AWB Limited

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AWB Limited
Type Subsidiary
Founded 1 July 1999
Headquarters Melbourne, Australia
Key people Gordon Davis, Managing Director
Employees 2,800
Parent Agrium
Divisions 3
Website http://www.awb.com.au/

AWB Limited was a major grain marketing organisation based in Australia. It was a government body known as the Australian Wheat Board until 1 July 1999, when the AWB was transformed into a private company, owned by wheat growers. In 2010, AWB was acquired by the Canadian firm Agrium, and in 2011 the company changed its name to Agrium Asia Pacific Limited.

AWB has been the subject of controversy in the mid-2000s, amid revelations that the company paid kickbacks to former Iraqi leader Saddam Hussein, in what was known as "oil-for-wheat". These revelations and the subsequent Cole Inquiry have resulted in litigation being brought against former executives of AWB, some of which is still in progress.

AWB exports "into more than 50 countries, with Australian wheat exports worth up to $5 billion per year" (AWB 2006). AWB had veto power over any other prospective exporters of wheat, which effectively eliminated competition on the export market for Australian wheat, thereby capturing freight differentials. Exports are typically managed through commodity pools, which are managed investment schemes. The beneficial interest in the export grain is distributed to participants in the commodity pool.

AWB has three core divisions - Rural Services, Financial Services and Commodity Management (which includes the National Pool). Rural Services and Financial Services offer products and services through the Landmark network, a 430 store retail distribution business serving rural Australia. Commodity management provides grain products to global customers with offices in Australia, Singapore, Tokyo, China, India, Geneva and Brazil.

History of the company[edit]

The AWB was founded in the late 1930s, to regulate the wheat market after the excesses of the Great Depression. The single desk dates to this period. This type of arrangement was not unique to Australia, as the Canadian Wheat Board was created in 1935 in a similar fashion (but its history dates back to an earlier wheat marketing board created during the Great War, and also includes the experience of cooperative wheat pools during the 1920s).

For much of its early history, it was a government-run and owned company. From July 1999 however, its board was restructured into a private company. It offered 'class A' shares to those who meet its definition of 'growers' and who had the ability to elect the majority of its board and chairperson,[1] and from August 2001, 'class B' were publicly traded on the Australian Stock Exchange.[2] In 2008, constitutional amendments were passed. Despite resistance from several wheat lobbies and industry groups,[1] it consolidated ownership of AWB into one type of share, giving growers no special consideration. This change was proposed by the AWB management as necessarily to having a simpler, lower-risk business model.[3]

Since privatisation, AWB has grown to incorporate a number of subsidiaries to diversify its income away from its wheat exports. Its subsidiary businesses include GrainFlow to manage collection of grain from farmers to ports, companies to ship the grain overseas to customers, and Landmark rural services.

By its own estimation, AWB is now a "grower owned and controlled company".[2]

Corporate structure[edit]

AWB Limited is a holding company owning a number of subsidiaries. Its shares are freely traded on the Australian Stock Exchange.

AWB Limited has a number of subsidiaries. Some of these subsidiaries exist due to legislative requirements relating to the operation of the single desk; others exist for the purpose of controlling credit risk. As of early 2006, they are:

  • AWB Limited - the holding company
  • AWB (International) Limited - the corporation authorised by federal legislation to export wheat under the monopsony
  • AWB (Australia) Limited - domestic wheat trading and export of non-wheat grains
  • AWB Services Limited - provides services (e.g. financial services, IT services, asset management) to the rest of the AWB group
  • AWB Harvest Finance Limited, AWB Commercial Funding Limited, and AWB Riskassist Limited - provide finance and financial risk management for wheat export transactions
  • AWB GrainFlow Pty Ltd - provides bulk grain handling and transport facilities
  • Landmark (comprised Landmark Operations Limited and Landmark (Qld) Limited) provides finance, insurance, real estate, commodities trading, farming equipment sales, etc. to Australian farmers (including other agricultural sectors such as wool and livestock)

AWB announced a new strategy in 2009 to simplify and de-risk the business. This resulted in the divestment of the financial services loan book to ANZ in December 2009.[4]

In March 2010, AWB announced the signing of a memorandum ot understanding to sell the Geneva business and to joint venture the local grain trading business.[5]

Oil for food scandal[edit]

Previously a low profile organisation, the AWB made headlines in late 2005 when it was alleged that it had knowingly paid kickbacks to the Iraq Government, in violation of United Nations sanctions and Australian law. Following the Iraqi invasion of Kuwait in 1990, the United Nations had imposed a financial and trade embargo on Iraq. However, after facing criticism over the humanitarian impacts of the sanctions, the UN from 1995 until late 2003 allowed Iraq to trade oil on the world market in exchange for food, medicine and other humanitarian needs (see Oil-for-Food Programme).

Despite this, at the insistence of the Iraq government of dictator Saddam Hussein, the AWB agreed to pay 'transportation fees' of around $A$290 million. This money was paid to a Jordanian transportation company, Alia. Alia kept a small percentage of the fees, and paid the remainder onto Saddam's government. This breached the sanctions placed on the Iraqi regime.

The government-sanctioned Cole Inquiry into the company's role in the scandal has been completed and was tabled by Attorney-General Philip Ruddock on 27 November 2006.[6] The report found that from mid-1999, AWB had knowingly entered into an arrangement that involved paying kickbacks to the Iraqi government, in order to retain its business.[7] The Inquiry recommended that 12 people be investigated for possible criminal and corporations offences over the scandal.[6]

At the height of the investigation, the single-desk arrangement from which AWB benefits came under criticism. In 2006, the Australian Grain Exporters Association asked the Government to remove AWB's monopoly export powers.[8] The Oil-for-Food scandal cast doubt among some grain exporters over the trust placed in the company, especially as they lost the ability to export to Iraq during the length of the Cole Inquiry, losing one of their biggest markets.[9]

The scandal resulted in international condemnation and litigation. On 11 July 2006, North American farmers claimed $1 billion in damages from AWB at Washington DC, alleging the Australian wheat exporter used bribery and other corrupt activities to corner grain markets. The growers claimed that AWB used the same techniques to secure grain sales in other markets in Asia and other countries in the Middle East.[10] The lawsuit was dismissed in March 2007.[11]

In August 2009, the Australian Federal Police dropped their investigation into any criminal actions undertaken by AWB and others in this matter. This decision came after Paul Hastings QC declared the prospect of convictions was limited and "not in the public interest".[12] The Australian Securities and Investments Commission then proceeded with several civil cases against six former directors and officers of AWB.[13] Two have been against Andrew Lindberg, AWB's former head. Both are still in progress.[14] Another civil case was bought by shareholders of AWB, and was settled out of court for $39.5 million in February 2010.[15]

Australia's government has distanced itself from the payments to Saddam Hussein's regime, given Australia's contribution to military action against Hussein in the 2003 invasion of Iraq. Andrew Lindberg resigned as managing director on 9 February 2006 and from the board of directors on 22 February 2006 under intense public and media pressure.[16]

Business performance post Cole Inquiry[edit]

In the years immediately following the Cole Inquiry, AWB continued to be dogged by bad performance.[17] The company remains liable in several civil cases being completed, and has not always been successful in its attempts to find new markets.

Following the publication of the Cole Inquiry, a new management team was installed under the leadership of Gordon Davis who was recruited from Orica in August 2006. Mr. Davis successfully reformed the constitution and the shareholder structure to consolidate into 1 class of shareholder.[3]

This new management team has not been entirely without controversy. On 26 April 2007, Yahoo News reported that AWB also breached US sanctions on Iran. These sanctions prohibit American citizens and companies using American currency from trading with Iran. In 2006, AWB’s US subsidiary (which trades using American currency) attempted to pay an Iranian transport company approximately $1 million, in clear breach of the US sanctions.[18]

In 2009, the company faced difficulties in another new market, when it was forced to recapitalise the balance sheet after the company produced significant losses from the expansion of trading activities into Brazil under Mr Davis.[19]

Despite making a small profit in 2009,[20] in March 2010, the company announced a profit downgrade from domestic trading activities.[21] In May 2010, it reported a half-year loss of $64.8 million, which it claimed due to the cost of settling the shareholder class action for $39.5m, and a loss of $65.4m on restructuring costs associated with its sale of the Landmark Financial Services loan and deposit books.[20]

Acquisition[edit]

In 2010 AWB accepted a takover bid from Agrium at A$1.50 a share, or $1.2 billion in total, which was later approved by Australia's Foreign Investment Review Board.[22]

References[edit]

  1. ^ a b AWB Constitution", ABC Rural, 14 January 2008. Retrieved 25 May 2010
  2. ^ a b "Corporate History", AWB Limited. Retrieved 25 May 2010
  3. ^ a b "AWB Ltd 2009 Annual Review", AWB Limited. Retrieved 25 May 2010
  4. ^ "Completion of Landmark Financial Services sale to ANZ". ASX. Retrieved 24 May 2010. 
  5. ^ "AWB and Gavilon sign MoU regarding Commodities Management". ASX. Retrieved 24 May 2010. 
  6. ^ a b "Cole Recommends Criminal Probe", News Limited, 2006. Retrieved 27/11/06
  7. ^ "Summary, Recommendations and Background". Cole Inquiry. Australian Department of the Attorney-General. Retrieved 24 May 2010. 
  8. ^ Clifford, Catherine (25 January 2006). "Grain exporters wants AWB monopoly removed". ABC Rural News. Retrieved 25 May 2010. 
  9. ^ McCutcheon, Peter (16 February 2006). "Wheat farmers consider the future of single desk policy". ABC News, 7.30 Report. Retrieved 25 May 2010. 
  10. ^ "US wheat farmers sue AWB". ABC News Online. 11 July 2006. Retrieved 24 May 2010. 
  11. ^ "US court dismisses AWB lawsuit". The Age. 27 March 2008. Retrieved 24 May 2010. 
  12. ^ Overington, Caroline (29 August 2009). "Federal police drop AWB investigation". The Australian. Retrieved 24 May 2010. 
  13. ^ "ASIC launches civil penalty action against former officers of AWB". ASIC Media Centre. ASIC. Archived from the original on 10 May 2010. Retrieved 24 May 2010. 
  14. ^ "ASIC to push ahead with AWB case". ABC News. 19 February 2010. Retrieved 24 May 2010. 
  15. ^ Casben, Liv (15 Feb 2010). "AWB to pay shareholders $40m". ABC News. Retrieved 24 May 2010. 
  16. ^ AAP (9 February 2006). "Kickbacks: AWB boss quits". Sydney Morning Herald. Retrieved 24 May 2010. 
  17. ^ Leyonhjelm, David (19 March 2010). "Was the old AWB better?". Business Spectator. Retrieved 24 May 2010. 
  18. ^ AAP (26 April 2007). "AWB 'breaches UN sanctions on Iran". Sydney Morning Herald. Retrieved 24 May 2010. 
  19. ^ Hopkins, Philip (23 July 2009). "AWB closes Brazil ops after $65m loss". Sydney Morning Herald. Retrieved 24 May 2010. 
  20. ^ a b Brindal, Ray (17 March 2010). "AWB still paying a high price for Iraq kickbacks". The Australian. Retrieved 20 May 2010. 
  21. ^ Brindal, Ray (17 March 2010). "AWB falls sharply on profit downgrade". The Australian. Retrieved 24 May 2010. 
  22. ^ http://www.weeklytimesnow.com.au/article/2010/11/01/251781_business-news.html

External links[edit]