21 December 2009

SUGAR SHAKER – INDUSTRY OVERVIEW 2009/10 – A BRIGHT LIGHT


2009 has set the scene for 2010 to be a most positive year for the Australian sugar industry. Strong international prices, access to futures pricing to secure those higher returns and the potential for increased production have set an upbeat tone within the sugarcane growing sector. Industry has emerged from a lengthy period of rationalisation and deregulation, leaner, meaner and well prepared to reap some long overdue rewards of a stronger, more stable marketplace. During the past 12 months governments have presented Jekyll and Hyde faces to industry, with the Commonwealth promoting improved production practices through partnership and incentives but the Queensland government using the heavy hand of legislation to impose a web of complex, unnecessary and largely bureaucratic regulations over cane growing practices.

PRODUCTION: Cane production was down in 2009, due to flooding in the north early in the year, diversion of land for other crops and late harvest finish in 2008. At just on 30 MT, the Australian cane crop was the lowest since 1994. More positively, the crushing season was uncharacteristically dry in all areas, which pushed the sugar content in the cane up to the highest level since 1972. (at 14.7 CCS) The uninterrupted harvest also led to early finishes in most areas, which will improve prospects for a more mature and better established crop on 2010. Estimates suggest that the 2009 value of sugar production in excess of $2.2 billion dollars. This eclipses in dollar terms the next highest value crop some 15 years ago, when the 1994 season returned $1.9 billion.

THE UPSIDE OF BEING DOWN - SURGING SUGAR PRICES: While the world has laboured under the wide-reaching effects of the global financial crisis, the Australian industry has been a recipient of a surprising positive spin off. Reducing interest rates, some pressure off sourcing labour and reducing input costs have been local effects that have been welcome. Internationally, continuing growth in global sugar demand has continued. The Brazilian industry, which is one of the main sources of meeting this extra demand, faltered as financial support for expansion dried up and heavy rains interrupted the harvest. The other big hitter, India continues to be in deficit and to draw down on international stocks.

Surging sugar prices have resulted from this deficiency in supply worldwide, and while higher prices will inevitably encourage a production surge, 2010 is likely to continue to see a deficit between production and demand. Brazil will inevitably increase its capacity, but on a higher cost base which should support generally higher average sugar prices in the longer term than recent history.

The higher prices made the major rise in the Aussie dollar easier to face – even though with currency drifted from the 60¢ range to the 93¢ range from the start to the end of the year.

MARKETING OVERHAUL: 2009 saw the first year of operation of a restructured Queensland Sugar Limited but with continuation of the marketing platform which has underpinned Australia’s excellent trade reputation internationally and retained the confidence of financial institutions in a time of worldwide instability.

Under its revised structure, QSL retained its AA- credit rating providing the rock upon which the industry can now reap the rewards of an improving marketplace, delivering the vital finance to permit the conduct of essential price risk management arrangements which will underpin a more stable industry.

GROWERS TO BENEFIT FROM BETTER PRICES INTO THE FUTURE: Development of flexible pricing mechanisms has seen growers and millers strongly embracing forward pricing and risk management during 2009, on the back of higher prices brought about by the world sugar deficit. Positions are being taken in respect to sugar (and sugar cane) due for production and sale as far forward as 2013. With the ability to forward price comes the need for improved market intelligence and support - to which CANEGROWERS has stepped in to fill the information gap. Access to reputable information is essential for growers to make decisions about their forward pricing and business investment commitments, and CANEGROWERS is setting up free access for grower members to specially commissioned comprehensive world market information and forecasts put together by two international specialists.

INPUT COSTS: The year opened with input costs closing in on all sides – from water to fuel to labour – none so concerning as the cost of fertiliser, which had jumped to levels beyond the reach of many growers in season 2008.

CANEGROWERS response to skyrocketing fertiliser prices was the formation of a strategic alliance with Ravensdown Fertiliser Cooperative, a grower owned co-operative that supplies half the New Zealand market, to bring transparency and competition to Queensland. CANEGROWERS has supported the establishment of Ravensdown Fertiliser Australia which will deliver those benefits to farmers now enjoyed by kiwi cousins. Cane growers supported the scheme in droves and Ravensdown Australia Limited is now looking to extend its commitments and establish a permanent place in the fertiliser, chemical and associated services industry, such as soil testing and agronomic advice, on the Eastern sea board.

REEF TAKES CENTRE STAGE: The twin faces of government intervention in measures to improve environmental outcomes in reef catchments present an interesting study for a political scientist, but a frustrating reality to farmers. Under the Commonwealth Reef Rescue program, farmers embraced activities to protect reef environments, spending tens of millions of dollars adopting new technology and practices with matching contributions from the scheme. The program, led by Agricultural Minister Tony Burke, enabled growers, cash-strapped after years of depressed prices and yields which have been knocked about by weather extremes, adopt the latest farming technology sooner than they otherwise would have been able. Minister Burke has publicly applauded cane growers efforts to fast-track environmental progress on farm.

On the other hand, the politically motivated blame game being played by the Queensland Government has growers gearing up for a new era of red tape, paperwork and unproductive activity. The Bligh approach, which has sidelined growers and made them cane victims of a broader political agenda, comes into effect 1 January 2010. The approach to date has been rushed and frustrating.

CANEGROWERS has taken a proactive position. Given regulation is inevitable given it was a Bligh election promise, CANEGROWERS has muscled its way into the process and is agitating for a practical rather than ideological approach – thankfully with some success. Cane growers clearly recognise the part they have to play in protecting the environment at large, and are more attuned to seeking practical, measurable outcomes than many within Brisbane based bureaucratic and conservation structures.



AUSTRALIAN SUGAR INDUSTRY ALLIANCE: CANEGROWERS continued to play a lead role on the Australian Sugar Industry Alliance (ASA) which brings together the entirety of the Australian industry to provide a united front on matters of common industry interest. While the ASA will help get traction on these industry-wide issues where a united front makes for stronger representation of growers and the industry, CANEGROWERS remains fiercely at the door of issues affecting its grower members and will not compromise its role in securing results in the long term future of growers.



SUGAR – STILL A FUNDAMENTAL OF REGIONAL AND STATE DEVELOPMENT: The cane industry has played a major role in developing and sustaining the economic well being of many regional centres and of the state. Recent downturns in the more ‘frisky’ tourism industry and the impact of a slowing in the extractive industries have brought new focus as to the importance of the ‘old stager’. Sugar cane is still farmed by families who directly support the local community and economy – and a strong industry will continue to demonstrate its social and economic importance which extends well beyond its $2 billion per annum revenue inflow.