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Emissions trading and reducing carbon pollution

CHAIR —I welcome the National Farmers Federation as our first witnesses to the inquiry. I invite you to make an opening statement.

Mr Fargher —Good morning. Thank you for the opportunity to be here today. I have Charlie McElhone here with me. For his sins, he does our work in this area, and he has been talking about this issue to our colleagues, our members and our farmers around the country and across different industries for many, many months, if not years. He is well briefed. I will be deferring to him a lot today, given that he is the expert in the area, but before I do I will say a couple of high-level things. We are glad to be here and are happy to take questions. The first thing I would like to say for the farm sector is that we are exposed to climatic risk. We live in a variable climate and no-one, we feel, is more exposed to having to manage that variable climate than farmers, because we do that all the time—and I would say that we are good at doing it. We have done it for many years and we will do it in the future. We believe that if you give farmers the right tools and policy incentives then they are good at managing risk, including climatic risk, but the policy settings have to be right and the tools have to be there. That is a debate around research and development and other issues like that, and perhaps that is for another day, but we think that is important. We are exposed to risk, including climatic risk. We are a key stakeholder in this area. Our people are very, very engaged on the topic.

Secondly, it has been broadly acknowledged—and we accept and agree with this—that an ETS is not currently appropriate for agriculture due to a range of reasons. We will outline these in our written deliberations to you, but they include the measuring, monitoring and verification issues, as well as the complex issues of post-Kyoto rules, how land use is taken into account in terms of those rules and how natural emissions and man-made emissions get lumped together. They just, quite frankly, do not work for us. There is a lot of complexity that is outside Australia’s direct control. It means that it is not currently appropriate for us, and people have recognised that, so we will not currently be covered.

The third point I would make is that, even though we are not covered, we are affected. We obviously have a very integrated supply chain in agriculture, and it is becoming more so. We are integrated in the Australian economy at large, and we use a lot of energy. So our cost base will go up with an ETS or CPRS, even though we are not covered initially. It may never be appropriate. That is the debate everyone is having at the moment. So we are not covered but we are affected.

Though it is broadly recognised that a CPRS or ETS is not appropriate for agriculture at this time, we do recognise that we need to make an ongoing contribution. We have been making a contribution, and we are gong to have to make more of a contribution. So the question then comes: what is an appropriate way for us to make that contribution through an alternative mechanism or a complementary measure and how would that work? That is what Charlie and his colleagues have been doing a lot of work on—and I am keen for him to explore that with you.

So we are exposed to the risk, the CPRS is not currently appropriate for us, but we do want to make an ongoing contribution. How will we do that? What is appropriate? They are the types of things we are currently working through. We are happy to talk about that and a range of other issues. I hope to talk about some of the issues around adaptation not just mitigation, because for us that ongoing adaptation is important and we do need the information, the research and development and the tools to be able to give those options to farmers so they can make those management decisions on farm and continue to produce food and fibre. As you will be aware, that is not only important in this country at the moment but also important everywhere—because there is not enough of it. We are very good at producing it here and we want to continue to do that. We would be happy to take your questions about any issue.

CHAIR —I might start with one in respect of how the protocols fit in with agriculture and how far away you see them from being acceptable. If agriculture does come in in 2015, what really needs to change so that agriculture could comfortably fit within a regime?

Mr Fargher —I will ask Charlie to answer that. We have a list of issues that would need to be addressed to make that decision—not to necessarily say that we are in but to even enable you to make the decision.

Senator FEENEY —Chair, I was wondering whether I could ask a threshold question. You may have addressed this point while I was out of the room. If you have, I apologise. Could you tell us what the NFF’s policy position is in terms of climate change and its anthropomorphic origin? Do you have an in-principle position in the organisation about the existence of climate change?

Mr Fargher —The way we like to explain it and I like to explain it is that we are at the interface of climate every day. So whether it is climate variability, climatic risk, a shift in climate, climate change or a change in climate, we are dealing with it. The variability exists and there are models that say that the variability will increase. So how are we going to deal with it on farm? The global predictions of X degree change are no doubt important and interesting, but the issue for us is what is happening on my farm and in my region and how I am going to adapt to that so that I can do more with less. Our view is that we are going to have to do more with less and we want the tools, the R&D, the options and the policy to enable us to do that. People may want to debate the merits of climate change versus a change in climate and that is fine, but we are going to deal with it on our farm. That is our position. We are engaged in the debate and we are engaged in managing the risk, but we are less concerned about what you call it. We want the policy and tools to enable us to manage that climatic risk that we deal with every day on Australian farms.

Senator FEENEY —So you have not made a policy pronouncement with respect to the climate change as it is understood by us or the anthropomorphic origin of climate change?

Mr Fargher —We have said that climate change, climate risk or a change in climate is a risk to Australian agriculture that we need to manage. I am saying that the high level philosophy, mantra or language is less important to us because we are actually dealing with the climate on our farms. We have not done a lot of work on whether we agree with global predictions of X or Y and how that relates to icecap projections of X and Y. How I am dealing with drought and climate variability on my farm and what options I have on my farm to be able to manage it are what we are interested in. That is what we want to talk to government about.

Senator FEENEY —Thanks.

Senator CAMERON —On that point, how can you deal with it if you do not understand the signs?

Mr Fargher —I am not saying that we do not understand it. Our people are writing dissertations on the sites and they are interested in engaging—

Senator CAMERON —I am not saying that you do not understand the signs; I am talking about an individual farmer. How can the farmer respond effectively if they are simply looking at the farm and do not understand the global changes that are taking place? How do you do that?

Mr Fargher —This is the issue, with respect. A lot of people talk about the global changes, which are obviously fundamentally important, but we need information for our farmers at an on-farm and regional level—for example, ‘Can I get access to seasonal forecasting tools so I can make production decisions about whether or not I put a crop in this year; have we got the research and development, the scientific data and the resources in our agencies to try to get that on farm; if I do decide to put a crop in, what type of irrigation system should I use and can I put in a system that enables me to produce that crop with less water and, if I can and I save some of that water for the environment, will the government help me do that or will I do that myself; and what is my property right security around that?’ The point I am getting at is: obviously farmers are interested in global projections and global science but they are very interested in how they can use information to make management decisions around climate. That is what they are interested in and that is what we want to try to get access to.

Senator CAMERON —There are different views in the farming community, is there not, about the engagement that should take place?

Mr Fargher —There are. If you go into our community—dare I say, without wanting to purport on your behalf—there are different levels of—

Senator CAMERON —I was on a farm last week in New England, actually.

Mr Fargher —There are different views in our sector about the science of global climate change, the predictions, the degree changes, where it is happening and where it is not happening and who is talking about it. That is why I say that, despite all that, we have to manage climatic risk. As to whether it is a shift, a change, variability or a change in climate, I will be frank with you and say that I do not know all those answers but I do know that every year our people manage risk on farm and we want to give them the tools to do so. I also know that the policies governments put in place, like emissions trading schemes, impact on our farm sector and those policies have to be right. The medicine, if you like, must not be worse than the disease itself. We want to avoid that at all costs. That is why we are so engaged in these debates.

Senator CAMERON —I attended a CSIRO briefing where some CSIRO experts came back from Copenhagen and they were saying that all of the projections on climate change are gearing to the worst levels. They outlined the effect on a range of scenarios on the farming capacity of Australia and the agricultural land in Australia. Have you had a look at that and have you made any policy determinations based on that latest CSIRO analysis?

Mr Fargher —I am not sure of that exact report. Have you seen it, Charlie?

Mr McElhone —No, we have not. As Ben says, this debate is on two levels. There is the scientific element and then there is the policy element. From the NFF’s perspective, we see one of the major risks at the moment being in terms of getting the right policy settings. Climate variability and those issues are at the heart of agricultural businesses and farmers’ businesses, and they are trying to get more information and trying to find out more about where the scientific debate is moving. But, in the short to medium term, it is more about the policy debate. It is very clear that, as a nation—and based also on the fact that we ratified the Kyoto protocol—we have to move ahead on this. That is where we are putting the majority of our efforts right now.

Senator MILNE —I am rather concerned because I am hearing you say that there is consensus across the farming community about the need for adaptation, hence all of the issues you have talked about in terms of projecting down to the local level what the seasonal variation is going to be, getting water to places et cetera. That is all adaptation stuff. The other issue is mitigation. That is where I am not hearing the kind of leadership from the farming community that I would have hoped for. Farmers cannot make even medium-term decisions about whether to stay on the land or transform from one form of agriculture to another, to go into some changed practice or product arrangement, if they do not know where it is going to end up. A three-degree change will transform some areas. You will not be able to do what you are doing now. It is not a question of: can I get the water to keep going? It is just that you simply will not be able to do that.

It seems to me that, because there is contention about that, the NFF is abandoning the mitigation scenario—and I would be very keen to hear what you, Mr McElhone, say about that. You say that you have to make sure that the medicine is not worse than the disease. By not looking at the likely science impacts, you are actually saying, ‘We don’t actually like the medicine, and we might not want to take it.’ But, without it, the patient will die. That is the situation for a lot of Australia’s farmers, particularly in the semiarid zone and in some of those areas where things are marginal at the moment. You need to look at those worst-case scenarios of three-, four- or five-degree temperature changes. Without mitigation, that is what you are going to get and your patient is going to die.

I am interested in your response. What is your view on the mitigation effort? I totally understand where you are coming from on adaptation, and that is a whole set of issues. What is the NFF’s view about mitigation, since you are absolutely right—your members are faced with the results?

Mr McElhone —Farmers are very engaged in the mitigation effort and already have made a significant contribution and realise that we need to do more. We believe that we can do significantly more if provided with the right policy settings. The question is: will the policy settings in place have a greater impact? You talk about the impact on industries from climate change; indeed, will the policy impact be more detrimental to the industry, particularly where there are opportunities to make a significant contribution which is complementary to both improving the productive capacity of the land as well as making a valuable contribution to mitigating emissions? We believe it is a matter of finding that right balance and acknowledging farmers for what they can contribute to that.

At the moment a lot of the view has come from the fact that farmers are not being acknowledged through the policy debate for what they can actually contribute. It has been very much seen as simply a tax on production as a means to mitigate emissions without acknowledging that, with the right policy settings, farmers can make a significant additional contribution while at the same time being able to make an ongoing contribution to the broader economy and international food supply.

Mr Fargher —I do not think we have at all turned our back on the mitigation debate. In fact, there has been so much focus on the mitigation debate around ETS, CPRS, reducing emissions, ruminant nutrition, what you can do to ruminants to produce more meat with less emissions, soil fertiliser and waste management on farm. We have been having a big research and development push in that area. As I have said, and I keep going back to this, farmers could have information about some options to reduce emissions while maintaining production. We have not wanted to get into the situation where, because of the nature of the policy domestically, the international rules, the lack of R&D and the lack of information, the only option for the producer or farmer is to reduce production. So there is adaptation—and we feel we can adapt, and we will—and there is the mitigation we are doing, particularly in regard to R&D.

I really want to get to your point about the three-degree temperature change. I get the impression from you and from Senator Cameron that we are focused on seasonal forecasting, adaptation and irrigation. You are saying: ‘If you don’t really embrace the three-degree temperature change, there won’t be any farming in that complete region. So what on earth are you doing talking about these issues when this is the fundamental thing you’ve got to get a hold of?’ What I am saying is that, whether it is two degrees, three degrees or 2.5 degrees, while the scientists argue and debate it, as they should, and we are interested in it, we are dealing with the variability now. We have two options. We can say, ‘It’s going to be 2½ or three degrees or one degree, so we’re not going to farm anymore in this country.’ Or we can say to governments: ‘We know there’s variability. We don’t know exactly how much or how much water we’re going to have. We know we’re going to have less, but who knows how much less. So what policies are you putting in place to help us produce more with less, because we can deal with that now and start doing that now?’ That is to try and give our people something tangible to work with. That has been our focus, but we are not ignoring the global climatic predictions.

Senator CAMERON —Could that be false hope for some regions?

Mr Fargher —There is this thing about the ingenuity and innovative nature of our people. We have seen it time and time again, and I have seen it personally. I agree that we do not want to give people false hope if there is to be less water, but they will find a way and they will do it sustainably, despite what you sometimes read. Because of the nature of our climate—I call it drought; you might call it climatic risk or climate change—there has been less rain, and people, including those from my background and from my own family situation, have diversified into ecotourism. They are doing a whole lot of different things on farm. We have proposed a stewardship concept with government where those farmers who know the land as well as anyone, are providing, along with their Indigenous counterparts, environmental services on behalf of the community, and they are getting some recognition for doing so. So the environmental stewardship scheme is running; ecotourism is running. Producers are getting the region if they have the technology. If they can get access to the technology through IT, they are branding that and marketing it into Asia. So agriculture now looks different from what it did before, but that does not mean that it is not productive or making contributions in regional areas; it is just different. If you looked at those predictions 10 years ago for the region where my family comes from, you would say, ‘You shouldn’t be farming here anymore.’ They are still farming and doing it sustainably. They are also engaged in the regional community. And, by the way, there are lots of other Australians going into that region because they are seeing the great things that regional Australia offers. It is not false hope; it is just different. We want to give the farmers those options.

Senator CAMERON —I can understand the tactics that you have adopted, but they seem to me to be tactics as distinct from a strategy to deal with what is happening. For the life of me, I cannot understand why some people who purport to represent the farming community—not you, but political players—are total sceptics about this. They try to deny that anything is happening, yet it is the biggest issue facing one of our biggest and most important industries in the country. I would have thought that you would be better off saying: ‘If the science is in on this, we are in this and we’re in it for the benefit of our members, and we’re going to look at getting the proper policies and we’re going to look at getting the proper R&D. We’re going to look at an international level about making agriculture a priority in terms of dealing with global warming.’ I just do not get the feeling that you are prepared to say that. That is all.

Mr Fargher —That is your view. I respect it, but I disagree with it. We are not technical people; we are strategic people. Tactics has never been my game, but I am very clear on what our strategy is, and that is to say, ‘Despite what you call it, we are engaged in it.’ We are managing the risk every day. So, I do not care what you call it, we are dealing with it. And how we are dealing with it is by looking at adaptation and R&D and giving farmers the tools. We want to look at mitigation policies and how to do that and also at what policies are appropriate to us, including those in the international context.

We are embracing the issue, and we have a strategy to deal with it. We are not turning our back on it. We have made a contribution. We are sitting here saying that we are willing do more, but it has to be appropriate for us. You cannot just say—and I am not saying you are—that agriculture is a power station. We are a biological system that emits carbon and sequesters it well. At the moment, we are not getting recognition for the sequestering. We do not want to carry the cost disproportionately on our businesses, and that is fair enough in our view. We are not turning our back on it. We are embracing the debate. We have got a strategy. It is not about tactics, but also it is not just about looking at global science and climate change predictions and saying that we will not be farming in these particular regions anymore, because that is not where we want to be.

Senator CASH —I have two questions, if at all possible.

CHAIR —I still have a question on notice.

Senator CASH —In your opening statement, you commented that the agriculture industry is not covered but affected—in other words, the CPRS is at this particular point in time not going to cover you until 2015. Can I get a better understanding of why you are saying that your industry is affected prior to this time?

Mr Fargher —Sure. We have some numbers on that as well.

Mr McElhone —Basically, if you look at the cost profile of the Australian farming sector, such as the cropping sector, about 45 per cent of our costs are energy or energy dependent. So we are talking about fuel use, electricity use, crop contracting and fertiliser use. All those costs will be affected.

Senator CASH —When you say ‘affected’, do mean negatively or positively?

Mr McElhone —All those costs will go up. At the same time, it should be acknowledged that with such an internationally exposed sector and, disappointingly from our perspective, a real incapacity to pass on those costs as a result, even small increases in cost are going to have large ramifications on our competitiveness to export. We export about two-thirds of what we produce. From that perspective, we will be affected upfront.

Also, we have to acknowledge that there are going to be supply chain members who will be covered from the outset. We are talking about the processing sector, for instance. Some of the work that the red meat industry has done shows that, from day 1, the additional cost that they will incur will be passed back onto farmers in the form of lower prices. That is about $63 million a year in terms of red meat processing. We are looking at similar kinds of impacts on the dairy sector and the sugar processing sector. They will obviously be impacted from day 1. Under the current construct, there is no real acknowledgment for the need to ensure that international competitiveness is not jeopardised as a result of incurring those additional costs, and we also need to bear in mind our incapacity to pass those on.

Senator CASH —My second question follows on from the previous discussion. In your opening statement, you commented that the farm sector is exposed to climatic risk. This is something that you face every day, regardless of what you call it. You have also stated that the government needs to give farmers the right tools and policy settings so that they can manage climatic risk. I would like you to expand further on whether or not you have been given those tools and the right policy settings and, if not, what can be done?

—It goes across a range of areas, and I will give a couple of examples. One is the research and development option—and here I will focus on mitigation because I do not want to focus too much on adaptation. Let us look at technologies in ruminant nutrition that can reduce their emissions and still increase their production. If we can do that, are those technologies cost effective and safe? Does everyone know about them and, if not, how do they get access to them? It is all those types of technologies, and they require investment. We do not have clear answers on any of this globally. We are asking the government to invest in this, and they have made some investments, which we have welcomed. However, we think that they should do more. That is the type of R&D tool and option that I am talking about for mitigation as well as for adaptation—

Senator CASH —That is not currently covered by the proposed scheme. Is that what you are saying?

Mr Fargher —That is separate to mitigation policy. I am just talking about the impact of climate change and climatic risk and the need to do more with less and how we get that technology out to our people. That is one thing.

Another thing is that, if there is going to be less water in the future, how do we help farmers put in irrigation technologies which enable them to maintain or increase their yields with less water? The government has a water plan which involves buying back water and investing in infrastructure. They are buying back water but they are not investing in infrastructure to the level that we would like to see, including on farm. So, yes, they could be doing more there. The government are doing some things across the agriculture and R&D portfolios and also across a range of other government policy areas, like environment and water, and we acknowledge them when they do that, but they could be doing more. That is what I mean about giving farmers tools and options.

When you talk about policy, that is when we talk about making sure that mitigation policy, through an ETS or CPRS—whatever you want to call it—is appropriate to our people, given that we are a biological system, that the international rules do not work for us, that we have measuring, monitoring and verification problems, a lack of viable cost-effective abatement options anyway and a whole lot of things in between. That is about getting the policy right, and in that regard the government has done some things right, in our view, because they are not covering us and are trying to work with us on those issues, and we want to make sure that continues.

Senator MILNE —We do not have much time and I want to get this on the record. You said in your opening remarks that you have complementary measures that you think meet some of your needs. You said a stewardship plan, I presume for restoration of ecosystems and getting rid of feral animals, weeds and various things. Can you explain to us what you propose as a complementary measure that would suit your members and that would make a contribution? Could you put that on the table for us?

Mr McElhone —What I would say is that there is still more work that needs to be done in this area. Some of the ideas we are currently looking at include greenhouse best management practice schemes and voluntary, market based mechanisms which allow farmers who have the capacity to do so to engage positively by adopting the kinds of technologies that we talked about and incentivise them to do so. We are looking at environmental stewardship programs. We are looking at the taxation system being able to draw appropriate actions by farmers to adopt those new technologies. That also comes into play with the whole R&D investment side as well as in looking at transport infrastructure and making sure the whole supply chain is lowering the exposure to energy and energy dependent costs.

Senator MILNE —They are ideas. Do you have specific proposals that you have developed with your members, which you can put on the table now and say, ‘If a government wanted to they could embrace this stewardship proposal or these various options’? Do you have those R&D or stewardship proposals developed, written and on the table, or are they still at the stage of ideas?

Mr McElhone —They are still at the developmental stage. We are in the process of looking at commissioning some further work to drive those options forward.

Mr Fargher —They are not at the level of specific detail that you are looking for or that we are looking for. If you ran a complementary scheme alongside a CPRS, for example, and it were voluntary and market based, or BMP, or stewardship, how exactly would that work and what type of contractual arrangements would you have for those credits or incentives? If, indeed, there were an opt-in provision to the current scheme, how would that work? Those are the things that Charlie and his team are currently trying to put the specificity around, which everyone is looking for, including us.

Mr McElhone —It should be remembered that up to this point it has been very much a question of how we can get agriculture within the CPRS, in terms of the government’s focus. We have been working through what the hurdles and obstacles are and we have all come to the agreement that it does not work for agriculture and we should start looking at the alternatives. That is where we are up to right now.

Senator FIELDING —I want to follow up a question from Senator Cameron, which was to do with boxing people as either sceptics or climate change extremists and, once you are boxed, how you approach your questioning or your response. Do you find that helpful? I find it frustrating that everybody is either in the box of being a sceptic or in the box of being an extremist.

Mr Fargher —I will give a personal response. That is why I keep talking about risk. You are right—we have views here and there and everywhere in between. We have risk. Let’s make sure we apply the policy and the R&D to a risk to get the job done. Otherwise, you are right: to say you are a sceptic or otherwise because you ask questions is not really relevant—I am not going to say helpful—for us. We have a risk; let’s manage it. That is where we are trying to come from, and we are trying to take our people, in a leadership sense, towards it.

Senator BOSWELL —My questions are a little bit more practical. In a couple of months time this legislation may go through. You have seen the legislation. Has anyone modelled, without the ruminant emissions, what it would cost to take a cow through an abattoir? What is the cost on that per cow?

Mr McElhone —It is about $5 a cow and it is about 80c per sheep in additional costs.

Senator BOSWELL —I did an exercise, and it was a lot higher than that.

Mr McElhone —In total that figure was about $63 million a year, which I referred to—

Senator BOSWELL —That is totally inconsistent with the feedback that I have had from the abattoirs. But that is good. That is part of the reason we have these inquiries.

Mr McElhone —I am just referring to some work that has come out from the Australian Meat Industry Council. That work may have been updated, but that was their latest information.

Senator BOSWELL —We have running on top of emissions trading a renewable energy target, a RET. Have you done any work on that? We are impacting both sides. We have an ETS coming in here and a renewable energy target coming in here. That is going to put the price of fuel up. Have you done any work on that?

Mr McElhone —No. We have not done work on the mandatory renewable energy targets. We are saying that we need to look at a whole range of additional options which are appropriate, bearing in mind that the CPRS clearly is nought right now. But I do not have a specific answer for you on MRETs.

Senator BOSWELL —Have you done any modelling on, say, the dairy industry, Golden Circle or food processing generally? How much will the price of electricity go up for, say, the dairy industry or Golden Circle?

Mr McElhone —Our dairy members have done quite extensive work on this. They are talking about reduced farm incomes of about 15 per cent, even as an uncovered sector, from day one based on some of those indirect costs. Through that obviously they are quite exposed to additional costs of electricity.

Senator BOSWELL —Let us not consider the emissions from the cattle but just the cost of increased electricity, increased—

Mr McElhone —That is purely indirect cost. There will be between 10 and 15 per cent in reduced farm incomes for dairy producers alone.

CHAIR —Even though they are not covered.

Mr McElhone —Yes, even though they are uncovered.

Senator MILNE —That is assuming, though, that they are not producing energy themselves under a gross feed-in tariff, where they could actually have it as an additional source of income. Isn’t that right?

Mr McElhone —It is clearly just looking at emissions sources rather than at what they can actually contribute to the equation on the sequestration side.

Senator BOSWELL —I am not quite sure, Senator Milne. What are you proposing? Are you proposing that they feed back something?

Senator MILNE —You are suggesting that farmers are going to bear all the costs. I am saying that, with a range of policy settings, you could have farmers actually generating an income from producing renewable energy.

Senator BOSWELL —How would they produce renewable energy?

Senator MILNE —They could have wind turbines, they could cover their barns with—

Senator PRATT —They could grow—

Senator MILNE —They could do all manner of things, like they do in Germany. The farmers in Germany have done incredibly well out of gross feed-in tariffs. There are two ways of looking at this.

CHAIR —Let’s not turn it into a debate amongst members of the committee.

Mr McElhone —I would say that that is one thing we have identified: utility level renewable energy generation is definitely an opportunity for many regional communities, particularly agricultural communities.

Senator BOSWELL —You are representing a couple of hundred thousand farmers at the moment, and the moment of truth is coming in a couple of months. We can debate as much as we like how you can turn your farm into a generator, but that is not the question at the moment. The question at the moment is: what will be the impact on the Golden Circles, the Fonterras, the dairy industry? If that impact is going to be significant, will that allow for dairy industry products such as butter to be imported into Australia? You cannot drop your price to protect your market because you will go broke. You cannot put your price up because the imports will take you out of the market anyhow. Only last year the pineapple growers had to reduce their crops by I think 40 per cent because they were getting knocked off by imports. What is the impact of emissions trading on the food processors, the dairy industry, the abattoirs? I would be very surprised if it were $5. I would be very surprised.

Mr McElhone —That is the information we have to hand.

Senator BOSWELL —Do you have any other costs that you can actually submit to the committee? You do not have to take it off the top of your head.

Mr McElhone —The people who have done the most work on this are the dairy sector and the red meat sector. I know that our Cattle Council members are very close to that issue on the red meat side and will be able to provide that to the committee.

Senator BOSWELL —The other question I am going to ask a number of witnesses is this. How can you actually make a decision on an emissions trading scheme when you do not know what the impact of a renewable energy target will be? That will increase the price of fuel again. You will be facing this in a couple of months time. These decisions have to be reached. How can you put forward a proposal for what emissions trading is going to do if you are not taking into account the impact of renewable energy? I think, just from my back-of-the-envelope calculations, that will put the price of fuel up about 20 per cent.

Mr McElhone —As I said, we have not done much work.

Senator BOSWELL —Does it worry you? Does it concern you?

Mr Fargher —Through you, Chair: the costs do concern us. We have been extremely concerned about the costs, and we keep saying that despite the fact that we are not covered we are affected. That relates to costs, to costs going up and to costs that we cannot pass on. If they are bound at the processing sector, we know where they will end up—that is, back on our farmers. If our international competitors do not face those costs, obviously our people will be hopping mad about that. That is what they are animated about and that is what we keep talking about.

Senator FIELDING —What does that actually mean? They are mad about it. Does it mean jobs? We heard before that there has been no discussion about whether or not jobs would be lost with a Carbon Pollution Reduction Scheme. We have heard in this committee before that no-one seems to have covered the idea of jobs. You are saying they are going to be annoyed and angry about it. Does that mean you will lose five per cent of jobs, 20 per cent of jobs? Someone needs to say the figure. We cannot say the figure. You folks need to tell us what you are thinking. You need to take a stab in the dark.

Mr McElhone —I can tell you, from the work that is available through the Australian Farm Institute, as a result of the CPRS we are talking about—with a conservative assumption of agriculture being covered by 2016—a $10.9 billion reduction in gross value of agricultural production by 2030. That is where the concern is coming from. We are seeing those figures. Obviously that does not take into account some of the economy’s capacity to adapt. It is using a business-as-usual approach.

Senator BOSWELL —Did you say $10.9 billion?

Mr McElhone —Yes, $10.9 billion. Of that, $6.6 billion will be imposed on the beef sector.

Senator PRATT —What is the cost of climate variability?

Senator MILNE —What is the cost to your productivity of non-mitigation?

Senator FIELDING —We can have that debate secondly. What we need to get on the table is what it is going to cost the farmers to start with and what farms are going to be sent to the wall. Then you would have a factual amount. Then you would look at the cost of no action. You cannot just keep on saying, ‘Well, let’s just look at the cost of no action and just do something.’ You have to actually look at both sides.

Mr McElhone —Let me say that that is looking at a coverage scenario under the CPRS. We are saying that we can make a contribution, so let’s look at what mechanisms we can use that do acknowledge farmers for what they can contribute.

CHAIR —We are running really close to time. My intention is to go for a few more minutes. Senator Pratt has a couple more questions.

Senator XENOPHON —And I do too, Chair.

CHAIR —Okay. I will put you on the list, Nick.

Senator BOSWELL —I will be one minute.

CHAIR —Senator Cameron has some questions he is going to put on notice. On my initial question, I would like you to go back and look at a Hansard. I am happy to have that put on notice and you can come back to us to deal with that.

Mr Fargher —I would not mind having a go at answering that.

CHAIR —Okay. If we let Senator Fielding finish, we will do that quickly. Then we can go back to Senator Boswell for one more question. Then we will go to Senator Pratt.

Mr Fargher —I just want to say quickly that I would love to have those numbers and I will test our people again to see if we have any more concrete numbers, but the issue is—and I am not trying to abrogate our responsibility—that, with the drought in regions, we are just not sure how this season is going to look. We have the financial crisis, where we have seen market deterioration in a lot of our markets impacting on price in, say, dairy. Then we have this indirect cost coming at us in terms of processing on dairy. It is impacting on our industry, but how do you disaggregate out job losses, if you like? We are just not the type of organisation that likes to do that unless we know what we are talking about, and we do not have that tangible figure. If we get it, we will provide it to all and sundry, but I cannot give you the specificity that you are looking for around that. I apologise. I just do not know. I know the costs are indirect. I know our people are concerned about it. I know they keep contacting us all the time and coming to every meeting, saying, ‘What about these costs?’ and, ‘How are we going to mitigate these costs?’ But what exactly is that going to mean for jobs around those other issues I talked about? I just do not know at this time.

Senator BOSWELL —You have two options: either you cut your price, and farmers basically cannot afford to do that, or you put your prices up, and then you get knocked over by imports. You have nowhere to go.

Senator CAMERON —It’s easy. You’ve got all the answers!

Senator BOSWELL —I have not got any of the answers. I have the answer that, if you put your costs up in primary producing, they cannot be passed on so have to be passed backwards. That would then lead to people losing market share.

Mr Fargher —It really does also come to the nature of this international engagement, because I can tell you that our cost base is increasing, as it has for the last 20 years, and we are trying to get access to markets to get a better price for our product to offset that, but every time we get out of bed in the morning someone blocks access to our product. That aside, if everyone is involved in this, we will back our people against cost increases, but if we are the only people exposed and our competitors are not that is when it becomes extremely problematic for us. That is why we want a global approach and that is why we want the international rules changed—so we can start getting some credit for the carbon we put back in the soil, not just our emissions from livestock and other industries.

Senator BOSWELL —Therein lies the whole problem. There was a bill passed in the US Senate on 4 April, and it said, ‘We will do all these things as long as there is no overall burden to the consumer.’ The bill passed with that rider on it. It is an oxymoron—you cannot put in emissions trading if you are not going to put a burden on someone. That signals to me that America is very lukewarm on this. The green paper was modelled on the fact of the rest of the world coming in, and the rest of the world is not going to come in. Collectively, you in farming are going to be out there with a few other people who have emissions trading schemes that are very lukewarm—not as vigorous as ours—and the costs will have to be carried by the—

Senator CAMERON —I hesitate to raise a point of order, but he has answered that.

CHAIR —Senator Boswell, I am going to take that as a comment, not a question.

Senator PRATT —This is a good time to pick up the question I wanted to ask. Clearly there are some challenges to bringing agriculture into the CPRS immediately, which is why it is not on the table now. Some of those are, as you have just highlighted, the international rules, in particular how they deal with agricultural emissions and sequestration. I want to ask you about what needs to happen to the rules internationally. How do you think that debate is going? Which other countries do we have things in common with in how we need to advocate that issue? I know that there are problems, for example, with dealing with things like anthropogenic and non-anthropogenic release of carbon from soils et cetera.

Mr McElhone —Anthropogenic and non-anthropogenic and differentiating those impacts to distinguish between things that farmers can contribute and things they have no bearing on is the essence of the issue. We are working closely with the government on their negotiating process. We have ongoing dialogue through that process and also through the International Federation of Agricultural Producers, of which we are a member. We are also engaging through that process, and it should be said that there is a varying degree of understanding through the international agricultural community about some of the potential ramifications of these rules being the way they are. It is an education process that we feel is very important for us, bearing in mind that it is only Australia and New Zealand who are entertaining the idea of covering agriculture within their emissions trading schemes. Because we are more acutely aware of the risks and the perverse outcomes, we feel that we are driving that agenda quite hard.

Senator XENOPHON —Given the time constraints, you may want to take this question on notice. What work has the NFF done in relation to the potential for carbon reduction due to a change in agricultural practices, such as tillage and the whole issue of sequestration generally?

Mr McElhone —I do not have the exact figures. Obviously there is a lot of debate about the extent of the opportunities through soil carbon and the different practices that can generate positive soil carbon outcomes. I will see what information I can provide on notice.

Senator XENOPHON —Thank you.

Senator CAMERON —There is the issue of the cost to the meat industry. Could you provide the methodology and modelling for both the meat industry and the dairy industry analysis that you have quoted? Could you also provide the committee with details of the tools and policy settings that you asked from the Howard government and what response you got regarding those tools and policy settings over their last 11½ years?

Mr Fargher —We have been asking about those things for about 20 years, and if governments change we ask the same questions. I am happy to provide the questions. We have been talking for 25-odd years about the tools and R&D for our industry.

Senator BOSWELL —I have questions to ask the witnesses.

CHAIR —Could you put them in writing, please, Senator Boswell? We are 15 minutes over schedule. With the agreement of the committee, we are going to sit until 12.45 pm so that we get to hear from the next witnesses. This is an important inquiry for the witnesses to get their points across, just as it is important for committee members to ask their questions. I know propose to move on to our roundtable on key design features of the CPRS. I thank witnesses from the NFF and look forward to the answers to the questions on notice.

[11.18 am]