“Separating Politics from Business”
Speech to CEO Asia Update Forum an the Asia Society AustralAsia Center

Brendan Stewart
Chairman, AWB Limited

Sydney, May 1, 2003

The global trading environment is ever changing, and the challenge for Australian exporters is to continually adapt to the intricacies of the international marketplace.

Over recent years we have seen a developing middle class in many overseas countries such as in SE Asia, and with that, a growing demand for segmented and highly differentiated products.

Yes, this creates a challenge, but it also creates an opportunity.

But that opportunity very much dictates a need for exporter discipline, and an unerring commitment to product quality and efficient supply chain and logistics management.

The potential rewards are certainly there for Australian exporters – and there are many examples of market success for the innovative planners and the determined performers.

The agricultural commodity marketplace is a great example of the dynamics of change. Not only do we see the impact of climate on supply – for instance the Australian wheat crop went from 24 million tonnes to 9.5 million tonnes in the past season – we also see countries such as India and Kazakhstan becoming serious net exporters with good seasons and ever improving techniques and technology at their disposal.

AWB Limited is a company, which exports over 80% of the wheat produced in Australia. The remainder is utilised in the domestic market.

In contrast, the US exports just 49% of its produce, and is therefore less reliant and less exposed than Australia.

Australian wheat farmers are effectively unsubsidised, whereas US and EU wheat farmers have a smorgasbord of government largesse to feast upon. And feast upon it they do.

In fact, combined, the EU and US farmers receive one billion dollars Australian in subsidies each and every day of the year.

A report which was released about 10 days ago from an independent economic group in Minneapolis, indicates that US wheat is sold on world markets 40% below the cost of production.

So how does the Australian wheat industry succeed against the odds?
Well there are essentially five key elements:

• focusing on product quality and specific market demands;
  
• spreading and managing the risk;
  
• providing integrated packages of products and services;
  
• developing customer loyalty;
  
• and managing the political realities.

I will briefly touch on each of these, and then perhaps use the Iraqi market as an example of the latter.

The old system in Australia with its agricultural commodities was to produce as much of a particular product as possible, then to go out and sell it to a market. If someone didn’t want to buy it, then the trick was to look elsewhere.

The wool industry soon learned the folly of this approach.

There are only so many markets, but what many didn’t realise is that there are markets within markets.

Understanding customer needs is critically important, but that can’t be done by reading a brochure on market trends, it can only be achieved by spending time on the ground and forming close relationships with the people at the other end.

By getting the market feedback signals, and then feeding them back into the R&D and production sectors, then creating a value chain which never compromises on assuring exact quality specifications for each and every order, the foundation is in place for export success.

Risk is ever present in business, and the management of risk is a critical component.

At AWB Limited we have production risk from seasonal variability, we have contractual risks, we have risks from commodity price fluctuations, we have risks from foreign exchange, credit risks, we have execution risks, and we have political, economic and logistical risks in each and every one of our markets.

All of these have to be managed directly as a central part of business operations.
AWB Limited has customers in 55 countries around the world.

Over 82% of our sales go to developing countries, many of whom have government influence over procurement

Nearly 70% of the markets have significant Muslim influence.

45 % of our markets are Middle Eastern.

And Iraq, Iran and Indonesia alone account for 40% of our sales.

At any one time, a significant portion of our markets face some sort of uncertainty, and it is critically important these are professionally managed to achieve ongoing success.

An increasingly important business component of overseas trade is to provide integrated packages of products and services.

Whether it is selling landed rather than FOB deliveries, financial packages, differentiated products or those blended exactly to meet end use specifications, or providing technical training and advice, any move towards total packaging is beneficial in terms of achieving customer loyalty and higher returns.

Customer loyalty cannot be underestimated.

This was never better exemplified than during the Asian crisis just a few years ago.

Many Australian companies – particularly in the value added food sector - decided to stick with their SE Asian customers while many other suppliers such as the US abandoned the markets for better short term gains, to return later when the situation improved.

The fact that Australia continued to grow its markets in SE Asia during these tough times is testament to the commitment to the market long term.

Customers in the region have not forgotten the commitment and loyalty of Australia during this period, and has put us in good stead for the future.

What many people do not realise is that our overseas customers have been doing business for hundreds of years, while we in Australia have been only doing it for decades.
Overseas customers place great emphasis on personal relationships, and reward sticking with them for the long term through both the good times and the bad.

They like personal contact, and they like to negotiate out a deal rather than getting an exchange of faxes which might sometimes be the way of doing business in Australia.

Loyalty comes from personal relationships, loyalty comes from service and product quality, and loyalty comes from demonstrations of complete trust.

AWB Limited in a good year exports 4% of Australia’s total export effort, with between $5 and $6 billion dollars in sales.

We see ourselves as the flagship of Australia’s export performance, we go to the places others consider to be too difficult to service, we are in many cases one of the first companies from Australia to do business with them.

We take our responsibility as an export leader very seriously. We know that one bad deal would reflect badly on Australia’s export reputation, we know that other Australian exporters will be judged by our business practices - and that is something we are simply not prepared to put at risk.

One thing we take very seriously is – the fact that our word is our bond, and our handshake is a sealed contract.

Reputation is everything.

And that probably leads me on to the last point, how we achieve success in challenging markets like Iraq, and how we walk the tightrope between business and politics.

Firstly, we have been doing business in Iraq since 1948.

I think its fair to say that for most people, they have only taken a keen interest in Iraq in more recent years – yet just a few years after the end of World War II we entered the market, created a reputation for honesty and trust, and we have done business there in every year but four since.

And the four years we didn’t get supplies in were not because they sought their products elsewhere, it was because we had bad seasons in Australia.

But for the last 34 years in a row we have delivered to this valuable market – through the 1980s when the Iraq-Iran war was on, through the Gulf War in 1991 – and we are currently delivering valuable supplies to the country right at this very moment.

The US stopped delivering wheat to Iraq in 1989 for political reasons.

They resumed for 3 years in the 1990s, but once again imposed a self embargo.
We delivered all the way through, and we provided the first badly needed supplies after hostilities in 1991, and we once again provided the first wheat supplies after the recent hostilities.

The UN Oil-for-Food program was established in 1996, and we have taken a lion’s share of the Iraqi market since that time – in fact we sold over $800 million dollars of product there 2 years ago.

Last year the Iraqi government made a public announcement that they would halve Australia’s wheat sales as a sign of protest against perceived comments by the Australian government.

We immediately set to work to address the situation.

We appealed to the Iraqi government that we were not an arm of government, that damaging AWB was only damaging Australia’s wheat growers – the cut would not hurt the government and it would not change their position.

We showed them our history of meeting their humanitarian needs, we demonstrated to them our long history and our enormous commitment to their people for the long term future, we sent in delegations, we had numerous phone calls, letters, faxes, emails – and we continually worked closely with them to demonstrate that our farmers were their closest friends and we were not a part of government or politics.

In February the Iraqi government announced that they would restore our previous levels of trade – and while the media might have reported it as an ephemeral political action – in fact it was the culmination of 7 months of concerted work and efforts by our staff.

We set ourselves to achieve this outcome, we assiduously worked towards our goal, and we knew many months before the actual announcement that we were inching closer and closer to our objective.

It could not have been achieved if we had positioned ourselves differently at the start – if we had got drawn in to the political and media circus at the time the situation for us could have deteriorated irretrievably – we drew back, took a clear view at where we wanted to go and what we wanted to achieve, and we set to work determinedly behind the scenes to get our trade commitments back.

But keeping out of politics doesn’t mean keeping clear of government – quite the contrary in fact.

We sustain a very close working relationship with government – not only with the Federal and State governments, but also with the governments of our international customers, as well as the United Nations and WTO.

We always make sure we are ahead of the game, we look at all possible developments and scenarios, and we research and prepare for any eventuality.

Then we meet with the people concerned within government and ensure that all our information, our concerns, and our desired levels of support are on the table and well and truly understood before the proverbial hits the fan.

As I’m sure you’d realise, it’s very hard to separate business from politics when you’re in a reactive situation.

But it’s not only Iraq which has government purchasing agencies which are directly influenced by the local politics of the day. We deal in countries such as Iran which has a government purchasing authority, Japan has the Japanese Food Agency, Egypt has a government buying agency as well as private traders, and other countries have total free trade.

Each country, each market must be dealt with on its merits – but the one fundamental rule is that business is business and politics is politics – and we are in business and that is as far as it goes.

The elements of trade I mentioned earlier are important factors in achieving that distinction – market loyalty, trust, quality, reputation and integrity are all key attributes in achieving the respect of governments at home and abroad – and that is why we invest our resources into understanding the broader operating environments we trade within.

The future of the international marketplace is entirely predictable.

It is predictable that it will change from year to year, it is predictable that it will change from week to week, and in more sensitive political areas it is predictable that it will change from day to day.

We’ve got to be alert to change, we must have built in flexibility in business approach and attitude, and we will succeed if we adapt.

Our relationships with governments will always be critically important – in fact they will increase in importance as time goes on – but we will always ensure we are positioned away from politics yet at the same time have an indepth understanding of the drivers behind government actions – so that we can carefully weave our way through the minefields which sometimes appear in front of us.

I’ve got to say that AWB Limited is an exciting company to be a part of – we take on the challenges presented from over 50 countries around the world – we embrace the management of risks as the most central part of our business philosophy, we develop trusted relationships throughout, we feed hungry people, we bring prosperity back to Australia’s rural towns and farm families, and we manage to achieve some healthy bottom line results as well.

Its been a pleasure being here today and I would be happy to meet and talk to you personally afterwards if we can get the opportunity.

ENDS