until payment, these things can greatly reduce a grower’s risk."

Mr Finlayson, who has extensive history in accounting in grains businesses, said growers needed to spread their risk.

“Anyone can go under, just look at what happened at Enron, or at Lehman Brothers, these are massive companies.”

Mr Hosking said he believed a licensing scheme would help create a healthier and more diverse trading sector.

“The impact of insolvencies on market competition is also significant, as ongoing grain trader insolvencies reduce growers’ capacity to trade with smaller or newer firms – in effect, this acts as a barrier to market entry.

“We are advocating for a form of self-funded self-regulation to introduce standards for the industry, and there is a large role for industry and growers to be engaged in developing such a system.”

Mr Hosking said a licensing scheme would bring Australia in line with many of its major rivals, such as the US and Canada.

“Licensing and insurance is common practice in over 30 states in the United States and Canada, our two largest grain trading competitors, and in many cases has been in operation for several decades.”

He also said it was common practice in other Australian industries.

“Licensing and regulation is part of everyday life in Australia and is common to most vocations and professions – whether it be trades, financial services, estate agents, or vehicle traders.”

Mr Hosking said the push for the scheme had come about following the number of growers with fingers burnt by traders going broke in spite of their best due diligence.

“The problem with due diligence is that it often does not show up anything until it is too late.”

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FarmOnline
Gregor Heard

Gregor Heard

is the national grains writer for Fairfax Agricultural Media
Date: Newest first | Oldest first

READER COMMENTS

Jock Munro
6/08/2014 5:21:26 AM

Brett Hosking of VFF is concerned about growers 'getting their fingers burnt' through trader insolvencies. However, it was the VFF that played a key role in the campaign to abolish the iconic grower single desk and that has lead to a more volatile and riskier marketing environment for producers.
Ralph
6/08/2014 6:31:32 AM

It was suggested some 5 years ago that due to the level of foreclosures and creative accounting by some trading entities that all traders operating within Australia should possess as a minimum an insurance policy to cover their trading exposure within the market place. In short this would bring to an end this ridiculous policy of all growers in Australia covering the foreclosure losses of some company by way of a levy, for which very few growers are liable. This is a very simple process, in that all traders would quote the insurance policy number on all contracts!
torobrook
6/08/2014 8:32:33 AM

This is a VFF beat up in an attempt to provide for re regulating the export wheat industry.Do what you like in your own state but dont export your conspiracy theories interstate.There are no problems in WA. And yes individual risk mitigation is the answer, as always.
Gerry Atric
6/08/2014 10:30:57 AM

How will a license stop traders going broke? How can the VFF verify any of the data given to them is accurate? Best bet for farmers is to deal with who they know and trust.
seethelight
6/08/2014 5:07:20 PM

"We're looking for something thats low cost and industry driven" and ….compulsory.Thats so the VFF can shift the losses onto everyone even onto those who might bypass a higher offer because they think its too good to be true .If its such a good idea why doesn't the VFF have the insurance underwritten voluntarily by its supporters? That way it would be easier to organise a round robin taking chances with dodgy payers.The VFF's resentment of commerce is on display again.Someone else has to pay for their bad decisions.Farmers not prepared to be responsible for their own decisions deserve to lose
Something has to be done
7/08/2014 12:54:01 PM

The problem the VVF are trying to highlight is how do growers establish who is a sound counter party and who is not, Young Flower Mill had been around for 100 years if you read the website, more recently LGL commodities was backed by Paul Ramsey of Prime media and Paul Ramsey health care. The banks have advised growers that companies such as River City where safe to trade with and they have fallen over. If you read the debtors reports of these failed companies the lists are long and distinguished included many of the large multi national traders and banks. If they can't get it right how do we?
Deregul8
7/08/2014 1:45:21 PM

Deal with the multinationals. Payment in 7 days. As usual the free market can solve this VFF manufactured problem. There are already laws in place to deal with unscrupulous behaviour. Its a case of those with the job of enforcing those laws actually doing their job. Don't listen to the banks. They are technically insolvent anyway.
wtf
7/08/2014 2:17:48 PM

STL a self funded bad debt levy can be RETURNED to growers minus a small fee for someone to administer it and also to do the work of due diligence in regard to buyers credit rating. A period of 3 or 4 years would be enough to provide plenty of buffer. Some things in life have to be COMPULSORY, death, taxes etc, the security it would give to us as an industry would be near perfect, especially compared to the mess of what is going on now. Don't u have any fight in u? or just want to let THEM run over u? or would u rather the taxpayer picks it up when the bad debts get used by the banks as a loss
TFO
7/08/2014 2:54:39 PM

I think farmers should cop it sweet for allowing the best risk managed marketing system in the world to fall over, or sitting on their hands while Government pushed it over. You only have yourselves to blame still, for not demanding the establishment of new SD/Co-op systems for marketing. Even successful businessmen like Andrew Forest and international consulting firms like McKinsey are telling farmers to get together and muscle up their farm produce marketing. Look at the successful SunRice powering forward and Fonterra in NZ and wake up while there are still a few of you left!
Jock Munro
8/08/2014 11:23:47 AM

Spot on dereg! The foreign mega merchants have us right where they want us to be and always did. Which one do you work for?
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