August 9th 2003

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Articles from this issue:

COVER STORY: IVF - 25 years on

EDITORIAL: America, Iraq and ... Australia

CANBERRA OBSERVED: National Party and the Anderson legacy

COMMENT: Courts turn children into commodities

STRAWS IN THE WIND: Wisdom of Solomons / Do as I say and not as I do / A touching story

SOUTH AUSTRALIA: Water restructure will destroy Murray communities

ENVIRONMENT: Will the Federal ethanol package work?

What a US free trade deal means for Australian media

DEMOGRAPHICS: Russia's population implosion a warning to Europe

ECONOMICS: US-Australia free trade negotiations based on dubious assessments

ASIA: North Korean time bomb still ticking

BOOKS: MARIE ANTOINETTE: The Journey, By Antonia Fraser

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Will the Federal ethanol package work?

by Margaret Menzel

News Weekly, August 9, 2003
The Federal Government has announced limited measures for an ethanol industry. Margaret Menzel, from a cane farming family in the Burdekin district, asks, will it work?

While the Federal Government's $37 million bio-fuels assistance package should be good news for the Australian public, it remains to be seen how effectively the dollars are spent and how the environmental considerations are implemented.

Unfortunately, the Federal excise incentives for ethanol are to be phased out too quickly to provide security of investment for the ethanol industry.

To warrant such long-term investment, an immediate consideration must now be given to the mandating of staged ethanol blends, with an eventual ethanol target of 10% in fuel, combined with a serious excise concession plan.

Overseas experience has clearly demonstrated that government assistance for establishing an ethanol industry is a form of government investment that is recouped many times over through increased tax revenue from the new jobs generated and increased company profits.

Ethanol also delivers significant public health and environmental benefits. A 10% ethanol blend would remove the most toxic additives in fuel, with a significant reduction in particle emissions that adversely affect human health and drain the government's health budget.

While the Queensland Government has declared support for a bio-fuels industry, its commitment must be called into question, as long as the Primary Industry Minister maintains the 1997 "Ministerial Directive" on sugar. This forces farmers to sell their product into the domestic market below the cost of production at the corrupt world parity price.

Australia is the only sugar exporting nation to compulsorily sell into the domestic market at the corrupt world price. Mandating a floor price is fine, but not if it is also the ceiling price.

The Ministerial Directive has effectively driven many farmers out of the industry. The viability of both the ethanol and sugar industries will remain tenuous so long as low returns force farmers to shift into other agricultural products, or into bankruptcy.

Further, if the Federal and State governments are serious about an ethanol industry, they must abandon further plans to deregulate the sugar industry.

The Cane Production Area (CPA) system, governed by local mills and supplier groups, regulates production and prevents excessive growth in the area under cane. Because farmers are price takers not price makers, coordination of ethanol and sugar production is crucial in order to optimise returns to the pool.

Without CPAs, additional large-scale plantings of ethanol feedstock crops would negate any economic and environmental benefits. The CPAs also afford community input through the independent and ministerially appointed chair of the Cane Production Boards.

Deregulation would inevitably lead to exploitation of farmers by processors and retailers.

Indeed, Prime Minister John Howard, in a recent letter to Queensland Premier Peter Beattie, indicated that he was effectively stalling deregulation until he had "clarification on how growers can be protected from abuse of market power."

Government question

The big question is: will governments take the most responsible decisions for best practice sugar and ethanol milling methods, or will they accept a second rate option?

At this early stage, there is an opportunity for farmers, millers and grain based ethanol plants to benefit from bio-fuel production. With farm machinery using bio-diesel and mills burning bagasse (the left over fibre from the cane crush) to fuel their plants, the industry can further contribute to a whole of life cycle plan.

Additionally, in order for Australian farmers to have reasonably comparative returns to Brazilian farmers, maximum flexibility is required. This involves the ability to divert first and second expressed cane juice to sugar crystal and subsequent juices to ethanol and other by-products. It also allows for the blending of expressed juices with molasses at various stages as required, for ethanol production.

By having a number of valued commodity products from cane, there is the ability to spread industry risk by directing production into the most profitable products at any one time.

The establishment of a high value added ethanol industry must also deliver a fair return to farmers, not just to corporate investors in ethanol plants.

This can be achieved by giving farmers an opportunity to invest in the new industry, with at least 50% grower equity. For those who lack the capital after years of hardship, there must be a program of payment sacrifice over the investment cycle to pay for the grower's equity.

This also allows regional areas to retain some of the profits of value adding in their regions. Otherwise, ethanol will do nothing to improve the viability of farmers or regional communities.

Finally, Brazil, through its flexible ethanol and sugar production system, transfers more than US$100 million annually in the form of hidden subsidies to their producers, while Australian farmers live in penury under inequitable government policies.

Brazilian farmers also enjoy a common external tariff of 20% on sugar imports and 30% on imports of ethanol, introduced in 2001; and they benefit from an artificially low exchange rate, which advantages them on the export market and is equivalent to receiving twice the price paid to Australian cane farmers.

Therefore it is essential that the current excise and rebate system is maintained beyond infrastructure development periods. To do otherwise would be to repeat the all too frequent error of exposing Australian industries to hostile, corrupt and anti-competitive pricing policies.

This inequity can no longer be ignored by a government that asks its farming sector to operate on an international "level playing field" that is anything but level.

Such a measure would be WTO (World Trade Organisation) compliant. Our governments and bureaucrats have been seriously negligent in failing to explore all the WTO compliant trade options for our agricultural industries. Our farmers and regions have been the casualties.

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