Big risks for agriculture from carbon tax

THIS week at QFF we have been frequently asked what we see as the ‘wins’ and the ‘losses’ with the carbon tax and its associated complex web of compensation arrangements and inclusions and exclusions.
The fact that this debate is being compared to a sport is one example of why this policy and its development have become so flawed and confounding.
It should not be about which interest group is the loudest squeaky wheel during lobbying trips to Parliament House.
We are told it is about arresting climate change but, even if that is its aim, the policy has serious shortcomings and risks.
It will cause an additional impost on farm margins and damage to other parts of the economy, while it is also being diluted in terms of generating behavioural change or reducing a substantial amount of carbon dioxide in the atmosphere.
We know that a tax in Australia won’t alter the global atmosphere. Equally, we know there is a degree of hypocrisy in the tax, selectively hitting domestic coal users while governments are
building more coal terminals to sell the stuff overseas.
Be that as it may, this is the situation we are confronted with given the strange political genesis of this policy and the dynamics of the minority government.
So what does it mean for the intensive farm sector?
For agriculture, our major ‘win’ is that our emissions have been excluded, even though these emissions are difficult to measure and are very low on a farm by farm basis, especially so for intensive farms.
Another of the ‘wins’ is that the diesel fuel rebate will not be cut for businesses in agriculture, fisheries and forestry.
That is, a current rebate that exists for a very good reason will remain in place. This is hardly something to be popping the champagne corks over.
The rebate on freight transport will have an excise cut from 2014-2015, which will have a big impact on farmers and food and fibre value chains.
Freight is a critical component of costs, whether for long-haul trips for bulk commodities or frequent short trips for fresh commodities such as milk, fruit, and vegetables.
Even with farm diesel excluded and agriculture’s direct emissions also excluded, this is a tax on energy, and creating food, fibre, and foliage is directly dependent on energy use.
Farmers are big users of electricity, gas, and fertiliser, all of which will increase in cost under the carbon tax.
The manufacturers of these products, many of which will fall into the list of the “500 biggest polluters”, will pass their costs on.
Farmers will have far less ability to subsequently pass on our extra costs given that we either compete in international markets or are constrained by the domestic supermarket value chain.
That means that farm margins will be squeezed considerably.
So what do we do about it? There are a couple of options: seek to change practices and reduce reliance on energy, try and pass the costs on or take advantage of the programs on offer to act as a net carbon sink (store) and in essence be paid for the service.
The reality is there is currently limited ability to change practice on farm to substantially avert these added costs, without some impact on the overall productivity of the farm.
So there lies the dilemma. Reduce energy consumption and you may reduce farm yields and breaking this nexus is the challenge we as farmers now face.
The history of big productivity gains have been made on the back of inputs into the farming system.
In fact, it is an irony that productivity gains through technology often require the use of more energy.
We welcome that the government appears to be trying its best to work with the land sector and invest in some important areas.
This includes $429 million into Carbon Farming Futures, which is aimed to increase participation in the Carbon Farming Initiative; almost a billion dollars for a biodiversity fund; $200 million to encourage the adoption of clean energy technology; and nearly $84 million for extension and education activities.
However, there is a risk that there will be little ability for intensive farmers to participate in some of these initiatives given the policy’s fascination with soil carbon (which has limited opportunity in Queensland climate) and that intensive farms won’t be able to plant large areas of trees. For this reason we will be working hard with the Government to make these programs deliver beyond the soil carbon and trees dogma to the hard yards of facing up to fertiliser use and electricity
The results of these initiatives and the carbon tax will become more apparent with time, especially after the transition to an emissions trading scheme (ETS).
The ETS was the mechanism that initially had bi-partisan support and could be the fairest and most effective policy.
The current tax is a stepping stone toward that, and the current political scene appears to have necessitated this stepping stone. But ironically it is this political scene that may destroy it too.
With this the case, it will be important for the government to ensure funding in the interim goes towards preparing for this market-based system and this includes a greater focus on energy efficiency.
It must seriously look at options such as big solar rebates or electricity tariff structures (which perversely are both declining) and measuring nitrous oxide emission reductions, and biofuel from either sugarcane or grasses and trees.
Operating in a global market as we are, we actually know that we have to increase productivity to meet future demand and this now will need to be done within low emission farming systems. Leaving aside the “belief” arguments on climate change, this is the dilemma we as producers face and this is the problem that we need help to fix.