Deep pain down on the farm

MANY farmers are bracing for rising power costs from the carbon tax.

Max Jelbart

THE sun was shining yesterday on her bucolic dairy farm near Yarram in southern Victoria, but Marian Macdonald admitted to shivers running down her spine.

Her milk processor had just announced that the price paid for her fresh farm milk would fall nearly 10 per cent to 33c a litre from Monday, 4c less than it costs Macdonald to produce it.

From next week too, the new national carbon tax will add significantly to the electricity prices paid by dairy farmers such as Macdonald who use large amounts of power to milk their cows, cool their milk and hygienically clean their milking machines and sheds.

Murray Goulburn, the largest milk processor in Australia, has calculated the carbon tax will immediately add $5000 to the costs of the average dairy farmer; rival processor Fonterra puts the figure at a more conservative $2000 to $3000 a farm.

Either way, with profits for an average dairy farm in a good year at just $50,000, Macdonald says her farm runs at just break even. The carbon tax combined with falling milk prices is set to cause deep pain among the green grass, rolling hills and contented cows on Macdonald's Gippsland farm.

"I imagine there would be riots if the average Australian family -- and we are very average, two young kids and a dog -- faced a 10 per cent cut in their income or wages as a result of the carbon tax," says Macdonald heatedly. "But for some reason, nobody seems to be making a big deal about it. I suspect we, as dairy farmers, are just not on the political radar.

"But I also don't get the big picture. Here we are, getting less than the cost of production for our milk partly because Murray Goulburn has to pass its carbon tax costs back to us, our electricity prices are going up 10 per cent because of the carbon tax, and here we are down on the farm planting 1000 trees a year at our own expense and madly improving our soil carbon content because we are already trying to do the right thing by the environment.

"Can someone please explain the logic behind all this?"

Up in Queensland, corporate leader Geoff Teys is asking exactly the same question. His modern Teys Australia meatworks at Beenleigh, south of Brisbane, which slaughters 1500 cattle a day for the export beef market, is caught in the worst of dilemmas imposed by the carbon tax.

If his flagship abattoir, one of six owned by the second-biggest meat processing company in Australia, continues operating at its present production levels, it will just exceed the threshold of the 25,000-tonne annual carbon emissions per factory that incurs the new $23/tonne tax.

Teys spokesman Tom Maguire says if the Beenleigh abattoir qualifies for the tax, it will cost the company at least $600,000 annually in extra costs.

Cheaper for the company, says Maguire, is to close the meatworks for two weeks a year. The temporary shutdown would cut the plant's productivity, reduce export beef output and force its 800 workers to take unpaid leave, but take its total carbon emissions from methane gas production and heat generation below the pivotal government threshold.

But it's a road the company is loath to take because it makes no common sense. It also penalises the company's workers for the imposition of the carbon tax by hitting their pay packets, making a mockery of the government's few dollars a week in compensation assistance payments to families.

"(Shutting down) might make sense in an economically rationalist way, but in every other aspect it's a nonsense -- that's what we find so frustrating," says Maguire.

"For us being so close to the threshold, this tax becomes a direct tax not on the environment or carbon emissions but on our scale, throughput and productivity. This is not about whether we are environmentally friendly or not but just about us being big enough."

Maguire points out that the company has no philosophical objections to the carbon tax and, indeed, is actively working to reduce its methane emissions from its waste treatment ponds.

It also has no qualms about paying the carbon tax on its bigger Rockhampton abattoir where emissions are well above the threshold. It is only at Beenleigh that copping the tax or not becomes a critical cost factor.

"This isn't about us having a problem with global warming or the carbon tax or the government at all, and in some ways that makes it all the more of a paradox," says Maguire. "This is just about this plant, the fact its emissions are right on the threshold, and us finding a way to make sensible economic decisions that are in everyone's best interests." Across Australia, farm organisations have begun calculating how badly rural producers will be affected by the carbon tax's start next week, after initial relief that agriculture was ostensibly exempt.

Business analysts IBIS Australia this week found the farm sector would be hit with a combined $3.2 billion in extra costs this year, and $3.7bn from 2014, when fuel use by freight transporters is also caught in the net. IBIS predicted farm revenues would fall by 6.4 per cent in 2012-13, as the carbon tax on electricity, fertilisers, chemicals, and levied on big food processors, affects farm bills.

It also warned how badly dairy farmers and intensive fruit and vegetable processors, who use power in their greenhouses, sorting and cold storage facilities, would be hit, with production costs for the dairy industry to rise by nearly $200 million in 2014-15.

Horticulture Australia is predicting carbon tax cost increases of an average $10,000 a year a farm, and up to $40,000 for the large fruit and vegetable growers.

The Australian Bureau of Agriculture and Resource Economics and Sciences has calculated that broadacre wheat, sheep and beef producers will be less affected.

ABARES executive director Paul Morris recently put the likely impost at between about $200 and $1000 a year per large-scale farm in the cost of power, fertiliser, chemicals and fuel, plus any "pass-back from processors".

Some of the large agricultural processing and manufacturing companies with emissions exceeding the threshold include Incitec Pivot, CSR, Mackay Sugar, Murray Goulburn, Fonterra, Bega Cheese, Simplot (Birds Eye), Kraft, Teys, Kilcoy Pastoral and JBS-Swift meatworks.

To offset the new taxes for these large companies, the government is providing $1bn in a Clean Energy Fund to assist manufacturers invest in more energy-efficient machinery; companies such as Kraft, Bega Cheese and Fonterra have already benefited from such plant upgrade grants.

In the longer term, there is also $429m from the government in its Carbon Farming program, to encourage farmers to cut total carbon emissions and to develop techniques for storing carbon on their farms. Agriculture at present accounts for 15 per cent of all carbon emissions nationally.

Large-scale Victorian dairy farmer Max Jelbart is one farmer not too fazed by the introduction of the carbon tax. With 1000 cows to milk twice daily in large rotary sheds, an electricity power bill of more than $3500 a month and a poor supply connection, Jelbart has spent years devising ways to curb electricity use on his 360ha Leongatha farm.

From hard-won experience, he now regards it as essential to have a powerbroker to negotiate the lowest electricity rates, as well as using as much off-peak power as possible to cool milk vats.

Critical too has been capital investment in his dairy with a focus on power innovations, including an ingenious heat exchange system that recovers the natural warmth released from cow's milk as it is snap-cooled to heat water needed for high-temperature cleaning of milk vats and milking machines.

With 30,000 litres of milk a day to cool before it is picked up by the Devondale trucks and 1200 litres of hot water needed for machinery cleaning, Jelbart estimates he has saved thousands of dollars in power bills over recent years.

"So while I didn't do it because of the carbon tax, they are certainly changes that are coming into their own now," he said. "The cheapest thing you can do to save on your power bills is not to need to generate it in the first place."