Addendum to the Addendum to the Growers Report 2006Growers Report 2006

• Published on the WEA website 4 April 2007.

• Will be mailed to 26,500 growers Australia-wide.

• Current Issues – Management of 2006-07 Pool– Interaction of Pools and drought

• Cole Inquiry

• Tigris debt

• Monitoring AWB(I)

• Supply Chain

• Bags and Container Exports

ContentsContents

• Grain supply and demand in eastern Australia is resulting in less exportable grain.

• WA and SA bear the total higher tonne costs of the National Pool.

• Iraq wheat was re-allocated to the domestic market at higher prices.

• 2005-06 Pool should have risen by AUD 13-14.• Non-AWB(I) exports often compete for the same

customer, yet achieve higher prices than AWB(I).• There is not always a direct line of sight between a

grower contract and a wheat shipment.

Key FindingsKey Findings

• 2006-07 National Pool prices have been in line with world wheat prices.

2006-07 National Pool2006-07 National Pool

Reduction in base feeReduction in base fee

• AWBL reduced base fee by 40% (from AUD 65.1 million to 39.5 million).

Changes to OPIChanges to OPI

• Out-performance–Incentive (OPI) is paid if AWBL exceeds both the WIB and Hurdle Rate.

• Changes to the OPI:– Increase in Hurdle Rate from USD 5 per tonne

to USD 7.50 per tonne; and– Capping of OPI at AUD 2 per tonne or AUD 8

million, whichever is lower.

• The WEA supports these changes.

TigrisTigris

• WEA questions why AWBL and AWB(I) entered into an agreement to collect Tigris debt.

• WEA considers AWBL acted outside its authority under the Services Agreement in inflating contracts.

• Why did AWB(I) carry forward a proportion of the Tigris commission to 2005-06 Pool?

Supply ChainSupply Chain

• Investment needed by bulk handling companies.

• Intermodal inefficiencies include:– Deadtime as a result of the non 24-hour

operations of ports and up-country receival sites;

– Loading trains below capacity; and– Lack of planning and coordination between

parties .

Supply ChainSupply Chain

• AWB(I)’s view:– The modal interface is not the issue.– Investment by bulk handling companies is

overstated.The problem is: – Long-term lack of recurring investment in the

supply chain (particularly rail).

• WEA found contracts should be cost and risk reflective to provide better incentives.

Supply Chain - solutionsSupply Chain - solutions

• Possible solutions:– Greater industry cooperation and/or

integration;– Sufficient infrastructure investment; and– Pricing innovation.

Storage and handling costsStorage and handling costs

• AWBL has constrained the fees charged by other storage and handling companies.

• AWBL’s gate-keeper role has negotiated lower rail rates in the past 5-7 years.

Price comparison – non-AWB(I) Price comparison – non-AWB(I) to AWB(I) exportsto AWB(I) exports

• In the Growers Report 2006:– Non-AWB(I) exporters gained better prices for

bag and container exports than AWB(I) in some countries.

• In the Addendum:– The WEA conducted further analysis which

reiterated the above finding.

DemurrageDemurrage• If Iraq wheat was not delivered on a Cost Insurance and

Freight (CIF) basis, the National Pool would not have incurred demurrage or despatch payments.

• Extra AUD 10.33 per tonne.

Initial FeedbackInitial Feedback

• ABC online says Addendum challenges AWB’s management of grain transport and storage, pricing structures and handling of the Tigris affair.

• Ian Donges, of AWB: "Certainly, I'm very pleased and comfortable that the report is overall very positive for the performance of AWB International.”

• VFF president supports finding on rail investment.

Other commentsOther comments

• WEA is an essential cog in the gearbox.• It seems a very different document to other WEA

reports.• What is really positive is that now you are

reporting under the guise of having an independent voice.

• It is clear the WEA is illustrating a far greater capacity to assess the performance of AWBI.

THE ENDTHE ENDThank you