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Saudi's United Feeds suspends barley deal with W. Australia
SAUDI Arabia's biggest importer of Australian barley has suspended an agreement with marketing alliance Grain Australia, blaming WA's special export licensing system.

United Feeds Company controls about 50 per cent of feed barley imports into Saudi and has an agreement worth about half a billion dollars a year with Grain Australia to exclusively buy as much Australian barley as Grain Australia can supply.

It is also the Grain Pool's single biggest customer, last year and the previous season buying upwards of half a million tonnes of WA feed barley, through the Grain Pool's alliance with South Australian partner ABB Grain and Grain Australia.

United Feeds has bought tonnages of Australia's new barley crop this year, but last month, after more special export licences had been granted, advised Grain Australia it was suspending its exclusive agreement - claiming in a letter seen by Countryman that special export licences granted for WA barley were eroding the benefits gained.

According to Grain Pool and ABB, Grain Australia's arrangement with United Feeds Company is to exclusively supply United Feeds with Australian barley - which United Feeds says it has built significant premiums around, because its buyers liked the bright colour and quality of the Australian barley.

But the company believes the presence of special export licence holders is eroding the premiums, and that they can buy Australian grain cheaper from licence holders, leaving United Feeds questioning the value of its agreement - an agreement which ABB's marketing general manager Nigel Officer sees as "arguably the most valuable commercial agreement that exists between Australian grain growers and overseas customers".

Representatives of Grain Australia are due to meet representatives from United Feeds in Europe this week, to discuss their concerns.

Mr Officer said the whole business was not in jeopardy but volumes were.

But neither the Grains Licensing Authority nor WA Agriculture Minister Kim Chance appear to have given much credence to the issues raised by the Grain Pool's biggest customer.

The Grain Pool said it raised the concerns of United Feeds, with Mr Chance and the GLA last week.

Yet the GLA this week issued a further licence for 60,000 tonnes of feed barley to the Middle East.

This brings the total tonnage for licences of feed barley to the Middle East to 390,000t for this year.

The GLA also issued a 50,000t licence for export of malt barley to China this week, but argued that conditions had been applied to both licences "to ensure there were more options for producers and it was not WA grain competing directly with WA grain".

GLA president Colin Mann said one of the conditions on the licence issued for feed barley to the Middle East was that it was not to go to a long-established customer of the Grain Pool.

Mr Mann said the GLA had not been given a copy of the Grain Australia agreement with United Feeds to see if there was a premium in the agreement or not.

Even if there was a premium, Mr Mann did not believe there was much they could do differently under the legislation other than to impose licence conditions.

"If it meets the legislation and the guidelines, the only thing we can do is put conditions on it and the conditions we have put on the feed barley one is that it must not go to a GPPL customer," he said.

At the same time he did not believe there needed to be changes made to the guidelines of the regulations.

"There is still other barley into Saudi which can come from anywhere and if we don't issue the licence we deny access to WA growers - it's as simple as that."

Mr Chance said he had not seen the letter from the Saudi buyers, and while willing to consider the letter carefully, he did not see how the Grain Pool could leverage a premium given it was such a small player in the Saudi market.

"The GLA started operating in 2003 and the Grain Pool share (of the Saudi market) has gone up significantly since 2003 - mainly because of the drought in France - but the Grain Pool has such a small market share that it seems amazing to me that they have market leverage."

Mr Chance said the exclusive arrangement with Grain Australia had never protected United Feeds from the possibility of competition from other Australian barley.

"Exporters working out of Victoria are free to export bulk shipments of feed barley to Saudi," he said.

"Why should WA barley growers be denied a possible price premium which might be offered by another Australian exporter other than GPPL.

"The exclusive arrangement did not in any sense impact on the level of Australian barley outside that arrangement because another exporter could have sourced it from Victoria, so I am finding it hard to follow the logic of the argument.

"But were GPPL the only source of Austraian barley I might concede there is an argument there, but it is not because barley is totally deregulated in Victoria."

ABB's Nigel Officer said the argument being used by the GLA and Mr Chance was "utter nonsense", and he and the Grain Pool's senior trader, Josh Roberts, indicated that the GLA and the Minister failed to understand the basic principles of marketing.

"In accordance with marketing 101, more suppliers means increased competition at the end customer point which means ultimately lower returns for grain growers in WA," Mr Officer said.

The marketers also dismissed statements that sales from special export permit holders should make no difference.

"The reality is the barley market in the eastern States is very much domestically orientated," Mr Officer said.

"From time to time there are shipments to the Middle East, but in the main (if there is any surplus) barley for feeding purposes goes to Asia."

Mr Roberts also questioned whether the Minister was more interested in the National Competition Council payments rather than the best interests of the industry.

Highbury farmer Ashley Wiese (right) and farm worker Ashley Forrest are happy with near perfect growing conditions for the Wiese's 500 hectares of Baudin barley. Mr Wiese believes the Grain Licensing Authority has created more pricing opportunities, but also recognises there is a cost to industry.
MGR Archive 26.8.2005
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