Bush Matters Op-Ed – “Sugar supply chain should not turn sour”

9 March 2015

The sugar supply chain is unique among almost every other agricultural commodity.

At each point of being harvested, transported and sold onto the world market, sugar cane remains a highly volatile crop.

It is volatile because it can only be grown in select climates, meaning more than 90 per cent of Australian sugar originates in Queensland.

It is volatile because the final price the sugar receives can fluctuate significantly in response to the whims of international supply and demand.

But, crucially, it is volatile because, when it is harvested, it must be transported to one of only a limited number of mills in Australia within about 12 hours.

Yet despite these difficult odds, the sugar industry has remained a foundation stone for many rural communities across North Queensland for much of the past century.

In fact, the success of Northern Queensland is inextricably linked with the story of our national sugar industry.

It has supported countless families – in fact, generations of families – who moved into these areas to stake their claim in the sugar industry.

The wealth generated across these family-owned farms has enabled governments to build roads, schools and hospitals in the region, which have in turn brought more families and increased prosperity for our nation.

Next week we will turn a new page on the industry as we commence what is arguably the most significant public policy process for the Australian sugar industry in 100 years.

The Senate Inquiry into the Australian sugar industry that was initiated by myself and NSW Nationals Senator John ‘Wakka’ Williams will hold a series of public hearings along the eastern coastline and northern NSW.

Chief among our investigations will be how the viability of family-owned cane farms can be protected from any proposed changes to the long standing marketing arrangements and whether growers’

economic interest can be formally recognised, if necessary, through legislation.

It is no secret our inquiry was launched amid serious concerns that Singapore-owned agribusiness-giant Wilmar’s intentions to exit the QSL single desk arrangements from 2017 could pose a strong

threat to future profitability of Australian canegrowers.

The need for an inquiry is only further evidenced by the announcement that MSF and Tully Sugar will also remove themselves from the QSL system.

And while there is no talk of arbitrarily enforcing the existing single desk system into the future, there is a very real need to ensure such a dramatic change to the sugar supply chain does not result in regional monopolies with no options for growers.

So as we prepare for the first hearings next week, it is worthwhile to understand the scope of other major turning points for the sugar industry, such as the landmark Royal Commission of 1912, which is a document that is just as relevant today as it was a century ago.

The Royal Commission initially set out to determine whether sugar could be an industry that could be successfully rolled out to encourage the settlement of northern Australia.

In the days of the White Australia policy, the commission was established by the then-Labor government, led by Prime Minister Andrew Fisher, amid concerned that our unsettled northern regions were susceptible to invasion by our Asian neighbours.

While there are sections of the report that definitely show their age, many of its statements and findings could have just as easily been written today.

In 1912, Australia still imported more than two-thirds of its sugar intake (by stark contrast we export more than 80 per cent of our sugar product today).

The mills were privately owned at this time.

At each of the commission’s hearings, cane farmer after farmer lined up to detail how they received a price for their product that was only slightly above their cost of production.

Throughout the commission, no company had more impact and influence in the Australian sugar industry than the Colonial Sugar Refinery Company (CSR), which owned about one-third of the Australian output of raw sugar.

In fact, CSR took legal action against the Federal Government in an attempt to, firstly, prevent the CSR board and General Manager from appearing before the commission and secondly, to stop the release of the final report.

When they did finally appear, the leaders of CSR had few answers to the problems of their farmers.

As the transcript of one of the public hearings shows, when then-CSR General Manager Mr E.W Knox was asked what legislation existed that ensured a fair return for cane farmers – he attempted to cite Moses’ Ten Commandments, which was quickly rejected as insufficient.

The belligerent attitude of Colonial Sugar Refinery Company would deliver the organisation no favours.

The commission found there was no other industry in Australia where the determination of prices was to such a large an extent in the hands of one party.

The report found this was compacted by the fact that competition between mills was almost impossible due to the bulk and the perishable nature of cane.

Crucially, the commission concluded there was no mechanism in place to ensure there would be a fair profit for cane growers.

As a result, the commission determined that the price of cane should be directly dependent on the price of raw sugar.

This concept laid the foundation for the grower economic interest platform (where mills have a one-third interest and growers hold the remaining two-thirds interest to reflect the risk taken in the supply chain) that has been commonplace within the industry ever since.

This report built confidence for families to move to the northern coastal regions and build an imposing sugar industry that would transform Australia into the third largest sugar exporter in the world.

These farmers would also construct their own mills, built as co-operatives, which would ensure a fair farm gate return for generations.

These sugar mill co-operatives have served as a strong example for other industries looking to establish their own co-operatives and mutuals.

Next week we have provided a forum for the various stakeholders in the sugar industry to share their thoughts and concerns.

I hope that we can follow in the leadership of the politicians who conducted the 1912 commission and work diligently to ensure farm gate profitability is at the forefront of the decision-making process.

The links in the sugar supply chain are so mutually reliant one another that we must be prepared to use all options at our disposal to keep every part of the sector profitable.