SUGAR MARKETS

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markets - Australia

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Sugar beet factory

Australia case study

22 February 2018

Australia is a significant net exporter. It operates a predominantly ‘free market’ sugar policy, but still offers indirect support for its farmers and intervenes in the sugar sector at times of climatic or market crisis.

Australia

The Policy Environment 

Australia provides little direct support for its sugar industry, having abolished import duties and most production controls some time ago.

However, despite the natural protection afforded by its distance from other sugar producers, the government has had to provide support at periods of depressed world sugar prices in the absence of any import protection.

Single desk ‘pool’ selling and exporting arrangements

Until 2006 all Australian sugar sales and exports were compulsorily handled by a single desk called Queensland Sugar Limited (QSL)1. QSL controlled sugar contracting, export prices, storage, shipping and trading arrangements. This effectively reduced domestic competition and also provided substantial indirect government support for marketing, sales and exports on behalf of mills and cane growers.

QSL has since been privatised and is now owned by the cane growers. It represents seven milling companies and 4,000 cane growers and so retains extensive control over Australian sugar export sales and trade. Although, since July 2014, sugar mills outside QSL can sell up to one-third of their production independently, QSL retains the right to sell two-thirds of this sugar plus all the sugar from their incorporated members. In practice, this means that QSL continues to manage the majority of Australian sugar exports2. It also operates six bulk sugar export terminals with a combined storage capacity of 2.5 million tonnes.

These arrangements, and the substantial government-financed infrastructure behind them, provide a form of indirect support for the Australian cane sugar industry which has existed for many years.

Cane support measures

Australia does not offer routine direct support for its cane industry. However, because of its exposure to world market volatility, the cane industry regularly gets into serious difficulties, which provokes requests by the industry for government intervention. For example, in 2014 the Queensland cane growers called on the state government to cut their power costs to ‘save the industry’3. In April 2015, the Queensland grower's association and other political commentators4 stated that cane growers need at least AU$380/tonne to break-even, and claimed that the world sugar price at that time was not sustainable.

In the previous decade, the Australian government introduced two reform packages in 2002 and 2004 which, in effect, made government support available for most of the decade as a response to a long period of low world sugar prices. The 2002 package included financial assistance for the industry worth AU$150m with a further AU$440m over five years as a result of the 2004 package5. Measures in the two reform packages included temporary income support to stabilise the industry, cane replanting interest rate subsidies and help for those wishing to quit the industry.

General agricultural support

In common with many other countries, Australia operates a system of indirect farm support, which is also available for sugar cane growers.

For example, in response to prolonged drought affecting Queensland and New South Wales, in February 2014 the Australian government announced a new AU$280m Drought and Farm Finance Concessional Loans Scheme, as part of the existing Farm Finance program6.

This scheme was subsequently extended and increased. By June 2016 over AU$438m of concessional loans had been approved, almost half of which were for Queensland farmers including cane growers7.

The Australian Agricultural Competitiveness White Paper also made a commitment to further extend the scheme by offering up to AU$250m/year for the 10-year period 2016/17–2026/27, financed from a Treasury provision of AU$2.5bn8.

Our Analysis

Australia seeks to operate a mainly free market model for its sugar sector, with little routine direct support for cane growers or millers. As a substantial net exporter, it is heavily dependent on the world market for its income and growth.

In the past, this has been possible because of the Australian industry’s historic production efficiency, coupled with geographical remoteness plus some state intervention in marketing and sales.

However, more recently this has proved difficult to sustain. Long term falling efficiency levels and depressed world market prices for their exports have made the industry less competitive. As a result, the Australian industry is susceptible to weather shocks and the state regularly has to intervene during adverse conditions.

References:

  1. Queensland Sugar Limited (QSL) was established by Australian government legislation to market and sell domestic sugar production
  2. QSL website, 2017
  3. ABC rural news, 1 April 2015
  4. Senate submission by MP Bob Katter, 1 October 2014
  5. LMC, Australia’s Sugar Industry Reform Programmes and their Compatibility with the WTO, Oxford, 2008
  6. Australian Treasury, February 2014
  7. Deputy Prime Minister announcement, 15 June 2016
  8. Ibid

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