WA'S grain shipping auction system has copped more criticism with Cargill commercial manager Mitch Morison labelling it "costly, ineffective and damaging to the WA grain industry's long-term viability and good reputation".
Mr Morison said WA grain growers would ultimately suffer huge financial losses if CBH didn't change its current port allocation system soon.
Mr Morison's swipe at the system came after much speculation by a number of Australian grain traders throughout 2011 about the validity of the WA auction system and the consequences its operation might have on the wider WA industry and, more importantly, its growers.
Mr Morison believed WA farmers were already at risk of losing millions of dollars because the high cost and serious risk involved in partaking in WA's port auction system discouraged a number of parties, including Cargill, to buy WA grain.
"At the end of the day buyers aren't looking to purchase WA grain because the shipping side of the deal is too expensive," he said.
"In the longer term it will mean less demand for WA grain, which means lower prices for growers and that's the big problem."
Mr Morison said the winning bidder of an auction who successfully shipped its grain was rebated half the weighted average of the auction premium at the end of the year.
"If you don't ship it you lose that premium and if you don't pay the price you don't get a slot," Mr Morison said.
"Even if, for example, the average premium was $20/t, if you can't fill the boat and you don't ship, immediately you're going to lose $20/t.
"So there is a huge amount of risk when you're talking about buying into these auctions."
Cargill ended up in CBH's third round auction in the last days of 2011.
The auction had nearly 100 rounds and took about five days to run and the most expensive slot ended up costing nearly $50/t.
Mr Morison said the auction system was also flawed because if shipping space wasn't allocated during the auction system, CBH could allocate it on a first come-first served basis.
"This is where grain traders have a major problem because CBH can pick and choose who it allocates the capacity to," he said.
Mr Morison argued the first in-first served system lacked transparency and raised too many concerns about whose interests were being served, even though Cargill had historically supported auction systems as a way to allocate capacity.
As a way of rectifying the situation, CBH tried to implement a base load system which would have seen the majority of available shipping capacity allocated to the nation's biggest exporters including CBH, Cargill, Viterra and Glencore but the Australian Competition and Consumer Commission (ACCC) wouldn't allow it to take place.
Mr Morison believed the base load system needed to be reviewed by industry and still had the potential to be a key factor in overhauling the State's shipping allocation issues.
"If we don't have capacity, we're not likely to bid for the grain, so growers aren't getting the benefit of a fully robust and competitive marketplace," Mr Morison said.
"We're not going to buy grain if we don't know what we're going to do with it because we don't have a shipping slot.
"That potentially distorts competition in the marketplace and the fact that CBH ends up allocating on a first come-first served basis is putting the fox in charge of the hen house.
"Today, we would far rather export from the east coast or South Australia even though their systems aren't ideal either.
"On the east coast we're paying $5/t for a slot and in WA we're paying $50/t for a slot.
"So where are we going to participate?
"Normally Cargill would be the second biggest grain buyer in WA, so therefore we would expect to be the second biggest exporter out of WA and based on the way it looks today we certainly don't have enough slots.
"Most exporters, and CBH isn't one of them, will not be shipping from WA with any preference
"They will be trying to ship out of South Australia, NSW, Victoria and Queensland and will be looking to WA last because that is where there is the most risk and it's the most expensive."
Both Cargill and the Australian Grain Exporters Association (AGEA) have been in contact with CBH regarding their concern.
Cargill proposed a series of industry workshops with the AGEA, Grain Trade Australia and CBH to come up with a fairer system.
"The auction system being run in WA at the moment is actually damaging WA's grains industry which will damage the long-term returns to farmers and it's not in the interests of CBH to keep doing it," Mr Morison said.
"At the end of the day if I was told I had to pay $50/t to export grain from WA I'd build a new terminal at Kwinana and do it myself."
Mr Morison believed the ACCC was also very much aware of the serious nature of the issue.
In South Australia in the first half of 2011 the ACCC stepped in and stopped Viterra from operating on a first come-first served basis.
Mr Morison said if it were to happen in WA, Cargill hoped it would happen sooner rather than later because it would create initial uncertainty within the industry.
But CBH general manager of operations Colin Tutt didn't see it like that at all.
"There are a number of marketing companies who have speculated, influenced and abused the current auction system and used it as a playground to hurt others, which is a disgrace," he said.
"The market has really abused the system and we will be tightening it up to prevent it from continuing."
Mr Tutt said he was more than happy for Cargill to blame the auction system and use it as a way to justify the company's position but the proof was in the pudding.
He didn't disagree with the use of the phrase "scare mongering" and said he'd welcome Cargill's entry to the WA supply chain if it could compete with the pricing and supply chain efficiency of CBH's WA operation.
"We're a co-operative of WA farmers working for the WA industry, while Cargill takes its value back to the USA," Mr Tutt said.
p Farm Weekly was unable to contact the Australian Competition and Consumer Commission and the Australian Grain Exporters Association for comment at the time of going to press.
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