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Wheat wars

The scandal concerning payments by the Australian Wheat Board (AWB) to corrupt officials in Iraqi Government of Saddam has achieved considerable publicity in Australia and and in the US, particularly, in the latter, from politicians who are based in US wheat-producing states. These pollies, and associated industry groups , have accused the AWB of acting monopolistically in driving up wheat prices. Similar claims have been directed at the Canadians for years by the Americans.

If the US wheat-producing states were delivering wheat competitively you could scarcely see their point. If Australian exerts monopoly power by selling all its wheat through a ‘single-desk’ operation, then US producers are better off since the implied Australian supply restrictions increase the international price of wheat. This is particularly appealing to the US economy since, as my colleague Rob Waschik pointed out to me, they get the gains without the losses that accrue to us through our necessary output restrictions.

But if the US were selling their wheat non-competitively then they would be sensible to oppose Australia’s efforts to do the same. Then a supply restriction by Australia means that the US will be pricing too high if it acted as a monopolist.

US actions in criticising the AWB, in this latter case, amount to hypocrisy in not securing selling advantages that Australia got. In the former case, where the US is competitive, they should shut up as they are better-off.

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