Carbon scheme to slug farmers

Age
Monday 23/2/2009 Page: 3

INCLUDING agriculture in the Federal Government's carbon emissions trading scheme will cost farmers and the economy billions of dollars in revenue and cut production, landmark research shows. Australian agricultural production will be cut by $2.4 billion a year by 2020, and by $10.9 billion a year by 2030, under the proposed carbon pollution reduction scheme (CPRS), according to research conducted for the Australian Farm Institute. The livestock industry, particularly beef, will be the worst affected.

The study, done by the Centre for International Economics (CIE), says the cost of emissions permits will account for up to one-quarter of farm gate prices by 2030, and most of this cost will be borne by farmers. CIE executive director David Pearce said that, as most agricultural products were exported, farmers would not be able to pass on the emissions costs because prices are determined by international markets. "This will be a big hit for Australian agriculture," he said.

Farmers may be able to pass on some of the higher costs domestically, but local consumers may stop buying the product because it was too expensive. Agriculture produces 16% of Australia's greenhouse emissions, with methane from livestock the biggest contributor. The study models three scenarios that assume the Government's target of a 60% cut in emissions by 2050. The results are a change of what they would have been otherwise - a "business as usual" scenario without the CPRS in place.

The scenarios are: agriculture is not covered by the CPRS, but is affected by the overall economic impacts; early entry - entrance to the CPRS in 2013 with free permits capped at 90% of 2005 emissions, and bought on-market by 2025; and conservative - agriculture included in 2016 with 100% free permits, with no free permits by 2026. The study does not include any action farmers could take to minimise the impact of emissions, nor does it include the effects of climate change itself on agriculture.

Mr Pearce said emissions costs would be significant. By 2030, they will make up to 25% of the farm gate price for wool, 22% for beef, 16.5% for sheep meat, 10% for dairy, 5.5% for pork, 3.5% for poultry and 1-2% for grains. Despite rises in commodity prices, farmers will be worse off because they can't pass on all the costs. Production will thus decline - 12% for beef, 8% for wool and 7% for sheep meat. The farmers' falling incomes and lower production mean that, by 2030, the gross value of production (GVP) of beef will fall by $6.6 billion, or 28%.

For other sectors, the projections are GVP falls of $1.1 billion, or 27.5%, for wool; $1 billion, or 21%, for sheep meat; $800 million, or 8%, for milk; and $500 million, or 2.3%, for wheat. Even without being fully covered under the ETS, agriculture will still be affected by higher input costs such as electricity, fuel and chemicals, and less consumer demand due to lower incomes.

If agriculture is included, the costs of the ETS for the whole economy are reduced. Carbon prices are projected to be $92.60 per tonne of carbon dioxide in 2030 if agriculture is included, and $107 per tonne if it is not. Mr Pearce said farmers would have ways of adjusting to offset the costs, although these were not modelled. "If farmers have to change their practices, it will be a significant adjustment. It is not clear how the economics of mitigation measures would work." he said. AFI executive director Mick Keogh said the report provided critical information for decision-makers.

farminstitute.org.au