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Emissions trading and reducing carbon pollution

CHAIR —Welcome. Thank you for your time this morning. I invite you to make a short opening statement, after which we will move to questions.

Mr Flittner —Thank you. As I am sure you are all aware, the TFGA is Tasmania’s peak farming body. We represent about 65 per cent of the farmers in the state at the moment. In my position of Drought and Climate Change Manager, I have been dealing mainly with the drought for the last two or three years and I am moving now more into the climate change implications for the state. I guess my key role is to help our farmer members understand what this is all about, which is no easy thing.

My opening statement is that TFGA, as part of the family of farming peak bodies around the nation, supports the National Farmers Federation’s submissions to this committee. We are an active part of the National Farmers Federation’s Climate Change Working Group and, as such, feed information into and take information from the NFF. A lot of the heavy lifting in this topic is well beyond the means of a small organisation like ours, so we do rely on our national body to do that for us. I know that the NFF have put a submission into this committee and presented as well, so I will not cover all of that again. I will be talking on behalf of our local farmers here and only about the implications of the Carbon Pollution Reduction Scheme for our farming community.

Like the NFF, the TFGA has concerns that the CPRS will not serve agriculture very well, at least in the short term. We believe that the sector will be hurt by the negatives that come with that scheme and that it will have very little opportunity to take advantage of any positives, if I can put it in those simple terms. Despite the conversation that you have just had, members of our organisation do accept that climate change is a real factor. What percentage is caused by natural factors and by human factors is a matter that we could argue until the cows come home, literally, but our members accept that agriculture must play a part in any regime or scheme looking to the future to try to control climate change.

I will talk about two distinct aspects of this whole climate change agenda, as we see it; I call them the reality and the policy. There is a reality of climate change. Go out to a farm and you will see farmers seeing temperatures changing. They are seeing rainfall patterns changing from those they are used to, which has implications for the types of businesses that they can run. They are real things and we have a job on to help our farmers work out what those things mean for them, their businesses and their futures. There is also the policy agenda, which is the entire global and national attempt to do something about the pollution that is causing climate change. The two things are linked but also distinct, and we need to treat them like that because our members have certain needs in that regard.

To cope with the reality, as I call it, farmers need to do two things: adapt to the new environments and situations; and, through that, to innovate, which means they need to create new farming enterprises and businesses based on the new realities of the climate in their area. Policy is really about net emission reduction, and there are only two ways of doing that. You either prevent emissions going out in the first place or you capture them once they have been emitted. That is what all these agreements and this policy are about.

We do not believe that the CPRS, in its current form, does either of those two things very effectively, especially not for our agricultural sector. An immediate impact of the CPRS on our sector would be increasing costs into the sector, which would include direct input costs from the covered sectors. So we would expect to see increases in things like fuel, energy, fertiliser and other manufactured items. All sectors covered by the CPRS will have increased costs; they are significant costs in any farming enterprise and they are expected to go up. We also expect there to be increased costs to the processing sector, as that is being considered an industrial processor, which includes abattoirs and things like that. They will have increased costs because they also will be covered. We believe that, because the agricultural sector is a price taker and we cannot pass costs on very effectively, processing plants will offer lower prices to our farmers for their produce to offset the additional costs of those processing plants. So that is another negative, if you like, for the farmers. On top of those two things, as I say, agriculture is a price taker in the world markets, and we do not really have a great opportunity to pass those costs on elsewhere.

We are a bit concerned about the opt-in forestry provisions in the CPRS, mainly not because of forestry per se but because, effectively, forestry now will be the only avenue by which farmers and landowners under this scheme will be able to gain any benefit from the CPRS. Anything else is not allowed, has been excluded or is not in Kyoto, so forestry or timber is the only one left. While many of our members will take advantage of that factor, it has the potential of distorting land use decisions. Therefore, we are a bit concerned about that as well.

We believe that, at the moment, there is little incentive for farmers to adapt to emission reduction techniques and things like soil carbon sequestration, because they are just not on the immediate agenda. Also, as you would be aware, the current regime will exclude opportunities for offsetting from agriculture to other sectors until a decision has been made as to whether agriculture is in or out. So that really takes out another whole raft of opportunities for our farmers. In addition, the CPRS really does not provide any real incentives for best management practices or renewable energy production on farm, which we believe could have great potential for our farmers. So we do not believe that the CPRS, at the moment, does a good job for our members.

We are looking for a system that does not penalise our agricultural sector and landowners and that does not disadvantage our sector internationally. We do not want to see our businesses disadvantaged because of cost increases here, when such cost increases are not occurring elsewhere. As you would be aware, in the rest of the world, I think only New Zealand at the moment is even considering including agriculture. We would like to see incentives and rewards being provided for both the adaptation and innovation that our farmers will need to undertake and also for emission reduction. In addition, we would like to see a recognition of past and present achievements in carbon reduction and emission control; our farmers have done a good job over the last few decades in many areas, which is not recognised under the current regime. Also, we would like to see encouragement for R&D investment in adaptation, innovation and emission reduction.

CHAIR —Thank you.

Senator BOSWELL —To meet our Kyoto protocols, farmers in Queensland have been banned from clearing and now are being banned from clearing regrowth. Is the situation similar in Tasmania?

Mr Flittner —No, not that I am aware of; we do not have any bans on clearing per se.

Senator BOSWELL —So, if you have a grazing property, you can go out and clear it.

Mr Flittner —As far as I am aware, there is no—

Senator MILNE —Tasmania is well behind the rest of the country in that regard, Senator Boswell.

Mr Flittner —Under certain conditions, you need permission.

Senator BOSWELL —You have a very healthy dairy industry in Australia. We have been told that it takes as much power to dry milk powder as it does to dry cement. The cement industry is being covered by an EIS. How is your dairy industry going to compete with the rest of the world, if you have to pay very significant costs for drying milk into powder?

Mr Flittner —Obviously that is an issue we are concerned about. If all the other countries are not doing that in their sectors, we will be disadvantaged; there is absolutely no doubt about that. One of the main concerns that we have with the current structure is that the cost imposition on our sector will be there from day one, and we will not have any opportunity to defray those costs or have them included in an emissions intensive scheme.

Senator BOSWELL —I have mentioned this in the committee on numerous occasions: in Queensland there is a Golden Circle factory. I think the equivalent in Northern Tasmania would be McCain.

Mr Flittner —Yes.

Senator BOSWELL —Golden Circle is struggling against imports at the moment. Whether or not they are subsidised is another matter for debate, but they are losing market share rapidly from imports. It was a cooperative and was saved by Heinz going in and buying it. What will happen if your food processing plants have to carry the consequences of an ETS and an RET and then compete against countries that do not have to cope with similar consequences?

Mr Flittner —As I say, as far as I am aware, processing plants such as that will be considered an industrial process and not part of the agricultural industry; therefore, they will be covered by the industrial section of the ETS or the CPRS, which means there will be increased costs. Again, I think it is true to say that only those factories or businesses in those covered sectors that produce more than 25,000 tonnes a year will have to be part of that system; I do not know whether Golden Circle will be in that situation, but it probably would be. Assuming that it is, it will have increased costs. We are forecasting that across the nation, because they cannot pass the costs on internationally into the consumer market, they will pay less to the producers of the fruit in the first place. That is the problem.

Senator BOSWELL —Whether or not they will have to buy certificates, they will come within the ETS by virtue of the fact that the cost of power will go up for every electric motor, skin puller and chain—everything that works—in an abattoir or a processing factory. But the point I want to make is that you are perfectly correct: last year, in Queensland, the growers were told that they would have to take a 40 per cent cut in their quota; the factory would be taking 40 per cent less because of imports. Effectively, those imports were mainly but not altogether house brand products that they were in competition with. Do you see a problem with that?

Mr Flittner —There is always a problem when our producers are being disadvantaged by what, effectively, are created mechanisms, and we would rather not see that. As you would be aware, Australian agriculture is amongst the most open in the world. The least amount of government money comes into agriculture here than almost anywhere else, so we do not like those things happening.

Senator BOSWELL —I think New Zealand is slightly better than us, but not much. I know that you are not a big cattle producer, but how many export abattoirs do you have?

Mr Flittner —That is a moot point at the moment.

Senator MILNE —That is a moot point, absolutely.

Mr Flittner —A couple and one on the edge.

Senator BOSWELL —So two—

Mr Flittner —As I said before, we as an organisation have not done that work, as we just do not have the resources. We depend on the NFF to do that work and they have done some numbers—I know they have presented them here—of the cost they are forecasting it will be. I think it is $5 per head of cattle or something like that.

Senator BOSWELL —We will be receiving some information from an abattoir. They have informed me—they do not mind me saying this—that it is about $7 a head, plus $7 a head to build the certificates. But then they say that, if and when agriculture is included in the ETS in 2015, it would go up to $34 per head. You make the point that there will not be a magnanimous buyer out there who will pay the grazier more. Therefore, where we export against countries that do not have an ETS, we are going to be severely disadvantaged. I make the point that, if any industry is covered or has done their heavy lifting on this, it is the primary industry. It has kept—

Senator CAMERON —Point of order, Chair.

CHAIR —Senator Boswell, can we get to the question?

Senator CAMERON —Get to the question without talking about—

CHAIR —Senator Cameron.

Senator CAMERON —Give us a break.

CHAIR —Senator Boswell, can you bring it to a point, please?

Senator BOSWELL —Yes, I will. The point is: do you believe that primary industry has carried its share of keeping Australia’s emissions lower than—

Mr Flittner —Our view is that we have a big role to play here. Obviously, because we are not being included initially in the scheme and do not know whether we ever will be or, if we will be, how, there is a great opportunity that the country might be missing out on. Obviously, with the landmass that is under the ownership of farmers and the rural sector, soil and timber et cetera are areas that could add significantly to emission reduction in this country. But, as we are not part of it initially—there are reasons for that, I know—we do not want to feel that our industry will be disadvantaged by that factor; however, it looks as though it will be, if the current regime goes ahead as planned.

Senator CAMERON —Mr Flittner, thank you for coming to give evidence today. I am glad to see that you have said you accept that climate change is a real factor. I just wonder whether your association has done any analysis as to the effects that climate change could have on Tasmanian agriculture.

Mr Flittner —We ourselves have not but, as you may be aware, a number of research projects are occurring in Tasmania. The principal one is Climate Change Futures, which is reporting next year. This will give us some real data on quite small geographic areas right across the state and will tell us exactly what the science says it will look like. Say, if you are living at Ross or on the east coast, it will say, ‘The temperatures will do this and the rainfall will probably do that,’ and that sort of thing. That will give us the best science we can get on that sort of thing.

Obviously, with the current drought, we are seeing what could be climate change. Tasmania is still in the worst drought it has ever had, mainly on the eastern side of the state. So, when we say that climate change is real, our members, especially in those areas, are fully aware of that because they are seeing every day that something is going on. A lot of the traditional ways of farming and the records they have kept, which they have relied on, will just not be of any use to them in the future, so they are looking at where they go from here; it is real for them on a daily basis. That is why I differentiate, in this discussion, between the reality of that and the construct we are working on with carbon trading, carbon tax or whatever global system will be created; they are distinct things. Our member farmers have to be helped to make decisions today and tomorrow about whether they will have an actual business and what it will look like, as that is very important.

Senator CAMERON —Do you say that farmers should be in this scheme?

Mr Flittner —No, not particularly. In international debate about the scheme, a scheme or a response to climate change, as you would be aware, emissions trading is only one tool and is being put forward by only some countries. We do not have international agreement on this yet. There is not an international trading scheme. There could be a range of other ways of doing it, as you would all be aware. I know that some people are keen on a carbon tax rather than a trading scheme. The Chinese seem to be quite keen on—

Senator CAMERON —I am happy to go into the nature of the schemes, but I would ask you—

Mr Flittner —Okay. I do not think we, as a sector, have a firm view on the best way of addressing the international emissions problem.

Senator CAMERON —Do you know what amount of emissions agriculture contributes to the total amount of CO2 emissions in Australia?

Mr Flittner —I think the number is about 17 per cent. It is significant.

Senator CAMERON —It is about the second highest amount, isn’t it?

Mr Flittner —Individually, which obviously is why people want it included.

Senator CAMERON —So do you think agriculture should play its part in resolving this issue; and, if so, can it play its part without there being some cost in resolving the issue?

Mr Flittner —We believe so. As you would all be aware, one of our problems is that things like soil carbon have not been included in the Kyoto agreement; therefore, we cannot use soil carbon at the moment. This may be changed with the next Copenhagen round, which will occur at the end of the year. We believe that renewable energy has huge potential for agriculture or landownership. We have stacks of wind, soil, biomass, sun, biofuels and other things. A lot of our members talk to us constantly about this area. We run forums around the state, talking to farmers, and usually the biggest single topic of discussion is the opportunities for renewable energy on farm.

Senator CAMERON —Basically you are saying that, with every challenge, there is an opportunity.

Mr Flittner —Absolutely. To put it simply, our farmers see it in positives and negatives: the negatives are the costs of emission and having to buy credits and whatever; and there is a whole bunch of positives or pluses, which is earning income through things like renewable energy, soil carbon or those sorts of things. At the moment, I think the view is that they are going to be hit with the negatives and are getting almost no opportunity for the positives or the pluses, and they want to get involved in those things. Farmers have always had to be and are very adaptive and entrepreneurial. You will find that, if they are given the right signals, they certainly will get on board in a big way. But that has to be done in a way that builds their business and makes them viable and sustainable. It could be huge, if we get the settings right; we are arguing that they are not right at the moment.

Senator CAMERON —I come back to this issue that there is a cost on the globe in trying to deal with this problem. Farmers would accept, wouldn’t they, that they have to make a financial contribution for future generations? Isn’t that a reasonable proposition?

Mr Flittner —I suspect so. The contribution could be a positive financial one. If we can do things in better ways with better technologies, such as with renewable energy, we can all be winners and be in a win-win situation because the capacity is there; however, we just do not have the settings right at the moment.

Senator MILNE —To pick up that point, I trust then that the TFGA would support a national growth feed-in tariff that would give farmers a return from renewable energy.

Mr Flittner —Yes, that is a big issue right across the state. There will be states doing it differently, as you would be aware, which is a big disincentive. If that could be achieved, farmers would do this thing by themselves without having to have any other initiatives. So, yes, absolutely.

Senator MILNE —I want to pick up your ‘distortionary’ point about including plantation forestry as an opt-in to the Carbon Pollution Reduction Scheme. I thought it was interesting that you made the point you are concerned that it might distort land use decisions, particularly since we have no effective land use controls in Tasmania. When it commenced, this committee had a biocarbon roundtable. The general consensus there was that we need to incentivise the things that make the biggest difference; therefore, we need to incentivise the protection of native vegetation and forests and then finding ways of having stewardship programs—for example, restoration of ecosystems and so on. None of that is advanced by this. In fact, we also have the carbon sink forests incentive. On top of the opt-in for forestry, that will drive a further distortion to plantation establishment as opposed to native vegetation.

What is the TFGA’s position? Do you say that you would support taking out the opt-in for plantation forestry? In addition, would you support a complementary measure, which would be parallel to any emissions trading scheme, that would actually be a processes for land use managers—farmers obviously are land use managers—that incentivised the things with the maximum value for carbon and biodiversity?

Mr Flittner —The TFGA has a very clear forestry policy that essentially says that farmers should be able to farm as they see fit. We do not have a problem with MIS schemes per se or with forestry as an opt-in in this scheme. The point I made was that, because it is the only option on the table, it does run the risk of distorting those decisions because farmers cannot take the soil carbon option, because it is not allowed. So there is potential distortion simply because it is the only one being left. In a way, it is the same as the MIS schemes: it is the only MIS left; all the other have been taken away. While we think that is fine in itself and we encourage farmers to make their decisions based on their own circumstances—and a large number of our members do have forestry on their properties—because it is the only game in town, if you like, it is a problem.

If you go on to a farm and look around, you will see large areas of soil and grasses, timber of different sorts, animals, machinery, buildings and so on. Every single bit of that potentially could be part of the solution to this issue of climate change. At the moment, it is only plantation forestry that is allowed, and that is not the best way forward. Potentially, our farmers have a lot of other opportunities, if we can get the system right.

Senator MILNE —However, the problem we have is that there is no way agriculture is going into the scheme at start-up. That position is supported by the NFF and a large number of people, on the basis that the accounting rules are not there yet and so on. As you are not going to get agriculture in, I am putting to you: you have recognised the distortionary impact of having opt-in forestry. Since it is distortionary and you cannot get the rest in, wouldn’t it be better to take plantation forestry out and put it in the context of a complementary measure that incentivises a range of things so that it does not have that distortionary influence?

Mr Flittner —I would like to reserve my comment on that. I am not certain and I would have to go back and have some discussions.

Senator MILNE —But are you sympathetic to the idea of developing a parallel incentive scheme that would have a financial benefit to farmers for things like restoration of remnant vegetation, and so on, as well as other things?

Mr Flittner —We have discussed this at NFF level and it is certainly the view of a lot of our members that a raft of other complementary measures needs to be in the system.

Senator XENOPHON —Senator Milne’s logic is pretty compelling on that, though, isn’t it?

Mr Flittner —It is compelling, yes. I am not in a position to make policy on the run for our members, but they are the issues that we are discussing constantly. To some degree, we have to deal with what we have. We have to work out what we can do with what we have and, at the same time, build an alternative vision.

Senator XENOPHON —But, going back to the broader issue, if we can fix up the accounting standards at Copenhagen—because there is a flaw there in that soil carbon and the like are not included—would you agree that the CPRS in its current form is fundamentally flawed or inadequate in that it does not take into account the potential that agriculture has with respect to abatement?

Mr Flittner —That would be the view we would argue, yes. Right from the beginning, we have said that it is not a mechanism that really helps the agricultural sector. But there are reasons for that, as we say. The rules do not allow for lots of things, but you can change the rules.

Senator XENOPHON —But there is enormous potential for agriculture to do its bit on the—

Mr Flittner —Absolutely. Yes, there is huge potential.

CHAIR —Is the TFGA concerned that, effectively, there is no modelling that shows the impact the CPRS will have on agriculture flowing from the impact that will occur in the manufacturing sector?

Mr Flittner —Yes.

CHAIR —Effectively, the CPRS truncates agricultural at the farm gate; all the manufacturing that is applied to that is lumped into industry. We have had evidence that there is no modelling at all that demonstrates the impact on agriculture from the imposition of CPRS onto dairy processing, meat processing and, potentially, vegetable processing. No-one really knows what will happen to agriculture as a result of the impact of the CPRS on the processing sector. Is it a concern that nobody has done any work at all on that?

Mr Flittner —It is. A work plan is in train, which the government always had as part of its agenda. That was that, once they got their CPRS worked out, the process between now and 2013 would involve some research and modelling into things like biofuels and so on. That would give the government information on which they could then make a decision in 2013.

It does concern us. We and the Farm Institute have done some work on this. I know that the NFF has been looking at some modelling of estimations of the costs at abattoirs and things like that; that has been done. But obviously, the more information we can get, the stronger will be the arguments that can be made. I understand in a way why it has not been done. The emphasis really has been on the sectors that will be covered: ‘Let’s deal with them and not spend a lot of time on those that will not be covered’—such as ours, which is unfortunate for us. However, I believe that it is planned that some of that work be done.

CHAIR —But surely there should be an understanding of its impact, even though you are not going to be included. We spoke to the Farm Institute in Sydney and they said that their modelling does not include that particular element; so they have not modelled it. No-one else, including the Farm Institute and Treasury, has modelled this at all.

Mr Flittner —Yes, it is a concern. However, as you would know, one of our biggest problems is that there are almost no certainties in this debate at the moment, especially for agriculture. The international rules are all over the place or they exclude things that could be included. We do not really know whether it is feasible effectively to account for emissions from animals, for example; no-one has really done that yet. This is a completely new thing in the world, so it will take a bit of creativity to work out exactly the best way that things might work. The point of obligation is a big issue. If we use the current model, which is only businesses emitting more than 25,000 tonnes, barely a farm in the country will fall into that category. Will that be a model used in 2013-15? We just do not know. There are so many unknowns, and I guess that we are sort of inching our way forward.

Senator CAMERON —On these points, you do accept that the government is undertaking consultations with the farming and agricultural industry; as we speak, these consultations are taking place.

Mr Flittner —Yes, and we are engaged with the government in developing the work plan onwards.

Senator CAMERON —Some modelling work has been done by Treasury on the agricultural industry. Are you aware that Treasury says that, even with the introduction of a CPRS, there will be robust growth in the economy and there will continue to be robust growth in the agricultural sector?

Mr Flittner —Yes, I know. I think we are all aware that around the world, since the financial or economic crisis, the agricultural sectors have been the ones that have held up pretty much in every country, in terms of employment and growth. Yes, that is accurate. However, it is obvious that any negative impacts on the scheme will diminish that.

Senator CAMERON —But I come back to this point again: really nobody anywhere can escape from the fact that there will be some cost to dealing with the global challenge of CO2 emissions. I thought you had considered that everyone would have to make some contribution, including the agricultural sector. Is that still the case?

Mr Flittner —I still think so. I think that would be accepted. But, again, if we get the best scheme we can, it will minimise those costs and maximise opportunities, which I think is the bit that is missing for us at the moment.

CHAIR —I thank you for your interjection, Senator Cameron, because it reinforces the point that the Treasury modelling is flawed in that it has no idea about the impact on agriculture—

Senator CAMERON —That is your view; it is not mine.

CHAIR —because it does not include the impact from manufacturing. Nobody knows the answer to that—

Senator CAMERON —You are the chair, but that does not mean to say that you have all the answers to this.

Senator IAN MACDONALD —He is doing pretty well.

CHAIR —and that has been conceded by a number of people.

Senator CAMERON —That is your view again.

CHAIR —Mr Flittner, just going to a further point, you have concerns with the CPRS, it as it stands at the moment, and you would like to see some modification, particularly to provide for some incentive that would allow farmers to take part in respect of complementary measures.

Mr Flittner —Yes.

CHAIR —Thank you for your evidence.

Proceedings suspended from 10.40 am to 10.59 am