Efficient farming costs time, money, and energy

By Joanne Grainger, QFF President

HEADING toward next year’s State election, the Government and opposition have both been very vocal about electricity prices in the context of household budgets and cost-of-living for families.

But more concerning for farmers is what increasing electricity costs, year-on-year, mean for the ongoing viability of their operations, and also those of many major agricultural processing facilities in Queensland.

Recent years have seen electricity prices soar well above the consumer price index. This year the Queensland Competition Authority (QCA) recommended an increase in the Benchmark Retail Cost Index of 6 percent. The 2009 recommendation was for 14pc.

The simple fact is that electricity is a major component of costs for many Queensland farms and farmers cannot continue to absorb these costs indefinitely, and nor can they achieve endless efficiencies without impediments to their productivity.

Our members have estimated that an average cane grower would spend $5000 per year on electricity, while for irrigated growers the cost would be around $10,000 and for some as high as $20,000. Fruit and vegetable growers face similar costs, and for dairies the average yearly electricity bill is about $9000.

For poultry producers, the costs are upwards of $50,000 and for prawn farms the costs are $10,000/hectare or about 9pc of annual production costs.

The government must also remember that some of our most efficient and environmentally-friendly production systems – such as modern irrigation infrastructure – are also the most energy intensive.

Likewise, commodity prices are not increasing at anywhere near the rate required to match the myriad of increasing costs to farm margins.

Electricity costs are also a high proportion of costs for processing facilities such as packing sheds, cotton gins, and milk factories.

For example, this week FarmOnline reported that cotton ginners’ operating costs were now averaging $52.40/bale (up $20 on 2001) due mostly to electricity and wage increases, and net profits after interest and tax costs have slumped from $17.20/bale to a 50 cent/bale loss.

PKF Corporate Advisory in the story estimates that electricity costs have risen 89pc over the last decade.

Against this backdrop, the government is removing the BRCI methodology for electricity prices and is introducing a new method of establishing regulated retail electricity prices.

QFF last week provided a submission to this Queensland Competition Authority (QCA) review, and has outlined the concerns facing the farm sector.

We are concerned at the potential loss of tariff options for farmers. There has been significant choice in tariff options which allowed farmers to choose the tariff that best suited their individual need.

To restrict this choice is not desirable especially since most of our farmers are outside southeast Queensland and thus unable to take advantage of electricity competition.

Many farmers have also set up their farms to take advantage of off peak tariffs.

Likewise, our irrigation schemes in Queensland are highly electricity dependent (and are already facing increasing costs) so all of these considerations must play a role in the QCA review process.

The key point is that farmers’ electricity needs are different to those of other customers, and therefore we will be looking for reassurance from QCA and Government that it can determine reasonable electricity prices and reign in the ongoing rises.

This will be a challenge given the broader policy context of the electricity sector.

It is a great contradiction from our politicians that almost in the same breath they speak of bringing power bills down, and then implement policies that have the exact opposite effect.

Therefore, farmers will be looking for a QCA investigation that can guide government to policy initiatives that deliver a profitable and sustainable primary industries sector across the State, backed up by a clear path of investment and research and development.

• Footnote: QCA is expected to release draft tariffs at the end of March.