Tuesday, June 2, 2009

Bio-fuels we can take - but no subsidies and no mandates

I am speaking at a Sugar Conference in Cairns this week. To be honest I have been roped in as a favour but at least most of the big end of town will be there. Most of the final day constitutes an assessment of the impact of bio-fuels on the agricultural industries.

I think they envisage me as being supportive because we are involved in the grains industry that has been one of the major beneficiaries of bio-fuels. Two of the founding principles of Profarmer are free trade and minimal Government involvement (along with absolute independence). So to support the Australian bio-fuel industry in its current form would be to turn our back on these principles. While it may prove unpopular with some of our subscribers (like our opposition to the Single Desk), we have to remain true to our principles.

Anyway here is my argument. Declining global grain stock trends are undeniable and bio-fuels have played a role in these trends and the extreme price rises witnessed over the past couple of years. A lift in demand, ignited somewhat by the euphoria surrounding bio-fuels, increased demand at a time of inelastic demand as grain stocks fell to historically low levels. Trends in grain consumption from the ethanol sector in the US are undeniable and are linked to rising mandates (not price sensitive).

A leading US Ag Economist Keith Collins reckoned bio-fuels were responsible for lifting prices 25-60%. In the US, rightly or wrongly bio-fuels will stay, mainly because it makes political sense - it is a palatable way of selling farm subsidies and is a vote winner.

But why are we doing it here? They don’t seem to be a major vote winner politically. It won’t create jobs and may destroy jobs in industries built on our sustainable competitive advantages.

• They won’t save the environment (2-5% mandates in oz?)

• We aren’t world competitive in producing bio-fuels so it will result in a tax on consumers/industry• We aren’t world leaders - at least 10yrs behind in producing ethanol from grain

• If we were genuinely concerned about the environment lets import it from the lowest cost supplier

So bio-fuels sure, but no subsidies or no mandates.

To us mandates and subsides stink of populous follow-the-leader - silly politics where all we will do is make ourselves busy for no real gain. Shouldn’t we be concentrating on building infrastructure to support our industries built on our sustainable competitive advantages.

But we recognize market failure does exists and if the Government were to get involved how about we lead the world in research in 2nd generation bio-fuels produced from waste from feedstock that we produce on a scale which is globally competitive?

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