This article was originally Dairy Farmers Milk Co-operative.
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This month I have been asked to comment on the dreaded carbon tax and associated government policy. It is a massive question and the Australian government is pouring an enormous amount of taxpayer’s time and money into the issue. This article provides a perspective on what is it all about and what it means for Australian dairy farmers.
Why is carbon a problem?
Table 1. Comparative CO2 emissions – Tonnes CO2 / person / year
Many would say that the climate change is the underpinning driver for the carbon tax and associated government policy changes. Depending on your viewpoint climate change issue is either: (a) a fiction and a conspiracy propagated by scientists and other political and economic opportunist (b) it is real but a natural climate cycle outside our control, (c) a man-made phenomenon arising from our consumption and emission of CO and other greenhouse gasses. Irrespective of your personal view, governments around the world are taking option (c) very seriously. At an international level co-operation and direct action to reduce CO and the associated climate effect remains patchy. There is none-the-less a consensus that something should be done to reduce the rate of increase of greenhouse gas emissions and work towards a net reduction. (Table 1).
Australia, the United States and Canada lead the world in terms of CO2 emissions per capita. At about 20 tonnes of CO2 / person / year we are roughly double Europe and Japan and 3 times China. India’s per capita emissions are less than 10% of Australia There is an issue here of equity in the use of resources and consequent emission by global nations. It is also the case that Australia is not reducing carbon consumption and emission whereas most industrialised nations are.
Table 2. Inflation adjusted price index for international food staples ($AU)
If you are not prepared to buy into the concept of action to mitigate climate change, or equity in the use of global resources, then the simple economic reason to do something about carbon consumption is that the cost is increasing at an alarming rate. Figure 1 shows the inflation adjusted price indices for coal, oil and gas since 1985. The chart shows a steady decline in cost through to the year 1998. Since then prices have been oscillating sharply and generally rising. Oil is now 3 times the 1998 price and coal and gas about 2 times. This rise is a direct consequence of the growth in the wealth and purchasing power of China, India and other developing nations. Contrary to popular belief, the prices of base food commodities have not risen in real terms (Table 2).
How will this affect dairy farmers?
The major source of greenhouse gas emissions in Australia comes from the burning of coal for electricity. When purchased electricity is allocated to economic sectors the distribution of emissions becomes: manufacturing (23%); services, construction and transport (20%); agriculture (19%); residential (18%); mining (14%); unallocated electricity gas and water (6%).The Australian government has introduced a tax on CO2 emissions for 500 of the major greenhouse gas emitters. This will spread across all sectors of the economy, mainly as a result of the increased cost of electricity.
Agricultural emissions are not included in the Australian carbon tax and the two major political parties in Australia are (currently) opposed to any legislative changes in this regard. Furthermore, fuel for on-farm vehicles is excluded and road transport fuel is being delayed. The immediate impact of the carbon tax will therefore be indirect and much less of an issue than the rising cost of energy and fertiliser due to international market demand.
There is a general expectation that agriculture will come under pressure at some time in the future, either directly in fuel and other energy taxes or indirectly via regulatory limits to emissions. In preparation for this the Australian government has pledged in excess of $1.5 billion over 6 years to support initiatives to improve energy efficiency and reduce greenhouse gas emissions.
On the income side, my personal assessment is that there will be a negligible net effect for Australian dairy farmers. Believe it or not, in the domestic market cost impacts will eventually flow through to consumers. Higher fuel and transport costs may in fact increase the value of milk produced outside of the large production area of southeast Australia. Our major competitor for dairy exports is New Zealand where an emissions trading scheme has been implemented. This does include agriculture and represents a constraint on the growth and profitability of the NZ dairy industry. Europe has similar environmental regulations that are constraining productivity and profitability. The price of dairy commodities on the international market is driven by the exchange rate, international energy, fertiliser and feed prices, plus the relative competiveness of Australia’s farm systems and factory operations. The impact of the Australian carbon tax and overseas ETS schemes is minor compared to these issues.
What should I do?
Reducing your exposure to the cost of fuel, electricity and fertiliser will be good for the environment and good for your bottom line. It is amazing how much heat you can capture in black poly pipe on the roof of the dairy and how much value is created by careful management of fertiliser application. These opportunities are part of the necessary ongoing improvement in production cost efficiency.
In the longer term dairy farmers will most likely come under regulatory pressure with regard to greenhouse gas emissions from cows (methane) and soil (nitrous oxide from urine and nitrogen fertilisers). These are difficult problems to solve with no obvious and immediate solution. Dairy Australia is however putting a large amount of time, your levy funds, and government support funding into these issues. They have funded an excellent publication on the Australian government’s carbon farming initiative and further detail on all things carbon has been published on their website.
Greenhouse gas emissions from the agricultural sector- Centre for international economics, October 2010.
Long-term trend in global CO2 emissions – Report by the Netherlands Environmental Assessment agency, 2011.
ABC news summary of the impacts on agriculture:
Sponsored by Dairy Australia, the “Dairying for Tomorrow” project has provided an excellent factsheet for dairy farmers “Clearing the Carbon Confusion for Dairy Farmers” (http://www.dairyingfortomorrow.com/).
Australian Government websites: