PRESIDENT'S Column

By Gary Sansom

President

26 Nov 2009 Farming in the post 2011 CPRS world

There are compelling reasons for farmers to reduce costs. On-farm costs impact directly on the bottom line, so unless a particular cost reduction exercise reduces output, farmers are always on the lookout for ways to use less input per unit of output. Economists call it efficiency, but to me it is common sense.

Many of the costs faced by farmers are those over which we have little control. International market forces, consumer preferences and government regulatory interventions often have greater impacts on farm profits than those things over which the farmer has a say.

This is certainly the developing scenario around the likely effects of the Australian and global response to climate change. No matter what your particular take on the cause and effect in the global warming debate, Australians both individually and collectively will act to reduce greenhouse gas emissions. Australian farmers will be in there doing their bit too.

However, we’re also about to see a major government change and this will be in the form of the CPRS – the Carbon Pollution Reduction Scheme, the Australian Government’s version of a market based emission trading scheme beginning July 2011. In theory a “cap and trade” scheme should work, but in practice the outcome is likely to be less than satisfactory with many “unintended” consequences.

Before Australia even began its CPRS the government announced significant changes in May to reduce the burden magnified by the global financial crisis. Then earlier this month the government decided it was appropriate to exclude the farming sector, but significantly not the farm produce processing sector. Starting to see a pattern here?

There are political trade-offs being made and one wonders where it will all end? Clearly the five year “global recession buffer” for additional Emissions Intensive Trade Exposed (EITE) assistance is hardly going to help reach 2020 greenhouse gas reduction targets, nor are the ever rising compensation payments for heavy polluters.

The point being missed in the general media coverage of the CPRS is that sensible action is needed to help those in a position to reduce carbon and nitrogen footprints. The farm sector has been engaged with the governments Technical Options Development Group (TODG) but progress beyond the big picture legislative framework has been slow.

A recent ABARE study calculated just the “first round” impacts for 2011 and 2015. At both farm level and at the processing level these impacts are significant because of the economy-wide impacts on electricity, fuels, freight, etc. But while farmers will need to contend with both the direct and indirect hits these changes will have to their bottom line, we need some guidance as to how the offsets are to be treated.

At the moment we just know that many input costs will rise, and many of the food processors will need to “pass-through” their cost increases by reducing prices paid to farmers. What we don’t know is how offsets can be used to reduce or even over ride these impacts.

Australia needs to negotiate beyond the Kyoto 3.4 rule so that on-farm and processor actions to sequestrate or otherwise reduce carbon and nitrogen emissions are fairly recognised and where feasible rewarded.

Farmers are keen to be a part of the solution; we just need our political masters to start moving to also acknowledge this with genuine schemes for sustainable solutions. Political horse trading tends to push us in the opposite direction.

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