AWB Limited
Encyclopedia
AWB Limited is a major grain marketing organisation based in Australia
Australia
Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...

. 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
Agrium
Agrium Inc. is a major retail supplier of agricultural products and services in North and South America, a leading global wholesale producer and marketer of all three major agricultural nutrients and the premier supplier of specialty fertilizers in North America through its Advanced Technologies...

.

AWB has been the subject of controversy in the mid 2000s, amid revelations that the company paid kickbacks to former Iraqi leader Saddam Hussein
Saddam Hussein
Saddam Hussein Abd al-Majid al-Tikriti was the fifth President of Iraq, serving in this capacity from 16 July 1979 until 9 April 2003...

. These revelations and the subsequent Cole Inquiry
Cole Inquiry
The Cole Inquiry, formally the Inquiry into certain Australian companies in relation to the UN Oil-For-Food Programme was a Royal Commission set up by the Government of Australia in November 2005...

 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

The AWB was founded in the late 1930s, to regulate the wheat market after the excesses of the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...

. The single desk dates to this period. This type of arrangement was not unique to Australia, as the Canadian Wheat Board
Canadian Wheat Board
The Canadian Wheat Board was established by the Parliament of Canada on 5 July 1935 as a mandatory producer marketing system for wheat and barley in Alberta, Saskatchewan, Manitoba and a small part of British Columbia...

 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, and from August 2001, 'class B' were publicly traded on the Australian Stock Exchange
Australian Stock Exchange
The Australian Securities Exchange was created by the merger of the Australian Stock Exchange and the Sydney Futures Exchange in July 2006. It is the primary stock exchange group in Australia....

. In 2008, constitutional amendments were passed. Despite resistance from several wheat lobbies and industry groups, 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.

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".

Corporate structure

AWB Limited is a holding company owning a number of subsidiaries. Its shares are freely traded on the Australian Stock Exchange
Australian Stock Exchange
The Australian Securities Exchange was created by the merger of the Australian Stock Exchange and the Sydney Futures Exchange in July 2006. It is the primary stock exchange group in Australia....

.

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.

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.

Oil for food scandal

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
United Nations
The United Nations is an international organization whose stated aims are facilitating cooperation in international law, international security, economic development, social progress, human rights, and achievement of world peace...

 sanctions and Australian law. Following the Iraqi invasion of Kuwait in 1990, the United Nations had imposed a financial and trade embargo on Iraq
Iraq sanctions
The Iraq sanctions were a near-total financial and trade embargo imposed by the United Nations Security Council on the nation of Iraq. They began August 6, 1990, four days after Iraq's invasion of Kuwait, stayed largely in force until May 2003 , and certain portions including reparations to Kuwait...

. 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
Oil-for-Food Programme
The Oil-for-Food Programme , established by the United Nations in 1995 was established with the stated intent to allow Iraq to sell oil on the world market in exchange for food, medicine, and other humanitarian needs for ordinary Iraqi citizens without allowing Iraq to boost its military...

).

Despite this, at the insistence of the Iraq government of dictator Saddam Hussein, the AWB agreed to pay 'transportation fees' of around $A$
Australian dollar
The Australian dollar is the currency of the Commonwealth of Australia, including Christmas Island, Cocos Islands, and Norfolk Island, as well as the independent Pacific Island states of Kiribati, Nauru and Tuvalu...

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
Cole Inquiry
The Cole Inquiry, formally the Inquiry into certain Australian companies in relation to the UN Oil-For-Food Programme was a Royal Commission set up by the Government of Australia in November 2005...

 into the company's role in the scandal has been completed and was tabled by Attorney-General
Attorney-General of Australia
The Attorney-General of Australia is the first law officer of the Crown, chief law officer of the Commonwealth of Australia and a minister of the Crown. The Attorney-General is usually a member of the Federal Cabinet, but there is no constitutional requirement that this be the case since the...

 Philip Ruddock
Philip Ruddock
Philip Maxwell Ruddock is an Australian politician who is currently a member of the House of Representatives representing the Division of Berowra, New South Wales, for the Liberal Party of Australia...

 on 27 November 2006. 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. The Inquiry recommended that 12 people be investigated for possible criminal and corporations offences over the scandal.

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. 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.

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. The lawsuit was dismissed in March 2007.

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". The Australian Securities and Investments Commission
Australian Securities and Investments Commission
The Australian Securities & Investments Commission is an independent Australian government body that acts as Australia's corporate regulator...

 then proceeded with several civil cases against six former directors and officers of AWB. Two have been against Andrew Lindberg, AWB's former head. Both are is still in progress. Another civil case was bought by shareholders of AWB, and was settled out of court for $39.5 million in February 2010.

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
2003 invasion of Iraq
The 2003 invasion of Iraq , was the start of the conflict known as the Iraq War, or Operation Iraqi Freedom, in which a combined force of troops from the United States, the United Kingdom, Australia and Poland invaded Iraq and toppled the regime of Saddam Hussein in 21 days of major combat operations...

. 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.

Business performance post Cole Inquiry

In the years immediately following the Cole Inquiry, AWB continued to be dogged by bad performance. 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
Orica
Orica is a multinational corporation that manufactures various chemical products. It is the largest supplier of mining explosives in the world. -History:...

 in August 2006. Mr. Davis successfully reformed the constitution and the shareholder structure to consolidate into 1 class of shareholder.

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 dollars, in clear breach of the US sanctions.

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.

Despite making a small profit in 2009, in March 2010, the company announced a profit downgrade from domestic trading activities. 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.

Acquisition

In 2010 AWB accepted a takover bid from Agrium
Agrium
Agrium Inc. is a major retail supplier of agricultural products and services in North and South America, a leading global wholesale producer and marketer of all three major agricultural nutrients and the premier supplier of specialty fertilizers in North America through its Advanced Technologies...

 at A$1.50 a share, or $1.2 billion in total, which was later approved by Australia's Foreign Investment Review Board. It must be approved by 75% approved by shareholders.

External links

The source of this article is wikipedia, the free encyclopedia.  The text of this article is licensed under the GFDL.
 
x
OK