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STANDING COMMITTEE ON RURAL AND REGIONAL AFFAIRS AND TRANSPORT
24/07/2008
Carbon sink forests

CHAIR —Welcome. Do you wish to make a brief opening statement before we go to questions?

Ms Newton —I just want to give a brief overview of horticulture in Australia as it currently is. Horticulture Australia Council—HAC for short—represents the horticultural industries, which include fruit, vegetables and nuts, and lifestyle or amenity horticulture—nursery, garden, flowers and so forth, and turf. We are worth about $8 billion a year. There are probably some 30,000 businesses in horticulture nationally. We are the second largest and fastest growing agriculture sector. In 2006-07 exports were worth $763 million. We employ around a third of those employed in agriculture.

We operate in an extremely competitive environment, and some reviews that are currently underway—the ACCC grocery price inquiry, for one—are looking at parts of the competitive supply chain in which we operate. The fresh produce market is dominated, as you will know, by the two major supermarket chains and they have significant market power. Labour costs in horticulture are, on average, around 50 per cent of the input costs, which is high. Those parts of the horticultural industry which have been able to mechanise—olives, wine and so forth—have done so. However, unfortunately, most fresh fruit and vegetables, in particular, need to be hand-picked—that is just how it is.

We have been seeing the impacts of climate change for quite some time, and I do not have to tell anybody here about what is happening in the lower Murray-Darling Basin, in particular. That is one example of a fair swag of Australia that is being impacted by drought and climate variability. However, this tax initiative we are seeing may offer some opportunities—particularly in the lower Murray-Darling Basin, for example—for growers to offer real value in terms of providing environmental services back to the broader community while retaining viable and sustainable regional communities, farming families and infrastructure.

As I think the last witness said in their evidence, there is still some significant research that needs to be done in the area of carbon sequestration, carbon sinks, soil carbon versus planting carbon—and I will remind the committee that horticulture already has many thousands of hectares of permanent plantings scattered all over the country which are in themselves a carbon store and carbon sink. But we would make the point that, if this were to be a valuable initiative which did not take existing high-quality agricultural land and therefore food production out of the system, it would need to be linked very clearly at the policy level with water buyback and with changes to the entire policy format for drought and other disaster relief, including exceptional circumstances and particularly the exit packages in the lower part of the basin. I am happy to answer any questions.

CHAIR —Thank you, Ms Newton. Mr Swaddling, do you wish to make a brief opening statement?

Mr Swaddling —No, I am comfortable with that statement, thank you.

CHAIR —We will go straight to questions. Senator Joyce.

Senator JOYCE —Thank you very much. Do you feel that the current position of MISs—and this incentive works on the same principle—has put pressure on horticultural land in certain areas?

Ms Newton —That is certainly the belief, although research conducted by the horticultural research and development corporation, HAL, Horticulture Australia Ltd, showed no general pattern of resource pressure—’resource’ meaning land and water pricing and so forth. While it did show up in some areas, there was no nationwide pattern that was clear.

Senator JOYCE —Has your group also done studies or does it have a view, even if it is only anecdotal, on the effects of forestry and the capacity for river systems to get the water that they formerly got? Would you have any concerns, for instance, if a large, tax-inspired forest were to set up upstream from you; would that have an effect on how you do business?

Ms Newton —I do not believe that we have the evidence as yet to make a statement about that.

Senator JOYCE —We have heard before in evidence that there is a belief by some in the timber industry that there is the capacity for interaction between forests and horticultural land. I know this is a very obvious question—and I am not being ridiculous; I think it is important to get it into the Hansard for people who will read it—but is there a capacity to grow horticultural products in an area where, for instance, there is growth of Australian eucalypts? Can you grow one underneath the other? Are they compatible in the same field? I think there is an obvious answer to that.

Ms Newton —Yes is the short answer, I think, but obviously a lot more research would need to be undertaken for the technical aspects of that. I should point out that Horticulture’s NRM Strategy, under the Horticulture for Tomorow umbrella, has been working on a range of NRM research and practices for quite some time. In fact, we believe we are at the leading edge of this in Australia. One of the things that that has shown is that, for example, with the integrated pest management, most of our progressive growers, rather than relying on chemicals to eliminate pest issues, will use native vegetation in very close proximity, and retained wetlands are actually an advantage.

Senator JOYCE —Yes. Close proximity is one thing, and I understand exactly what you are saying there. Having the hills or swamps with trees is one thing, but to have gum trees sitting in the middle of your cabbage patch is something completely different.

Mr Swaddling —Absolutely. Whether it was possible would depend on the density of the plantings of either the commercial crop or the eucalypt.

Senator JOYCE —You can only have one or the other. You cannot have them both in exactly the same location. If you look at wheat and barley, wherever there is open country there is a crop; wherever there is a tree, there is no crop. Of course—

Senator HEFFERNAN —There might be a cow sitting under it.

Senator JOYCE —Yes. Horticulturally, it is even more so. The capacity to hold moisture for the growth of the crop is absolutely fundamental, otherwise the crop does not grow.

Ms Newton —And harvested in many cases. I should point out that many growers do use wind breaks and other protections for frost, wind et cetera. So that is possible.

Senator JOYCE —And chemical drift and a whole range of other things—absolutely. Do you think there is the possibility where we could prescribe the legislation to say, ‘If you want to grow trees, that is fine, but you can’t grow them in these types of areas’? If they grow them in the middle of your cabbage patch, for want of a better term but to paint a picture, they will be in a tax-inspired advantage that forces your growers out of a job, because ultimately you will start losing economies of scale. How many of your growers would disappear before the packing house would say, ‘We have no reason to be here anymore because you don’t have the quantity of product to make us viable’?

Ms Newton —I am not clear about your assumption, Senator. It sounds as though you are suggesting that a tax-inspired investment regime which might plant forestry, as you describe it, could have the say over someone’s land rights on their own property.

Senator JOYCE —No—I am talking about when it comes to selling. As land comes on the market, someone says, ‘I’m going to get an up-front tax deduction—it says so under the legislation—for the capital expenditure involved in the planting of forests. I’ve got a billion-dollar tax problem.’ Tell me the area where you live, Ms Newton.

Ms Newton —In Canberra.

Senator JOYCE —I do not know—

Mr Swaddling —Say, the Hawkesbury Valley.

Senator JOYCE —Say I buy half of the Hawkesbury Valley and, after buying half of it, I have my tax deduction, but your growers, the ones that are left, will have a huge problem because they will be below the critical economies of scale.

Mr Swaddling —Absolutely.

Ms Newton —I can see that happening. On the other hand, I would have to say that in the lower Murray-Darling Basin, for example, where we have significant numbers of people who have already identified, through their own water budgeting and business planning practices, that they are basically not viable in the projected environment to come—and they are on soldier settlement, in many cases, which is a relatively small area of land—that may well be a positive outcome, a win-win all round—

Senator JOYCE —But it might not necessarily be a positive outcome. A hectare of trees uses about 2.6 or 2.5 megalitres of water, so it might not necessarily be the outcome that the environment is looking for to get water back into the river.

Ms Newton —A hectare of planted trees initially will take some water—there is no question about that—but a hectare of planted forestry type trees will take a great deal less than a productive hectare of citrus, wine grapes or whatever. It depends but, on average, we work on about 10 or 12 megalitres per hectare for productive horticultural plantings, permanent plantings. There is a distinct difference. The difference there is that, in our view, it would enable a grower who was, for example, willing to exit the industry to sell some of their water back for the environment, have an income stream from that, cease farming, engage in environmental plantings on their property, remove productive—

Senator JOYCE —Ms Newton, as your horticultural people leave the industry, what happens to the Australian consumer with regard to the price of product at the shop?

Ms Newton —Unfortunately, that is one of our difficulties at the moment. Horticultural growers, as you know, are price takers, not price makers. They are rarely able to pass on increases in production costs to the consumer.

Senator JOYCE —Coles and Woolworths certainly do it for them, though, don’t they?

Ms Newton —That may well be the case, and there is an inquiry about that at the moment. Growers rarely ever benefit from whatever happens in the supply chain between the consumer and themselves, at the farm gate. While I think I understand where you are coming from—are we going to see food shortages in Australia because there are going to be large numbers of—

Senator JOYCE —Quite obviously, if you start taking out agricultural or horticultural land, Australians are going to eat horticultural product from somewhere else. You are intrinsically going to make your own position weaker and weaker.

Ms Newton —It is an issue. Nevertheless, we are facing that issue with the drought whatever we do, it appears. So, whether or not somebody comes and plants something else on that property is probably irrelevant to the decision about whether or not that property is, in the new environment, a viable horticultural productive capacity.

Senator JOYCE —So, you would agree with that, Mr Swaddling, that really what your people are looking for is the capacity for an easy exit from the industry that would be provided by this?

Mr Swaddling —It is certainly not an easy exit. It is simply that there are some that are not viable. As it stands at the moment some of them will simply go bankrupt and that land will then be purchased, perhaps by the people that we do not want to purchase it; whereas, if there is an opportunity to exit the land with dignity, this tax deduction, if it is combined, could certainly help that happen in a more structured way.

Senator JOYCE —It is very important, and that is really agreeing. That is saying that you want this to go forward because it gives some of the people that you are involved with the capacity to exit the industry and get a better price for their land on the way out.

Mr Swaddling —No; as it stands it does not help them. It would have to be altered. From my reading of it, it would not apply to them at this stage because, to comply with the EC, they have to leave their land. We are suggesting that, rather than have them leave their land and sell their water rights, it would be better if they were to sell a majority of their water rights so that they could go back into the environment. A small allocation of water would allow them to grow trees, which would benefit the environment and there would be perhaps a very small income stream from the carbon sink value. But just as importantly, they would be allowed to remain in the community in their family home, so it would provide a structure for some of those people who will get out of the industry one way or the other.

Senator JOYCE —Just so that I am clear—and I am painting it in simple pictures so that the issue makes sense—you are saying that you want the farmers to have the capacity to remain and also to carry on some form of horticultural farming and, at the same time, to use some of their portion of the land for an advantage by using this scheme. Is that what you are saying?

Ms Newton —That may well be an option for some; however, for those who have already decided that they are nonviable in the future, they will need to—as Stuart has said, under the current EC rules—not only stop farming to exit the industry, but leave their farm. For most of our people in the lower part of the basin—

Senator JOYCE —They do not want to leave their farm.

Ms Newton —No. They do not want to leave the property, because the property also holds the family farm and, under current state government regulations, the local councils are not able to excise the family farm off the block that was productive horticulture and they are not allowed to rezone them into lifestyle blocks either, so we are caught.

Senator JOYCE —So we are saying that we want an amendment to the legislation so that the family farm, and something that adjoins the family farm, can be separated in such a way that the person can still maintain their house and their structure there and they can sell the rest off.

Ms Newton —They can sell or they can choose to provide environmental services, whatever option suits their circumstances.

Senator JOYCE —All I was really trying to do was get to the point.

CHAIR —Thank you, Senator Joyce. Has your council had any involvement in Kununurra at the top end of WA?

Ms Newton —Yes.

CHAIR —I had the pleasure of visiting the Rewards Group the week before last and seeing what they have done, and I just want to clarify this. There is an assumption amongst committee members that all MISs are bad and it is all about trees, but for other committee members the Rewards Group have a huge mango and grapefruit investment up there, which is an MIS and in which 287 Australians have invested. I think it is a very good news story. Would you like to tell the committee about what is happening up there, in the council’s view?

Ms Newton —You are quite right. Much of the corporate involvement in horticulture is through the MIS system. HAC has a particular policy view about the MIS tax incentive structure: we do not agree with it because we believe that, as Senator Joyce alluded to earlier, it can create distortions in the system, particularly focusing on input costs rather than outputs of productivity. Nevertheless, many of the leading lights in horticultural corporate activity are certainly under the MIS banner, and we have no problem with corporate investment in horticulture.

CHAIR —Okay. We have cleared that up, on the record. Senator Milne.

Senator MILNE —I am interested in what you are saying about those farmers who are no longer viable because of climate change and water issues. Certainly, adaptation is one of the issues that the country has to come to terms with, and I am interested that you did not mention the potential for renewable energy as another farm crop, essentially, to allow communities to be viable and people to stay on the land. At the other end of the scale we are concerned that, for example, viable dairy communities have become unviable because of MIS plantations, and I can cite Preolenna in Tasmania as a classic case, and there are some areas in the north-east of Tasmania as well. The concern here is that, when the plantation companies move in and buy up half the valley, then the dairy processing factory says, ‘You have to either put storage on your property because we’re not sending the truck out there to collect the milk every day, or come in twice a week,’ or you sell out to the plantation companies. Eventually that drives everybody out of the valley, whether they like it or not, which is the point Senator Joyce was making about sugar as well. You get to a point of unviability because of the extra on-farm costs to meet the processor’s requirements or go somewhere else.

So what I want to ask is: do you have lists of the dairy land that has been taken out of dairy production for forest plantations or other categories of horticulture or agricultural production that been taken out for forestry, since the MIS for forestry came in?

Ms Newton —No, I do not, and I have to say that within horticulture the pattern has tended to be more that the MISs and other corporate investors have chosen cheaper land on the outer reaches of what was the traditional horticultural enclave, and Kununurra is an excellent example of that. There are many thousands of hectares of permanent plantings up there, not just the ones that Senator Sterle indicated. However, one of the complaints that many growers have made is that the purchase of previously more marginal land, on the outer fringes of the traditional growing areas, has raised the price of land—

Senator MILNE —Land, exactly.

Ms Newton —and increased competition for the land and the water and so forth. So, rather than the fact that existing horticultural land has been taken over and something else has been planted on it, that seems to have been the major complaint from growers. Can I go back to your earlier point?

Senator MILNE —Yes.

Ms Newton —Clearly, it is in the economics. If a grower, whether in horticulture or dairy or any other agricultural pursuit, is offered a return for their current produce that covers more than their costs of production and gives them a satisfactory income, then the incentive to sell up to anyone else for any other purpose is significantly reduced, if not eliminated. I think that is something that this committee might want to look at more: the value proposition and the equity of price returns back to growers at the barn gate.

Senator MILNE —I could not agree more about that, and I understand those issues, but equally I am unconcerned about the loss of community viability. On the one hand you have talked about the need—and I totally support this—for people to be able to stay on the land that they live on and in the communities they live in and not be driven off them, but what happens is that, once you lose critical mass, you lose the school bus—

Ms Newton —Absolutely.

Senator MILNE —you lose your postal run, you lose everything and, in the end, you have no community and so the community disintegrates.

Ms Newton —Exactly. It is our concern that, if people wish to exit, there is an alternative that enables them to stay in that community. It is exactly for that reason.

Senator MILNE —Yes, but using a tax deduction for putting in plantations may not be the answer to doing that. That is an issue which needs to be addressed as an adaptation strategy under some framework of legislation. It does not necessarily have to be this one.

Ms Newton —I understand what you are saying.

Senator MILNE —That is where the farming and renewable energy issue is big on my agenda, in terms of taking the transmission lines out to the pre-permanent areas and therefore allowing people to sit on the ground and watch the solar collectors make them an income.

Ms Newton —I would like to add a point to that. It is not just the tax advantage. One of the interests for us is that the thing that horticultural permanent planting growers know how to do best is look after trees. If there were an alternative where they maintained self-esteem—

Senator MILNE —Yes—ecological services. I can totally understand that.

Ms Newton —ecological services to their local community and so forth—then that would be a real incentive for many of our people.

Senator MILNE —But can you also see the way that this is being structured? Whilst it may be pitched as being something individual growers can benefit from, the high probability is, like the MIS in forestry, it will be managed by large investment companies whose interest is not necessarily in individual growers.

Ms Newton —That may well be.

Senator O’BRIEN —Isn’t it equally feasible that, just as with schemes devised in Western Australia for wheat growers, managed in the interests of the wheat growers, those arrangements could be managed for the horticultural properties that you have been talking about, as a need for alternatives in order to remain on their properties and generate income?

Ms Newton —There is the risk and there is the potential benefit on both sides—yes.

Senator O’BRIEN —Do you have any suggestions as to how the legislation might encourage the interests of the members of your organisation as against the larger investment companies?

Ms Newton —To be honest, Senator, we have not had a chance to look at it in enough detail to give you a response to that.

Senator O’BRIEN —If you would like to put something in later, that would be fine.

Senator MILNE —In relation to that, I invite you to give some consideration to having some sort of grant as opposed to a tax. If you are not making an income, you cannot get tax returns. This is in relation to the restoration of forestry and native vegetation, as opposed to planting plantations. That is one of the ways in which individual growers who own land are able to restore the native vegetation on their property for ecological services, much more so than an investment company is ever likely to want to do that.

Ms Newton —Certainly in the lower part of the basin, salinity mitigation would be a really important ecological service rather than a forest, as you say.

Senator MILNE —Yes—that is what I am talking about. Perhaps you could come up with some suggestions.

Ms Newton —We will do our best.

CHAIR —As there are no further questions to the Horticulture Australia Council, thank you very much.

[10.43 am]