Aussie wheat giant a teetering icon

In 2003 it was the toppling of the giant statues of Saddam Hussein that dominated news imagery in Australia. Three years later it is an Australian icon that is teetering - another victim of Iraq's former dictatorship.

AWB Ltd, the publicly listed, grower-controlled statutory monopoly responsible for the marketing of Australian wheat abroad, now faces the potential loss of its exclusive rights in the wake of the scandal over kickbacks to Saddam's regime.

It has already lost the Iraq market and sales worth at least A$500 million ($560 million) because of the revelations of the inquiry into the kickbacks by Terence Cole QC, the former New South Wales Supreme Court judge whose 2001 royal commission into corruption in the building and construction industry profoundly changed that sector.

The scandal is also lapping at the doors of Prime Minister John Howard's Government - both Trade Minister Mark Vaile and Foreign Minister Alexander Downer knew of concerns about AWB sanctions-busting six years ago - and is threatening to place further tensions on an already strained coalition. Within agriculture, opposing sides are gathering for a looming battle as divisive as any of the bitter wars over the sale of state assets such as Telstra and Qantas.

The revelations of the Cole inquiry have become a national embarrassment, supporting the earlier findings of Paul Volker's United Nations inquiry that found AWB had been filtering money to Saddam to secure wheat contracts at the time Australia was preparing to go to war against his regime.

Evidence presented to Cole has established that prices per tonne for grain sold under the UN's tainted oil-for-food programme were raised to provide for "transportation fees", paid to a Jordanian trucking company to cart wheat by land. The company was in fact a front for Saddam, and the payments were funnelled back to Iraqi agencies.

What Cole is establishing is who knew what, when. It is clear from the evidence so far that senior officers of AWB knew about the kickbacks, were complicit in their payment, and had later misled UN investigators. It is also clear that official alarm bells had been ringing for years and that they were either (improbably) not heard in Canberra, or were ignored.

Cole has been increasingly turning his attention to foreign affairs and trade officials as the paper trail widens.

Despite a run of cables on oil-for-food kickbacks, the responsible ministers continue to fend off accusations, although there will be a political cost: a Morgan poll found that 56 per cent of Australians believe the Government had not acted ethically in its handling of the affair.

More damaging are the internal pressures on the Coalition. Within the Liberal majority there is increasing pressure to end the AWB monopoly. The rural-based Nationals, whose support has been in long-term decline and who were rocked by the defection of one of their Senators to the Liberals, are determined single-desk selling will remain. It is a passionate, touchstone, issue that is being papered over for the moment but which will inevitably erupt.

There has already been crumbling at the margins. When the new Iraqi Government axed two AWB contracts and suspended any dealings with the company until Cole has published his findings, AWB caved into Government pressure and allowed other Australian traders to bid - so far unsuccessfully - for the market.

Howard has already hinted that more needs to be done. AWB, listed in 2001, is a major Australian company. It is consistently among the biggest exporters of the top 100, with annual sales of more than A$4 billion; in January payments to farmers from the 2004-05 pool reached A$2.3 billion; it recorded a net after-tax profit of A$157 million for the 12 months to September 30 last year.

Not only farmers and the national interest have been suffering. Since the scandal broke AWB's share price has plummeted, alarming major institutional investors. A number are now considering a class action to recover losses they claim were inflicted because they were not advised of developments that could affect the value of AWB shares.

Political agitation for change is increasing within the Liberal Party. Prominent West Australian MP Wilson Tuckey in January launched a private member's bill to end the AWB monopoly, reflecting a broader - if for the moment subdued - desire to open up the market and to expose grain growing to competition law.

Further pressure has been mounting from other traders wanting to win a slice of wheat exports. All are privatised state-based monopoly traders dealing in a range of other grains with expanding businesses in bulk handling, storage and transport: CBH Ltd in Western Australia, GrainCorp in New South Wales, and ABB, South Australia's former Barley Board.

Despite official producer outrage and National Party stonewalling, they appear to be gaining traction. Alarmed by the prospect of long-term damage to Australian exports from the AWB fallout, elements within the growers' body, the Grain Council of Australia, are floating the idea of opening international trading.

While maintaining his public support for single-desk wheat trading, Howard will be open to such suggestions if he can contain the political cost. In the meantime, the Cole inquiry continues to roll out its revelations.