Mrs DE-ANNE KELLY (5:40 PM) —The harvesting of Queensland's 1999 sugar crop has started, but the outlook and, at least, the medium-term prospects for the industry and those many thousands of people directly and indirectly reliant upon it are not sweet. The industry outlook was described recently by the Queensland Canegrowers' general manager, Mr Ian Ballantyne, as catastrophic. If the harvest is blessed with favourable weather, the Queensland sugar industry, which produces 95 per cent of Australia's output, should yield about five million tonnes. This compares with 4.5 million tonnes last year, which was the lowest in five years and followed exceptionally wet weather. In 1998, more than 2.5 million tonnes of cane was left unharvested and commercial cane sugar levels fell to 12.23 units, the lowest level in decades. In 1997, in comparison, the yield was 5.4 million.

This year, regrettably, the industry is faced with the lowest prices since 1985. They are less than half the prices last year, as the world is literally awash with sugar. This massive oversupply of sugar on the world market has seen the price crash to between US5c and US5.5c per pound, with a recent, albeit brief, crash plunging the price below US4c per pound. The current price equates to a dismal $160 to $165 per tonne.

The industry has been protected from the worst ravages of the international market by the astute forward marketing strategies of the Queensland Sugar Corporation, by hedging on the New York sugar futures exchange, and by some long-term supply contracts. Thus, the Queensland industry can expect an estimated final price this season of between $258 and $275 per tonne, with the final price expected to be close to $265 per tonne. However, that compares with an average of $340 to $350 per tonne over the past three seasons.

Excessive rain, floods, harvest damage and retarded growth arising from the extended season and lost mill time, as well as extreme incidence of condemned cane, which is cane produced but of too low a quality to pay for, marked the 1998 season. This was a depressing legacy for the 1999 crop and was made considerably worse by Cyclone Rona early this year. A state of natural disaster was declared in sugar areas in August-September 1998 following heavy rain. When Cyclone Rona swept in shortly after, the effects were exacerbated by the already sodden conditions.

Production and, therefore, potential income has been further slashed by Cyclone Rona and subsequent heavy rains and flooding. Overall production loss and CCS loss—that is, the sugar content of cane—have been devastating. Queensland Canegrowers have estimated that the compounding effects will generate losses in excess of 40 per cent on most severely affected farms, with a total 100 per cent loss where recent planting has occurred. Thus, the Queensland sugar industry, which largely means the Australian sugar industry, had a disastrous 1998 and is expected to have an even more disastrous 1999 season because of a rare combination of adverse weather conditions.

However, if that were not enough, the world outlook for sugar coincidentally is one of unrelieved gloom. Queensland Sugar Corporation's senior manager of financial risk, Mr John Bird, has said that there is little relief in sight for the industry on the world market. As I said earlier, it has only been the astute marketing strategies of the corporation that have saved the industry from what would probably have been a major catastrophe from which it may never have recovered. It is time we recall that the National Competition Council wanted to dismantle the single desk selling power of the Queensland Sugar Corporation. The National Party fought hard against this proposal and, fortunately for the industry, we won. I shudder to think what state the sugar industry would be in now if that proposal had become a reality and a devastated industry was reduced to a bitter internal squabble to gain market access.

It is an accepted historical fact that there are variations in the international price of sugar. However, the coincidence of events on the world market recently has been virtually unprecedented. Queensland Canegrowers have produced an excellent analysis which shows that the price drop expected for the 1999 season will be the second largest price drop in any year since 1949. In that half century, the only larger fall occurred in 1981 after a sudden surge in the price which was characteristic of the market at that time and which was not unexpected as a market correction. There has been a progressive drying up of demand in many countries which act as so-called swing consumers, particularly Russia, which is suffering from an internal economic collapse, and China, which is moving towards self-sufficiency, particularly with the official encouragement of the consumption of alternative sweeteners such as saccharin. The economic meltdown in Asia has had its effect, and this effect is compounded by the fact that Thailand has had a better than expected crop. Latest estimates suggest a lift from 45 million tonnes to 52 million tonnes. This will find its way into already sluggish Asian markets.

However, our biggest threat comes from Brazil. In January this year, Brazil—already the world's largest sugar producer—devalued its currency by a massive 40 per cent at a time when it held large stocks of raw sugar. Until 1997-98, about 60 per cent of Brazil's harvest was used to produce about 14 billion litres of ethanol fuel a year, and this production had been steadily increasing. However, by mid-1988, it became apparent that production of ethanol was well in excess of demand. As ethanol stocks rose and the domestic price of the fuel fell, sugar millers in Brazil, which are mostly capable of producing alcohol or sugar, switched largely to sugar. Thus, Brazilian sugar production rose by a staggering 17 per cent in 1998-99 and, inevitably, sugar stocks rose. The Brazilian government decided to massively devalue its currency, which allowed an aggressive international marketing campaign. Trade experts attribute the stock drawdown by Brazil to have brought down the market by about half since December 1997.

The challenge of Brazil's sugar cannot be underestimated. Dr David Rutledge, the Chief Executive of the Queensland Sugar Corporation, estimates that Brazilian sugar exports are now 32 per cent more competitive than they were prior to that country massively devaluing its currency. However, in his recent paper entitled Sugar: the challenges from Asia, Dr Rutledge, after surveying the grim situation, noted:

Nonetheless Queensland raw sugar remains competitive. The quality of the Queensland product remains one of its strongest selling points.

He continued:

It is important that industry responses to low world prices do not compromise the integrity of the product. The industry's marketing package continues to place a high degree of importance on meeting customer requirements.

Dr Rutledge believes that maintaining supply flexibility will be an important component of Australia's response and that opportunities to supply additional quantities of sugar into Asia will emerge as consumption growth recovers in Indonesia, Malaysia and Korea. He concludes:

Overall there will be ample opportunities to market Australian production.

I did note with great satisfaction that the recent highly successful trip to China by the Deputy Prime Minister and Minister for Trade, the Hon. Tim Fischer, was crowned by an agreement by China to allow improved market access for Australian primary produce including sugar. This improved access does rely upon China becoming a member of the WTO, and every Australian farmer will be hoping that no unnecessary impediment is placed in the way of China achieving membership. I would also like to add that the Philippines has recently bought $30 million worth of Queensland sugar, some of which will be going into their famous coconut pie, which is being marketed in Australia by Woolworths. I hope people enjoy coconut pie.

To return to the market situation for sugar, however, while there is cautious optimism about the future of the world market, there is no denying the plain reality of a crisis today. My National Party colleagues who represent sugar producing electorates and I are concerned that every effort be made to identify strategies and solutions to the existing problems. While industry bodies and industry experts have their undoubted expertise and key roles, all too often their views and opinions of the grassroots of the industry are not taken fully into account. It is intended that National Party colleagues in seats representing the sugar industry will adopt an outreach approach and actively seek to involve themselves at the coalface of the industry. With the support of the Deputy Prime Minister, we have initiated a task force to look at ways in which we can support and assist farmers to ensure that they remain viable through this most difficult time.

Madam DEPUTY SPEAKER (Hon. J.A. Crosio) —The question is:

That grievances be noted.

Question resolved in the affirmative.