BIOFUELS: by Patrick J. ByrneNews Weekly
Sugar industry - execution by policy madness
, February 16, 2008
The world price of sugar is soaring, but Queensland cane-growers cannot take advantage of it, thanks to misguided government policies.Could Queenslanders imagine their legendary former premier Sir Joh Bjelke-Petersen's reaction to a Canberra economist/bureaucrat telling him that it would be cheaper for Australia to keep importing coal rather than building the power stations, rail and port facilities for Australia to supply the world with coal?
Such an imagined scenario is not so far-fetched as it sounds. Today the economy is crying out for mandated ethanol use to reduce our dependence on Middle East oil and bring down Australia's burgeoning foreign debt, yet the sugar industry is imploding.
Returns are at rock bottom while costs are skyrocketing.
On the costs side, the huge rise in oil prices and the 11 straight rises in interest rates (with the Reserve Bank suggesting more are on the way) have been topped off by the price of fertiliser soaring from $700 per tonne to $1,200 per tonne over the past year. Many cane-growers have planted crops but have had to forego applying expensive fertilisers.Vicious downward cycle
Consequently, their sugar yields will be well down, becoming part of a vicious downwards cycle.
As farmers go out of production, all though the sugar industry, land is being converted to grazing or to timber plantations, converting high-value sugar-cane farming into low-valued forms of agriculture. Consequently, sugar processing mills face the loss of critical mass of cane supply, risking mills closing and impoverishing all the farms dependant of that mill.
The industry is even losing the ability to market its sugar in order to take advantage of current high world prices, thanks to the utter madness of government-inflicted National Competition Policy.
QSL was the single selling-desk for sugar. Under deregulation, individual mills can now market their own sugar. Consequently, as QSL can no longer reliably predict its future stocks of raw sugar, it is unable to lock in future's contracts beyond this year.
Until recently, the price of sugar on the world market has been at a cripplingly low US 8¢ per lb. However, due to the turmoil on the international financial markets, the futures price has risen to a healthy US 12-13¢ per lb. At this price farmers would be making the best returns in about 15 years.
However, no contracts are being locked in at these high prices. QSL can no longer guarantee future stocks of raw sugar, so it cannot lock in futures contracts. Individual mills cannot lock in futures contracts, because some are too small and because their own future viability is at risk because of the mass exodus of farms from the industry, partly due to the loss of the single selling-desk, QSL, all thanks to deregulation!
So while the price of sugar is soaring, the industry is collapsing, having been sacrificed on the high altar of National Competition Policy.
But the policy madness doesn't stop there.
While countries all around the world are building ethanol industries - and ethanol would be saviour of the Queensland sugar industry - yet another Commonwealth Government research paper has come out echoing various overseas reports that mandated biofuels will force up food prices. It has also argued that diverting sugar-cane and wheat into ethanol production would force up stock-feed prices, possibly resulting in the import of wheat and other feed stocks, which in turn would cancel out the benefits of using domestically produced ethanol as a substitute for Australia's increasing reliance on imported oil.
Nobody would dare to argue this sort of rubbish about the booming minerals industry. Everybody knows that when a minerals boom is on, first prices soar, then there is flurry of worldwide investment in new mines to bring supply back into line with demand, then prices fall back to their historical trend line again.
Well, doesn't the same cycle of events happen in agriculture? If the government mandated that all petrol-driven cars used 10 per cent ethanol for their fuel, this would absorb 40 per cent of the Queensland sugar crop. If that forced up sugar prices, then there would be more investment in sugar-cane farming, expanding production to meet demand. Then prices would eventually settle back to a new equilibrium, while creating a whole new, high value-added industry in the process.
One consequence of the breaking of the drought in the north is that city-dwelling Australians can now see on their televisions that the volume of water running off north Queensland can be measured not just in numbers of Sydney harbours, but in multiples of the flow of the Murray-Darling Basin. With some new irrigation investment, there are enormous black-plain soils in western Queensland, room for a massive expansion of the sugar industry.
If our bureaucratic advisors, economists and politicians can understand the economic cyclical process of the minerals, why can't they understand the same clear economic processes happen with farming? Why is there one economic argument for minerals and a different one for farmers?
Come on, Prime Minister Rudd and Premier Bligh! It's time to act.- Patrick J. Byrne