• Media comment
• Background information
  
• Submission to the Senate Select Committee

MEDIA

10 July 2011: Carbon tax proposals: an $81 million slug on sugarcane alone in next 5 years

Sugarcane growers are looking down the barrel of an $81 million slug for industry over the next five years – an impost that will not apply to any of Australia’s international competitors, says peak group CANEGROWERS today following the planned introduction of a carbon tax outlined by the Gillard government today.

“These are significant costs for an industry that has no ability to pass costs on - a more expensive farming environment in Australia will be a setback to the international competitiveness of Australian sugarcane. It will put us instantly and categorically behind the eight-ball with our major competitors - such as Brazil and Thailand - who are decades away from implementing similar policies,” says a concerned CANEGROWERS CEO, Steve Greenwood.

“The average sugarcane grower will face will face hikes of around $20,000 or 4.7% of running costs over a five year period,” he says.

CANEGROWERS preliminary modelling will be consolidated this week, as the industry scrambles to sift through the detail and what it means for the farming sector.

“There were a raft of programs announced, but we are awaiting advice from the government as to the implications of these. No matter which way you hold this up - we do not see how this will be a positive thing for the industry.”

CANEGROWERS says this makes sugarcane farming far from exempt, and that it will be a blow to competitiveness on the export market – onto which around 80% of Australian sugarcane is sold.

“Make no mistake a carbon tax will impact on the inputs essential to sugarcane production, resulting in large-scale hikes in electricity, water, harvesting, nutrients and ag-chemicals – all big cost items in the business of growing sugarcane,” he says.

“While agricultural fuel is slated to be exempt in the short term, we understand that this could be revised in just two short years. Fuel is a major cost to all farming operations across Queensland.”

Greenwood says at face value the government appears to be sacrificing Australian farming, when the world demand for food production is on the way up. “Studies show that the world will need to double its food production between now and 2050. Australia has a unique place in providing food to the most rapidly growing region – Asia,” said Greenwood today.

CANEGROWERS supports the National Farmers’ Federation opposition to a carbon tax, and will continue to work with the NFF in representing the interests of Australia’s cane growers.

Backgrounder

The Queensland sugar industry produces approximately 30 million tonnes of cane annually translating into around 4 million tonnes of sugar. The cane crop is grown by 4 000 canefarmers and annual industry revenues are in the region of $1.5 – 2 billion. Our value chain supports around 25 000 jobs. We are regarded as a highly efficient world class sugar industry.

In order to assess the impact of the tax, CANEGROWERS contracted the Australian Farm Institute to study the likely impacts of this tax on the industry. This indicates that the impact of the tax on a typical farm (10 000 tonnes cane, Central region) would be about $1 500 per annum for the first two years, rising to $2 800 when the tax is applied to fuel used for freight. This means that the impact of the tax over a five year period is $11 500, representing a reduction in net farm income 3.4% p.a. The impact of this tax over the industry would be approximately $46 M.

CANEGROWERS has previously indicated an industry cost of $81 M. This would be the case if, as a result of the Productivity Commission review, the tax was applied to fuel used in agriculture.
The Australian Farm Institute modelling (attached) is commended to the committee for further detailed considerations.

The sugarcane Industry, like most businesses, derives its viability by profitability at the margins. A carbon tax will clearly reduce these margins. Our principal concern with the tax is that it lessens our international competitiveness. We are a trade exposed industry; over 80% of our production is exported. Of all the major world sugar producing countries we are the most trade exposed; even our domestic production has its price discovery anchored to the world price. Our major competitors, Brazil and Thailand, will not have these extra imposts and the risk is that they will reduce world prices over time to levels that do not support production in Australia - a strain on our international competitiveness we can ill afford.

The increase in costs that the carbon tax will trigger comes on top of increases in vital inputs such as electricity and water that are provided through the market but depend on government fiat for their pricing. Cane growers have seen costs for these inputs rise inexorably as more and more “returns” are artificially imposed by governments.

The Australian sugarcane industry is an integral part of the clean, green energy solution for our nation, via ethanol, cogeneration of electricity and a myriad of other developments being researched, all without impacting on the nation’s food security issues.

However in order to maintain our current levels and then grow, the sugarcane industry needs to be on the leading edge of international competitiveness.

Australia’s sugarcane industry is currently considered to be on this leading edge. However burdens placed upon that impact on margins do jeopardise this and divert scarce financial resources from the green solutions and run the risk of leaving the sugarcane industry in Australia on the “bleeding” edge.

Should the Senate Committee desire any further information or input, please do not hesitate to contact me.

Thank you for this opportunity and for considering our concerns in your deliberations.

Submission (Senate Select Committee)

INTRODUCTORY REMARKS

We appreciate the opportunity to speak about the impacts of the proposed carbon tax on the cane growing sector of the Australian sugar industry.

The Queensland sugar industry produces around 30 million tonnes of cane annually translating into around 4 million tonnes of sugar. The cane crop is grown by 4000 canefarmers and annual industry revenues are in the region of $1.5 billion to $2 billion. Our value chain supports around 25,000 jobs. We are regarded as a highly efficient world class sugar industry.

We have engaged independent modelling and costings into the impact of the carbon tax. Our assessment is that it will give rise to cost increases in the order of $46 million over five years.

Using an average 10,000 tonnes cane farm in the Mackay district would be approx. $1 500 per annum for the first two years rising to $2 800 when the tax is applied to fuel used for freight. This means that the tax over a 5 year period is $11 500 representing a 3.4% reduction in farm income. This would increase to $81 M if the Productivity Commission review ruled the tax should be applied to fuel used in agriculture.

Whilst agriculture has been excluded in terms of emissions our key inputs are not excluded.

We are an energy intensive industry and rest on three huge cost pillars – fuel, fertiliser and electricity. It is in these three cost areas that we believe that most of the cost increases to our cane growing sector will come from, even if on farm fuel use continues to be excluded.

Our industry, like most business, derives its viability by profitability at the margins. A carbon tax will clearly reduce our margins.

Our principal complaint about a carbon tax is that is lessens our international competitiveness. We are a trade exposed industry.

Over 80% of our production is exported. Of all the major world sugar producing countries we are the most trade exposed by a country mile.

Even our domestic production has its price discovery anchored to the world price. The world price is the economic engine of our industry.

Over 80% of world sugar production never crosses borders and is characterised by high levels of government support and market interventions. The resultant world price is not necessarily a reflection of the costs of efficient producers such as Australia.

Hence it is impossible for Australian cane producers to pass on our costs to any consumers or sector. We are price takers. We are the end of the line when it comes to costs.

It is our view that a carbon tax simply falls onto our bottom line. It makes less competitive and less profitable. Our principal competitors – Thailand, Brazil, South Africa, Guatemala and, India are not exposed to any carbon tax or emission trading scheme. Given that circumstance, a carbon tax will make Australian cane farmers less competitive whilst conferring a competitive advantage to our competitors.

In summary our industry is sensitive to the Australian business environment more than other industries. Our price is a global price but our costs are totally Australian business costs that cannot be passed on.

Making Australian cane farmers less profitable and less competitive at a time when global food security has become so important is a bitter pill to swallow for Australian farmers.