07/02/2006 - 21:00

Tim Treadgold: Briefcase - Wheat monopoly’s time has gone

07/02/2006 - 21:00

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Tim Treadgold: Briefcase - Wheat monopoly’s time has gone

It’s not often you can easily pick the best or worst investment on the stock market. Right now, however, the worst stands out like sore thumb. AWB, the old Australian Wheat Board, which found a friend in former Iraqi dictator Saddam Hussein, is such a stand-out disaster that even Briefcase, which never gives investment advice, is saying sell, and sell quickly, before the wheels fall off completely.

Briefcase does not get a prize for tipping AWB. Anyone up to speed on current affairs can see that this is a business in deep trouble. There is also the share price, which has sagged from $6.08 at the start of 2006 to recent trades around $4.65, a 23.5 per cent fall in less than 30 trading days.

Two questions arise from AWB’s parlous situation. How low can it go, and why is the company in such strife?

On the first, there really isn’t a bottom to AWB’s plunge because this is a company that appears to have done everything possible to destroy its key franchise – the right to be Australia’s monopoly wheat trader.

If this right is removed, and it is starting to look possible, then AWB will be forced to compete with other wheat traders, including the genuine giants of the world, such as the Cargill group of the US.

Agrarian socialists, masquerading as the National Party, say this is a bad thing. That Australian needs a ‘single desk’ for wheat trading if it is to win access to world markets.

As the Cole inquiry into bribes paid to the former Iraqi regime has uncovered, it is not so much the single desk that has won AWB business as a willingness to turn a blind eye to questionable payments.

Most controversial of these was payments made to the Jordanian trucking company that doesn’t appear to have hauled a bushel of wheat, but was paid a few hundred million dollars for the privilege of sitting under a date palm.

This 1930s attitude of the Nats avoids the second question from Briefcase; why is AWB in so much strife, and for that answer we turn to the question of compulsion.

Once upon a time (and this might sound like a fairy tale to younger readers), the older, and allegedly wiser, leaders of society had the power to tell everyone else how to live their lives.

This extended to ordering people to do two years of national service, ordering them to join a union, and/or telling them how to sell their wheat, eggs, potatoes and a raft of other farm produce.

Compulsion was the name of the game, and while it works for some people, the majority hate it. Worse still, compulsion corrupts – because it is a form of power (over others) and eventually all forms of power corrupt (though don’t tell newspaper editors because they reckon the media is exempt).

For proof of how compulsion has been rejected in the modern world, consider the union movement. Back in 1964, union membership accounted for 60 per cent of the workforce. Today it is down to 20 per cent – because people got a choice. And while most can see the good in the theory behind unionism (workplace safety is an example), they hate compulsion and the fact that the unions are unable to market their product in any way other than compulsion.

The military is another example, as shown in last week’s pathetic plea from retired defence force chief, Chris Barrie, that a return to national service was necessary to boost army and navy numbers.

As with the unions, the problem is not that most people dislike the services (damned fine chaps), the issue comes down to the fact that the ‘offer’ is poor in terms of pay, career prospects and respect – hence a call for compulsion.

As Lord Acton said in 1887: “Power tends to corrupt and absolute power corrupts absolutely”. To which Briefcase adds, compulsion does the job just as well.

•••

Briefcase was delighted to get a letter the other day from Hugh McLernon, lawyer to the stars. The contents of that letter are published on page 8 in this week’s WA Business News and, as a general rule, Briefcase believes readers have the right to make their point without someone having the final say.

However, for Mr McLernon, we’ll make an exception because he’s not your average man in the street, and one of the points he makes when defending investors in the deeply-troubled Westpoint property group seems to be way off beam.

In paragraph seven he says people seeking 12 per cent interest on unsecured loans should not be considered greedy.

“The better test is to ask what interest rate the bank itself would expect if it makes an unsecured loan? This rate has, for some time, been around 12 per cent”.

What Mr McLernon appears to be saying is that the man in the street ought to be given the same terms and condition as a bank. If 12 per cent is good enough for bank, he infers, then 12 per cent is good enough for everyone else.

It will obviously come as a shock to Mr McLernon to discover that there are differences between the average person and a bank.

The most obvious being that a bank is a large building, generally found on the corner of a street, and a person is somewhat smaller.

Size is what it’s all about. Size, and professionalism, and a licence to lend, and a great big balance sheet, and an ability to absorb losses from bad loans, while making profits from the rest.

To test this theory of big versus small, price a car, first as a man in the street, and then as BHP Billiton buying the company fleet. Purchasing power wins every time whether buying, or investing.

Having said that, Briefcase wishes Mr McLernon and his clients every success getting back some (or all) of their money, but suggests that the arguments be fine-tuned because the ‘person as a bank’ theory looks somewhat floppy.

•••

“Next to enjoying ourselves, the next greatest pleasure consists in preventing others from enjoying themselves, or, more generally, in the acquisition of power.” Bertrand Russell

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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