Addendum to the Growers Report 2006

1. Addendum to the Growers Report 2006

2. Addendum to the Growers Report 2006 • Published on the WEA website 4 April 2007. • Will be mailed to 26,500 growers Australia-wide.

3. Contents • 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

4. Key Findings • 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.

5. 2006-07 National Pool • 2006-07 National Pool prices have been in line with world wheat prices.

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

7. Changes 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.

8. Tigris • 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?

9. Supply 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 .

10. Supply 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.

11. Supply Chain - solutions • Possible solutions: • Greater industry cooperation and/or integration; • Sufficient infrastructure investment; and • Pricing innovation.

12. Storage 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.

13. Price comparison – non-AWB(I) to 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.

14. Demurrage • 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.

15. Initial 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.

16. Other 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.

17. THE END Thank you