A corruption inquiry into the collapse of the New South Wales Grains Board has thrown up some outrageous practices that could seriously damage Australia's reputation as a leading exporter of farm produce. just-food.com's David Robertson reports.

The New South Wales (NSW) Grains Board collapsed in 2000 with debts of A$160m, including A$40m to the Dutch bank Rabobank, and recently, a corruption inquiry into its downfall has thrown up some disturbing practices that will seriously damage Australia's reputation as a key global exporter of agricultural produce.

The board was a state government owned company that held a monopoly in buying grain, oilseeds and oats crops from the state's farmers. Like the Australian Wheat Board, which has a near monopoly exporting wheat from Australia's farmers, the NSW Grains Board used its size to sell internationally.

Australia is one of the world's biggest exporters of grains and farm produce, and the lessons from the collapse of the NSW Grains Board are being taken on by all of Australia's farm export companies.

Disaster for farmers

The NSW experience has been a disaster for farmers. The Grains Board was created in 1991 from the merger of three similar but defunct organisations and it failed to live up to its promise to raise the revenue of state farmers. As a result the NSW government has decided to ditch the Board's monopoly from 2005. Until then, the privately owned Queensland company, Grainco, will continue with control of the monopoly, having bought the rights for A$25.2m.

The state government hopes that its farmers will benefit from higher prices due to greater competition. The state of Victoria has deregulated its grains industry and Victorian farmers are now getting A$10 a tonne more for their produce than before. This move by the NSW government is, however, widely seen as an attempt to pacify outraged farmers before the 2003 state elections.

Investigation initiated

In the meantime, the Independent Commission Against Corruption (ICAC) is investigating how the Grains Board managed to collapse so spectacularly. It hopes to report on its findings in July, but this may be pushed back if witnesses to the commission ask to be cross-examined by their own lawyers.

The ICAC has already uncovered a number of corporate and personal activities that have raised eyebrows in the Australian business community, and generated plenty of newspaper headlines.

Mismanagement scandals

Take, for example, the appointment of a chief financial officer, John Fitzgerald, who did not actually know how to prepare draft financial statements. Fitzgerald also benefited from a A$20,000 expense account which he used to furnish his Sydney home.

"It was just done because I was stupid… I didn't understand the implications of it until it was raised by the Audit Office," he told ICAC.

When the problem eventually came before the Grains Board management, a A$30,000 loan was helpfully arranged to allow Fitzgerald to repay the expense account. His A$120,000 a year salary was also conveniently raised by A$25,000.

The Grains Board managing director Graham Lawrence was also found to have used air miles accrued by employees to fly his daughter to Japan, his wife to Perth and his wife's sister to Adelaide. Lawrence told ICAC that he initially didn't realise that points earned by staff on corporate credit cards would go to him.

Manipulated accounts

But more damaging still are the allegations of how the Grains Board manipulated its accounts to keep the banks happy.

In July 1998, the Board lost A$437,000. In a staggering turn around in fortunes, the following month the Board made A$3.2m. And in draft financial statements for 1998, prepared in August of that year, annual operating losses were running at between A$2m and A$3m . For the books, this was turned into an A$800,000 profit - the same amount required by its lender the Commonwealth Bank.

The board's finance manager Greg Broadfoot told the ICAC that in order to meet the A$800,000 requirement he had added in fictitious sales and freight adjustments of A$4.9m. But this actually created an additional A$370,000 in profit, which he was then required to reverse.

In 1999 the board claimed its profit to be A$2.4m but according to forensic accountant Robin Humphreys the actual figure was a loss of A$16m.

"It appears the NSW Grains Board financial statements for at least the 1998 year and the 1999 year were manipulated to meet the minimum net worth requirement by the bank," ICAC counsel Kevin Connor said. "Profits shown in those years did not exist and, in fact, there were substantial losses in both those years."

Accidents and mistakes…

Graham Lawrence has admitted that "accidents" and "mistakes" were made with the accounts but denies that he interfered in their construction.

Questioning Lawrence ICAC lawyer Nigel Cotman said: "To paraphrase Lewis Carroll, the accounts mean what you intend them to mean rather than what they say."
Lawrence replied: "I don't think I accept that. That goes a little far."

Nevertherless, the fact remains that the corruption hearings and the whole sorry saga of the NSW Grains Board is deeply embarrassing to Australian farmers, who had nothing to do with its questionable management but are tainted by its collapse. The board's demise should be a reminder to all industry marketing bodies that competing in the international marketplace is not an excuse for shafting (to use Australian slang) domestic producers.

By David Roberton, just-food.com correspondent