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.”