Grain pool products still distorted

Brett Stevenson, owner of Market Check, said in spite of the ongoing push from industry to get growers to look past the headline number and choose pools based on their management strategies, there was no doubt inflated EPRs were still winning tonnage.

“It is frustrating as a business that does not put out these high numbers that there are still less scrupulous operators out there that are taking advantage of the situation.”

He said over the past two seasons harvest EPRs were on average $25-30 a tonne over the final price.

Mr Stevenson said it was something the managed grain industry needed to clean up before the Australian Securities and Investments Commission (ASIC) review into grain pools.

At present grain pools are exempt from provisions under the Financial Services Act, such as the pool manager having a financial services licence, but this is up for debate during the review.

Mr Stevenson said the managed grain sector needed to abide by the rules of the Grain Trade Australia voluntary code of conduct or risk either more onerous regulation or farmers voting with their feet and not using the products.

“EPRs have been a problem ever since deregulation, really they are not an accurate reflection at all, yet that headline figure at the silo or on the internet continues to get tonnage the pool probably would not attract otherwise.”

Grain Producers Australia (GPA) chairman Andrew Weidemann said his organisation was supporting a removal of the exemption.

“We see no reason why pool operators should not be subject to these checks and balances.”

“There is talk there would be additional costs passed back to growers but I think generally growers would be happy if it meant more transparent pool products.”

He said there was still confusion in the production sector about EPRs.

“We know we should do our research and look into how a pool has performed but the fact is that the EPR still can play a role in the decision making of some growers which is a worry when it is not necessarily reflective of the final return.”

Mr Stevenson’s colleague Richard Hall said growers were especially vulnerable to chasing rainbows with products with artificially high EPRs this season given the low pricing environment.

“These EPRs appear to be arbitrary figures, with no clear indication of how providers arrive at the estimates,” Mr Hall said.

“This has led to attractive numbers being publicised to growers, further emphasized in this low flat price environment when growers are looking for ways to extract value.”

He said although the temptation was to chase the highest price, growers needed to look beyond the EPR.

“Pools and managed programs should be judged on past performance, the underlying strategy, cash flow requirements and whether it satisfies their risk appetite,” he said.